Disney Group - charging access ISPs for its content

ESPN to ISPs: Pay for Your Customers to Play Video

For some sports fans, ESPN360, the online version of ESPN's television channel, is a cornucopia of more than 3,500 sporting events each year, viewable from the convenience of a computer. For others, it's a total bust. The only difference: their ISP.

The culprit is ESPN's strategy of licensing ISPs rather than users. If your ISP doesn't want to pay for you to watch ESPN360, there's nothing you can do about it, short of switching to a provider that pays for it. While other companies strive for a more direct, one-to-one relationship with consumers, ESPN is doggedly pursuing the same strategy online that made it a success in the TV world: licensing pipes, not people. And it just might work.

"We're believers," ESPN executive vice president for affiliate sales and marketing David Preschlack told Wired.com. "It's just the point of view that we have: that as opposed to just selling speed, content is going to play a role in the high-speed data marketplace."

ESPN quietly announced the plan over two years ago, but it seem increasingly incongruous in an age of bit torrent, disintermediated, direct-to-consumer distribution and legal options for watching online video. Other major media providers like Disney (ESPN's parent company) and the NFL are also charging internet providers for the right to deliver their content, and record labels are considering following suit. Disney Connection — available on Verizon but not Comcast — includes classic cartoons, games, movie previews and other content for preschoolers, kids and teens. Meanwhile the NFL Network Game Extra service offers live games on Thursday and Saturday nights with four camera angles to choose from. But unless your ISP pays, you can't see any of it.

This is a reversal of the model pushed by some major broadband companies that would like to charge content companies for the right to use their pipes. If other full-length video providers like Hulu and HBO get in on the act, the time could be approaching when you'll choose your internet service based on what selection of content it offers. Eventually, popular non-video websites might follow suit. Imagine a future water cooler conversation over broadband choice: "I went with Comcast 'cause they get Yahoo."

Ben Scott, policy director for media reform and net neutrality advocate Free Press, doesn't like this prospect one bit, and thinks it could even hurt the bottom line of companies employing this approach. If the strategy spreads, he says, the internet could become a very different place.

"Ultimately, if you carry it to its logical extreme — that's everyone charging for their content, and depending upon where you are and which ISP you're using to connect to the internet, your internet experience is different — that's a really unsettling prospect," says Scott. "I think it undermines the foundational principles that make the internet such an engine of innovation and creativity."

ESPN's work in convincing the nation's ISPs to pony up for its exclusive, live and archived content is nearly half complete. "The product is available in over 40 percent of high-speed-data homes," says ESPN's Preshlack, "so that in itself is a big positive for us." For the remaining 60 or so percent of U.S. broadband homes, though, it's a whopping negative, at least as far as sports fans are concerned. Their pain is temporary, according to ESPN. Although its ESPN360 service won't be ubiquitous until every ISP in America starts paying up, that's exactly what Preshlack expects to happen.

"I'm very optimistic in terms of where we're going to end up at the end of the proverbial game, which is full distribution for the product," he says "It just takes some time... If I were to use a baseball analogy, I'd say we're in the top or bottom of the fourth inning."

Preshlack likens the process to the company's last expansion into undercard content: ESPN2, a cable TV channel that broadcasts events beyond the more mainstream fare found on regular ESPN. Regardless of the fact that ESPN360 lives on a completely different, and traditionally open medium — the internet — ESPN is using the same game plan that worked for television: painstakingly licensing distributors in the hopes of making its service ubiquitous and reaping bigger rewards than if it had licensed each interested user, or offered its widely sought content on a free, ad-supported basis.

"For our distributors, to associate themselves with our brand in this space is very much like distributors who've associated themselves with our brand in the [cable television] space," Preshlack says.

Verizon, for one, is more than happy to pay. "It's a tremendous value-add — one more thing to help attract customers to our broadband service," says spokesman Cliff Lee, who adds that Verizon has also bought into Disney's and the NFL's paid offerings.

Preshlack describes negotiations with the remaining high-speed ISPs in America as "productive and ongoing." Neither ESPN nor any of the participating ISPs we spoke to would disclose what ISPs pay for ESPN360.

Complicating this model is the growing plethora of devices available for watching internet video. Busy sports fans might want to start a game at home on their television, continue watching via cellphone on the train, catch another hour during their lunch break on a work computer, then finish the game back at home on TV. Preshlack insists that consumers will be able to enjoy that multiscreen experience, because ESPN will eventually license its content to every cable company, ISP and cellphone network provider in the country.

But Free Press' Ben Scott thinks the this new internet model will ultimately be bad for providers. "My gut reaction is that it's a terrible business model," says Scott. "The beauty of the internet is that you put a piece of content on your server, and it's available to anyone with a computer anywhere in the world that's connected to the internet. If you begin walling off your content and selling network operators [the right to distribute content], that defeats the whole idea of maximizing the exposure of your content."