Netflix continues to throw stones at the common economic practice of usage-based pricing, to which broadband carriers are naturally migrating, all while Netflix stands inside a glass house filled with mis-managed usage pricing practices.

Netflix as Stone Thrower:
In a concerted campaign for net neutrality regulation that would ban broadband usage caps or pricing, Netflix has generated a:

Netflix as Glass House:

  1. Netflix has long priced and capped its DVD business based on consumer usage.
    • ~60% of Netflix’ users, or 15m of Netflix’ 25m customers, are still subject to Netflix usage caps and pricing, the practice Netflix claims is anti-competitive, if other companies do it.
  2. Netflix’ recent whopping 60% basic price increasefrom $10 to $16, affects 60% of Netflix’ customers and must be paid in order to continue to get the same service as before, whereas in contrast, the bandwidth pricing caps Netflix objects to as anti-competitive represent a small price increase for the few percent of bandwidth-hungry broadband customers who choose to consume extraordinarily high amounts of bandwidth.
  3. Netflix understands that market and technological changes require Netflix to abruptly change their business model 180 degrees, from a mainly a DVD subscription business with a fast-growing streaming business, to primarily a streaming-only business with a deceasing DVD subscription business, but in contrast, Netflix can not or will not understand how the explosion of bandwidth-intensive video traffic strains Internet network infrastructure and requires an incremental adjustment in the broadband business model from unlimited bandwidth for everyone, to effective bandwidth pricing caps for a small percentage of bandwidth-hungry customers.
  4. Netflix has mismanaged its business so much that it must force 60% of its customers to suddenly pay as much as 60% more for the same service as before, when in contrast, the broadband industry is managing its  businesses responsibly with a long term glide-path pricing transition that affects only a small amount of customers and that enables those customers affected to manage their own costs to avoid the effective price increase if they do not want to pay it.
  5. Netflix is effectively forcing their customers to pay as much as 60% more to effectively fund Netflix’ own major infrastructure upgrade to stream video to 43 new countries (when U.S. customers paying for the price increase will get no benefit from that new international expenditure), when in contrast, broadband providers raise investment capital via stock or debt offerings from capital markets in order to pay for their infrastructure upgrades without disrupting most all consumers’ monthly bills.
  6. Finally, Netflix’ is attempting to falsely frame broadband usage pricing and caps as anti-competitive and a violation of net neutrality, when the FCC formally approved broadband usage-based pricing, and when other leading net neutrality proponents support usage-based pricing.
    • FCC: The FCC’s December Open Internet Order said in para 72: that the FCC “does not prevent broadband providers from asking subscribers who use the network less to pay less,and subscribers who use the network more to pay more.“…  “prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.
    • Tim Wu, former Chairman of FreePress and the person credited with coining the term “net neutrality” told the Washington Post: “…if you are cranking Netflix all day and downloading 10 gigs, I’ve never thought it unreasonable to have to pay more. That’s a billing question, not a net neutrality question. There is no constitutional right to unlimited bandwidth.”
    • Gigi Sohn, President of Public Knowledge, blogged the following about usage caps in 2008: “For the past two years, we have been telling broadband Internet service providers that rather than kicking off heavy bandwidth users from their networks without notice or interfering with bandwidth-intensive traffic a la the Bit Torrent-Comcast controversy, they should instead charge consumers a flat fee for a certain amount of bandwidth, and then charge a per-bit metered rate for usage that goes beyond the limit. This would be similar to the cellphone model to which Americans have become accustomed – you pay a flat fee for a certain amount of minutes, and then a per-minute charge for every minute thereafter. This model makes sense for several reasons. First, it provides both transparency and certainty – the customer knows what their limits are. Second, it makes unnecessary controversial “network management” decisions like Comcast’s decision to throttle Bit Torrent.”

In sum, Netflix cannot credibly claim that broadband usage based caps and pricing are anti-competitive when Netflix, the largest video subscriber service in the United States, engages in relatively much more severe capping of video DVD usage, for much more of its customer base, and for a much higher relative increase in price… especially when the FCC permits the practice, and staunch leading net neutrality proponents also support broadband usage pricing and caps.

 The facts show that Netflix is throwing stones from a glass house.

Previous Netflix posts:
Fact-Checking Netflix’ Net Neutrality WSJ Op-ed;
Netflix’ Open Internet Entitlement Hubris;
Sinking Level 3 Seeking FCC Internet Regulation Bailout;
Level 3-Netflix Expose their Hidden Agenda; and
Level 3 & Net Neutrality Ignorance Unleashed.

 

Those interested in the ultimate legal fate of the FCC’s beleaguered Open Internet order, should not miss Randy May’s outstanding analysis of the D.C. Appeals Court’s latest thinking on the FreeStateBlog.

Simply, Randy keenly spotlights a very relevant recent D.C. Court of Appeals decision overturning an SEC rule as a precursor/analogous decision of how that court will likely view the FCC’s controversial Open Internet Order.

  • Randy shows the Court currently has little patience for sloppy unsupported legal decisions (like the FCC’s Open Internet order) where the agency “failed to make a rational connection between ‘the facts found and the choices made.'”

Randy is dead on that this Court is very likely to show very little tolerance for the FCC’s scant and lame justification for net neutrality regulation — a justification that can be encapsulated in the well-known phrase of those who can’t defend their position on the merits: “because we say so.”

  • This is more evidence that the FCC’s net neutrality regulations are “dead regs walking.”

 

The latest strategic demonization of private enterprise by the radical information commons movement to promote net neutrality comes from Ms. Rebecca Mackinnon of the New America Foundation, who recently charged that private corporations have too much power over the Internet and effectively should be regulated as common carriers, when she previewed her upcoming book “The Consent of the Governed” at the TEDGlobal conference in Edinburgh, which was covered by the New York Times.

Ms. MacKinnon in her talk, employed a ridiculously bad and outrageous analogy that Internet users should fight against Internet companies’ Internet tyranny like the barons in England fought King John’s tyranny in 1215 by writing the Magna Carta.

  • Ms. MacKinnon charged: “The sovereigns [corporations]of the Internet are acting like they have a divine right to govern.”
  • Obviously desperate to associate with, and legitimize her radical cause with the historical spark and bedrock event of today’s freedom and democracy, the Magna Carta, Ms. MacKinnon trivializes the grand importance and relevance of the Magna Carta by misleading her audience that today’s situation is somehow analogous — when her analogy could not be further than the truth.

Consider how the 1215 Magna Carta baseline could not be less analogous with today’s Internet baseline.

  • In 1215, most all people were starving, plague-suffering serfs whose lives were “brutish and short,” and who enjoyed no choices, rights, liberties or due process to speak of.
    • Today most all Internet users are relatively affluent citizens with health and prospects of long life, who enjoy market competition, constitutional rights, freedoms, and the democratic power to elect or throw out their leaders and representatives.
  • In 1215, King John was a vicious and duplicitous tyrant and killer worthy of fear, opposition and condemnation — a despot with minimal redeeming value.
    • Today, corporations must compete for Internet users’ business and they can lose them if they do not satisfy the expectations and needs of the user; and today corporations provide an ever-growing array of products, services and innovations that enhance and protect users’ quality of life.
  • In 1215, King John had no accountability — zero.
    • Today, most Internet users enjoy the freedom and choice to take their Internet access business to a competitor; they have contractual rights in their terms of service; they have complaint resolution processes; and they are overseen by democratic governments with separation of powers to safeguard against despotic exercise of power like King John exercised.
  • In 1215, the offenses against people were real deadly and pervasive.
    • Today, most all of Ms. MacKinnon’s alleged threats to the Internet are hypothetical or imagined.

In short, Ms. MacKinnon’s Magna Carta implication that modern day corporations in democratic nations are somehow analogous to a vicious despotic Dark Ages killer like King John, is outrageous, illogical, and intellectually vacuous.

 

Media reports apparently missed the subtle, but important and telling political weakening since April of the Administration’s official position in defense of the FCC’s beleaguered Open Internet Order.

  • This relative official softening of the Administration’s opposition to efforts to overturn the FCC’s controversial net neutrality regulations means that it is more likely on the marginthat:
    • This fall the Senate will passa Resolution of Disapproval of the unpopular, and small-constituency-supported, FCC Open Internet Order, and
    • The President in the end, will not veto a bipartisan, bicameral rejection of unnecessary regulation of the Internet, which threatens the economic growth and job creation, and which has miniscule voter support.

Bottom-line the Administration officially signaled, albeit cryptically, that it would not veto the House appropriation bill that funds the FCC, among other agencies, specifically over the Congressional prohibition of the FCC spending money on implementing the FCC Open Internet Order.

  • In the 7-13-11 Statement of Administration Position (SAP,) media reports missed the critically important distinction that the House’s FCC net neutrality funding prohibition did not make the list of objectionable items that “the Administration strongly opposes,” and that “his senior advisors would recommend a veto.”
    • The only “veto-bait” provisions in the appropriations bill according to the SAP are: defunding health care reform, undermining Wall Street Dodd-Frank reform, and changing Cuba policy.

The overriding dynamic at work here is that the economy is lackluster and job creation is anemic and we are approaching the 2012 political season.

The FCC’s ~9 month delay in publishing the Open Internet Order in the Federal Register appears to have backfired on the FCC because now the unpopular order will be thrown into the politically-driven Senate Resolution of Disapproval process this fall right in the midst of the beginning of the politically-charged Presidential election campaign season.

The political trend here appears to be as follows…

  • From April to July, the Administration goes from threatening a veto over the House Resolution of Disapproval to notthreatening to veto a House provision that would defund implementation of the order…
  • Senate Democrats up for election in 2012 then see that net neutrality is not a high enough priority for the Administration to veto an appropriations bill over in the House, so it becomes less of a priority for Democratic Senators to fight for in the Senate appropriations vote process…
  • If the de-funding of the FCC order then survives the appropriations process, then the Senate Resolution of Disapproval vote becomes a “free” vote for Senate Democrats up for re-election and the Senate disapproval resolution passes…
  • With the FCC order defunded, a Presidential veto then would basically be symbolic, and not worth it politically, given:
    • The Administration does not want to support unjustified regulations that threatens jobs;
    • A miniscule number of voters care about or support net neutrality; and
    • All 95 congressional candidates up for election in 2010 that pledged support for net neutrality  — lost.

While lots can change in the months ahead to possibly change this political dynamic, the overriding political trend is clear — as long as the economy and job creation are weak — votes or vetoes supporting net neutrality are political losers.

***

  1. 4-4-11 SAP hereon House Resolution of Disapproval;
  2. 7-13-11 SAP here on House Appropriations Bill that defunds net neutrality enforcement by the FCC.

 

Kudos to Ev Erhlich for an outstanding Huffington Post op-ed: entitled: “Why Liberals Should Think Twice About Net Neutrality.”

  • It effectively explains why net neutrality violates common sense and why opposition to net neutrality regulation should not be a partisan issue.