The Soft Underbelly of Net Neutrality: How the Comcast-Netflix Deal Shines a Much-Needed Spotlight on Why the Real Issue is Network Interconnection
When policymakers and press reports talk about net neutrality, there has been, until recently, an understandable tendency to focus exclusively on the end user impact: “If Carrier X or Cable Company Y would just stop mistreating its customers by throttling Internet traffic, all would be good in the world.”
This isn’t to say that the end user impact isn’t the ultimate concern – it is. But if you focus only on the symptoms, you can’t diagnose and cure the problem. And because net neutrality is so complex, and because the politics of power surrounding it are so thorny, it’s much easier to latch onto the symptoms, propose “consumer friendly” band-aids and avoid a more detailed analysis of the problems. But superficial steps won’t get us far in solving the real issues.
You can see this in how Netflix’s latest brushes with Verizon and Comcast are shaking out. What Verizon and Comcast have done is smart business and perfectly logical. Even as Verizon consumers in particular have reported problems streaming Netflix, neither Verizon nor Comcast appears, at least based upon current information, to have violated any law or rule or policy in dealing with Netflix. The key seems to be that Verizon and Comcast weren’t doing anything to Netflix; it seems that their beefs were instead with Netflix’s ISP. In other words, even though there was a consumer impact and it looked to some like a net neutrality battle, it wasn’t at all. Instead, this was a plain old interconnection dispute, the kind that used to get resolved relatively cleanly and clearly – even for the smallest carriers or consumers – back when we actually had rules governing how networks talked to one another. Read more
A lot going on with Netflix these days — new pricing, an opening shot in the Net Neutrality debate; I can’t seem to open up my favorite tech blogs without their name popping up.
First, this week brought a few announcements on Netflix pricing. An announcement about a price increase for new customers in Ireland, that won’t apply to existing customers for two years, brought some speculation that it could signal a similar increase in the United States. But Netflix has said that it is not considering any price increases in the United States right now, at least not for new customers.
But, CEO Reed Hastings did say on an investors conference call last Friday that some pricing-structure changes are on the way. Right now, Netflix has an $8-per-month plan that allows for two simultaneous streams and a $12-per-month plan that allows for four streams at one time. Hasting said that Netflix has been testing multiple tiers, and that the goal is to adopt three new pricing tiers that should be easy for consumers to understand. However, he insisted that the company is not in a hurry to change prices and it is just testing options for now. Read more
Netflix is reported to be conducting pricing tests that offer options beyond its standard $7.99 per month rate to stream video to two devices (such as a tablet, computer, or television) at once. In April of last year, Netflix launched an $11.99 version that allows content to be viewed on four devices at the same time. The new price tests include a $6.99 per month offer for one device, and $9.99 for three. One story indicates that the $6.99 test price is at least sometimes limited to standard definition video.
Reports say that Netflix describes the new pricing structures as nothing more than tests, which may not become available to all customers. Netflix also is said to portray the tests as a way to see if families with different viewing demands and habits would benefit from more pricing and streaming options. However, there is a good deal of speculation that other factors are in play.
Some see the tests as lead-in to price increases. Others see it as less of a means to cater to families, than an attempt to deal with those who share their account passwords with friends. Another popular theory is that the tests are at least partly a response to competitive threats from other over-the-top video providers like Amazon Prime and Redbox Instant.
Netflix’s stock hit a new high few months ago, after recovering from a controversial (and quickly rescinded) move to split the company’s streaming and DVD-by-mail businesses back in 2011. The company’s CEO is reportedly receiving a 50% raise this year after stock prices more than tripled in 2013.
The Future of Netflix, Donuts Rule, TelcoVision, and, last but not least, why Thursday night NFL games are a bad idea
Last week I wrote about the possibility that Netflix might become an “app” on cable TV providers’ set-top boxes. I also noted rumors that the company may bid on the rights to a package of Thursday night NFL games. I was researching this a bit more and came across the Netflix talk discussed below. (On a side note, I should mention that I hate the Thursday night NFL games. Teams only have three days to prepare for a Thursday game after a Sunday game and it shows; the games are sloppy).
Anyway, Netflix recently announced that it planned to double its spending next year on creating original programming. This comes on the heels of the success of Orange is the New Black and House of Cards, two original shows created solely for Netflix subscribers. I haven’t watched either series yet, so don’t take this paragraph as some type of endorsement. I do plan to “binge watch” them on a weekend soon. Why not binge on Netflix, I binge on plenty of other things (donuts and other hearty and wholesome food choices, mostly).
On that subject (binge-watching), a USA Today article stated that “[n]early 80% of U.S. adults with Internet access watch TV through subscription services like Netflix or Hulu or other on-demand sources, and 62% watch multiple episodes back-to-back.” So, when I read this, I thought, if Netflix and Hulu and other like services are so successful at changing the viewing habits of Americans, why get cozy with cable? Read more
The Wall Street Journal recently reported that Netflix is in negotiations with a number of cable operators for a deal under which it would function as an “app” on cable television set-top boxes. Under this scenario, Netflix would no longer be an over-the-top service that subscribers must search for using connected devices such as smart TVs, Blu-ray players or non-cable set-top boxes. In other words, cable subscribers would be able to switch over to watch something on Netflix as seamlessly as they switch from HBO to EPSN, for example.
The article states that negotiations are further along with some of the smaller and regional cable providers that use TiVo set-top boxes, but that some of larger cable companies are also involved. An announcement of a deal could come in the next few weeks or months.
Netflix and cable providers don’t exactly have the best relationship, as cable rightfully sees Netflix as a competitive threat. But, maybe cable companies are starting to the think “if you can’t beat ‘em, join ‘em.” A Netflix app on a cable provider’s set-top box could stem the tide of cord-cutters that opt for streaming online video. Read more
Netflix recently made headlines with an impressive 14 Emmy nominations, including nine for “House of Cards,” three for “Arrested Development,” and two additional nods for “Hemlock Grove.”
Netflix has used this success to expand their original content initiative with the goal of offering a greater variety of original programming. In a recent letter to shareholders, CEO Reed Hastings and CFO David Wells stated “Beyond series, we will be expanding our Originals initiative to include broadly appealing feature documentaries and stand-up comedy specials.”
The shareholder letter further stated that over the last six months, Netflix’s move into original programming has begun to redefine the company in the eyes of consumers. According to Netflix, “Arrested Development” alone helped to add over 600,000 new subscribers in the last three months. Read more
According to a recent survey, nearly a quarter (23%) of Netflix subscribers end up cancelling their premium-TV service.
The survey, by financial services firm Cowen & Co., was conducted in mid-February. Of the just over 1,200 consumers surveyed, 46% (569) are non-subscribers who had access to Netflix streaming, while 28% (346) are paying Netflix subscribers.
Low-income subscribers were more likely to cut the cord to premium-TV service. While those with an annual income of $25,000 or less comprised 18% of the survey respondents, they accounted for 32% of those who cancelled pay-TV service after subscribing to Netflix. Read more