Cable Trouble for Netflix

Netflix has made no secret of its stance that cable companies should be prevented from using their broadband networks to discriminate against competitors. But, as Sanford Bernstein points out, now that the government is looking into the issue, the message to Netflix may be: careful what you wish for.

The Justice Department is reportedly investigating whether cable companies are engaging in anticompetitive behavior in their treatment of Netflix and other online-video providers. One issue is the use of caps on the amount of bandwidth allotted to Internet subscribers. But for Netflix, an investigation could end up hurting more than it helps by hastening the cable industry's shift to usage-based pricing for broadband. Analysts say moving to usage-based pricing, a system under which heavy users pay more for data, is one way for cable and phone companies to alleviate government concern about caps. The Federal Communications Commission has already explicitly supported usage-based pricing, arguably lending it credence in the eyes of the Justice Department. But usage-based pricing poses a threat to Netflix because of its reliance on broadband providers to transmit its video-streaming product. If subscribers have to pay more to stream large amounts of data, they might be less inclined to use Netflix.