With net neutrality dead, will Netflix go cable?

President Barack Obama and FCC head Tom Wheeler in happier times.

Everyone keeps waiting for HBO to “pull a Netflix,” where the channel would decouple itself from traditional television service providers and go online only. Given the nonsense that’s going on with net neutrality and regulators in the United States, at this point it’s more likely the reverse will happen. It wouldn’t be surprising to see Netflix give up on online and “pull an HBO,” whereby it becomes just another channel in an overpriced monthly TV package.

On Wednesday, news broke that the Federal Communications Commission is planning to introduce “pay-to-play” rules for internet companies, whereby cable and phone companies will be allowed to charge them extra for better connectivity. This would essentially enshrine the recent controversial Netflix-Comcast deal within actual rules. It was controversial because Comcast degraded Netflix’s quality to the point where the streaming company was forced to pony up. Comcast and other big ISPs have long complained about such services supposedly getting a “free ride” on their networks.

The news set the internet alight, with various voices proclaiming that FCC head Tom Wheeler – a former cable industry lobbyist who was recently appointed to the job by President Barack Obama – had just driven a stake through the heart of net neutrality. It is, of course, that ephemeral principle that all internet traffic should be treated more or less equally so that the guy sitting in his basement with an idea for a startup has the same chance at succeeding as a giant company like Netflix or Google does.

 

Netflix and the fine line between it and piracy

To the surprise of virtually no one, Netflix is raising prices. And soon – within the next few months in some places, according to financial results released by the company on Monday:

Our current view is to do a one or two dollar increase, depending on the country, later this quarter for new members only. Existing members would stay at current pricing (e.g. $7.99 in the U.S.) for a generous time period. These changes will enable us to acquire more content and deliver an even better streaming experience.

That “generous time period” could be two years, if the Irish experience is anything to go by. Netflix raised its subscription price in Ireland by one euro to €7.99 in January, which resulted in “limited impact.”

While few observers believed such low subscription costs could be sustained for long, Netflix does have to tread carefully. The streaming service straddles a fine line between expensive cable TV services at one end and free file-sharing at the other. It’s only been a few short years since the company emerged as Hollywood’s antidote to that perceived scourge. Over that time, it has converted more than 35 million potential file sharers into customers who are at least paying something for some of the shows and movies they watch. While file-sharing used to account for the largest share of Internet traffic, it’s now Netflix that accounts for about a third of all bandwidth usage.

 

Netflix-Comcast a different kind of net neutrality

Ever since Netflix and Comcast announced their joint interconnection deal a few weeks ago, there has been no shortage of analysis on what it all means for the future of the internet. Opinions have ranged from the dire – such as an article on The Verge declaring that “the internet is fucked” – to the predictably apologetic, like the op-ed pieces that always come out of the neo-con American Enterprise Institute to support any big corporate deal.

Many commentators have suggested the agreement sounds the death knell for net neutrality, or the broad ideal that internet providers should not unduly discriminate against certain forms of traffic. The problem in this case has been that Comcast has been slowing down Netflix for some time, to the point where the service has been difficult if not impossible to use for some subscribers. The cable company has plenty of reasons to do so: not only does Netflix compete with its own video offerings, it also clogs up a lot of its network (it accounts for an estimated one-third of all internet traffic). That degradation effectively forced the streaming company into signing an interconnection deal directly with Comcast rather than going through third-party providers such as Cogent, which it has typically done in the past.

It’s understandable why the agreement provoked such negative reactions. With actual net neutrality rules in the United States in limbo if not dead, large network owners such as Comcast are effectively free to engage in whatever extortionate activities they want, which is exactly how this situation has been perceived; Netflix had no choice but to give in to its customers being held hostage.

 

Broadband status quo strengthening digital divide

One of the first things I did before putting in an offer on a new home last summer was call my internet provider. I wanted to know what kinds of speeds I could expect if I ended up living there. Fortunately, I got the all-clear – the fastest connections were indeed available – so my wife and I went ahead and ultimately bought the house.

It turns out I’m not some weird tech nerd with mixed-up priorities. A home’s internet connectivity is becoming an increasingly vital selling feature, like a big backyard or a new roof, to the point where houses without good access are being valued up to 20 per cent lower, according to real estate experts in the U.K.

Buyers are now typically considering fast broadband the “fourth utility,” after electricity, water and gas.
“The more demanding buyers now want fibre-optic superfast speeds as, whether working from home, streaming entertainment or managing the stack of equipment that now relies on this, a property needs to have 21st-century connectivity,” property expert Henry Pryor told The Guardian.

 

Net neutrality is like a utility, except that it isn’t

FedEx jets: why the internet is nothing like the postal service.

Net neutrality has certainly taken a beating of late on both sides of the border. In the United States last week, a federal court effectively killed what few rules there were that prevented internet providers from discriminating between different types of traffic. That followed an announcement a few weeks ago by AT&T that it was introducing a “sponsored data” feature for smartphones that would allow websites and online service providers to pay for exempting their content from users’ monthly data caps.

In Canada, meanwhile, a version of that is ongoing with Bell offering its own mobile television at a rate that’s significantly discounted from regular online video. Canada has rules that enshrine net neutrality and they have indeed been invoked in a complaint about Bell’s service to the Canadian Radio-television and Telecommunications Commission.

In each of these cases, the very notion of net neutrality – or the idea that the traffic and content that flows across the internet should be free from unnecessary discrimination by network providers – will be sorely tested this year. On the downside for users, internet providers have now had several years to adjust to the principle and have gotten pretty good at figuring out ways around it, hence the increasing usage of data caps as a way to privilege certain services. On the plus side for advocates, the providers still haven’t been able to counter the principle itself, which has the advantage of being tied to such fundamental long-term concerns as innovation and competition.