Netflix-Comcast Battle Shows Net Neutrality Has Real Consequences

The case of Netflix vs. Comcast is a lesson on the real-world implications of network neutrality. The term "network neutrality," a principle that all Internet data should be treated equally, has been more of an elusive concept than a well-defined issue in the music industry. It's discussed, but the threat is more hypothetical -- i.e. down the road -- than real.

Netflix Points a Way Forward for Streaming's Success

But with the FCC's decision in May to open debate on net neutrality rules, as well as Netflix's adventures with Internet providers, it's become easier to grasp how network neutrality could impact how and what people listen to online.

Insight into Netflix's issues with Comcast was given by Ken Florance, Netflix vice president of content delivery, and highlighted by Quartz and Re/code in Netflix's Petition to Deny filed with the Federal Communications Commission on Aug. 25. Netflix is opposing the proposed merger of Time-Warner Cable and Comcast.

It seems that Comcast had slowed its customers' connections to Netflix to such an extent it began to hurt Netflix's business. According to Florance, in December 2013 and January 2014, Comcast subscribers "went from viewing Netflix content at 720p on average (i.e. HD quality) to viewing content at nearly VHS quality." As a result, he claims, Netflix became "unusable" for many subscribers.

As a result, customers called to complain about the slow streaming rate, and "some of them canceled their Netflix subscription on the spot," writes Florance. Netflix has not revealed how many customers were lost, and the problems had no obvious impact during the quarters in question. Netflix had net subscriber additions of 2.33 million and 2.25 million in the fourth quarter of 2013 and the first quarter of 2014, respectively. Both improvements over the prior-year periods, but it's possible both figures could have been better without the problems with Comcast.

Netflix eventually reached a deal with Comcast in February for paid access to its broadband customers. Streaming quality "shot back up to HD-quality levels" within a week, according to Florance. Netflix has since made similar agreements with broadband providers Time-Warner Cable, AT&T and Verizon.

If it can happen to Netflix, it could happen to other online services. Netflix has the double-burden of being popular and being a video service, both of which influence the amount of data it serves its customers. Music services are, by nature, less likely to have the same experience as Netflix. They are both less popular -- for the time being -- and less data-intensive.

But it's not difficult to imagine a scenario in which the playing field in digital music could change. An Internet provider could demand payment from a digital music service, putting a financial burden on an already difficult business model. In a worse scenario, music companies pay the equivalent of a toll-road fee to ensure their content receives preferential treatment. Or some Internet providers could favor the streaming services with which they've partnered to the detriment of competition.

Many independent labels and musicians have worried about negative consequences if network neutrality principles are degraded. The A2IM's May 5th filing with the FCC warns "a new set of gatekeepers" could prevent its members from having "unfettered, speedy direct access" to fans of its artists. Independent artists have faced obstacles reaching traditional retail and AM/FM radio. An open Internet offers an invaluable, level playing field.

"For our members, whose livelihoods depend on the ability to invest in and create music and distribute and license copyrights in a free market, it is essential to have government partners helping to advance a worldwide enforceable regime to allow equal Internet access to all creators of Intellectual Property," the A2IM says in the filing.

Startups may also be worried about a lack of net neutrality. Venture capitalist Fred Wilson, whose Union Square Ventures has invested in SoundCloud and streaming video startup YouNow, warned earlier this year that small companies could be relegated to slow Internet lanes if the bigger services paid Internet providers to ensure access to their listeners. "Telcos will pick their preferred partners, subsidize the data costs for those apps, and make it much harder for new entrants to compete with the incumbents," wrote Wilson.

Net-neutrality principles are also meant to protect consumers. As Netflix noted in its comments to the FCC, broadband providers such as Comcast were not delivering on the level of service promised to customers. Advocacy group Public Knowledge also believes consumers are being unfairly treated by Internet providers. Earlier this month, the organization started a formal complaint process regarding the practices of AT&T, Sprint and Verizon of throttling unlimited broadband customers. "If the FCC's transparency rules mean anything, they must require carriers to let subscribers know why, when, and to what speed their connections might be throttled," it wrote in the Public Knowledge blog.

But there's debate about what actually constitutes violation of net-neutrality principles. Public Knowledge has argued that T-Mobile's "Music Freedom" initiative, which exempts specific music streaming services from its customers' monthly data caps, is "a pretext to manipulate how its users experience the internet." Rather than charge overage penalties, T-Mobile throttles a subscriber's connection when the cap is reached. Public Knowledge complains that T-Mobile "exerts a strong influence" on what types of services its customers choose to use. In contrast, T-Mobile chief executive John Legere calls the initiative "an opportunity to set customers free from the tolls and limitations those carriers impose."

“We are dedicated to protecting and preserving an open Internet,” FCC chairman Tom Wheeler said in May. However, there are currently no ways for the FCC to stop Internet providers from choosing to limit Internet access for some. That could change. In the meantime, the Time Warner Cable-Comcast merger is the best barometer on the state of the open Internet.