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Netflix and Comcast Throw Stones and Consumers Get Bruised



Streaming media, like its predecessors broadcast and cable television, is big business as we all know. Its such a big business that any move by any company is eagerly watched by consumers, their watchdogs, and theoretically regulators. When head to head corporate combat breaks out in the open between the companies that control the content and the companies that control the pipes that content needs to reach one of your screens it is usually a contest where the spectators (consumers) come out bruised like a piece of fruit tossed against a wall.


Earlier today we posted about Netflix alerting their shareholders about a coming rate hike of $1 to $2 for new users in the future. Current customers won’t see any hike for what is described as “a generous period of time.” Here’s to betting that “a generous period of time” equals some sort of algebraic expression that’s equal to “if we get X new customers at the new rate in Y amount of time, we can put off a rate increase for current customers for Z amount of time.”

That makes sense from a business point of view and actually goes against the grain of how some companies treat existing customers when it comes to offering discounts to acquire new ones. But why the rate hike? Well, we all know that Netflix recently agreed to pay Comcast directly to make sure its streaming video could reach its customers at a satisfactory clip. OK, we might say. Netflix has to keep customers happy and pay Comcast directly to make that happen. Thus they need a rate hike. It’s an easy leap to make. And one Netflix wants us to make.

But, that’s only a part of a much bigger story. And of course it depends on which companies’ corporate speak you wish to believe. Typically corporate speak doesn’t tell us much. But someone took the muzzles off the barking dogs at both Netflix and Comcast today.

As a part of Netflix’s earnings report it issued a statement today saying that it was not in favor of the proposed Comcast acquisition of Time Warner. The reason is that Comcast will become much bigger and consequently have too much power unchecked by competition to control the rates for any content that flows through its pipes. Looking forward Netflix also stated that it hoped to be able to feature its content on cable boxes in the future. Brave, but only in the context of sticking your hand in a mouth full of sharp teeth and saying go ahead and bite.

It didn’t take long for Comcast to bite back, issuing it’s own statement that basically called Netflix out for lying about the facts. It popped out so fast that Comcast’s legal beagles must have been sweating to vet it. In addition to the charge of lying, Comcast essentially pulled the sympathy rug out from under Netflix’s feet, for those who might think Comcast bullied Netflix into paying up. Here are two of Comcast’s bullet points from the very curt reply:

  • In fact, Netflix approached us for this direct connection between Netflix and Comcast, cutting out the wholesalers with whom Netflix had traditionally contracted and paid for transit.  This arrangement was thus about Netflix exercising its market power to extract a more favorable arrangement directly from Comcast than what Netflix had been paying for through third party providers.
  • If Netflix did not like the terms of our agreement, or if they do not like the terms Comcast provides at any time in the future, Netflix can work with any of the multiplicity of partners that connect with Comcast.  There was and is no need for Netflix or any other Internet content provider to work directly with us or any other specific ISP.

In other words, take your streaming media and shove it where the bandwidth don’t flow. Notice several points here. The original Netflix agrees to directly pay Comcast story made most of the world feel like Comcast was putting the squeeze on Netflix. Netflix wanted to look like it was forced to pay up or suffer customer dissatisfaction because of poor streaming quality. Comcast took that punch and cashed the check. Today Comcast punched back and tossed that narrative out with a vengeance.

Most consumers who follow these kinds of battles long ago learned that the corporate speak we hear is purposely vague and transparently opaque regarding rate hakes and issues like Net Neutrality. There was nothing vague about today’s statements. Neither side pulled punches. Blows landed.

The bottom line here is that Comcast is fighting harder and dirtier than Netflix. He who controls the road can exact the toll until someone knocks them off the path. Comcast’s claim that Netflix could have continued doing things the way it had been may be factually accurate. But I don’t think you’ll find too many who actually believe it was a coincidence that Netflix’s streaming woes seemed to escalate last fall right before the deal between the two companies was struck. There are reasons Comcast consistently rates as one of America’s least loved corporations.

Both sides see this differently. That’s obvious. Both sides will continue to negotiate their differences. Like it or not, Comcast will probably be allowed to acquire Time Warner Cable, and it will indeed have more power and leverage in the battles to come. Netflix is right on that score. The punches Netflix threw today backfired and did more damage to the puncher than the intended target. Netflix needs better management of its talking point strategy if it is going to engage on the level it did today, whether Comcast gets bigger or not. As it stands now, Netflix is bringing knives to a gunfight.

1 Comment

1 Comment

  1. Pitchy (@Pitchy)

    04/22/2014 at 11:47 am

    As Comcast becomes more and more of a monopoly, look for them to do more dirty and shady things. For what cable companies charge for internet access, it should be the cable company’s responsibility to meet the bandwidth needs of it’s customers. Instead of sending profits directly to shareholders pockets, use some of that money to invest in infrastructure and equipment instead of forcing Netflix to pay more to have the rights to send data down their pipes. All data should be treated equal… not set premium prices to those who you see as competitors and then decide based on arbitrary excuses to charge more to company A than to company B because more of it’s customers use company A than company B.

    It makes me wonder how much does it take to buy favors at the FCC… to allow for gigantic merges and doing away with Net Neutrality. This is not in the best interest of the consumers… it totally benefits big business, which then dumps lobby money into the federal pockets of those overseeing the industry… basically a “you scratch my back and I will scratch yours” kind of thing.

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