VIDEO SERVICES SEE NEED FOR SPEED

By Stefanie Olsen

LOS ANGELES--The video-on-demand and Net access industries are engaged in a tug-of-war over broadband connections, sparking debates about when an Internet connection should be considered "high speed."

Video-on-demand (VOD) companies need speedy Internet connections to keep their high-end services alive. But broadband providers increasingly are dropping speeds and prices to attract more subscribers.

"Video-on-demand providers are afraid the free gravy train for cable modem users is going to end," said Dylan Brooks, an analyst at Jupiter Media Metrix. "Consumers have been used to getting as much bandwidth as the network will provide. Now cable providers are effectively saying that VOD-quality bandwidth is a higher level of service, and people will have to pay more."

The Federal Communications Commission defines broadband as a 200kbps, always-on connection--a standard that falls far below the level needed to deliver crisp, uninterrupted video to a computer. Some video-on-demand companies say that standard is too slow.

At the Streaming Media West conference here last week, Intertainer CEO Jonathan Taplin called on regulators to set a bandwidth minimum of 750kbps for service to qualify as broadband. Intertainer, one of the few companies to offer a commercial streaming-video service on the Web, recommends its 100,000 customers connect at 580kbps or higher.

The arrival of high-speed access has been heralded as a watershed moment for the Net, enabling a variety of new services from streaming music and video to interactive gaming and videoconferencing. But the reality has been somewhat different, as Internet service providers have struggled with costs, weak demand and a dearth of bandwidth-intensive content.

The problems of broadband were crystallized with last year's collapse of Excite@Home, then the world's largest high-speed cable network. Despite signing up some 4.1 million subscribers willing to pay an average of $46 a month, the service was unable to avoid bankruptcy.

Cable companies offering broadband service have responded by raising prices for high-bandwidth users and creating a slew of cheaper options.

Atlanta-based Cox Communications has several high-speed access plans, including a $26.95 service offering 256kbps as a downstream speed. Its original "flagship" service offers 1.5mbps downstream for $34.95. Charter Communications, meanwhile, has three levels of service: a 256kbps downstream for $24.95 to $29.95, a 512kbps to 768kbps downstream for $34.95 to $39.95, and a 1mbps to 1.5mbps downstream for $49.95 to $75.95.

These cheaper bandwidth packages and most DSL (digital subscriber line) services fall below speeds recommended by video-on-demand companies. And that's making VOD providers nervous.

According to Taplin, the issue is truth in advertising. Cable and broadband providers need to be held accountable to consumers for claims of high-speed access, he said, pointing to quality-of-service problems that can sometimes cause broadband to slow to a crawl. The government needs to step in to ensure that consumers get what they are promised, he said.

Others, however, said the pricing schemes reflect nothing more than weak demand for cutting-edge services. According to Jupiter's Brooks, VOD ranks far down the list of things consumers say they want out of broadband, behind features such as an always-on connection and the ability to surf the Web and download files more quickly.

Brooks said VOD providers are making the push partly to cash in on the cable industry's lobbying efforts to win federal subsidies for broadband service.

"Tiered pricing ultimately will help VOD providers," he said. "It pushes the cost of bandwidth onto the people who are using it and helps ISPs meet quality-of-service standards."

Companies offering VOD services include Lions Gate Entertainment-backed CinemaNow, which recently signed a distribution deal with Metro-Goldwyn-Mayer. In addition, partnerships created by the major U.S. film studios have been created to tap into this market. MovieLink--a partnership between Sony Pictures, Viacom's Paramount Pictures, MGM, AOL Time Warner's Warner Bros. and Vivendi Universal--is expected to launch in the latter half of the year, although a date has yet to be set. A rival service from Walt Disney called Movies.com is also in the works, although it suffered a setback last week when partner 20th Century Fox, a Viacom subsidiary, pulled out.

Internet vs. TV
Cable's growing entry into the Internet-access business has raised other concerns for providers of high-speed Web content.

In an interview last week, Taplin weighed in on a contentious FCC decision last month to treat cable modem providers as "information services," as opposed to "telecommunications services" subject to regulations under the Communications Act.

The ruling, which frees large ISPs from sharing their independent networks with smaller competitors, has been viewed as the leading wedge in a policy shift underway in the FCC's oversight of broadband providers--a change that could eventually trickle down to the Baby Bells and DSL providers, giving them much greater leeway to strike access deals with broadband resellers.

Taplin argued that the decision may inadvertently give cable providers the power to choose what content customers can view on the Internet. Cable companies already charge the likes of ESPN or the History Channel to be included in a cable TV package. By granting the same rights on the Internet, cable providers could create a similar structure for Web sites, which would have to pay to reach customers, Taplin argued.

The National Cable & Telecommunications Association (NCTA), which represents cable operators serving more than 90 percent of the nation's cable TV households, said it supports the FCC decision, calling Taplin's assessment "a very creative interpretation of the ruling."

"The FCC's decision had absolutely nothing to do with content," said NCTA spokesman Marc Smith. "The FCC's decision was about creating a consistent and national framework for broadband services delivered by cable."

But Taplin said the decision could make content disputes with cable operators more common. He pointed to a high-profile spat last year between Walt Disney-owned ESPN and Charter as one hint of turf battles on the horizon for Internet content companies and broadband providers. ESPN pulled its programming from Charter's cable TV network after Charter objected to ESPN's plans to broadcast the same programming online.

The Internet should "remain an open system," Taplin said. "Or we might wake up to find that cable and broadband providers have turned the Internet into walled gardens."