Netflix

Please see my latest Daily Caller op-ed: “The Forgotten Consumer in the Fast Lane Net Neutrality Debate” – here.

• It explains how the whole “no fast lane” argument is misdirection that serves Silicon Valley’s interests at the expense of what’s best for empowering consumers.
• It is Part 64 in my FCC Open Internet Order Series.

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FCC Open Internet Order Series

Some things are way too important to let slip by uncontested.

The FCC has asserted a foundational regulatory premise that warrants rebuttal and disproving, given that the FCC is considering if Internet access, and Internet backbone peering, should be regulated like a utility under Title II telephone common carrier regulation.

In an important speech on Internet interconnection last month to the Progressive Policy Institute, the very able and experienced Ruth Milkman, Chairman Tom Wheeler’s Chief of Staff, asserted that “communications networks are no different” than railroad and electricity networks when it comes to interconnection. “… At bottom… the fact is that a network without connections and interconnections is one that simply doesn’t work. Disconnected networks do not serve the public interest.”

Kudos are due to FCC Chairman Wheeler for quickly announcing that “it is time to act with dispatch” on the IP transition, and putting that into swift action.

As the FCC refocuses on the IP transition, some important perspective is warranted.

First, the consumer-driven transition to IP in the marketplace is already three quarters complete.

Please see my latest Daily Caller op-ed, “YouTube is Ultimate a la Carte” – here -- on Senate Commerce Committee Chairman Rockefeller’s new legislation: “Consumer Choice in Online Video Act.”

• It is Part 21 of my Broadband Internet Pricing Freedom series.

Broadband Internet Pricing Freedom Series

Part 1: Netflix' Glass House Temper Tantrum Over Broadband Usage Fees [7-26-11]

The latest attempts to subvert the competitive success of the current free market broadband Internet to advance the fantasy of abundance uneconomics and cost-less Internet commons is the New America Foundation's (NAF) white paper entitled: "Capping the Nation's Broadband Future? Dwindling competition is fueling the rise of increasingly costly and restrictive Internet usage caps;" and Senator Wyden's proposed "Data Cap Integrity Act" to have the FCC effectively price regulate broadband usage and ban traffic discrimination a la "net neutrality."

In a nutshell, the NAF paper argues competition, usage-based pricing and the profit motive ill-serve the broadband Internet consumer; thus the Government should prohibit the market-pricing model of broadband data caps.

In a nutshell, Senator Wyden's proposed legislation argues that broadband usage and tiered pricing harm consumers by discouraging Internet use, discriminating against high-bandwidth services, and inhibiting innovation because ISPs make money on heavy broadband usage. Thus the Government should price regulate competitive broadband companies to prevent extraction of "monopoly rents."

See my Forbes Tech Capitalist post on net neutrality here, entitled: Why FCC Net Neutrality Regs Are so Vulnerable.

Netflix' continues to exhibit serious difficulties grasping basic economics, competition and value.

First, Netflix is lowering its value to customers.

• Netflix now charges its subscribers' 60% more in September in return for lots less premium content available for subscribers in February, as Netflix just lost Starz,its top premium content provider, which supplies 22 of Netflix' top 100 movies.

Second, Netflix is shifting its costs to its customers.

• Netflix used its abrupt and controversial 60% price hike to force many of its core users away from the DVD model that many prefer and have the viewing technology for (but costs Netflix more), to the streaming model, (which Netflix prefers because it costs them less) even if it costs many of their DVD customers to spend lots more to upgrade their viewing technology to view the streamed content in the way they can currently view DVDs.

Third, Netflix is chasing away the premium content its subscribers demand.

Netflix continues to throw stones at the common economic practice of usage-based pricing, to which broadband carriers are naturally migrating, all while Netflix stands inside a glass house filled with mis-managed usage pricing practices. 

Netflix as Stone Thrower:

In a concerted campaign for net neutrality regulation that would ban broadband usage caps or pricing, Netflix has generated a:

• Supportive Washington Post blog;
• New York Times editorial,
• Wall Street Journal op-ed,
• Shareholder letter, and
• Faux net neutrality complaint with Level III-Netflix.

Netflix as Glass House:

Netflix's General Counsel, David Hyman, hypocritically and deceptively blasted the broadband industry for its natural migration to usage-based bandwidth pricing in his fact-challenged WSJ op-ed: "Why Bandwidth Pricing is Anti-competitive."

First, it is both ironic and hypocritical that the largest subscription video provider in the United States by subscribers, Netflix,  criticizes the normal economic practice of usage-based pricing as anti-competitive when other companies do it, when Netflix has long priced and capped its business offering based on consumer usage.

Mr. Hyman must have known Netflix would look self-serving and hypocritical if people knew:

It appears as if Netflix' rocket stock and nosebleed market valuation has infected Netflix' CEO, Reed Hastings, with a bad bout of dot.com hubris fever complete with hallucinations that Netflix is somehow a needy online video provider entitled to new massive subsidies under the FCC's Open Internet order.

• In his recent letter to shareholders (see p. 9 under "Challenges)" Mr. Hastings  launches a grandiose diatribe on what prices and pricing models competitive broadband ISPs should and should not be able to charge Netflix in the competitive market place.
  • Mr. Hastings dreams Netflix is entitled to "no-charges" from ISPs for dumping more concentrated asymmetric Internet traffic on them than any entity has ever before generated, despite the fact that Netflix' proposed approach is completely contrary to the way that the Internet backbone peering marketplace has operated for over fifteen years.
  • Mr. Hastings also dreams about what pricing models and prices competitive broadband ISPs should be allowed to charge their customers.

Alarm bells should be going off among Netflix' sophisticated shareholders.