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ESPN, Carriers, and the Prisoner’s Dilemma

Ajit Deshpande - - 0 Comments

Players in the internet ecosystem can broadly be bucketed into one of three categories – carriers (aka the infrastructure providers), Over-The-Top content providers (aka the ones that make the money), and end-consumers (the ones that pay). Over the years, one of the carriers’ approaches towards maintaining profitability has been tiered wireless data pricing (also being tried out for landlines), and along the way, this model has also helped keep per capita data consumption from spiraling out of control. That’s until now. Last week brought news that ESPN was in talks with one major US carrier to set up an arrangement wherein ESPN data consumption would not count towards the user’s data plan.

With more than 27 million monthly unique views, ESPN is one of the top 20 mobile content sites currently. The site values engagement with its user base; in fact ESPN tried becoming a MVNO around 2005-2006 in an experiment that failed. In today’s smartphone era, they feel they could re-visit the idea of subsidizing consumption of their content on mobile and by monetizing the correspondingly higher viewership. This might be the first example in recent times of OTT folks willing to pitch in with the carriers, and it will probably work well in the near term for ESPN if implemented. But the big concern is – what sorts of dominoes might this action by ESPN eventually cause to fall. ESPN acts first, other OTT players follow, carriers make some money, consumers watch more content, and a positive feedback loop develops. Along the way, some of the carriers’ new dollars get fed into infrastructure, but probably not enough to counterbalance the increased consumption, and so the spectrum crunch accelerates. Eventually carriers go back to throttling consumers, data prices worsen, and the ecosystem reaches a new ‘equilibrium’. Except, this time, the OTT players are left footing part of the bill.

Is ESPN leading the way in getting all the OTT players shot in the foot? In general, the answer might be yes. A few content providers might be able to monetize better in this new scenario, but most other content providers will likely be left much worse than before. So let’s see if this ESPN deal actually happens. If it does, then look out everyone, prisoner’s dilemma might be coming!

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