In the letter to shareholders that accompanied today’s earnings report, Netflix addresses the recent circuit court decision that was seen as a threat to net neutrality.
That decision could potentially be a problem for Netflix, because it could provide legal justification for Internet providers to reduce the speed at which Netflix video content is delivered unless the company pays the providers. As the letter (which specifically calls out Verizon for challenging net neutrality in court) puts it: “In principle, a domestic ISP now can legally impede the video streams that members request from Netflix, degrading the experience we jointly provide. The motivation could be to get Netflix to pay fees to stop this degradation.”
If that happens, Netflix says it would “vigorously protest,” but the company suggests that things probably won’t go that far. The letter, which is signed by CEO Reed Hastings (pictured) and CFO David Wells, argues it’s more likely that “ISPs will avoid this consumer-unfriendly path of discrimination”:
ISPs are generally aware of the broad public support for net neutrality and don’t want to galvanize government action.
Moreover, ISPs have very profitable broadband businesses they want to expand. Consumers purchase higher bandwidth packages mostly for one reason: high-quality streaming video. ISPs appear to recognize this and many of them are working closely with us and other streaming video services to enable the ISPs subscribers to more consistently get the high-quality streaming video consumers desire.
Again, this is a letter to shareholders, and in that context, it’s not surprising that Netflix wants to downplay worries that might lower the stock price. But there’s been other coverage suggesting that this isn’t as big a threat to Netflix as we might think. The Atlantic, for example, ran an article titled “No, Netflix Is Not Doomed By the Net Neutrality Decision“.
As for whether more laws are required to protect net neutrality, the letter argues that “less regulation is warranted” if Internet providers “adhere to a meaningful voluntary code of conduct,” while more regulation would be needed if they actually start “impeding specific data flows.”
[image via flickr/James Davidson]