Starts Taking On ISPs In The U.S. And Canada
In July of last year Netflix launched a streaming only video option in Canada
, which immediately raised the question of how well this service would play with the low bandwidth caps and high per gig overages common to most Canadian ISPs. Given that Netflix HD streaming potentially eats bandwidth like popcorn shrimp
and Canadian ISPs like Cogeco and Rogers currently charge up to $5 per extra gigabyte of usage
-- it seems inevitable that Netflix users and low caps won't get along as usage ramps up.
Last December CEO Reed Hastings told attendees of an investor conference that Netflix "wasn't particularly concerned" with the ever-tightening meter noose. However in more recent months, Netflix has made it clear that they've woken up to the threat of an unreasonably-constricted pipe.
In January Netflix declared that pay per byte on ever-cheaper terrestrial connectivity "was not economically necessary
," something we've been arguing for several years
as North American ISPs have lusted after more punitive pricing models. A shareholder statement
goes so far as to suggest that the kind of per gig overages common in Canada are "grossly overpriced":
Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary. Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.
Last week, Netflix's annual report touched on the Level 3 and Comcast fight for the first time, the report noting that ISPs have a very clear motivation for making Netflix's life more difficult:
Most network operators that provide consumers with access to the Internet also provide these consumers with multichannel video programming. As such, companies like Comcast, Time Warner Cable and Cablevision have an incentive to use their network infrastructure in a manner adverse to our continued growth and success.
Netflix's sudden call to arms on the metered billing discussion pivots on Canada, where the company offered a streaming-only video service last summer. As users in our Canadian broadband forums note
, Netflix is jumping head first into the discussion in Canada surrounding UBB (usage-based billing), a new filing
urging regulators to expand their inquiry into the need for UBB. That's in fairly stark contrast to earlier Netflix filings that had a more timid tone. Now Netflix is clearly urging Canadian regulators to dissect unproven talking points -- such as the fact that UBB is a matter of altruism, or that market forces can keep overage prices in check if the market isn't competitive. Netflix has woken from its doe-eyed slumber.
Don't think the ISPs and their literal armies of lobbyists, think tankers, PR firms and other policy vessels haven't noticed Netflix's stronger stance. Groups like Digital Society, funded with AT&T money via the fine fauxcademics at Arts and Labs
, has made Netflix an obvious target in recent months, with pieces attacking Netflix for "trying to get broadband customers to subsidize Netflix
" or supposedly violating network neutrality by trying to get Netflix buttons on some remote controls
. If Netflix wants to play in the DC arena and question some of the sacred incumbent ISP talking points (charging $5 per gigabyte is inevitable and about fairness!), you can expect this entire discussion to get much more entertaining as 2011 moves on.