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Wednesday, November 22, 2006

Illogical Fears about Online Gaming & Net Neutrality
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I've just finished reading a new report by a research firm called Ramp Rate about Net neutrality and the online gaming market. Now I'm accustomed to Net neutrality supporters employing gloom-and-doom, Chicken Little-esque rhetoric in support of government regulation of broadband networks, but I was shocked to see the same rhetoric laid on so thick in a study by industry consultants.

The sky-is-falling rhetoric kicks off with the very title of their piece: "Every Time You Vote against Net Neutrality, Your ISP Kills a Night Elf." The authors go on to paint a picture of the coming apocalypse if we do not adopt Net neutrality regs right away:

"What will be murdered with no fallback or replacement is the nascent market of interactive entertainment -- particularly online gaming. Companies like Blizzard Entertainment, Electronic Arts, Sony Online Entertainment, and countless others, have built a business on the fundamental assumption of relatively low latency bandwidth being available to large numbers of consumers. ... Killing off these blossoming networks, with their own economies (potentially taxable when converted into real-world cash), would result in drastic, irreparable harm to consumers, technology developers, the economy and tax revenue -- and even the ISPs themselves."

Murdered? Killed off? Oh my, who knew the end was so near?! Of course, the end is not upon us and the online gaming market is not about to be "murdered" because of a lack of Net neutrality regulation. In fact, just the opposite could be the case as I will explain below the fold.

Faithful readers will recall that despite the fact I am 37-year-old geezer and the father of two kids, I am quite the online gamer myself and a lifelong video game fanatic. And I care passionately about video game freedom because I think video games represent an amazing form of artistic expression deserving the full protection of the First Amendment. So, if I really thought that Net neutrality regulatory mandates would really save or improve my precious online gaming activities, I might be inclined to let my self-interest trump my libertarian principles and support government regulation for once in my life!

But I have come to the conclusion that the exact opposite would be the case. As I wrote in my essay on "Microsoft XBOX Live and Net Neutrality," "While I obviously love all the functionality that the XBOX platform offers, there are times when I'm using it that I think it could be much better." Moreover, "I can't help but think that there's a lot more potential in this little box if Microsoft could somehow improve network speeds / traffic management." I went on to argue that:

"Obviously all this downloading of movies and games over the XBOX Live network would place an enormous strain on broadband pipes. Already today, even though online gaming is still in a very primitive stage with very few homes taking advantage of it, it eats up a lot of network capacity. Imagine how much more it would eat up in the future if my dream comes to pass, especially as millions of new users come online. Again, how can we make sure that this future comes about but that it doesn't overburden the system?

I would like to see experimentation with a variety of hybrid solutions. On one end of the spectrum would be strict metering of broadband pipes. Consumers pay according to how much they use. Again, that could mean huge cost increases for some users. A better alternative might be metering of the pipe after a certain level of usage has been hit. Thus, consumers would have a flat-rate charge up to a certain point but then pay usage-based rates if they are aggressive broadband users like me. At the complete opposite end of the spectrum would be the unworkable solution of asking Microsoft to pick up the entire tab for all its users XBOX Live activities. Not gunna happen. But what about a hybrid solution that entailed Microsoft seeking out superior traffic management techniques and picking up part of the tab for faster and more reliable connections? True, this would mean MS would have to shell out some more cash upfront than they do now, but think of the long-run effects. If consumers like me knew that they could get high-res movie and game downloads on the XBOX Live Marketplace, we'd likely consume even more of those services. Indeed, I would start substituting MS Live for Amazon, Netflix and many other sites and services I currently use. Think about the revenue potential here, and we haven't even talked about increased online advertising possibilities or new products that MS could sell. (Think other computer software in particular).

Of course, if could be that broadband providers force Microsoft's hand here as the traffic burden grows. Few other consumers in my neighborhood consume anywhere near the amount of bandwidth I do and yet they are all still paying the exact same amount I do for 5mbps worth of broadband service. Does that make any sense? Shouldn't Verizon be able to craft a pricing plan that requires certain intense bandwidth users or application providers to pay more for network access while light users get a price reduction? Why doesn't Verizon or other broadband providers go to MS and see if they can craft a deal that would ensure newer, faster services get delivered to those who want them while also ensuring that all parties involved help pay for a share of the increased burden they are placing on the network?

This gets to my ultimate question: Will all this marketplace experimentation be legal in a world of Net neutrality regulation? It doesn't sound like it would be. NN proponents seem obsessed with the idea that all traffic must be treated equally. Some would go so far as to ban forms of price discrimination like this that might benefit all involved."

And that's basically how the Ramp Rate analysts come at this issue. The Ramp Rate analysts fall into the old trap of thinking any effort by Internet service providers to price discriminate is tantamount to some nefarious plot to undermine all applications that ride on top of their broadband platform.

I'm sorry, but this is utter nonsense for reasons, ironically, that the authors of the study actually point out themselves in their report. Consider the line from the report I cited above:

"Killing off these blossoming networks, with their own economies (potentially taxable when converted into real-world cash), would result in drastic, irreparable harm to consumers, technology developers, the economy and tax revenue -- and even the ISPs themselves."

As well as this line from later in the report:

"What is most painful about the potential outcome of the elimination of net neutrality is that a typical access provider has few, if any, prospects of building a genuine business around gaming. No matter how magnificent their delusions of grandeur, ISPs have no true focus, no core IP to leverage, no pre-existing partners to prop up or acquire in gaming. In other words, if they kill off Blizzard Entertainment or Sony Online Entertainment, they will not receive any profit that would not immediately be absorbed in the call center handling customer satisfaction issues due to loss of existing games."

OK, so if Ramp Rate is correct in asserting that ISPs would only suffer themselves from "killing off" online gaming networks through supposed nefarious network degradation schemes, then WHY IN THE HELL WOULD THOSE ISPs DO IT IN THE FIRST PLACE!! If there's one thing that we can all agree on in this debate it's that these companies exist to make money! So explain to me how an ISP makes more money by restricting existing or future online gaming platforms or applications, especially if they "have no true focus, no core IP to leverage, no pre-existing partners to prop up or acquire in gaming." It just makes no sense.

Even if you think that ISPs are monopolies hell-bent on screwing consumers over, there is no reason to believe that they would seek to "murder" online gaming. It would be a bit like shooting the goose that is laying the golden egg. Increased online gaming activities offer a huge potential revenue stream for ISPs. And increased online gaming paves the way for increased movie downloading and other activities, as I pointed in my recent essay on Microsoft's new XBOX movie downloading service that piggybacks on their online gaming marketplace. The more I look to download on the XBOX platform, the more (and better) service I'll demand from my ISP.

In other words, online gaming begets new business models and increases aggregate bandwidth demand. AND THAT'S EXACTLY WHAT THE PIPE PROVIDERS WANT. The last thing you want to do as a broadband provider is to build an expensive network to consumers and then restrict or discourage their use of that pipe. You want to maximize pipe usage and get more and more people using larger and larger applications. It allows you to recoup your network investment and, hopefully, plow some of those revenues back into network improvement / expansion. It is a symbiotic relationship. Networks are only as valuable as consumers make them. And consumers only use networks that provide widespread, reliable connections with plenty of applications. So networks have to take steps to foster those applications and uses in order to get what they want out of the deal: i.e., MONEY! Thus, they will not make more money by "murdering" online gaming.

Moreover, I just had to laugh when I read that line in the Ramp Rate about ISPs seeking to "kill off" companies like Blizzard Entertainment, Electronic Arts, Sony Online Entertainment. PUH-LEASE! Does anyone in this world seriously think that any ISP, no matter ho big, is going to be able to "kill off" the makers of "Madden 2007" or "World of Warcraft" or the PlayStation 3? Come on, get real. These companies are HUGE players in our modern media universe. They command enormous respect and have a massive fan base. Imagine, for a moment, the scene that would play out if an ISPs decided to take steps to try to "kill off" online gaming services from giants like Microsoft, Sony, Nintendo, EA, Blizzard, Activision and so on. Those companies would have their gamers rioting in streets! There would be a pitchfork rebellion in front of any ISP's headquarters who decided to play such silly games. And it would be a PR nightmare of the highest order for that ISP. (Moreover, if an ISP did try to do anything so stupid, it would be the best incentive of all for new competitors to try get in that market and offer better alternatives to customers.)

So I hope no one in the video game industry or their fan base buys into the unfounded fears put forward in the Ramp Rate study. We need to encourage the maximum degree of marketplace experimentation and network configuration freedom. Today's networks are unequipped to handle the significant burdens that graphically intensive, rapid-fire online gaming atmospheres of the future will demand. Net neutrality mandates, by contrast, propose to freeze and commoditize the networks of the present while offering no good solutions about how we will get the networks of the future that we online gamers will really need.

posted by Adam Thierer @ 1:38 PM | Mass Media , Net Neutrality

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