On The Internet, Time Is Money and Money Is Time


NEW YORK (MainStreet) — In a recent story about net neutrality for TheStreet, I wrote that the heart of the issue is an imbalance in costs between the Internet edge and its core.

You and I are at the edge. We buy our Internet service from a phone or cable company. We have few choices. Their costs remain high, because they roll trucks to improve or maintain services, while core services like Netflix, Google and Amazon keep getting better because clouds and fiber lines keep getting cheaper.

But there's another cost to your Internet beyond the movement of bits. That is the cost of content.

Most Web sites, even this one, have a paid content strategy, because ads don't generate enough money for growth. Even if some content on a site is free, there's usually an "up-sell" – exclusive content, access to writers, newsletters, special chats – on which the business model is based.

Collecting that money costs money. Each site must do this for itself.

As the Internet has become a visual medium, the cost of creating content has gone up. It costs more to produce a TV show than it does to write a story. Paid models have become a necessity.

Cable has run a paid video model for decades. It's based on "tiers" of service. You get one set of channels "bundled" for a certain price, another set for a higher price and yet-another set for a third price, with a few à la carte offerings like HBO and Showtime thrown into the bundle for customers like hotels. When phone carriers offer video they use the same model.

The Cable Bundling Model

Bundles give cable operators power over content providers. For niche content, like Animal Planet, they may pay just 10 cents per subscriber per month. For broad content like ESPN, they may pay $5.54 per subscriber per month. You will sometimes read about fights between carriers and niche services like The Weather Channel as operators use this power to its fullest advantage.

Note, however, that all this money is going in one direction, from the cable operator to the content provider.

But not as much money moves as you think. As GigaOm pointed out recently cable operators pay only half as much for the content they bundle as they collect from customers. Because the content is bundled – because customers have no choice on what to take – most don't notice.

What's à la carte on the Internet, with connection costs kept as low as possible, is done through bundles on cable, keeping prices high. So-called "basic" cable charges have been rising an average of 6.1% per year, every year, for the last 16 years, according to the FCC.

When cable operators sell Internet service, they bring this bundling strategy with them. They call it "TV Everywhere." It brings bundling to your Internet connection. Cable operators pay for services like ESPN3 and NBC Live Extra, then add those costs to each subscriber's Internet bill, whether or not they want the services.

So here is how cable wants this to work. Cable companies will bundle favored cable services on your Internet broadband contract, letting you stream them anywhere your WiFi goes but steadily raising its price, while imposing "data caps" which push you to limit your use of services outside the bundle, like Netflix.

In this way, the cable pricing model becomes the Internet pricing model. Margins go up, prices go up, customers are forced to use only those Internet services that are part of their bundles and the Internet becomes cable TV.

When carrier advocates claim that they oppose net neutrality in the name of freedom, remember that this freedom only goes to the carrier – not to you. Fighting the cable monopolies is a political struggle every Internet user can get behind.

But you can do something else as well, and that is become a smarter content consumer.

One way is through centralized billing services. Google Play is a centralized billing service, as are Apple's iTunes store and Amazon.com. Apple and Amazon have already applied for patents that would let them create marketplaces for used content, the kind of older shows providers like Netflix now sell for one low monthly price.

How You Can Fight Back

This is where you come in. Log your video usage. Note when you start watching something, note when you stop, and add it up. Have your family do the same thing. Do that over the course of a month and you have your family's video budget. You may be surprised at how small the number is.

Do the same for your book reading, the time you spend with magazines and newspapers, and the time you spend with new music. Now you have an Internet content budget.

If you're watching the equivalent of a two-hour movie every night, and spending the other evenings with a good book, your Internet content budget will come to 60 hours. If your cable bill is $150/month, with a $50/month Internet broadband connection, you're paying over $3 per hour for that home entertainment. (My Comcast CMCSA bill averages $230/month.)

If you accept the premise of à la carte pricing, you can probably get your local daily newspaper, and the New York Times or Wall Street Journal, plus a Netflix subscription and a magazine bundle like NextIssue for a lot less than $150/month. (You may even find you can afford some of TheStreet.Com's great pay services.)

If your time is worth $3 per month, in other words, you can do a lot better than what cable offers. Just remember that your time is worth money. If you value it that way with your entertainment spending, you can save money.

Make yourself an entertainment budget, plug that into your Internet connection, and you will not only save money over cable, but get more of what you want as well.

—Written by Dana Blankenhorn for MainStreet

At the time of publication the author owned shares of GOOG and AAPL.

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