With a recent court ruling striking down much of what was been come to be called “net neutrality,” the principle by which all net traffic is equal, it has effectively left Netflix, Inc. (NASDAQ:NFLX) in a position to be extorted by internet service providers. Or has it?
Netflix, Inc. (NASDAQ:NFLX) is set for a big day Friday with the release of the second season of House of Cards, the show for which it won an Emmy last year. It does beg the question, however, whether ISPs might extort Netflix, Inc. (NASDAQ:NFLX) to pony up some cash or face a slowdown in the company’s streaming speeds.
ValueWalk's Raul Panganiban interviews Joseph Cioffi, Author of Credit Chronometer and Partner at Davis + Gilbert where he is Chair of the Insolvency, Creditor’s Rights & Financial Products Practice Group. In the interview, we discuss the findings of the 3rd Annual report. Q2 2021 hedge fund letters, conferences and more The following is a computer Read More
The coming war?
It’s unlikely, but technically legal. Verizon, who was the plaintiff in the case that saw the FCC rules gutted, recently told The Washington Post that “We treat all traffic equally, and that has not changed.” Hasn’t changed? Sure, but it could and it could quickly.
That’s not to say Netflix, Inc. (NASDAQ:NFLX) has been castrated and left without defense against this possibility. Netflix remains in high demand and is not without guile. CEO Reed Hastings made this clear in Netflix’s last earnings call when he said, “Consumers purchase higher bandwidth packages mostly for one reason: high-quality streaming video,” he said. “ISPs appear to recognize this and many of them are working closely with us.”
While he acknowledged that Netflix, Inc. (NASDAQ:NFLX) has been slowed by Comcast Corporation (NASDAQ:CMCSA) and Verizon Communications Inc. (NYSE:VZ) in recent months, according to the company’s internal data, he believes that customer demand will rule the day.
When CBS and Showtime went dark on Time Warner Cable Inc (NYSE:TWC) for a month, the company lost over 300,000 subscribers. Imagine the hit it would take if Netflix, Inc. (NASDAQ:NFLX) were to pull its programming altogether from ISPs looking to have a go at the streaming video provider.
But this amounts to a game of chicken, and one that would be highly ineffective in markets that only offer one provider of broadband Internet.
Google and Fiber
It may work out that Netflix, Inc. (NASDAQ:NFLX) has an ally in this potential fight though…Google. The Mountain View, CA-based company’s core business requires that the Internet remains “open” for its advertising revenues that still drive the company. This is the reason that Android was developed, and the reason that Google Inc (NASDAQ:GOOG) may scale-up the deployment of the best way to stream Netflix, Google Fiber.
Google Inc (NASDAQ:GOOG), for less than altruistic reasons, could expand Google Fiber with the promise of keeping the Internet “open” without tinkering with bandwidth limits. Google has demonstrated its willingness to enter the physical world more and more each year and will certainly expand Fiber if others mess with people’s love of House of Cards and other Netflix, Inc. (NASDAQ:NFLX) content.