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MSP: ISP plus Content

Our good friend Keith McMahon blogs on Playlouder, a British company which plans to offer unlimited, DRM-free music downloads to its customers who buy their DSL service. Naturally, there’s a premium associated with the music, which is the core of the business.

Now, interestingly enough, Playlouder describes itself as a “Media Service Provider” rather than “just” an ISP, which tends to confirm that their content business is part of their solution for the famous broadband incentive problem. The economic value created by widespread Internet use mostly happened after always-on broadband became available and cheap. Flat-rate broadband gives the user every incentive to use as much of it as possible; but the network operator has no corresponding incentive to create more capacity. Therefore, usage tends to increase until the network becomes congested.

Certainly, Playlouder expects their customers to run the copper hot downloading all that music; but they’re paying for it, and presumably Playlouder’s sums assume that the content charge covers the extra traffic, the licensing costs, and some margin. What they are offering, then, is connectivity plus. When we carried out a survey of industry experts recently, the idea of offering inclusive content as a way of managing costs was very popular; you can learn more in our Broadband Business Models 2.0 report when it comes out in December.

Probably some customers who would otherwise be running P2P clients full blast all the time will instead get their music from Playlouder, which converts a big chunk of traffic from the cost side to the revenue side. And even if they immediately start uploading it, well, at least the download was profitable.

Naturally, Playlouder is in a position to run its own content-delivery network, too, placing the servers that deliver the music at one of the economic frontiers within their systems. And they can also make use of P2P, by running their own peers at the same strategic locations. This sort of caching is essentially what companies like Akamai do all the time, as partners of the content creators; there’s no reason why Playlouder can’t do this as well.

So what? Essentially, there are two ways out of the broadband incentive problem; one is to decommercialise the access network, and the other is to find some way of getting more money from the heavy users.Now, the first of these options is essentially municipal or shared fibre; we end the problem by putting in so much capacity that the system will be future-proof, and get over the incentive problem by agreeing to suspend competition.

It may happen, it may not; probably it will be a long time before a large fraction of the user base is covered. In the meantime, though, something must be done - usage tears on ahead, the price war rages, and the hacks that permitted the problems to be skimmed over are worn out. It used to be the downlink that was the problem; now it’s the uplink. It used to be the case that traffic was highly bursty, and statistical multiplexing was the solution; now P2P clients are pulling all the time.

Attempts to constrain usage are very unpopular, and tend to encounter legal and regulatory issues. It’s also arguable that they are a bad idea in principle, as they tend to destroy the stupid network’s option value, the ability of innovators to experiment with new applications without being constrained by business assumptions built into the network. That leaves us with two options; one would be to stop cutting prices across the board, which is impossible, and the other would be to find new ways of capturing value from the user elite. Playlouder and gaming-focused ISPs like GameRail are showing the way; the solution must be one that makes responsible behaviour a more pleasant experience, rather than one based on coercion.

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