Don’t tread on Netflix traffic, CEO Reed Hastings warned Internet service providers in an investor letter Wednesday accompanying its fourth quarter earnings, which sent the stock soaring 17% in after-hours trading.
With the company’s stock taking a beating last week in the wake of a federal appeals court’s overturning of the FCC’s Open Internet Order, Hastings made clear he would call on subscribers to revolt if ISPs forced Netflix to pay to keep its streams from clogging broadband pipelines.
“Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver,” said Hastings in the letter.
The warning shot was expected considering Netflix is the biggest supplier of broadband content. But the blow to network neutrality last week had analysts wondering whether the company would be forced to pay ISPs hefty sums to protect its content. Hastings has spoken out on ensuring network neutrality is kept intact on previous occasions as well.
Still, he held out hope that ISPs would not go with the nuclear option. “The most likely case, however, is that ISPs will avoid this consumer unfriendly path of discrimination. ISPs are generally aware of the broad public support for net neutrality and don’t want to galvanize government action.”
On a Google Hangout session with select industry analysts following the earnings announcement, Hastings further played down concerns citing its track record around the globe. “We operate in 41 countries that have varying states of net neutrality and we haven’t had a significant problem to date,” he said.
Here’s the full text of Hastings comment on the subject from the investor letter.
Unfortunately, Verizon successfully challenged the U.S. net neutrality rules. In principle, a domestic ISP now can legally impede the video streams that members request from Netflix, degrading the experience we jointly provide. The motivation could be to get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver.
The most likely case, however, is that ISPs will avoid this consumer unfriendly path of discrimination. ISPs are generally aware of the broad public support for net neutrality and don’t want to galvanize government action.
Moreover, ISPs have very profitable broadband businesses they want to expand. Consumers purchase higher bandwidth packages mostly for one reason: high quality streaming video. ISPs appear to recognize this and many of them are working closely with us and other streaming video services to enable the ISPs subscribers to more consistently get the high quality streaming video consumers desire.
In the long term, we think Netflix and consumers are best served by strong network neutrality across all networks, including wireless. To the degree that ISPs adhere to a meaningful voluntary code of conduct, less regulation is warranted. To the degree that some aggressive ISPs start impeding specific data flows, more regulation would clearly be needed.