Netflix

Please don't miss my Daily Caller Op-ed: "Supreme Court's Likely Leashing of 'Chevron Deference' Is FCC Game Changer" -- here.

In an ominous development for the FCC, the Supreme Court agreed Friday to hear the legal question of whether a Federal Court must give "Chevron deference" to an administrative agency (FCC) when an agency interprets a law in a way which could determine its own jurisdiction. I believe this presages that the Supreme Court will decide next year that regulatory agencies cannot be the effective final arbiter of their own power and jurisdiction under the law, because that constitutional power rests with Congress and the courts.

"Chevron deference" is a 1984 Supreme Court administrative law precedent that directs courts to defer to a regulatory agency's expertise in interpreting statutes directing regulatory action unless their interpretation is unreasonable.

Unfortunately, the FCC Chairman's remarks to a Silicon Valley audience last week -- trumpeting his new concern for "anything that depresses broadband usage" -- are creating abundant uncertainty for broadband businesses and investors.

Specifically, Gigaom reported: "When asked about the impact of data caps on broadband innovation by my colleague Janko Roettgers and how his thinking had evolved on the topic, the chairman said he was concerned about data caps. He added, “Anything that depresses broadband usage is something that we need to be really concerned about.” And he further said, “We should all be concerned with anything that is incompatible with the psychology of abundance.”

This appears to signal a stupefying 180-degree reversal of the FCC Chairman's well-established policy position on broadband usage pricing.

Recent evidence confirms that the U.S. net neutrality movement is in substantial retreat and trying to fall back to more defensible ground, on which to make its next stand. The movement is by no means defeated overall, as it is resilient, well-funded and organized. It is actually in ascendance in Europe with the European Parliament's vote supporting net neutrality.

Importantly FreePress, the clear leader of the net neutrality movement via its six-year stewardship of SaveTheInternet.com, recently asked the D.C. Court of Appeals for permission to withdraw its legal challenge to the FCC's net neutrality rules for not being strict enough. After six years of full-throated constant campaigning for net neutrality legislation or FCC regulation in the U.S., it is remarkable that FreePress has quietly retreated from the latest and most pivotal net neutrality battlefield in the U.S. -- i.e. whether or not the FCC's net neutrality regulations stand or are thrown out by the D.C. Court of Appeals. FreePress' emailed statement to reporters said: "We felt that there were better ways to accomplish our goals of promoting Internet freedom, and decided to direct our resources elsewhere in the continued campaign to preserve the open Internet."

Please read my latest Daily Caller Op-ed: "Obsolete Analysis Will Doom DOJ's Antitrust Probe of Cable" here.

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Obsolete Communications Law Op-ed Series:

Part 1: Obsolete communications law stifles innovation, harms consumers

Part 2: "The FCC's Public Interest Test Problem"

Part 3: "FCC Special Access: Communications Obsolete-ism vs. Modernism"

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Broadband Usage Pricing Research Series:

Part 7: "Broadband Pricing is Naturally Evolving to Usage Tiers"

Part 6: "Leaf Vision & Broadband Usage Caps"

Part 5: "Consumer Group's Advocacy Hypocrisy"

Exploding overall broadband usage, combined with increasingly varied usage between average users and heaviest users, is naturally evolving the broadband market towards the flexibility of tiered usage-pricing over time.

Yesterday, Verizon Wireless indicated that it will begin to move its wireless data users away from unlimited data plans for single users that upgrade to its 4G LTE wireless broadband network, towards more-shared, tiered usage-pricing data plans, where with the potential added-price comes the added-flexibility of combining the usage of multiple devices of a family or a small business.

Today Comcast announced a transition from its current very-high, but static 250G monthly data usage cap, to a more flexible and expandable 300G monthly usage threshold, where a user would then have the option of buying additional usage above 300G -- at the likely cost of about an additional $10 per additional 50G used in a month. So in addition to choice of broadband speeds, the heaviest-use Comcast consumers will now also be able to choose how much more capacity they want to use/buy as well.

Both companies, which invest billions of dollars in their broadband infrastructures, are naturally evolving their pricing and competitive business offerings over time to address the exploding high-bandwidth usage of smart phones and tablets, market segments that did not even exist five years ago.

Apparently Netflix is angling to become Silicon Valley's king of corporate welfare. We learn from a New York Times economics column advocating for an Internet industrial policy that "Netflix is trying to build a coalition of businesses to make the case for… net neutrality." And that the "online video powerhouse Netflix started a political action committee to complement a budding lobbying effort in support of the idea that all content must be allowed to travel through the Internet on equal terms" -- translation: always at no cost to Netflix.

But Netflix isn't in need of public assistance; it is America's video subscription leader with 23 million subscribers. Netflix has $3.3b in annual revenues, $1.2b in gross profits, $800m in cash, a 34% return on equity, and a market valuation multiple over twice the market's. And Netflix flexed its exceptional pricing power last year in raising its prices 60% without losing many subscribers.

Netflix' erratic and panicky behavior this past year is telling us that Netflix' leadership fears they may becoming the AOL of web streaming.

Remember AOL was the company that led the dial-up narrowband market, but fell way short in transitioning to broadband success. (Investors remember AOL-Time Warner, dubbed the worst merger of the century.) Meanwhile, Netflix is the fallen star company that led the mail-DVD business, but now is struggling to repeat its offline success online with web streaming.

If one looks at Netflix' panicky behavior over the last year or so, a clear pattern emerges that Netflix' own management is very concerned about how it will successfully transition from DVD mail-order leader to successful web streaming provider.

Consider the cumulative evidence.

The evidence below shows the Verizon-Cable agreement is clearly in the public interest, if the FCC fairly reviews the agreement and all of the relevant facts, in the full context of the highly competitive wireless ecosystem.

Top Reasons Why Verizon-Cable Agreement is in the Public Interest

Increases competition: The agreement increases competition because it enables:

Important free market communications legislation introduced in mid-December warrants flagging because it brings needed attention to a real and growing problem, how obsolete communications law stifles innovation, growth and consumer benefit.

See my Forbes Tech Capitalist post on the DeMint-Scalise bill, “The Next Generation Television Marketplace Act.”