Netflix, the Web's hottest video rental service, is worried that bandwidth providers could abuse their position as the gatekeepers of Internet access to hamstring competing Web-video distributors.
As the Federal Communications Commission continues to consider proposals for Net neutrality regulations, Netflix recently asked the agency (PDF) to adopt rules that protect Web video fans from anti-competitive practices.
"Network operators control the delivery pipes and generate significant revenue from content that travels over those pipes," Netflix wrote to the FCC. These operators "provide both the means and motive for discriminating against new ventures that might threaten revenue sources of the network operators."
Netflix's comments to the FCC, first reported by The Washington Post on Monday, is a signal that the company sees a showdown coming with Comcast, Time Warner, and other broadband providers over the distribution of online video.
While seemingly everyone predicts the Web will one day be the preferred means of distribution for on-demand film and TV shows, Netflix has aggressively prepared for that day by building up its Web-streaming service and partnering with set-top box makers that enable users to watch Internet-video on TV sets. But in the future, cable and satellite companies may have the upper hand when it comes to acquiring Internet rights to films and TV shows.
The bigger network operators possess huge numbers of subscribers (for example, Comcast boasts 25 million cable TV subscribers and 15 million Internet customers), and can afford to pay big bucks for content. The cable guys have also established strong ties to the studios after decades of heavy spending in Hollywood.
Netflix has 12 million subscribers--many of whom pay only $10 a month for the service--and has at times clashed with the studios over acquiring access to content. Typically, Hollywood sees far better returns from cable and satellite providers than Web services, such as Netflix and Apple.
In comments to the FCC, Netflix wrote: "There is substantial discrimination and consumer harm if a network operator uses its ownership affiliation with a (studio or TV network) or even its bulk buying leverage with a video content provider, to deny attractive programming to a competing online video service."
The "ownership affiliation" that Netflix is obviously referring to is Comcast's proposed merger with NBC Universal. The deal would give Comcast, the nation's largest cable company, a huge say in where NBC's content goes. /p>
Comcast has said that it has no intention of hurting NBC by limiting how the company distributes shows. Another concern for Netflix is that ISPs could use the so-called TV Everywhere initiative as another means to control distribution. TV Everywhere calls for cable and satellite companies to offer subscribers Web access the same content they can watch on their TVs--just as long as they keep paying that subscription fee.
In a statement last summer about TV Everywhere, Comcast said that it intends to roll out the service in a "manner that is consumer-friendly, pro-competitive and non-exclusive."
This is what Netflix would like to see the FCC do nonetheless.
First, Netflix supports a proposed rule known as a "transparency principle" that calls for network operators to disclose "practices that affect the consumers' ability to access content, use devices or services, and run applications," Netflix wrote.
"The Commission and consumer and other watchdog groups can monitor these disclosures," Netflix added, "to ensure that the associated practices do not violate the other open Internet rules."
Netflix wants the FCC to create a group assigned to determine what kind of information network operators must disclose.
Finally, Netflix doesn't want the proposed "managed services" exception to be able to circumvent the FCC's open Internet policies.
In the FCC's Notice of Proposed Rulemaking (NPRM), the group ponders the idea of "managed services." The FCC asks whether some services should be exempt from some or all of the Net neutrality rules. Netflix is very wary of this one.
The company wrote in its comments that a task group "would help assure that the 'managed services' exception does not become so extensive as to in effect create a 'fast lane' for service offerings from network operators and their affiliates while relegating all unaffiliated entities to the 'slow lane' of the open public Internet.