Netflix Picks a Fight With Cable

Bolstered by a strong earnings report, Netflix is confident it can take on Internet service providers.

A sign is posted in front of the Netflix headquarters on January 22, 2014 in Los Gatos, California. Netflix will report fourth quarter earnings today after the closing bell.
National Journal
Laura Ryan Brendan Sasso
Jan. 23, 2014, 4:52 a.m.

When a court rul­ing struck down down fed­er­al net-neut­ral­ity reg­u­la­tions, it was widely seen as hor­rible news for Net­flix, the type of high-band­width web­site that ser­vice pro­viders such as Com­cast or Ve­r­i­zon would likely tar­get for mil­lions of dol­lars worth of fees.

In­stead, it’s Net­flix that is fir­ing the first shot.

CEO Reed Hast­ings on Wed­nes­day warned pro­viders that it will rally its cus­tom­ers against them should they threaten to charge the site more or slow down its traffic.

Un­til the rul­ing last week by the D.C. Cir­cuit Court, In­ter­net pro­viders were leg­ally re­quired to treat all traffic equally, neither pri­or­it­iz­ing traffic from one web­site or an­oth­er nor char­ging web­sites ex­tra for us­ing lots of band­width. But now that those “Open In­ter­net” rules have been thrown out, many saw Net­flix as a likely can­did­ate for new charges. Not only is the stream­ing web­site a ma­jor hog of In­ter­net road space, its con­tent also com­petes dir­ectly with In­ter­net ser­vice pro­viders’ cable of­fer­ings.

But Net­flix says it is ready.

“Were this dra­coni­an scen­ario to un­fold with some [In­ter­net ser­vice pro­viders], we would vig­or­ously protest and en­cour­age our mem­bers to de­mand the open In­ter­net they are pay­ing their ISP to de­liv­er,” Hast­ings wrote in the note on Wed­nes­day, which ac­com­pan­ied the com­pany’s quarterly earn­ings re­port.

With a pres­ence in one in four U.S. house­holds, Net­flix is a con­sid­er­able force, but Hast­ings says he doesn’t ex­pect to have to re­sort to a pub­lic battle with the In­ter­net pro­viders.

“ISPs are gen­er­ally aware of the broad pub­lic sup­port for net neut­ral­ity and don’t want to gal­van­ize gov­ern­ment ac­tion,” he wrote.

Broad­band In­ter­net is an ex­tremely prof­it­able busi­ness, Hast­ings noted, and the pro­viders want to en­sure their cus­tom­ers have ac­cess to high-qual­ity video sites. He also said he hopes the pro­viders will ad­here to a “mean­ing­ful vol­un­tary code of con­duct,” but warned that if they start de­grad­ing In­ter­net traffic, Net­flix will lobby for tough­er reg­u­la­tion.

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