peering charges?

Mon Jan 27 04:40:08 UTC 1997

> 
> I agree with with the information provider model.  Ultimately, entities
> with attractive content will be selling access to wide area providers, who
> will sell it to local area providers, who will sell it to customers.  This
> is the old "gatekeeper.dec.com" model extended to fee-based content.  I
> heard that Microsoft was letting providers terminate T3's with them since
> good access to Microsoft's content is a selling point for an access
> provider's customer base.  Why should such a content provider have to buy
> peering, or pay wide area telecom costs?  On the other hand, right now
> Microsoft is still effectively buying transit, and at some point they will
> just charge for access to their content and let other people charge each
> other for indirect access to that content.
> 
> And Microsoft is just the first/largest.
> 

Why indeed. Should any content provider pay for distribution costs 
of its content via Fedex/UPS/USPS or the phone company ?  Costs
of content distribution are hardly a new problem. Just the distribution
transport (Internet) is new.

Business people use a simple principle to decide who pays. Its called
"Follow The Money" (FTM). 

Any one who gains from a transaction involving transfer of content
has an incentive to share not only in the costs of the content but also
in the costs of its distribution. 

Content is valuable, but has little value without distribution. 
(Oil has high intrinsic value, but even that value is variable
subject to presence or absence of pipelines and pumping stations. Even
a limitless supply of oil would be worthless without a distribution
system)

>From this point of view, the two main benefactors are the Content
Provider and the Content Consumer. How should they split the tab  so
that they may pay the costs of distribution to a Content Distributor?

Does Microsoft (Content Provider) gain by rapid and reliable
distribution of its content  to its end users ( Content Consumer) ? If
so, then the Content Distributor (Internet Access Provider (IAP)) fees
should be build into their business model. Does the end user gain by
electronic access to Microsoft's content ? The user should be willing
to pay for not only the content but the "shipping and handling" cost.
This may be both a fee to access Microsoft's site and a subscription
fee to an IAP. ( No matter how you split the distribution cost, the
user ultimately will and does end up with the tab )

This is just a simplistic illustration of the cost of distribution. 
No matter which party collects the cost, this should end up as fees to
the Content Distributor or Distributors. 

[How the Content Distributors split these fees among themselves 
(for example peering vs. transit) should have no conceptual bearing on
the economics of content distribution costs between Provider and
Consumer.  In other worlds, leave the IAPs out of this debate of who
pays for the content distribution.  Treat this as a cost of doing
business and pay the IAP]

One may debate the point that the Content Distributor is also a
material beneficiary of a transaction involving transfer of content.
Where would, for example, an IAP be if they had no content to transfer?
There would not ordinarily be a revenue stream for pipeline operators
and the pump station and refinery owners if they had no oil to
transport or refine.  This would be true if the only thing the content
distributor was transporting was a specific type of content. IAPs do
more. They operate a multi purpose pipeline.

Further, even the evolution of the IAP business is going to be such that
traditional content bits will only be one kind of bits the evolved
entities will transport. Even traditional Internet bits
will be a specialized case of the bits that flow on the new transport
backbones. I am not arguing that there will be a unifying technology to
do this ( there may well be ), but that this is how transport will be
sold- a.k.a "The Bundle Sell". 

This means that Content Distributors are unlikely to subsidize the cost
of Generic Content or Commodity Transport, which Internet Access is
fast becoming. ]

All this  works fine when all you have is Generic Content. When this
content changes to what  I call Compelling Content, things change.

Compelling Content attracts Content Consumers in hordes. A large
affinity group of Content Consumers can be leveraged in many ways.

Compelling Content opens up a a host of additional Revenue
Opportunities for both the Content Provider and the Content 
Consumer. Now instead of just costs involved with distribution of
content, there are revenues to offset the costs.

For example, now the Compelling Content Provider may advertise on its
site for its own products and generate more revenue. Or it may
sell advertizing space or content space to other Content Providers and
generate revenue that way. (Hence the emergence of a video rental 
outlet and a bank counter at your local large grocery store or the
hordes of free magazines you can pickup while you are there). 

The Content Distributor could benefit from  transporting Compelling
Content, i.e the ability to attract more  Content Providers to use its
distribution system and therefore improve on returns on its capital
investments. If the content is particularly compelling and it is the
exclusive distributor of that content, it may attract more Content 
Consumers as customers as well.

(The Generic Content would not have ordinarily transitioned to
Compelling Content if the distribution system was not performing well.
Many content sites have infant mortality because no one budgeted for
costs of a decent distribution system)

Consumers of Compelling Content, having flocked to the Content Site,
may be offered incentives to stay put ( so that the Content
Provider may charge a higher CPM rate for advertisers , for example)

This is not an exhaustive list, but the point is that Compelling
Content creates revenue for many parties and also opportunities for
future revenues. The revenue could be used to offset the costs of
distribution. "Following the Money" now,  there is more of it in a
larger number of hands and there are different ways to split it.

All Content Providers should start off with budgeting for the costs of
the distribution. If their content is compelling, additional revenues
will eventually offset these costs. Some costs may be shifted but the
Content Consumers will eventually pay for all costs directly or
indirectly, and the Content Distributors are unlikely to subsidize what
will come a commodity distribution service.  Dividing things into Costs
and Revenues Opportunities lets the money flow where it deserves and
keeps the issues clean.

--pushpendra

Pushpendra Mohta          pushp at cerf.net        +1 619 455 3908
Director, CERFnet         http://www.cerf.net   +1 619 455 3995 (FAX)