Xbox Meets the Network Neutral World

Published September 1, 2006

Microsoft’s Xbox 360 and Xbox Live network offer far more than gaming functions. With a wireless networking adapter, the device can tap into home WiFi networks and access data–music, photos, video–making the Xbox a media bridge to other computing devices. With the addition this winter of an HD-DVD drive for the box, the Xbox will become a movie player offering video and audio quality significantly better than the traditional DVD format.

A single box offering so many functions has the potential to attract far more than the gaming community it originally served. For instance, consumers could use the Xbox to download complete movies as well as games. (Copyright is an issue here, such as whether users could burn DVD copies of the downloaded material. The potential profits of the downloads suggest copyright issues will be resolved.)

Yet even though online gaming is still in a primitive stage with very few homes taking advantage of it, it eats up a lot of network capacity. The additional downloading of movies and games over the Xbox Live network would place an enormous strain on broadband pipes. Already today, downloading short movie clips and game demos to the Xbox 360 is time-consuming. Even at broadband connection speeds of 5 mbps down and 2 mbps up, it took about 40 minutes to download a 1.1 gigabyte file.

Managing the Pipes

What’s to be done to ensure the network isn’t overwhelmed? The answer is clearly within the realm of improved network speeds and traffic management–solutions antithetical to proponents of network neutrality but that address the realities that blazing broadband connections are not physically available to all consumers and that many consumers can’t afford to triple or quadruple their connection costs to get the fastest speeds.

So for traffic management, experimentation with a variety of hybrid solutions makes sense. At one end of the spectrum would be strict metering of broadband pipes. Consumers pay according to how much they use. But 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.

At the other 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. That won’t happen. Yet 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 is feasible.

This solution would mean Microsoft would have greater upfront costs than it does now, but in the long run, it could lead to greater revenues. If consumers knew they could get fast and affordable high-resolution movie and game downloads on the Xbox Live Marketplace, they’d likely consume even more of those services. In fact, they could start substituting Live Marketplace for other sites and services they use now.

In addition, Microsoft could increase online advertising possibilities or develop new products to sell via the Live network, such as computer software.

Why Equal Pay for Unequal Use?

Broadband providers may force Microsoft’s hand here as the traffic burden grows. Why should all the consumers in a neighborhood pay the same amount for broadband service if some use far more than others? Shouldn’t a 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 shouldn’t broadband providers go to Microsoft and 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?

That raises the ultimate question: Will any of this marketplace experimentation be legal in a world of network neutrality regulation? It seems unlikely. Net neutrality 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 that described above, even though such an arrangement might benefit all involved.

Microsoft is not waiting. It already has struck a deal with Limelight Networks for management of its Xbox Live content delivery. But if network neutrality mandates become law, the company might be forbidden in the future from attempting such pricing experiments. How sad that would be.

Adam Thierer ([email protected]) is senior fellow and director, Center for Digital Media Freedom, at the Progress & Freedom Foundation.