Netflix on channel 1
In a transaction estimated to cost Netflix about US$1 billion over 5 years, the DVD and streaming company partnered up with Epix, a cable and internet streaming channel backed by Paramount, Lionsgate, and MGM studios. Considering the fact that Netflix already has an established streaming relationship with Starz, a company that already has streaming rights to Disney movies, this means that Netflix now has a substantial portion of the recent blockbuster movies tied up for its streaming service (Fast Company reports that the combined box office market share of Epix backers was around 21%).
The deal carefully avoids create any controversies around DVDs to establish supremacy in the online streaming space. Netflix is betting, strategically, that the DVD business that brought it to where it is today is a buggy whip type business in a world that is slowly to moving to the cars-like business of online streaming. Now that the netflix player is embedded in a series of devices that allow for streaming across a large footprint (computers, TV and, soon, mobile devices), the company is building up its content catalog.
What Netflix is doing is basically creating a new “on-demand” channel that can sit next to the other channels on a TV screen. The company is sidestepping “appointment viewing,” which requires people to set a particular time and date to see a particular piece of entertainment, to provide instead the equivalent of an always-ready, always-on-demand format of entertainment viewing (kind of like “there’s a movie for that”). It’s a future AT&T predicted in 1993 (as an interesting aside, that very ad campaign was also one of the first banner ad campaigns on the internet) and the company to bring it to you is Netflix.
Basic Internet Tenets
Regular readers of tnl.net will recognize the trend of everything moving to an IP stack. I’ve long held the view (at least since 2004, according to this entry) that cable channels ought to be delivered a la carte over the internet and Netflix may be the first company to successfully deliver an internet-only on-demand channel.
This model, however is predicated on a few key tenets that have made the internet such a great arena for innovation:
- The internet is a level playing field: Large companies do not have an advantage over smaller ones as everyone gets the same level of access to internet resources, no matter whether they are two guys in a garage or a multinational corporation.
- The internet allows any platforms to connect: There is no discrimination on what type of device can connect to the internet, as long as the device respects rules around addressing (getting a unique identifier on the net) and respects every other devices on the net. As a result, computers are seen no differently than mobile phones, TV set-top boxes, game stations, watches, coke machines, or whatever anyone willing to agree with the basic rule set attaches to the net
- There is only one internet: The minute you agree with the basic tenets of the internet, you take it upon yourself to continue supporting them if you want to be part of the internet commons. You are free to leave the internet and go to another network if you want to but you cannot call that the internet if it’s a different network.
A different view
But not everyone seems to agree. Earlier this week, Google, a company that has greatly benefited from the current tenets of the internet, decided that now that it was a large company, it could throw the internet under the bus by breaking some of those very tenets.
In a joint announcement with Verizon, the company proposed a compromise on net neutrality discussions that starts out with the right concepts and eventually gets off-track to a point where the basic tenets of the internet would no longer be valid.
Before I go into the details of what’s wrong with the proposal, let’s first look at what’s right (although I have to take what they say with a grain of salt since I’ve trusted the company in the past only to see it turn its back on earlier announcements):
A broadband Internet access service provider would be prohibited from preventing users of its broadband service from:
- sending and receiving lawful content of their choice;
- running lawful applications and using lawful services of their choice; and
- connecting their choice of legal devices that do not harm the network or service, facilitate theft of service, or harm other users of the service.
I would have some questions on the definition of “harm” here but, for the most part, these seem to be points that could be agreed upon.
The lines would also carry a non-discrimination principle that are, for the most part OK, except for the following sentence (emphasis is mine):
Prioritization of Internet traffic would be presumed inconsistent with the non-discrimination standard, but the presumption could be rebutted.
I would argue that striking those last 6 words would make the rest of that section OK.
The next section is about transparency and the proposition of providers telling people when they do discriminate or make other modifications seems sound.
However, it starts going downhill from there. Provisions like network management (a tricky area that ends up being the place of most disagreement), additional online services, wireless broadband and case-by-case enforcement give up on the notion of the internet as a simple (or stupid) network.
It is true that network management is necessary to the proper functioning of the internet commons but, as Barbara Van Schewick (via Fred Wilson) points out, there is a simple rule on dealing with net neutrality:
A non-discrimination rule that bans all application-specific discrimination, but allows all application-agnostic discrimination. Discrimination is application-specific if the discrimination is based on the specific application or content (e.g. Skype is treated differently from Vonage), or based on classes of applications or content (e.g. Internet telephony is treated differently from e-mail).
The main challenge in Google and Verizon’s proposal is the idea of a differentiated internet. If the first two components of their proposal (consumer protection and non-discrimination) were considered valid, the rest of the policy framework would be invalid. One cannot say in the same sentence that a broadband provider is prevented from allowing users and applications almost unfettered access to the net and then turn around to say that this may not be the case for new applications or parts of the net.
Like it or not, the wireless internet is part of the internet. While there are parts where it can be controlled, internet is still a word that works as singular and has no plural. Anything else (a differentiated network) is not the internet and don’t let people tell you otherwise.
So what motivated such proposal? Well, first of all, it appears that there are a number of strategic areas where Google could do well in appeasing the telecom and cable industry:
- The Android OS is a natural fit here as Google is working on ensuring that it will do better than Apple in the mobile space.
- GoogleTV is another arena where the company would benefit from sitting on a “differentiated network” where it could serve content as a premium package. In its fight with Apple (Apple’s business model is still largely predicated on selling hardware, like AppleTV), Google could offer an advertising-sponsored model carried on differentiated pipes.
- Of course, another arena would be wherever there are tools that are potentially threatening Google. For example, pictures from Picasa could be served at a faster rate than pictures from Facebook on that network. Or movies from YouTube could get priority access over movies from Netflix.
So, having established that Google has much in terms of alignment with the telco industry, it is now time to question whether its motives are truly in line with its previous policy of not being evil or whether they are better aligned with pure profitability motives. The decision could allow the internet to grow or the world to return to the pre-internet world of balkanized networks.