Who Should Pay for Netflix?

[Commentary] Reed Hastings asserted in rather dramatic fashion (with diagrams) that ISPs should build facilities (he said provide, but those facilities have to be built) to accept all of Netflix’s content -- indeed all of the content on the Internet -- without charge.

Failure to do so, according to Hastings, was a violation of “strong net neutrality rules” and bad public policy. I thought it might be helpful to unpack those assertions so we could get right down to the core of Netflix’s rather radical proposition -- that people who don’t subscribe to Netflix should nonetheless pay for Netflix. What Hastings’ blog post really comes down to is which consumers should pay for the additional bandwidth being delivered to Netflix’s customers.

In the current structure, the increased cost of building that capacity is ultimately borne by Netflix subscribers. It is a cost of doing business that gets incorporated into Netflix’s subscription rate. In Netflix’s view, that’s unfair. In its view, those additional costs, caused by Netflix’s increasing subscriber counts and service usage, should be borne by all broadband subscribers – not just those who sign up for and use Netflix service.

When Netflix delivered its movies by mail, the cost of delivery was included in the price their customer paid. It would’ve been neither right nor legal for Netflix to demand a customer’s neighbors pay the cost of delivering his movie. Yet that’s effectively what Hastings is demanding here, and in rather self-righteous fashion. Netflix may now be using an Internet connection instead of the Postal Service, but the same principle applies. If there’s a cost of delivering Hastings’ movies at the quality level he desires -- and there is -- then it should be borne by Netflix and recovered in the price of its service. That’s how every other form of commerce works in our country.

[Cicconi is Senior Executive Vice President-External and Legislative Affairs responsible for AT&T’s global public policy organization]