Netflix Strikes a Blow for the Open Internet

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Netflix (Nasdaq: NFLX  ) CEO Reed Hastings is pulling some unusual strings nowadays. Social media has become a weapon in the company's lobbying arsenal.

Last month, Hastings posted a Facebook comment chiding Comcast (Nasdaq: CMCSA  ) for not letting him watch HBO GO programming through his Comcast-provided cable modem. "When I try to use HBO GO on my Xbox or on my Roku, I find that Comcast is blocking HBO GO, and won't let me use HBO GO on these TV-connected devices," he wrote. "Comcast: I'm paying you a lot of money for HBO, so please let me watch HBO GO on my TV."

Fair enough. Ten days later, Comcast chirped this happy little official tweet: "Good news, @Comcast subscribers: your TV provider has made #xboxhbogo available to you."

Comcast's response both confirmed Hastings' accusations and made the root cause go away. Score one small win for Reed Hastings, but HBO owner Time Warner (NYSE: TWX  ) should also send a fruit basket to Los Gatos to thank Hastings for this service. Never you mind that Warner and Netflix aren't the best of friends -- Hastings used HBO's streaming product as leverage anyway. All is fair in love and business wars.

Encore! Encore!
But that wasn't enough for the disgruntled Netflix executive. This weekend, he pressed on in another Facebook post: "I spent the weekend enjoying four good Internet video apps on my Xbox: Netflix, HBO GO, Xfinity, and Hulu. When I watch video on my Xbox from three of these four apps, it counts against my Comcast Internet cap. When I watch through Comcast's Xfinity app, however, it does not count against my Comcast Internet cap. ... In what way is this neutral?"

Let's pause for a moment to admire the polished rhetoric in the post. Hastings praises the quality of several semi-direct competitors, then asks Comcast to give all of them a level playing field. Oh, and by the way, Netflix should enjoy that egalitarian treatment too. Well played, sir.

Here, Hastings is accusing Comcast of breaking the principles of open competition and communications that made the Internet great in the first place. The principle of net neutrality is at stake here.

Hastings is right, of course: Comcast could use bandwidth caps to cajole its customers into using the Xfinity app instead of Netflix, Hulu, and other third-party services. Given that all of these companies depend on the service provider's pipes in order to reach your living room, that's a pretty unfair advantage.

The backstory
Over the years, various arms of the government have tried to put laws or regulations in place to protect the neutrality principle -- but not with much success. The FCC published a set of neutrality rules last November. Though better than nothing, these rules impose stricter limitations on wired service providers like Comcast than on wireless connections like the ones provided by AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) . The idea is that wireless data networks are less mature than their hardwired counterparts and so should be given more freedom to operate and innovate. (Keep that argument in mind when you ponder the future of digital media services -- another innovative model that's still in its infancy.)

Even so, Verizon and other wireless operators sued to block the new rules, and Comcast seems intent on skirting them whenever possible. You could argue that the FCC's action was more bark than bite -- so far.

So Hastings must be pleased as punch to hear that the FCC is reading his Facebook posts. The agency now says that it is looking into the Comcast situation because it "takes seriously any allegations of violations of our open Internet rules."

Hastings' unconventional strategy for putting pressure on his rivals is made all the more delicious by the fact that he serves on Facebook's board of directors. If the government takes this platform seriously in matters of public policy, the social network gains another chunk of business clout.

Where's the next show?
It remains to be seen whether Facebook and Twitter ever join power lunches and campaign contributions on the tool belt of your average Washington lobbyist. But it does make sense for Netflix, a child of the digital age if there ever was one, to leverage these tools for whatever advantage they may be worth.

And whatever methods Hastings might use, I applaud every effort to keep Internet pipes as ubiquitous, flexible, and open for a variety of uses as water pipes or electric power lines. Connectivity needs to become a simple utility in the long run, not a point of leverage for the cable company's marketing ambitions. The cable guys might not want to turn into commodity utilities, but the metamorphosis is inevitable. It'll just take a while.

Is Reed Hastings just pushing a brazenly Netflix-friendly agenda in politically correct terms or actually promoting an idea that's good for the Internet as a whole? You know where I stand -- now drop down to the comments box below to give me your take.

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Read/Post Comments (7) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 18, 2012, at 10:50 AM, rayj00 wrote:

    Hey comcast.....when can I watch Hells Kitchen on my internet ready refrigerator?

  • Report this Comment On April 18, 2012, at 12:43 PM, TMFZahrim wrote:

    That's actually not a far-fetched idea, @rayj00. Did you notice that home-entertainment electronics giants Samsung and LG also make refrigerators, washers, dryers, and dishwashers nowadays?

    High-end fridges really do have touchscreens in the door, complete with Wi-Fi Internet connections and a variety of apps. Yes, apps in the iPhone/iPad/Android sense:

    Slapping a Netflix, HBO Go, or Hulu app into that screen would not be hard at all, with the caveat that fridges might not support the right levels of media encryption. Yet.


  • Report this Comment On April 18, 2012, at 12:47 PM, TMFZahrim wrote:

    High-end Samsung and LG fridges already come with Internet-connected touchscreens today, @rayj00. They even run tablet/smartphone-style apps:

    I can't tell if your comment was serious or sarcastic, but the reality is that Hulu or Netflix on your fridge is a very real technical possibility right now. If consumers start asking for it, I'm pretty sure Samsung would make it happen.


  • Report this Comment On April 18, 2012, at 2:50 PM, TMFBent wrote:

    "Here, Hastings is accusing Comcast of breaking the principles of open competition and communications that made the Internet great in the first place. The principle of net neutrality is at stake here."

    Is it? Who paid to put the lines into those homes? Who maintains them? Who comes out to fix them when branches knock them off the house?

    It ain't Netflix.

    Is it really reasonable for anyone to expect them to treat every bandwidth sucker the same as they treat their own bandwidth-sucking service? I don't think so.

    Free exchange of ideasand data is not the same as free exchange of data capacity, something that some internet junkes can't seem to grasp.

  • Report this Comment On April 18, 2012, at 4:05 PM, TMFZahrim wrote:

    Seth, I'm afraid you're confusing monopolist tactics with ROIC there. Unfortunately, most American consumers don't have much of a choice in high-speed Internet services with two choices (cable and phone company) if they're lucky. Wireless data plans are rarely a realistic option (yet), and would typically come from another oligopoly anyway.

    Sure Comcast invested in those cable connections, but then they've made pretty darn sure to recoup that investment by charging consumers exorbitant rates for using the aging installations -- have you seen how deeply Comcast has depreciated its network assets?

    With real competition in the ISP market, Comcast wouldn't be able to get away with this as consumers would just vote with their feet and go to a provider that really does just serve up a clean, unlimited data pipe at a reasonable cost. This works in large chunks of Europe and the Far East; why not here?


  • Report this Comment On April 19, 2012, at 8:47 AM, 48ozhalfgallons wrote:

    "This works in large chunks of Europe and the Far East; why not here?"

    The Netflix quiz answer, "Uh... Congress!!"

  • Report this Comment On April 19, 2012, at 5:39 PM, TMFZahrim wrote:

    Some analysts see Hastings' posts as evidence that he's worried about new competition, given that nobody can use up 250GB of Comcast bandwidth caps by watching Netflix. Example:

    Allow me to point out that Netflix streams may use 1Gb of bandwith per hour today but that the data stream may grow wider in the future. Hastings has talked about ultra high definition streams before (up to 16x the bandwidth requirements of current HD content) as well as the potential for 3D streams (2x right away) and other future innovations we haven't even seen or thought of yet.

    So yeah, 250Gb is plenty for today's usage but may become a factor in 3-5 years. Just saying.


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