Analysis: Google-Verizon model could pinch Hollywood

WASHINGTON/LOS ANGELES (Reuters) - Hollywood players increasingly looking at wireless devices as mini-theaters could be pinched by the policing of Internet traffic as proposed by Verizon and Google.

And independent Hollywood, whose shallow pockets couldn't pay for Internet "fast lanes," fear they would be hurt more than their bigger competitors as their bandwidth-hogging clips, TV shows and movies would be exiled to an excruciating slow portion of the Internet.

"It's going to crowd out smaller players," said Lowell Peterson, executive director of the Writers Guild of America East, which represents about 4,000 writers.

Verizon (VZ.N) and Google (GOOG.O) on Monday said regulators should be able to police Web traffic over cable and phone lines, but said carriers themselves should be able to control the speed of consumers' access to content on wireless devices such as smartphones and iPads.

The joint proposal from two major industry players marked a surprising compromise on so-called "net neutrality" -- a term that means high-speed Internet providers should not block or slow information or make websites pay for faster lanes to reach users more quickly.

It is unclear if the giant companies can get lawmakers or regulators to move forward with their proposal, which might fail to get support because it could create a tiered Internet on wireless devices -- one for people willing to pay for faster service and one that would be sluggish.

Still, a division is already emerging in Hollywood between smaller creative types and the big Hollywood studios such as Warner Brothers and Disney.

Upon news of the Verizon-Google proposal, the Writers Guild of America East immediately condemned it as "the deal of the titans."

Those members of the Guild who write for primetime television shows, iPhone apps, Webisodes and other online programing would be less able to reach audiences on their own if they were to launch their own projects.

Hollywood's trade group, the Motion Picture Association of America, declined to comment on what impact adoption of the Verizon-Google proposal would have on studios.

SMALL ADJUSTMENTS FOR BIG HOLLYWOOD

The big studios, while not facing as dire a potential impact, would not be immune.

"The studios would have to spend more money and they might wind up raising prices," said Richard Doherty, analyst with Envisioneering Group. "Hollywood pricing will change."

Hollywood studios would have to adjust by changing their advertising and marketing strategies and even by leveraging their power to demand some profits from broadband providers.

The offerings also could change.

Studios are already starting to shift away from free content over the Internet, but that trend would likely be accelerated by the Verizon-Google proposal.

Gerry Kaufhold, an analyst with in-Stat, said that over the next five years, the amount of free video is going to go down and the number of people paying for subscriptions is going to go up. "I think Hollywood would have some revenue-sharing agreement," he said.

SLOW LANES, SLUGGISH CREATIVITY

For small and medium-sized producers unable to compete with large studios, another fear is that creative and artistic innovation would be harmed.

"That is the worry," said Sherwin Siy, deputy legal director at Public Knowledge, a public interest group.

Another chief concern among critics, content providers and websites is that the free "public" Internet could be degraded as a result of Internet service providers dedicating more bandwidth capacity to fast-lane services.

"The only way you could watch something straight through is to load it up in advance -- start the page loading, go get a drink, come back and hope it's loaded," said Todd Allen, a consultant who teaches e-Business in the Arts, Entertainment & Media Management Department at Columbia College in Chicago.

"For a lot of people it would be a major inconvenience," said Allen, who added that he thought the proposal is a "worst case scenario" that regulators would be unlikely to adopt.

Peterson said that currently the Internet helps maintain a level playing field both for individuals creating Webisodes and for big budget movies.

He said consumers, under the Verizon-Google proposal, would move toward the priority content that big studios could pay to have distributed.

"It would have a gravitational pull for the bulk of consumers because it would be faster and better," Peterson said.

(Reporting by John Poirier; Editing by Gary Hill)

http://www.reuters.com/article/idUSTRE67A4RD20100811