Netflix is a vigorous supporter of “Network Neutrality” -- as long as the definition is loose enough to mean that it’s free to wangle preferential treatment from Internet service providers.
To Netflix, its Open Connect content delivery network program is an all-around win: By caching frequently accessed (and high bit rate) video in ISPs’ data centers, Netflix saves money on CDN costs; ISPs can cut upstream bandwidth utilization; and end users get a better streaming experience.
Netflix argues that this just makes the Internet better for everyone, and doesn’t cost ISPs a dime since Netflix is footing the bill to install the CDN caches anywhere the providers want.
But some ISPs are chafing at Netflix’s offer. Time Warner Cable has gone on record to complain that it’s unfair for Netflix to hold back “super HD” and 3D content unless a broadband provider plays ball and opens its doors for Netflix's servers (see TWC: Netflix Is Withholding Content to Gain 'Unprecedented' Access to ISPs).
What’s really going on here?
According to Netflix, the real deal is that Time Warner Cable wants to charge the Internet streamer a fee for the privilege of siting its CDN caches in the MSO’s network. And, potentially, TWC doesn’t want to facilitate a service that could wean its own subscribers off cable TV.
But TWC is correct in that there’s no technical reason why on-site CDN caches are required for Netflix to deliver its allegedly-better-than-full-HD and 3D video. For Netflix, what it does is make it cheaper to deliver video encoded at higher bit rates.
So is it fair for Netflix to receive special access to ISP facilities, for no cost? What about Amazon.com or Hulu? Should they be granted free rack space, too? For ISPs, it’s a slippery slope.
An analog of this very same issue is playing out at the U.S. Postal Service.
Last week, a federal appeals court ruled that the USPS is unfairly giving Netflix’s DVD mailers preferential treatment. GameFly, which offers a videogame DVD-by-mail service, filed a discrimination complaint with the Postal Regulatory Commission in April 2009, requesting access to the same specially designed trays and containers and hand processing, which the USPS provides to Netflix free of charge.
The USPS denied GameFly, which appealed. Now the U.S. Appeals Court for the D.C. Circuit has agreed that the Postal Service was arbitrarily and capriciously giving Netflix special consideration that it was denying to GameFly.
If ISPs give special access to Netflix, they will certainly be accused of denying the same privileges to others. And such complaints, whether you want to label them Network Neutrality violations or not, would certainly be valid.
In Netflix’s view of the world, its first-mover advantages -- both in DVDs-by-mail and Internet video streaming -- mean that it should get access to cost-saving measures from distributors (i.e., the Postal Service and ISPs). But by the same token, that disadvantages competitors who lack the same clout.
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