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Summary:

If there’s a downside to the staggering amounts of broadband traffic Netflix (NSDQ: NFLX) is responsible for generating, it’s the boundless…

If there’s a downside to the staggering amounts of broadband traffic Netflix (NSDQ: NFLX) is responsible for generating, it’s the boundless creativity of those intent on punishing the company for that privilege.

The latest comes from Consumer Federation of America director of research Mark Cooper, who was quoted Wednesday by technology blog Hillicon Valley suggesting Netflix be taxed to subsidize the Universal Service Fund, which the FCC is currently trying to transition from its original mission of financing phone use in rural areas to doing same for broadband.

“The Internet is not an infant industry anymore. It can certainly bear the burden of making sure that wires and the communications mediums are there,” said Cooper.

“Netflix takes up about 10 percent of every telco’s bandwidth,” chimed Shirley Bloomfield, chief executive of the National Telecommunications Cooperative Association.

Cue teeth-grinding from Reed Hastings. The Netflix CEO is finding it increasingly difficult to ignore the outstretched hands being waved in his face, even if they’re not looking to collect from him directly.

First there’s the matter of Netflix’s backbone provider Level 3, which is embroiled in a nasty dispute with Comcast (NSDQ: CMCSA) over who has to foot the bill for the traffic Netflix generates on its network. Hastings alluded to the matter last month on the Q4 earnings call, noting that cable operators were looking to make life more difficult for his company simply because Netflix represented competition for their own video services.

Then there’s usage-based billing, which is already instituted in Canada where Netflix launched a streaming-only service last year. With metered broadband a distinct possibility in the U.S. as well, Netflix has to face the harsh reality that its subscribers can’t just consume all the video they want each month without risking an additional charge above and beyond their monthly Netflix bill.

Hastings was forced to break his silence on this subject as well, criticizing internet service providers in a letter to shareholders in January. Netflix and ISPs are clearly headed for war, especially after Netflix had the temerity after its last earnings call to distribute a chart grading their streaming performances.

But as this sudden call for a Netflix tax indicates, the company is facing multiple pressure points on its business model. While analysts tend to dwell on Netflix’s increasing programming costs, its distribution strategy is looking troubled as well. It’s starting to seem unrealistic that Hastings will be able to cram broadband networks with his product without some concession on his part.

Something’s got to give, and it just might be Netflix.

  1. Cox Communications in NW FL is already metering customers. I was sent a letter describing their new metering plan earlier this month. Our current plan allows up to 200 Gb per month. Would be happy to send you a copy, if you like.

  2. Usage Based Billing (UBB) was over-turned in Canada. It’s being discussed and re-evaluated by our regulator (CRTC) and the Government.

    Overturning the decision to allow UBB in Canada is largely credited to a signatory campaign initiated by OpenMedia.ca

  3. I love how we just act like companies are becoming bankrupt trying to keep up with data usage all the while they keep getting record profits

    Fact is, the metered data is put in place STRICTLY to catch consumers into penalties/overages

    The idea that they can’t keep up with it all if unlimited is laughable with little to no facts.

    If they wanted to just stop true 24/7 downloaders, caps would be extremely high

  4. This is complete HorseS*(#)!!!, Comcast and other companies are simply trying to put up roadblocks so that they can play catchup to a company like Netflix that has outmaneuvered them all. First Netflix destroyed Blockbusters business model by doing TWO things correctly, they removed the burden on the customer to go to a brick and mortar business site and then they completely removed the idea that the customer was paying late fees. You pay a flat fee and they don’t care how long you hang onto the movies you rent. Brilliant. People pay money to keep movies that they eventually return no matter what. Now Comcast and others want to get into the business (which they should have started when Netflix did) of streaming Movies and TV shows. Because they are finally realizing that most people won’t PAY to own or rent single episodes or all movies. Subscription is the way to go. Now these guys want to do an end run around basic common sense, I ALREADY PAY FOR MY BANDWIDTH COMCAST MIND YOUR OWN DAMNED BUSINESS WHAT I USE IT FOR. You don’t like the fact that Netflix is getting your business because you got too damned greedy over the past 10 years. Well you have nobody but yourself to blame and if you think I’m going to give you ANY of the money I send to Netflix then I’ll cancel your internet access and go with another company.

  5. Not Drinking The Kool Aid Saturday, February 26, 2011

    It’s amazing that this country says we are all for businesses to grow and be competitive and create jobs. Then when a business does this and is successful other business want to kill it and create unfair advantages and then the US government comes in with their hand out too wanting a piece of the profits. How are companies suppose to be successful in this environment???

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