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The Threat to Net Neutrality: How Worried Should CMOs Be?

Josh Stauffer | Jun. 30, 2014

As data-heavy content like streaming videos and other rich media becomes more prevalent, Internet service providers (ISPs) are looking for ways to offset the higher cost of the bandwidth necessary to deliver that content to consumer and business audiences. Verizon, AT&T, Comcast and others who control the so-called “last mile” of the Internet want to be compensated by heavy data users for the high proportion of bandwidth their content requires. While that may seem only fair from a business perspective, the effort to establish tiered pricing has triggered a firestorm of concern over the concept of “net neutrality,” the principle that access to the Internet should be freely and equally available to all.

Marketers fear tiered pricing for bandwidth could give larger, well-funded brands preferential access to premium speeds, allowing them to dominate smaller competitors. By leveraging their greater buying power, large brands could deliver a better user experience, control the most visible advertising positions and underwrite investments in media and formats that enable them to take full advantage of an uneven playing field. A recent agreement between Netflix and Comcast to give Netflix preferred access to broadband customers has raised concerns that if such deals become common, only the wealthiest content companies will be able to afford them, which could inhibit competing startups.1

In January, a federal appeals court ruled that the Federal Communications Commission (FCC) cannot block broadband providers from discriminating for or against different types of Web traffic. As a result, the FCC voted in May to open public debate on proposed new rules, which the commission says are intended to guarantee an open Internet.2

In its May 15 announcement, the commission said, “The FCC has previously concluded that broadband providers have the incentive and ability to act in ways that threaten Internet openness. But today, there are no rules that stop broadband providers from trying to limit Internet openness. That is why the Notice adopted by the FCC today starts with a fundamental question: ‘What is the right public policy to ensure that the Internet remains open?’”3 The new rules are open for discussion this summer, and it is expected that final regulations will be in place before the end of 2014.

Opposing the pricing aspirations of ISPs are major technology companies like Google, Facebook, Amazon and Netflix, whose service and entertainment businesses depend on broadband access.4 Also in opposition are advocacy groups including Public Knowledge, Free Press, Consumers Union and Center for Digital Democracy. But, many others have a stake in the issue, including marketers who depend on the same bandwidth to communicate with their customers.

The Wall Street Journal reports, “The proposal from FCC Chairman Tom Wheeler would ban broadband providers from blocking or slowing down websites, but leaves the door open for them to strike deals with content companies for preferential treatment, or fast lanes to customers.”5 Some argue that allowing selected content to travel at higher speeds essentially discriminates against content sent at standard speeds, putting an end to net neutrality.

How New Rules Could Impact Your Brand
It is clear that the potential impact of the proposed new rules on net neutrality has struck a strong chord among stakeholders across our digital society, as evidenced by the more than 45,000 comments received by the FCC in the first 18 days after the rules were opened for comment.6 Considering the powerful constituencies weighing in on one side of the issue or the other, it is difficult to predict what the final regulations will look like. But, from a marketer’s perspective, the impact of the rules as they are currently proposed could be significant.

Competitive disadvantage—While proponents claim the rules will protect you from losing data speed, you could still be at a disadvantage if your competition has deeper pockets to purchase available faster bandwidth or they move more quickly to do so. Consumer preference for Web pages and other media that load quickly and seamlessly is well documented. If your site underperforms compared to others, they’ll abandon you quickly for those that offer a better experience. Some in the industry, such as Adam Kleinberg, CEO of the interactive agency Traction, see slower page-load times for some sites as an inevitable consequence if net neutrality is lost—with a resulting negative impact on e-commerce conversion rates.7

Higher costs to deliver your website and other media—Consumers are accustomed to receiving content right here and right now. Tiered pricing could increase the cost to deliver your website, video or other rich media at speeds that meet user expectations. One possible scenario: You could receive bills from ISPs each month to maintain page-load speeds at acceptable levels. If brands have to pay extra for delivery, the cost of premium bandwidth might become a factor in choosing creative formats. Or, the cost of delivery could channel funds away from the development of new content.

Higher advertising costs—If the websites that carry your ads must pay for premium bandwidth, media costs could go up as the expense is passed on to you. Video preroll advertising is an example where you might pay the base cost for the ad placement and then more for the bandwidth necessary to stream it.8 Precedents for added bandwidth charges already exist in mobile, where AT&T offers a Sponsored Data service that enables brands to underwrite consumers’ data charges when they use the brand’s app on their smartphones.9

Visibility opportunities could shrink—If media could adopt a bandwidth sponsorship model to broadly underwrite the cost of faster service for an entire site, brands with deep pockets could dominate home page and other prominent ad positions on key websites. That could leave only less-attractive inventory available to support your campaigns and would reduce the impact of the placements you can buy.

Targeting customers could be more difficult—If more publishers turn to subscription models or current subscription services raise their rates to underwrite the higher cost of bandwidth, it could reduce audience sizes. It may also affect overall penetration and your ability to deliver messages to a high percentage of prospects within target segments.

New considerations when choosing a media partner—The effectiveness of programmed media campaigns might depend on whether providers have paid for the bandwidth necessary to bid for ad units quickly enough, a real concern in an industry where opportunities come and go in milliseconds. Instead of assessing vendors with commoditized capabilities, you’ll need to qualify them with a more critical eye and be prepared to pay more to support premium service.10

Changes in content production needs—You could be forced to deploy multiple versions of creative assets to support a single campaign, because one file may no longer be optimized for delivery across media outlets with differing data speeds. Subscription-only media with the revenue to invest in top-tier delivery speeds could raise the bar for developers.

There could also be some positive outcomes for marketers: better, richer media capabilities; new options for advertising; and, if you can afford it, opportunities to sponsor bandwidth exclusively. But by and large, any pay-to-play outcome will favor well-funded brands at the expense of all the rest, which is the crux of the net neutrality issue for most marketers and their creative and media partners.

Make Your Voice Heard Now
The proposed new rules have far-reaching implications for CMOs, but until they are finalized, there isn’t much you can do to design and implement strategies to manage them. However, you do have an opportunity to help shape the outcome during the FCC’s current period of public debate. In the words of FCC Chairman Wheeler, “What we’re dealing with today is a proposal, not a final rule. We are asking for specific comment on different approaches to accomplish the same goal, an open Internet.”11

Marketers representing brands of all sizes and descriptions can now make their voices heard on the specifics contained in the commission’s plan and also on more basic issues of Internet fairness including: Should the FCC tighten its regulation of Internet service providers? Should high-speed Internet services be regulated as utilities, subject to stricter controls than now apply? Should practices that impede consumers from getting equal access to the Internet be banned?12

You have until July 15 to submit initial comments to the FCC and until Sept. 10 to file follow-up replies to the initial comments or others. Take this opportunity to join the debate at http://www.fcc.gov/comments, Proceeding # 14-28, “Protecting and Promoting the Open Internet.”

While opinions on how to preserve net neutrality can vary widely, marketers, consumers and almost all other stakeholders can agree, it is a principle worth fighting for. Please feel free to contact Blue Flame Thinking’s digital practice team to discuss net neutrality and what you can do to shape the outcome of the current debate.

[1] Edward Wyatt and Noam Cohen, “Comcast and Netflix Reach Deal on Service,” nytimes.com, posted Feb. 23, 2014, retrieved June 5, 2014.
[2] Edward Wyatt, “F.C.C. Backs Opening Net Neutrality Rules for Debate,” nytimes.com, posted May 15, 2014, retrieved June 5, 2014.
[3] “FCC Launches Broad Rulemaking to Protect and Promote the Open Internet,” fcc.gov, posted May 15, 2014, retrieved June 5, 2014.
[4] Todd Shields and Chris Strohm, “Net Neutrality an Oxymoron as FCC Decides Winners and Losers,” bloomberg.com, posted May 15, 2014, retrieved June 5, 2014.
[5] Gautham Nagesh and Amol Sharma, “FCC’s Web Tolls Proposal Sets Up Net Neutrality Battle,” online.wsj.com, posted May 15, 2014, retrieved June 5, 2014.
[6] Kate Kaye, “Pay Attention: Net-Neutrality Rules Could Shake Up Online Advertising,” adage.com, posted June 2, 2014, retrieved June 5, 2014.
[7] Tim Peterson, “Why Advertisers Will Survive Just Fine Without Net Neutrality (But Should Support it Anyway),” adage.com, posted Jan. 20, 2014, retrieved June 5, 2014.
[8] Ibid.
[9] “AT&T Introduces Sponsored Data for Mobile Data Subscribers and Businesses,” att.com, posted Jan. 6, 2014, retrieved June 5, 2014.
[10] Laurie Sullivan, “Will the FCC’s Revised Net Neutrality Proposal Kill The Online Ad Industry?” Search Marketing Daily, posted May 23, 2014, retrieved June 5, 2014.
[11] Wyatt, “Comcast and Netflix Reach Deal on Service.”
[12] Ibid.

Josh Stauffer

Josh Stauffer

Josh has been developing software and websites for Fortune 500 companies for 12 years. As the Executive Vice President of User Experience, he manages and drives Blue Flame Thinking's digital practices from concept through development.