Advertisement

Netflix Reenters Fight Over Open Internet Rules as Government Anticipates Restoring Net Neutrality

Netflix is once again going public and taking a stand on net neutrality.

The company was noticeably absent in the fight to preserve net neutrality six years ago when it was struck down by the Trump administration. But as the government prepares to restore the rules, the streaming giant is stepping up on the issue and making its case to the agency.

More from The Hollywood Reporter

Netflix, in comments to the Federal Communications Commission filed Wednesday, backed proposals to bar internet service providers from imposing additional fees to avoid having their content blocked or throttled. Absent federal open internet protections, it argued that ISPs — many of which own or are affiliated with streaming services via special offers and bundles — will turn to degrading the quality of competitors’ content or increasing their costs.

Of course, the landscape of 2024 is a vastly different one than in 2010, when the Obama administration first passed net neutrality rules. It is even a vastly different world than 2017, when the Trump FCC rolled back those rules.

In 2010, Netflix had 20 million subscribers, and in 2017, it had 117.5 million. Now, it has more than 247 million streaming subscribers, and its video delivery has become a utility for many Americans, the first place they go for video.

And while the streaming competition in 2010 consisted of Hulu, YouTube and almost no one else, in 2024, there are abundant streaming options, including, notably, services owned or affiliated with companies that could be subject to net neutrality rules.

Comcast, the largest broadband internet provider in the U.S., owns NBCUniversal, which in turn owns the Peacock streaming service. And a number of internet providers cut deals with streaming services, offering them to free to their customers, or bundling them with other offerings, raising concerns that those services could be given priority for precious (and expensive) bandwidth.

Our business relies on a symbiotic relationship between a thriving creative industry and a thriving Internet ecosystem,” Netflix wrote in its FCC filing. “Our 247 million Netflix members in more than 190 countries depend on us to deliver a wide range of excellent entertainment, and on a well-functioning Internet to access this content. At the same time, the demand for broadband connectivity is based on the availability of great online content and services, and many Internet Service Providers (‘ISPs’) promote their Broadband Internet Access Services (‘BIAS’) by using Netflix’s content. Regulatory policies that support an open Internet, with robust investment in infrastructure, competition, and continuous innovation best serve consumers. Netflix supports open Internet rules.”

As it happens, Comcast and Netflix already have a complicated history over net neutrality. In 2014, Netflix cut a deal with Comcast to provide a faster connection for its subscribers, and then-CEO Reed Hastings wrote a blog post calling out the practice:

“If this kind of leverage is effective against Netflix, which is pretty large, imagine the plight of smaller services today and in the future,” he wrote. Now, of course, Netflix is so big that it can be confident that users would revolt if internet providers degraded the service.

In October, the FCC voted to initiate a process that would restore net neutrality rules after they were struck down in 2017 under former President Donald Trump’s administration. Netflix, which was vocal on the issue just a few years before, when it raised concerns about how Comcast was handling its internet traffic, mostly stayed away from that fight, with executive chairman Reed Hastings suggesting that the streamer is unconcerned since it’s “big enough to get the deals we want.”

Since then, as consumers increasingly turned to watching over-the-top content — thus bypassing ISPs’ services, not only on the computer but also on TV — it’s become clear that such providers, like Netflix, now compete with ISPs.

In a nod to the changing entertainment consumption landscape, Netflix said that ISPs “have a clear incentive to advantage their affiliated services.”

The FCC’s proposed rules acknowledge that “many major ISPs are affiliated with [over-the-top media] services or continue to offer competitive vertically integrated services.” As part of its regulation, the agency contemplates prohibiting them from charging websites or content delivery services a fee to avoid having their content blocked or throttled, as it did in 2015.

“The threat of ISP traffic manipulation undermines competition between ISP-affiliated and non-affiliated content providers by forcing independent companies, such as Netflix, either to pay an access fee to the ISP or to suffer congestion and quality degradation compared to their competitors that are affiliated with that ISP and do not have to pay this fee,” the company said in a brief.

The Netherlands’ handling of net neutrality rules may be instructive. In 2016, a Dutch ISP launched an online content service but was unable to grant preferential treatment under new open internet protections. Because of these rules, the company chose to double the size of its data caps, in part, to accommodate its new video offering. If it was allowed to favor its own service, it may have wielded its market power to encourage consumers to subscribe to its offering instead of those of competitors.

Netflix also warned of South Korea’s pivot in 2016 allowing ISPs to charge additional fees to third-party providers. This, in turn, drove investment away from the country, with Twitch shutting down operations in the region starting this year, among other things.

Court precedent largely backs Netflix’s arguments that ISPs have the market power to restrict competitors’ traffic. The U.S. Court of Appeals for the District of Columbia acknowledged in 2017 that they have this power because “all end users generally access the Internet through a single broadband provider” and “that provider functions as a ‘terminating monopol[y].”

Part of this control, Netflix contended, flows from the dynamic that it’s easy to change content providers but difficult to change ISPs. Netflix users, for example, can cancel their subscriptions online without having to call the company or schedule a visit with a technician. In contrast, the switching costs and barriers are high when dealing with ISPs. Perhaps most problematic: Many Americans don’t have an alternative broadband provider because they live in an area with limited or no choice of ISPs. Even where there is competition, it’s often insufficient to deter “non-neutral behavior” given the “broadband duopoly” in most regions, the company said.

“Today’s online entertainment marketplace is intensely competitive, which benefits consumers,” Netflix wrote. “Fostering that competition, however, depends on protecting the open Internet.”

After net neutrality rules were repealed, a patchwork of state laws have mostly preserved open internet protections. Almost immediately after the FCC rescinded regulation, Hawaii, Montana, New Jersey, New York, Rhode Island and Vermont, among other states, issued executive orders requiring companies seeking to contract with those states to confirm that they would meet the agency’s pre-2018 network neutrality rules.

Read Netflix’s FCC filing, below.

Best of The Hollywood Reporter