Netflix Inc. (NFLX) released earnings after the bell on April 21, and the results were exceptional, showing a rise in subscription numbers, revenue, and earnings. Concomitantly, the popular video streaming platform came out against the proposed $45.2 billion merger of telecom giants Comcast (CMCSA) and Time Warner (TWC) , saying such an endeavor “would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers.”
Of course, such a situation would cut severely into Netflix’ bottom line. Estimates put the amount of broadband allocated specifically to Netflix in the neighborhood of 30 percent. If Netflix were expected to pay a higher toll concerning their traffic on that broadband, they would likely raise prices in response to make up the difference.
Not that they’re not doing that anyways. Netflix tempered their earnings report somewhat by announcing they’d be raising their $7.99 a month subscription rate by $1 or $2 a month, while allowing current subscribers to grandfather in their old rate “for a generous time period.”
Some price increase on Netflix’ part was to be expected. While Netflix is not subject to the same Nielsen metrics that their competitors in pay cable are, the uptick in subscriptions is proof enough of their growth. Their original content strategy has been a success, especially in attracting new subscribers in the crucial overseas market.
But Netflix’s original content strategy isn’t their primary concern. The success of House of Cards and Orange is the New Black has pacified fears that their attempt to “become HBO faster than they can become us” would fail. Netflix’ number one problem going forward is the status of internet allocation.
A Comcast-Time Warner merger would almost certainly make the services they provide more expensive for Netflix, as a lack of competition tends to do. Monopolies, after all, have little reason to keep prices low.
As we progress further and further into the digital age, public officials are beginning to ask whether access to wireless internet is not a privilege but a right. On April 10 the Mayor of Seattle expressed his opinion that the internet should be treated like public roads, and that constituents commonly tell him “I don’t need a road to get to work, I need high speed internet.”
To be sure, people don’t need Netflix to get to work. But it does suggest the possibility of a world where private mega-companies don’t collect the tolls, the government does. Or at least, the government treats internet access like a utility.
Then again, with Netflix taking up a large percentage of the traffic, it would reason that Netflix does pay a higher toll in that world. For Netflix, then, the best case scenario for right now is for things to stay about exactly where they are: Time Warner and Comcast remaining separate companies in competition, while Netflix continues to streamline their business and grow exponentially.
By 1:30 PM EST Netflix’ stock had risen 5.97 percent to hit $369.29 a share.
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