Netflix Plays Creative to Gain Competitive Advantage

Netflix Plays Creative to Gain Competitive Advantage


House of Cards is amazing – how could it not be? Anything with Kevin Spacey has a good chance of becoming cinematic gold – remember his turn as Keyser Söze in the Usual Suspects. Orange is the New Black cemented its place in cult classic history when President Obama referenced it during this year’s White House Correspondents Dinner. And Chelsea Handler, of E! and 50 Cent fame, just inked a deal for her very own web-based talk show.

Without doubt, Netflix is on a roll when it comes to creating original programming people love. But it also seems to be applying some of that creativity to its corporate dealings, advocating certain public policy positions to gain greater leverage in its business negotiations.  Who would’ve thought, a company that delivers movies and television shows galore to your front door or tv screen would employ maneuvers that feel like something out of Frank Underwood‘s playbook to get a leg up on the competition?

These days, Netflix is making waves by arguing for stronger net neutrality rules that would protect it from companies like Comcast, AT&T and Verizon taking unfair advantage. Thing is, Netflix is no David, and the ISPs with which it deals are not Goliaths.

Netflix may be many things, but one of the little guys it is not. With one-third of all Internet traffic generated by Netflix video streaming, it is a major force in the Internet ecosystem. What’s more, its actual gripe has nothing to do with net neutrality, which, as a principle, prevents ISPs from blocking or degrading content to the consumer. Instead, Netflix is trying to gain a leg up on ISPs in its interconnection agreements, meaning that it is trying to get a sweeter deal than what is already in play for how its content navigates the Internet backbone.

As a provider of video services, Netflix decides which routes its videos will take to get to its consumers. It can freely decide whether to send its Internet traffic to an ISP directly, or it can go through a third-party transit provider to get the job done.  This is how the Internet works – it’s how it’s always worked. ISPs, transit providers, content producers, and content delivery networks all work together to get the magic of the Internet to you. If Netflix has a quality of service problem, it likely has to do with congestion from its transit provider, not any of the ISPs it’s dealing with.

So here comes the good old net neutrality red herring to throw things off.  Netflix knows full well the impact that claims of throttling can have on a business – a few years back, it settled a class action law suit brought against it for falsely and misleadingly promising unlimited DVD rentals, and the FTC accused the company of throttling its product delivery and deploying inaccurate marketing tactics to lure customers to its service. Netflix’s recent tactics, then, demonstrate just how adept it is at legal maneuvering just to get its way.  Knowing the emotional brouhaha the mere mention “net neutrality” creates, Netflix started claiming that ISPs were trying to charge it a “toll” for delivering its videos and was degrading the company’s video streams to extract higher prices.

To say Netflix has fallen victim to a net neutrality violation because of the terms of its various interconnection agreements is just like saying T-Mobile is violating net neutrality by allowing certain music streaming services to be used on its cell phones – free of charge to both the music companies and consumers alike – without creating data cap overages.  In both instances, the claimed violation doesn’t exist, and the specter of net neutrality is improperly raised.

Netflix shouldn’t shy away from paying its fair share to support the overall infrastructure build out and maintenance costs of the Internet, after all, it does account for a sizeable sum of traffic generated online. By the same token, we should be wary of evoking net neutrality every time a business proposal, practice, or innovation gets brought to market in a new manner.

Netflix may be creative, but it’s no Kevin Spacey. If the company wants to cement its competitive advantage, it should focus on improving quality of service without trying to pull a fast one to make an extra buck.