NPR Story
3:46 pm
Thu January 16, 2014

Netflix May Take A Hit With End Of Net Neutrality

The recent appeals court ruling that overturned a FCC regulation requiring Internet Service Providers to treat all online services equally, known as “net neutrality,” may mean higher costs for Netflix and other online services.

But it also could have an upside for Netflix: the company may be able to pay to ensure that its content streams faster and in higher quality than its competition. Or the company can refuse to pay more money for high speed Internet.

Derek Thompson, an editor for The Atlantic, speaks with Here & Now’Jeremy Hobson about the pros and cons of the end of net neutrality for Netflix.

Guest

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Transcript

JEREMY HOBSON, HOST:

This is HERE AND NOW from NPR and WBUR Boston. I'm Jeremy Hobson.

And if you are like me, you are counting down to February 1 when season two of the Netflix hit series "House of Cards" returns with Kevin Spacey's scheming character, Congressman Frank Underwood, getting sworn in as vice president.

(SOUNDBITE OF MOVIE, "HOUSE OF CARDS")

KEVIN SPACEY: (as character) And that I will well and faithfully discharge the duties of the office on which I'm about to enter.

UNIDENTIFIED MAN: So help me God.

SPACEY: (as character) So help me God. One heartbeat away from the presidency and not a single vote cast in my name. Democracy is so overrated.

HOBSON: "House of Cards" and other critically acclaimed shows helped Netflix built up its subscriber base. But fans of those may have to pay more after a court ruling on what's known as net neutrality this week. Derek Thompson, business editor at The Atlantic, joins us he does each week. He's with us from NPR studios in New York. Hi, Derek.

DEREK THOMPSON: Hi, Jeremy.

HOBSON: So an appeals court struck down this FCC rule on net neutrality this week. Remind us what that is, what that ruling means.

THOMPSON: Right. What is net neutrality? Net neutrality is the idea that it's a single-speed Internet. Internet providers like Verizon can't discriminate against certain services. They can't make Netflix stream slower than the HERE AND NOW website or the Atlantic.com. And they can't make us pay extra to get the same treatment. The FCC has an interest in having a single-speed Internet, in net neutrality. And they had rule on the books that Verizon sued, and Verizon won this particular case.

HOBSON: So what does it mean for a company like Netflix, which I should note accounts for 32 percent of North American Internet traffic during peak hours?

THOMPSON: Netflix is absolutely enormous, and so they're first in line to face charges if Verizon and other Internet providers decided they do want to charge some companies that are hogging all their bandwidth. This is extremely, you know, horrible for a lot of Netflix fans because they perceive that if Netflix is charged, then those charges are going to be passed on to them or that Netflix will say we aren't going to pay that fee and will be punished. And as a result, you'll see slower streaming of Netflix. You won't enjoy the same high quality "House of Cards" that you will starting February 1.

HOBSON: Although I've also read that Netflix could actually benefit from this, maybe, if they get some sort of preferred customer treatment from the providers.

THOMPSON: So the way that I think we should think about this is there's sort of two - there's two alternatives here. One is that Netflix refuses to pay a charge if Verizon decides they want to start charging Netflix, or they could agree to pay. If they refuse to pay and Netflix service slows way down, they could wage a PR battle against some of these Internet companies and say, look, this isn't our fault. This is the Internet company's fault that you're having all the Netflix, that you can't watch the shows that you want, and perhaps win that PR battle and not have to pay at all.

If they do agree to pay and they essentially say, all right, we're willing to pay a hundred, 300 million dollars extra per year in order to have the same high-quality streaming service, on the one hand, they could raise their prices from $8 per month to $9 per month. That would get them over $300 million right there. Or as you suggested, they could buy a so-called fast lane on the Internet. They could use this new money to essentially ensure that Netflix streaming is always of the highest quality. And so they buy a faster lane on this multi-lane highway of the Internet that companies like Verizon are providing.

HOBSON: And would I as an Internet user who's going to a site like Netflix and using up a lot of bandwidth myself end up paying more through this as well?

THOMPSON: It depends. It depends on what Netflix decides. You know, I think it's important to point out that just because this particular net neutrality ruling failed, it doesn't necessarily mean that net neutrality is doomed. The FCC could still find a way to classify these Internet providers as common carriers, as utilities. In which case they could regulate it as net neutrality. But I do think that if you do find companies like Verizon charging, it seems probable that you will have to pay at least, say, 50 cents more per month to watch the shows you love.

HOBSON: Derek Thompson of The Atlantic, thanks as always. This is HERE AND NOW. Transcript provided by NPR, Copyright NPR.