Net Neutrality Just Got Sucker-Punched. Will Madison Avenue Get the Bill?

Carriage Costs Could Pass to Consumers, Content Companies, Brands

By Published on .

Advertising already subsidizes much of the internet's content. Soon marketers may underwrite access to it as well.

As the internet loads up on data-heavy content like high-definition streaming videos, companies that transport that content to consumers, such as Verizon and AT&T, are looking for ways to offset the higher carriage costs. The Federal Communications Commission has tried to prevent them from passing the buck to consumers or media companies by forcing broadband providers to treat all internet traffic equally, an effort called "net neutrality."

Example of AT&T's sponsored data service
Example of AT&T's sponsored data service

The net neutrality fight received a stomach-punch on Tuesday. A federal appeals court ruled in a case between the FCC and Verizon that the FCC cannot bar broadband providers like Verizon from discriminating for or against different types of web traffic. That is, the FCC can't forbid companies like Verizon from blocking some sites or slowing the time it takes to load others (Verizon said in a statement it will not block access to "lawful websites and content").

Tuesday's ruling heightened fears of a doomsday scenario; with the FCC's hands tied, the egalitarian web could become a fiefdom controlled, mediated and priced by the nation's biggest broadband providers. Broadband providers don't want rising bandwidth costs weighing down their profit margins and they're looking for someone else to stick with the bill.

That someone else may be an advertiser.

The most discussed scenarios would see these broadband providers essentially taxing websites by slowing their page-load speeds unless they cut those providers a check every month. That could spur more media companies to adopt subscription models and others to increase their subscription rates. For example, people who watch a lot of data-heavy Netflix videos could pay higher subscription fees than someone who browses lighter fare. In lieu of websites being packaged like cable-TV bundles, people could pay a la carte fees to visit a site or watch a video.

Ad-supported bandwidth
However the passed buck could make its way to Madison Avenue. Advertisers pay a premium to reach audiences through digital video services like Hulu and could find themselves paying twice: once for the ad and again for the bandwidth that keeps the service free.

Last week AT&T announced a way for advertisers to pay for the data needed to access content on a smartphone or tablet. As part of this sponsored data service, a company could foot the bill for AT&T wireless customers to use a specific app on their smartphones instead of that access being deducted from their monthly data allowance. For example, UnitedHealth Group plans to sponsor the cost of streaming a branded video to a mobile device over AT&T's 4G wireless network, according to an AT&T spokesperson. As part of the program, advertisers can sponsor access to other companies' sites or apps.

If the FCC loses its net neutrality fight, AT&T's sponsored data program could serve as an alternative economic model that would be less of a financial blow to consumers and bigger content creators (properties less appealing to advertisers or without strong ad sales teams would likely suffer more). The pitch? Data access becomes the new home-page takeover. Imagine Dunkin' Donuts paying for people to check out The Weather Channel's' Californian forecasts as the coffee seller preps its West Coast push. Or Samsung sponsoring access to BuzzFeed's mobile site.

Verizon Wireless has "talked broadly about [sponsored data access] in the past – and while the technology and idea offers many opportunities, but we haven't made any comments around a product or availability, and have nothing more to share now," said spokesperson Debi Lewis in an email. A Time Warner Cable spokesperson said the company does not offer sponsored data plans but was unable to say whether the company has considered such a product.

Another consideration would be advertisers' appetites for such a product.

"The question is what can be developed that's better than what advertisers can already do with even more limited or existing uses of bandwidth. It's not as if all content delivered over the web is going to be subject to consumers refraining from downloading or streaming because of the [size] of the data," said Pivotal Research Group analyst Brian Wieser.

As for the idea of broadband providers and wireless carriers subsidizing their costs with sponsored data deals, "it's more than just willing it to happen. That's a whole ad sales force you have to put out into the marketplace," Mr. Wieser said.

Unless the providers enlist media companies' ad sales teams. In a variation of media companies paying providers to render their sites at normal speeds, publishers would secure sponsorship deals to finance that tax. These sponsored-data deals would function like home-page takeovers that are even more transparent about the value exchange -- though just as likely to annoy people.

None of this is ideal -- at all -- but neither is an internet in which every link carries a fee.

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