Uncle Sam Loves Netflix

Netflix (Nasdaq: NFLX  ) may soon be given the chance to live up to its name.

According to multiple press reports, FCC Commissioner Julius Genachowski last week echoed Google (Nasdaq: GOOG  ) in asking the government and telecom industry to accept the challenge of connecting 100 million U.S. households to the Web at 100-megabit-per-second speeds by 2020.

Genachowski's comments are important for Netflix. CEO Reed Hastings has said from the beginning that his is a Web-based and Web-built business. With a speed of 100 megabits per second to the home available, he'd have a platform for delivering high-definition movies, instantly.

How can we know? Today's broadband networks operate at or slightly above 2 megabits per second, or 1/50th the rate Genachowski is aiming for, Akamai Technologies (Nasdaq: AKAM  ) reports in its quarterly "State of the Internet" report.

A bigger boon for Netflix
No doubt Apple (Nasdaq: AAPL  ) and Amazon.com (Nasdaq: AMZN  ) would also benefit from a national network of super-fast Web connections, but Netflix would benefit more. It doesn't deal in downloads, as these others do. Even TiVo's (Nasdaq: TIVO  ) on-demand service, offered through Amazon, is download-driven.

Netflix, on the other hand, streams movies from its servers, typically with help from Akamai's primary Web-content delivery rival: Limelight Networks (Nasdaq: LLNW  ) .

Downloads are a stopgap. They allow for convenient delivery of movies and other video at a manageable broadband pace. The lag time isn't bad, either. I'm usually able to watch the movies I've downloaded from Apple's iTunes store within minutes of clicking "accept," regardless of whether the file was still downloading.

Ultra-high-speed broadband, when lit, would make these sorts of downloads more of a luxury than a necessity.

Of course, Netflix would have work to do to profit from whatever infrastructure buildup the feds approve, whether it's WiMAX, LTE, or dark fiber. At the very least, the company would have to battle-test its own data center operations to avoid the sort of outages that hit the site last week.

Such is the price of extraordinary growth; you can bet Hastings would be happy to pay. This, after all, is the company that famously said in an internal HR presentation that "adequate" performance merits a "generous severance package."

Hastings expects the extraordinary from his people and his company. If Genachowski's plea is heard, he'll get a boost from some extraordinary technology, too.

What steps will Netflix take to benefit from a national high-speed broadband rollout? Share your thoughts in the comments box below.

Amazon, Apple, and Netflix are Motley Fool Stock Advisor selections. Akamai and Google are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock picking team. He had stock and options positions in Apple and stock positions in Akamai and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is training to operate a snowplow in its off hours.


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  • Report this Comment On February 22, 2010, at 6:01 PM, mattack2 wrote:

    Why are downloads a stopgap?

    I personally would almost always prefer to download instead of streaming.. because I could, if necessary, wait for the entire download and NEVER have glitches in the video/audio. The only reason I'd not want to have downloads would to save disk space (e.g. I'd stream between Tivos on an in-house network if I could).

    But of course I prefer netflix' all you can eat model too. (I'm a longtime netflix user but haven't actually tried the streaming yet, as my Tivos aren't hooked to the net.)

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