Tag Archives: Netflix

Netflix, Net Neutrality, and Beyond

Thesis statement: The internet needs more regulation to prevent power houses from utilizing their position to promote their position.

The basis of my argument revolves around a fundamental concept: the internet is a utility. The internet has become a fundamental part of our lives similar to electricity. I know that I personally feel lost if I am ever without an internet connection. On that note, the internet needs to be regulated similar to other industries. A key concept that governs internet regulation revolves around net neutrality – which is a principle that all internet traffic is treated equally. That means that data and broadband services cannot be manipulated or altered based on the type of application being used by the consumer. An example that is questioned to violate net neutrality recently involves Netflix – the streaming video an TV show provider.

In an article published by the Wall Street Journal titled “Netflix Recants on Obamanet,” author L. Gordon Crovitz calls out Netflix for violating net neutrality. “Last week, Netflix violated a core tenet of net neutrality when it launched its service in Australia as part of a “zero rating” offering by broadband providers, which excludes its video from data caps. Net neutrality advocates want to outlaw such deals. Netflix shrugged off this objection: ‘We won’t put our service or our members at a disadvantage.’” So Netflix clearly violated net neutrality and admitted to it, but there is no organization with authority or jurisdiction to enforce it yet. Now although the move by Netflix was to advantage their consumers (rather than attack competitors), they still violated net neutrality and faced no consequences. It is worth noting that I am picking on Netflix here simply because they are the largest provider of online streaming video services and are best positioned to be able to take advantage of the lack of internet regulation. You could even go far enough as to say that Netflix has a monopoly (which it is economically beneficial to have more regulation to prevent monopolies).

Those familiar with government regulation regarding monopolies may ask: if Netflix is already a monopoly, then why isn’t any legislation being brought about onto them? My response is that the online video streaming service industry is not that large or quintessential to consumers as say telecom. For that reason, the telecommunications industry is much more heavily regulated and recent laws have been enacted to prevent a duopoly among the two largest wireless telecom providers Verizon VZ and AT&T T. It is also for this very reason that the internet needs more regulation. While wireless telecom has scale and is concise in its services (calls, texting, data, etc.) the internet is highly fragmented and has many different facets (web browsing, broadband, streaming, data, etc.). So it is important that there is general oversight over the internet to prevent monopolies from occurring in specific segments to promote capitalism. Because although Netflix might not be considered a monopoly by traditional measures, they possess unique pricing power and capability to take advantage of the lack of internet regulation.

 

Revised Post 1: Cable Television: Adapt or Die

The past few years have seen a shift in the market for cable television.  People have been increasingly drawn to services such as HBO GO, Netflix, and other pay-per-view platforms that allow for binge watching.  Accompanying this increasing demand for premium cable and all sorts of pay-per-view type platforms is the loss of viewership for standard cable companies.  In this new era for media intake, cable providers must adapt in order to survive.

In a Wall Street Journal article, George Stahl and Keach Hagey collaborate to detail the effects of this shift on Time Warner Inc.  The article states:

On a call with analysts, Time Warner Chief Executive Jeff Bewkes acknowledged declines in the number of subscribers at the Turner networks, the company’s main driver of operating profit, and weakness in the cable advertising market.

Bewkes draws attention to the advertising dilemma.  Cable providers need advertisements to drive revenues but it’s these same advertisements that are driving viewers away towards premium services.  This acts as a sort of negative feedback loop for cable revenues.  Despite this, Turner networks which includes stations such as TNT, TBS, and CNN, has actually recorded quarterly profits.  This is a result of Time Warner’s slight adaptations.  Time Warner credits their gains in overall revenue to their addition of premium content coupled with subscription fees, but attributes their losses in advertising revenue to a decline in viewership.

Other companies are also adapting to this shift in the market.  Another Wall Street Journal article, authored by Miriam Gottfried, details the recent deal made between Starz and Lions Gate Entertainment:

On Wednesday, Lions Gate Entertainment announced a deal with Liberty Media Chairman John Malone that would give it 14.5% of the voting power in premium cable network Starz , which Mr. Malone controls. In exchange, Mr. Malone gets a 3.43% stake in Lions Gate and a seat on its board.

In my opinion, this is a profitable move by both parties.  Starz has been struggling lately due to lackluster content compared to the content of its main premium cable rivals, HBO and Showtime.  Lions Gate Entertainment, which has historically produced quality content, recognizes that Starz is a weak player in an expanding market.  With this new content provided by Lions Gate Entertainment, Starz has the opportunity to turn its performance around, benefiting both Starz and Lions Gate Entertainment.

In the years to come it will be interesting to see how media providers react to these shifts in demand.  Will cable become obsolete?  Will new technology create a shift back in cable’s favor? Ultimately, cable providers need to look for new ways to generate profits from advertisements if they hope to compete with premium providers and other pay-per-view services.