Among the fringe speculation sometimes indulged in by media investment analysts has been the notion that Netflix (NASDAQ: NFLX) might not be content to merely not pay interconnection fees to Internet service providers.
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Hastings responds to analyst questions on Netflix's Q2 results. View the session. (Source: Netflix) |
In its net neutrality lobbying efforts, might the streaming service be angling for a paradigm in which ISPs pay Netflix the right to provide its streaming video to their customers, similar to the relationship pay TV operators have with programmers?
In Netflix's second-quarter earnings call, Chairman and CEO Reed Hastings emphatically addressed that with a no.
"The question comes up, should we charge ISPs for the privilege of carrying our data to their customers. I don't think so," Hastings told investors. "I think the Internet has this much more open classic architecture than classic cable, where we meet in the middle, we bring the bits to them, we don't charge them, they don't charge us, and both sides innovate. It's a very open structure. And I think then you get more competitors for Netflix frankly, but in the end what you get is this open, vibrant system that the Internet has been so famous for. And that's really the tradition that we grew up in, and that's what we're trying to see carried forward. And I'm optimistic about it, frankly."
Hastings had alluded to the cause of this optimism just a minute before. He believes that in its quest to create meaningful net neutrality, the Federal Communications Commission has rare opportunistic leverage as it considers merger approvals involving three of the top ISPs, Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC) and AT&T (NYSE: T).
"The most practical thing is for the FCC to make it a merger condition policy to have strong net neutrality, including no-fee interconnect," Hastings said. "In terms of the broad policy framework, it's tough in the U.S. There doesn't seem to be much chance that Congress will pass a new law, and you have some imperfect instruments in Title II and Section 706. But the FCC has the power in merger conditions, and there are certainly going to be a lot of mergers, to create strong net neutrality."
What Hastings doesn't want to see the Internet become: like cable.
"In the cable industry," he said, "there's constant conflict between the networks and the cable distributors, leading to blackouts and brownouts trying to figure out pricing. We would hate to see ISPs brownout or blackout certain Internet sites as they try to get payments."
For more:
- listen to the Netflix investor conference call
- read the earnings release (PDF)
Earnings summary: Sizing up pay TV earnings for the second quarter of 2014
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