Net Neutrality Hasn’t Nailed Netflix Yet
Netflix (NASDAQ:NFLX) at the moment remains unaffected by the end of net neutrality, according to a note from JPMorgan analyst Doug Anmuth seen by Re/Code. “Netflix does not seem overly concerned regarding Net Neutrality, and continues to believe that violations would be escalated quickly. Netflix also indicated that it has no evidence or belief that its service is being throttled,” Anmuth says in the note.
Last month, Verizon Communications (NYSE:VZ) won a suit against the Federal Communications Commission regarding its ability to charge certain Internet content providers for the amount of bandwidth their services use. An appeals court in Washington, D.C., ruled that the FCC was overstepping its bounds by trying to bar Internet providers from blocking certain kinds of online content or charging the companies that take up the most bandwidth a higher fee. The current rules require Internet providers to give the same high-speed service to all types of Internet traffic equally, but now a court has sent the rules back to the FCC to be rewritten.
FCC Chair Tom Wheeler has said that the regulator remains dedicated to the principles of net neutrality and that the agency will appeal the ruling. The rules were put in place by the FCC to make sure the Internet would remain a fair place for everyone, with no companies receiving preferential treatment or being unfairly blocked by Internet providers.
Netflix has argued for net neutrality, saying that wireless broadband customers pay for access to services like Netflix and that if providers like Verizon begin slowing Netflix’s service, then a battle will escalate quickly and likely result in customers switching to a different Internet provider.
Netflix CEO Reed Hastings spoke on the matter in his letter to shareholders regarding the company’s fourth-quarter financials. Hastings said he doesn’t believe Verizon or other Internet service providers will actually begin slowing down Netflix’s service to avoid angering consumers. Given the immense popularity of Netflix, it would be a huge risk for Verizon to make the online streaming service difficult for its customers to use.
“Unfortunately, Verizon successfully challenged the U.S. net neutrality rules. In principle, a domestic ISP now can legally impede the video streams that members request from Netflix, degrading the experience we jointly provide. The motivation could be to get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver. … The most likely case, however, is that ISPs will avoid this consumer-unfriendly path of discrimination,” Hastings said in the letter.
Video streaming sites like Netflix and Google’s (NASDAQ:GOOG) YouTube account for the highest amount of Internet traffic and have the most to lose from the ruling, according to a report from theWall Street Journal. Netflix alone accounts for 32 percent of North American Internet traffic during peak hours, per data from Sandvine cited by the Journal.
Verizon wants to be able to charge the content providers that take up the most bandwidth more than sites that don’t use up so much space. While it has managed to obtain the legal right to do so, Verizon now has to either strong-arm Netflix into paying for more broadband or convince Verizon customers to settle for sub-par Netflix service. Both of of those options represent an even more difficult battle than getting a court to disband net neutrality.
More from Wall St. Cheat Sheet:
- Which Companies Will Take a Hit from the Death of Net Neutrality?
- Netflix Plans to Spend $3B on New Content This Year
- Netflix Shareholders Rejoice: Q4 Brought Record Subscriptions
Follow Jacqueline on Twitter @Jacqui_WSCS