Netflix’ Glass House Temper Tantrum over Broadband Usage Fees
July 26, 2011
Netflix continues to throw stones at the common economic practice of usage-based pricing, to which broadband carriers are naturally migrating, all while Netflix stands inside a glass house filled with mis-managed usage pricing practices.
Netflix as Stone Thrower:
In a concerted campaign for net neutrality regulation that would ban broadband usage caps or pricing, Netflix has generated a:
- Supportive Washington Post blog;
- New York Times editorial,
- Wall Street Journal op-ed,
- Shareholder letter, and
- Faux net neutrality complaint with Level III-Netflix.
Netflix as Glass House:
- Netflix has long priced and capped its DVD business based on consumer usage.
- ~60% of Netflix’ users, or 15m of Netflix’ 25m customers, are still subject to Netflix usage caps and pricing, the practice Netflix claims is anti-competitive, if other companies do it.
- Netflix’ recent whopping 60% basic price increasefrom $10 to $16, affects 60% of Netflix’ customers and must be paid in order to continue to get the same service as before, whereas in contrast, the bandwidth pricing caps Netflix objects to as anti-competitive represent a small price increase for the few percent of bandwidth-hungry broadband customers who choose to consume extraordinarily high amounts of bandwidth.
- Netflix understands that market and technological changes require Netflix to abruptly change their business model 180 degrees, from a mainly a DVD subscription business with a fast-growing streaming business, to primarily a streaming-only business with a deceasing DVD subscription business, but in contrast, Netflix can not or will not understand how the explosion of bandwidth-intensive video traffic strains Internet network infrastructure and requires an incremental adjustment in the broadband business model from unlimited bandwidth for everyone, to effective bandwidth pricing caps for a small percentage of bandwidth-hungry customers.
- Netflix has mismanaged its business so much that it must force 60% of its customers to suddenly pay as much as 60% more for the same service as before, when in contrast, the broadband industry is managing its businesses responsibly with a long term glide-path pricing transition that affects only a small amount of customers and that enables those customers affected to manage their own costs to avoid the effective price increase if they do not want to pay it.
- Netflix is effectively forcing their customers to pay as much as 60% more to effectively fund Netflix’ own major infrastructure upgrade to stream video to 43 new countries (when U.S. customers paying for the price increase will get no benefit from that new international expenditure), when in contrast, broadband providers raise investment capital via stock or debt offerings from capital markets in order to pay for their infrastructure upgrades without disrupting most all consumers’ monthly bills.
- Finally, Netflix’ is attempting to falsely frame broadband usage pricing and caps as anti-competitive and a violation of net neutrality, when the FCC formally approved broadband usage-based pricing, and when other leading net neutrality proponents support usage-based pricing.
- FCC: The FCC’s December Open Internet Order said in para 72: that the FCC “does not prevent broadband providers from asking subscribers who use the network less to pay less,and subscribers who use the network more to pay more.“… “prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.“
- Tim Wu, former Chairman of FreePress and the person credited with coining the term “net neutrality” told the Washington Post: “…if you are cranking Netflix all day and downloading 10 gigs, I’ve never thought it unreasonable to have to pay more. That’s a billing question, not a net neutrality question. There is no constitutional right to unlimited bandwidth.”
- Gigi Sohn, President of Public Knowledge, blogged the following about usage caps in 2008: “For the past two years, we have been telling broadband Internet service providers that rather than kicking off heavy bandwidth users from their networks without notice or interfering with bandwidth-intensive traffic a la the Bit Torrent-Comcast controversy, they should instead charge consumers a flat fee for a certain amount of bandwidth, and then charge a per-bit metered rate for usage that goes beyond the limit. This would be similar to the cellphone model to which Americans have become accustomed – you pay a flat fee for a certain amount of minutes, and then a per-minute charge for every minute thereafter. This model makes sense for several reasons. First, it provides both transparency and certainty – the customer knows what their limits are. Second, it makes unnecessary controversial “network management” decisions like Comcast’s decision to throttle Bit Torrent.”
In sum, Netflix cannot credibly claim that broadband usage based caps and pricing are anti-competitive when Netflix, the largest video subscriber service in the United States, engages in relatively much more severe capping of video DVD usage, for much more of its customer base, and for a much higher relative increase in price… especially when the FCC permits the practice, and staunch leading net neutrality proponents also support broadband usage pricing and caps.
The facts show that Netflix is throwing stones from a glass house.
Previous Netflix posts:
Fact-Checking Netflix’ Net Neutrality WSJ Op-ed;
Netflix’ Open Internet Entitlement Hubris;
Sinking Level 3 Seeking FCC Internet Regulation Bailout;
Level 3-Netflix Expose their Hidden Agenda; and
Level 3 & Net Neutrality Ignorance Unleashed.