A segment of consumers has for many years been begging for an unbundled, à la carte option for programming. That future is now taking its first shambling steps into our homes — only, it’s happening through the magic of the internet, and not in pay-TV subscriptions. But right now, we are in a particularly turbulent time for sorting out the rules of what is and isn’t allowed when it comes to giving preferential treatment to certain services. While the virtual ink is still drying on the brand-new, not-yet-implemented open internet rule, new players in the field of over-the-top internet TV are already trying to see just how far that rule bends.

As The Wall Street Journal (paywalled) reports, HBO, Showtime, and Sony are all hoping negotiate deals for preferential treatment, and to sidestep potential data “thresholds”, with their over-the-top services.

What content companies are specifically trying to negotiate for, according to the WSJ, are agreements that would make them “managed” traffic.

The broadband connection your home has to your ISP — Comcast, Verizon, Cox, and so on — treats all your uses of the internet the same way. That’s what net neutrality is and was all about: that it doesn’t matter whether you’re using your paid-for slice of the broadband pipe to stream Taylor Swift videos on YouTube, play World of Warcraft, download images in questionable taste, forward chain e-mails to your grandkids, or watch serious-issue documentaries on Netflix. All of those things are basically part of the general mishmash of the internet.

However, there’s also a whole category of connected things that use bandwidth but aren’t part of that general internet soup. Such managed services are explicitly exempt from Title II classification and, therefore, the net neutrality regulation that goes with. The FCC’s go-to examples for such services are VoIP calling — that landline that’s attached to your cable modem and not to copper wires — and dedicated health monitoring systems, like a pacemaker that checks in with a remote server.

So. If content companies negotiate deals with ISPs that make their video streams into managed services,that means that their traffic is not considered equal, or traveling in the same metaphorical lane, as all those other things you do on the internet. If we stick with the road metaphor, HBO, Showtime, and Sony would basically have arranged to be the only cars in the HOV lane, and to be guaranteed permanent access to the HOV lane. And the rest of your traffic is all jostling for position on the main road, with all the challenges that presents.

Not only would positioning as managed services theoretically guarantee smooth connections and good video quality for those services, but also it would exempt those streams from data caps. (ISPs can also agree to exempt certain usages from their data caps without also marking them as managed services or handling their traffic differently.)

This concept, called zero rating, has proven to work very well in the mobile space — at least, for the wireless carriers and the large services that can afford to strike deals with them.

Data usage caps on mobile broadband are the norm for most of us, but they’re not exactly uncommon in home wired broadband, either. Recent reports estimate that if Comcast and Time Warner Cable do successfully merge, nearly 80% of users would be subject to data caps on their home broadband. ISPs, which enjoy making money, completely love the idea of expanding data caps. Consumers, who dislike being nickled and dimed, totally hate it. But lack of competition means consumers don’t usually have much choice one way or the other.

Of course, if someone tells you there’s a cap on how much data you can use without hitting a magic “pay more” threshold, most consumers are going to try to minimize how much data they use. And if some services and not others are exempt from those caps, well, that’s definitely a mark in favor of the zero-rated services as far as consumers are concerned.

With all of those advantages, it’s easy to see why new streaming video services would want to negotiate those deals. What’s less clear, however, is what possible motivation existing ISPs — the majority of whom are also existing pay-TV companies — would have to agree to them.

A subscriber to HBO Now or Showtime’s streaming service may well still keep their cable bundle. But a Sony Vue user has absolutely no reason to. The two services are redundant to one another. So why would Comcast, say, want to give Sony special access to Sony to encourage consumers to become cord-cutters? Unless Sony paid Comcast some ridiculous sum like $30 – $100 per customer, which they would not, Comcast would be shooting themselves in the virtual, vertically-integrated foot.

As it currently stands, there is nothing illegal or against the rules in any of this… unless there is. That’s where it gets tricky: the new open internet order is vague on the specifics about managed services, data caps, and zero rating agreements.

That’s partly by design. In the current order, the FCC wanted to set the high-level, bright-line guidance for internet fairness, with many next-level-down, more specific rules about specific aspects of regulation to come down the line. The commission also intentionally left room for growth: the internet and all the many companies and technologies in it move very quickly, and if the rule were too specific, loopholes that accidentally permit future bad behavior would be easy to come by.

There’s no knowing right now what contracts are actually being negotiated, or how they’ll hold up legally once they are. But with pretty much everyone jumping into the gray areas full steam ahead, the next great battle already seems likely to be on the way.

Streaming TV Services Seek to Sidestep Web Congestion [The Wall Street Journal]

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