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Posted at 10:43 AM ET, 12/17/2010

Brightcove CEO Allaire talks net neutrality, Internet video and why Apple's the one to watch

By Cecilia Kang

brightcoveceo.JPG

Brightcove delivers videos over the Internet for media giants Fox Entertainment, Discovery Communications and Sony Music. The company has been watching net neutrality developments at the Federal Communications Commission, and its chief executive says it’s early to draw up rules for the nascent marketplace.

CEO Jeremy Allaire talked to Post Tech earlier this week about how Internet service providers should be able to create faster lanes and charge consumers or content providers to improve the quality of service. Those network operators have to get a return on their pricey network investments, after all. But such practices should not squash competition, he says.

He’s watching Apple as the potential 800-pound gorilla in Internet video and thinks any new rules on net neutrality should be weighed carefully.

Here’s an edited version of our interview:

Q: Do you support the rules as you understand them under consideration at the FCC?

A: So, I think there are a few salient issues. One big one is whether the operators, the ISPs, should be able to differentiate between traffic and quality of service of that traffic and charge either consumers or content providers, or the people who run online services, to improve quality of service.

Some feel strongly that operators should not be able to discriminate and should have equal, open access at same quality of service for all online services that might be accessed by a subscriber. Others feel that operators and ISPs should not be able to price discriminate based on how much bandwidth you consume. I very strongly disagree with both those broad sentiments.

Q: Why? One might think you would want rules to ensure companies like yours aren’t unfairly charged for faster and better access.

A: This is from watching how markets have worked in the Internet business and connectivity business for 15 years. Philosophically, the ISPs and operators are building a product. They are investing billions of dollars to build that product and commercially exploit that product, and so they should be able to package and maximize in way that builds profits.

Q: How do you think competitors and consumers end up without or with rules?

A: I believe the connectivity business is a very competitive business. Telephone business, cable companies and emerging wireless broadband devices are competing very aggressively to have the fastest Internet connection at the lowest price. Market forces are creating superior consumer products. You can get 50 megabits of fiber connection from Verizon for $60 to $70 a month. That was totally inconceivable not too long ago but happened because they want to beat the hell out of Comcast.

Q: What about charging consumers based on how much data they consume? That could prevent people from watching more videos from your customers.

A: There is very good data that there are users who are abusers who consume an enormous amount of traffic and available infrastructure on their network, and it is unfair for them to leach on that and potentially degrade quality. Abusers should be charged more.

Q: What about protecting users who are just starting to watch video but will watch a lot more over the Internet very soon?

A: Consumers who want this product will go to a provider that doesn’t present that challenge. And the marketplace will protect them. These operators have gotten to a place where they can charge $50 a month to 50 megabit access. Consumers will be able to get services like Netflix through this. Ebita growth is coming from companies like that. The market forces here are sufficient to ensure there is a great consumer product that gives them consumer choice.

Q: Can you unpack the idea of charging companies for access to consumers?

A: So, the controversial idea of whether an ISP should be able to say to Netflix or Google or Brightcove that it will be fastest, that is differentiated packaging and pricing. They should absolutely have the right to do that. It is already how the Internet works, in fact. Every major Web site in the world pays a company like Akamai higher prices to get differentiated quality of service. Akamai invests in capital infrastructure and bandwidth to do that. They say, hey, there is a premium to ensure we can can get that. That’s a product.

The only issue I have of concern about this is if there is essentially price discrimination. This gets into video in particular -- if a cable TV ISP created a pricing structure that was specific to online video competitors that specifically made it cost-prohibitive for those competitors to have the same level of profitability.

Q: So no rules at all? If you allow price differentiation, is there a fine line between that and the ability to discriminate on pricing?

A: If there was unfair price discrimination, then I think there would be some regulatory oversight. Don’t know what shape that would take. But my sense is that, again, seeing how things are operating today, market forces are working in the opposite direction, making things less expensive and more profitable to operate. So I think there needs to be something in place to make sure there is no unfair competition in place to make it impossible from an economic perspective for online video.

I think it is very important that this is thought through. We are in a place where in 12 months, the scale of opportunity for what is referred to as over the top will be there. There will be a critical mass where TV devices in the 10s to hundreds of millions of units will be addressable and usable with content on the Internet. Consumers will want it and will create different scales of traffic and need than we’ve seen to date. So underlying pricing dynamics and competitive issues will start to surface in a very material way in the next 24 months. So, this is the right time to think these through, but I don’t think there is a galvanizing business event to sharpen the focus on it.

Q: What will be that galvanizing event?

A: It may be Netflix or Apple or Google looking to launch a competitive pay subscription product that will require a different level of scale over the Internet than we’ve seen before.

Q: What does that mean for Brightcove?

A: Our business is very straightforward, as we deliver video content for major broadcasters and media companies. These galvanizing moments are potentially very, very positive for us. If they need 10 times the amount of content, that’s what’s going to drive revenue for us. We already pay third-party companies like Akamai and Limelight a premium to make sure we get the best quality of service to viewers of the Internet, and we are comfortable with that.

Q: What company do you think will end up on top of Internet TV?

A: I'm watching Apple most closely. Apple would love to introduce a subscription product for television programming instead of an a la carte episode product. It would like to come up with a product that is half the price of cable, over the top, and on-demand, and integrate it across all its devices. It wants to be able to cherry pick the best programming across the network that is highly competitive. Programmers are not keen on that because their whole model is based on subscriber fees for bundling channels of programming. But it’s an inefficient model for consumers.

Apple would like to have a product that is more efficient for consumers and for half the price.That is what they are working towards, and they potentially have more scale in the consumer marketplace than Netflix or anyone else. Once they get that, they will be a big source of attention.

photo credit: Brightcove

By Cecilia Kang  | December 17, 2010; 10:43 AM ET
Categories:  AT&T, Apple, Broadband, Comcast, FCC, Google, Net Neutrality, Online Video  
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