Netflix warns of “draconian scenario” if the US doesn’t uphold net neutrality

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In their letter to shareholders (pdf), released today along with fourth-quarter earnings, Netflix CEO Reed Hastings and CFO David Wells took a strong stance on internet regulation known as “net neutrality.” The streaming video company had mostly stayed on the sidelines of this debate, but a recent US court ruling seems to have forced its hand. (Read this Q&A for a good explanation of that decision and what might happen next.)

Here’s the relevant passage from Netflix:

Unfortunately, Verizon successfully challenged the U.S. net neutrality rules. In principle, a domestic ISP [internet service provider] 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. Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver.

The most likely case, however, is 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.

In the long-term, we think Netflix and consumers are best served by strong network neutrality across all  networks, including wireless. To the degree that ISPs adhere to a meaningful voluntary code of conduct, less regulation is warranted. To the degree that some aggressive ISPs start impeding specific data flows, more regulation would clearly be needed.