FCC-logoThat headline isn’t meant to sound negative: the music industry should definitely care about this week’s debate around net neutrality in the US, and what its implications may be for digital music services in the future.

The issue has been kicking around for years now, but this week’s development is a US court ruling casting doubt on the ability of the Federal Communications Commission (FCC) to regulate ISPs and mobile operators to ensure that all internet traffic is treated equally on their networks.

The ensuing debate has focused on whether the big US telcos will try to charge data-intensive online services for delivering their content to users – or rather delivering it faster and more reliably. Netflix, YouTube, Spotify and any big entertainment-related service could be affected by this: Netflix’s share price dipped by 5% in early trading on Wednesday, after the ruling on Tuesday, indicating spooked investors.

The concern is that the biggest players will pay the telcos to get an edge over their competitors, which in turn may have a negative effect on these markets as a whole.

Fred Wilson of Union Square Ventures outlined one scenario for a startup trying to launch a “better streaming music service” and raise money for it from a VC firm, and presented one possible response from a VC if net neutrality had been eroded:

“Well since Spotify, Beats, and Apple have paid all the telcos so that their services are free on the mobile networks, we are concerned that new music services like yours will have a hard time getting new users to use them because the data plan is so expensive. We like you and the idea very much, but we are going to have to pass.”

His concern is about investment in startups – Wilson makes similar hypothetical arguments against funding startups trying to disrupt YouTube, Hulu and Netflix in the online video space, or Facebook, Instagram, Twitter and Snapchat in the social area. Yet even within music, there are tiers of companies above that.

Could the likes of Spotify and Deezer really afford to carve a whole new chunk out of their already-slim margins to pay the telcos compared to, say, Apple and Google? Net neutrality is a slow-burning debate with long-term implications, but it’s an important one for the music industry to be engaging fully with.