Paying for Netflix

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Netflix CEO Reed Hastings tip-toed carefully through the mine field of his company’s relationship with ISPs during his third-quarter earnings call on Monday (transcript here). In response to a question from BTIG Research analyst Rich Greenfield concerning recent comments by Liberty Media’s John Malone, in which the owner of Charter Communications suggested that sending huge volumes of data down ISPs’ pipes without compensation, as Netflix does, was “unsustainable” Hastings pointedly noted the equation works the other way as well.

“When you look at broadband collecting $40 to $60 a month for offering broadband and not having to pay content costs, I could say, well,
that’s unsustainable, they have to pay some of the content costs,” Hastings said. “In fact, the argument works both ways.”

He quickly added, however, that he isn’t looking to pick a fight:

We think it will work out in the long-term best if there’s neutrality and that if we bring the bits, there’s an interchange, and that there’s no charging at the interchange. And this is the architecture that’s allowed the growth of the global Internet, which is not taxing each other. So we’re very optimistic that that will continue.

There are people who, say, own cable companies or own content companies, who aspire on the other side to collect but I don’t think it’s going to happen.

Put that one in the time capsule and dig it up in few years to see if Hastings’ prediction comes true.

In the meantime, that interchange point between Netflix and ISPs, which Hastings would like to see remain neutral ground, remains a regulatory no-man’s land that is not covered by the FCC’s net neutrality rules — themselves facing an uncertain legal future — nor currently policed by antitrust cops at the FTC or Justice Department. Inconclusive skirmishes have already been fought. Whether peace can be sustained without outside intervention remains an open question.