Jeff Kagan: Netflix Says Verizon Slowest of All ISPs

Jeff Kagan |

Now, now boys… calm down. Netflix (NFLX) is complaining about how slow Verizon Internet speeds are. How it takes their customers so long to download movies and TV shows. In response, Verizon (VZ) sent a cease-and-desist letter to Netflix. They apparently don’t like when their weaknesses are pointed out. You can’t blame them, but how far will this blood fest go before both companies realize they are hurting their own brand and just fix this problem?

Netflix Publicly Shaming Verizon, Hurts Both 

Netflix works with many of the major Internet competitors like cable television companies and telephone companies, nationwide. They do this because this is how they deliver their programming to customers.

So apparently Netflix is a good judge of speeds between companies who offer Internet services. They say Verizon is slow. Granted, this perception is not good for Verizon, their brand or their image in the marketplace. This is harmful, but whose fault is it?

Perhaps Netflix wants to embarrass Verizon so they will speed things up. Or perhaps Netflix simply wants to let their customers know the frustrating delay is not their fault.

Whatever the reason, the customer is being hurt. That means the brand is being hurt. Both brands actually.

If the customer doesn’t get fast Netflix service, whether it’s because of Netflix or Verizon, the customer is dissatisfied. That’s what needs to be fixed, quickly. Customers have very little patience today. Delay means both companies get hurt.

Result of Netflix Transition from Mail to Internet

This was never a problem until recently. Netflix used to be a smaller company competing with Blockbuster and Hollywood Video rental business, except they mailed videos to customers. The marketplace continues to change and the video rental marketplace has changed. Netflix won. Retail competitors disappeared.

At the same time Netflix has grown and changed as well. They are becoming a much larger and much different kind of company. They are creating their own content and shows.

Today Netflix delivers content over the Internet. And they use whatever connection the customer contracts for. So Netflix has suddenly found a fountain of youth. They can send tons of movies and television shows over the Internet, and not have to pay the US Postal Service to mail their DVDs any longer.



This is great for Netflix, but terrible for ISPs. This is the wave of the future, but at the same time this also changes the economics of the industry. And that is something that Netflix is fighting. Netflix wants things both ways.

Netflix Consumes Vast Majority of Bandwidth

As popular and successful as Netflix is, there is the other side of the coin. Netflix is responsible for roughly one-third of all downloads on the Internet every night. That’s an incredible amount of data as they ship movies and TV shows over the net. This is more than any other single company by a long shot.

So there are two parts of the puzzle. One is Netflix, and the other is the Internet Service Provider or ISP. These are often telephone companies like Verizon, AT&T (T) and CenturyLink (CTL) and cable television companies like Comcast (CMCSA) , Time Warner Cable (TWC) and Cox.

These ISPs must continue to invest in their networks so all their customers get fast Internet. Something that is threatened by Netflix dominance. Netflix can suck a network dry if not paid attention to.

If Netflix continues to try and squeeze as much out of each ISP without being a partner and helping with the investment, they will eventually pay the price. Just like the problem they are having with Verizon.

The way each ISP runs its business is different. However Netflix should be a partner with each since they use the vast majority of their bandwidth every night.

Netflix is a different kind of company, which uses more bandwidth than any other company. So the rules must be different for a company like this.

Netflix: Grow Up

However, Netflix does not seem to get that point, and that’s the problem.

So come on Netflix, grow up. You have customers and investors and workers who will all be hurt if you don’t solve this problem and simply keep pointing fingers at each other.

And come on Verizon as well. Fighting this out with legal threats is not the answer. If you both continue down this path you will hurt your own brand in the marketplace and that is worse than this spat.

Long after this spat is over and done with the damage to the brand will last. Is that what you really want?

It’s past time for Netflix to financially and structurally work with every company that helps them deliver service to their customers. These should all be partners, not adversaries.

Come on you two, play fair. Everyone is counting on you. And everyone is watching.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
VZ Verizon Communications Inc. 49.68 0.04 0.08 9,310,665 Trade
NFLX Netflix Inc. 142.02 0.18 0.13 3,546,599 Trade
T AT&T Inc. 41.68 0.03 0.07 14,202,031 Trade
CMCSA Comcast Corporation Class A Common Stock 37.38 0.16 0.43 17,814,764 Trade
BCEFF BCE Inc 1st Pfd Ser Y Var Rate 10.53 0.00 0.00 0

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