Last week, Netflix announced that it had added 2 million subscribers during the fourth quarter of 2012, bringing their total subscriber base to 33.3 million people, 27.1 million of them in the United States. What’s fueling this steady increase in subscribers has a lot to do with consumers viewing habits, but also in how Netflix is evolving as a company. Netflix started off as DVD subscription service, with DVD’s mailed to customers on-demand. Now, the majority of their business is made of up customers streaming movies over the Internet. According to some reports, Netflix now accounts for 33% of peak Internet traffic, an astounding number coming from one single company. Netflix continues to fight to secure more content to provide its customers, but has also taken a new track. Instead of merely being a provider of content, they’ve recently become a creator of original content. Just this week, Netflix released their first original series, House of Cards, a series starring Kevin Spacey with a budget of $100 million. According to an interview with GQ, Netflix aims to release 5 new original series per year, claiming their goal “is to become HBO faster than HBO can become us.”
This is very exciting news to anyone interested in the future of television, but is interesting given the relationship of content creators, content providers and Internet Service Providers (ISPs) in relation to net neutrality. Netflix has long been a proponent of net neutrality—the idea that ISPs shouldn’t be allowed to discriminate the speed of delivery depending on the content. Netflix has maintained that all content should be treated equally and has lobbied the FCC accordingly. But over the past year, Netflix has been developing and deploying a new delivery network called Open Connect. Open Connect, according to Larry Downes, is essentially a fast lane on the Internet, a delivery system that allows Netflix to discriminate against some users—some consumers will get faster delivery, some will get slower delivery. It will all depend on if your ISP has paid to use Netflix’s new Content Delivery Network.
In effect, Netflix has devised a system to provide better, faster content to its more valued customers, those whose ISP has paid to be apart of it. Netflix found a loophole in the FCC’s rules that allows it to violate the principles of net neutrality that Netflix has fought for years. Why? Because it benefits them, of course. It’s much cheaper for them to invest in infrastructure and convince ISPs to pay for their new network. That’s a great development for Netflix users which represent almost a third US consumers, but it should be a wakeup call for anyone interested in the fight over net neutrality.
By developing their own “fast lane” for preferred customers, Netflix has proven once and for all that calls for net neutrality are nothing more than rent-seeking. All the talk of ethics and morality, and calls for a “free and open” Internet have been nonsense—and their actions prove it. When given the opportunity to provide their customers with better service, while passing costs onto ISPs in the form of this new network, Netflix took it. But their calls for net neutrality, and others like them, should now fall on deaf ears as we can now see that the call for net neutrality by these Internet giants have been nothing more than a call for a government handout.
Netflix’s actions point to a larger trend that will be interesting to watch. If content providers such as Hulu, Spotify, Youtube and other streaming media outlets start building their own “fast lanes” dedicated to their own content, then we would see an elaborate system and infrastructure dedicated to faster content distribution built and put into place. If Netflix’s actions are any indication, content providers have a vested interest in ensuring their customers get their content delivered in a quality and timely manner. We may see more action from ISPs and content providers, forming alliances to build fast lanes to provide better and quicker service for their customers.
It’s in a company’s best interest to keep and earn new customers. If companies are left to pursue what’s in their best interests, then companies will compete and consumers win through better service and cost.
Zack Christenson is a digital tech writer for the American Consumer Institute