The website for the Netflix Inc. video streaming service sits on a mobile device screen in Johannesburg, South Africa.(Photographer: Waldo Swiegers/Bloomberg)

Netflix Hits Mute Button in Open-Internet Debate as Vote Arrives

(Bloomberg) -- Netflix Inc., a champion for net neutrality regulations three years ago during Washington’s last big battle on the topic, has been less outspoken this year as the rules head for the chopping block.

One reason: the Los Gatos, California-based company that started out lending movie DVDs by mail has grown into a $12 billion online video provider that doesn’t need the rules as much as it once did. And broadband providers need its 53 million U.S. subscribers and exclusive movies and TV series such as “The Crown” and “Stranger Things” in order to meet consumers’ expectations.

Other web companies, too, have grown bigger since Washington last ran through the net neutrality debate in 2014. Their newfound strength insulates them from any negative effects of Thursday’s near-certain vote by the Federal Communications Commission to gut the regulations put in place during the Obama administration.

“I’m not sure that Google, Netflix and Facebook need the protection of the open internet order any more,” Cowen & Co. analyst Paul Gallant said in an interview. “They have a lot more power than they used to.”

With its vote, the FCC will lay down yet another marker in a fiery debate that’s raged for more than a decade as Washington grapples with the internet’s disruption of established communications networks. FCC Chairman Ajit Pai’s proposal, which has enough support from agency Republicans to pass, is a win for internet service providers who say the utility-style regulation has slowed investment and discouraged innovation. Opponents say it will create a less diverse internet, as established online businesses buy even more dominance.

Demonstrators rallied outside FCC headquarters in Washington Thursday morning, a coalition that includes activist groups Color of Change, Center for Media Justice and Free Press Action Fund said in a news release. Separately, the FCC said it had amended its order to address concerns raised by an agency official that Pai’s order left few remedies if a broadband provider blocked or slowed web traffic. The official, Chief Technology Officer Eric Burger, called the changes “a normal part of the process” and now fully supports the order, according to an emailed statement from the FCC. Burger’s concerns were earlier reported by Politico.

Gallant said the largest content providers now have an edge over internet service providers, or ISPs. “If Facebook or Netflix or Google or Amazon go pull their content off a particular ISP -- that’s a problem for the ISP,” Gallant said.

The regulations set standards for fair handling of video and data traffic by the broadband providers such as AT&T Inc. and Comcast Corp. that control access to screens in homes and on mobile devices. Pai’s proposal would eliminate prohibitions on blocking or slowing web traffic or charging more for fast passage over networks.

Startups, however, could suffer. They may be unable to pay fees, in contrast to competitors who may be "well-heeled incumbents that can pay for priority access,” the Engine Internet advocacy and research group told the FCC in a filing.

Michael Powell, president of NCTA - the Internet & Television Association that represents cable providers including Comcast and Charter Communications Inc., told reporters Wednesday that broadband companies will continue to honor net neutrality.

“Your internet Thursday afternoon will not change in any significant or substantial way from the internet you experience today. Nor will it be different a week from now, nor will it be different a year from now,” Powell said. “The freedom you enjoy to voice political views, share live stories, holiday shop, organize around a cause, or just relax and watch a streaming video, will not be compromised in any meaningful or measurable way.”

In 2015, as the FCC was preparing to put the open-web rules in place, Netflix told the agency that large providers create congestion and use the bottlenecks as leverage “to demand access fees from online content companies simply for delivering traffic to consumers.” Since then it has managed to avoid new deals to pay the fees.

Representatives of the online video company reached out with visits or telephone calls to FCC officials more than a dozen times in months leading to the 2015 vote, according to disclosure filings.

This year, by contrast, the company offered two filings, and FCC records don’t show any visits since Pai proposed the rules in April.

In a statement Netflix said it “continues to support strong net neutrality protections, a position that has not changed even as our business has grown. For years, we have been part of a united front with other tech companies through the Internet Association and Incompas,” referring to Washington-based trade groups.

“Although there are other companies for whom this is a bigger business issue today, we continue to support net neutrality protections so that the next Netflix has a fair shot at going the distance,” Netflix said in its statement.

Netflix revenue has more than doubled, to an estimated $11.7 billion this year from $5.5 billion in 2014, the year before the net-neutrality regulations were implemented, according to figures compiled by Bloomberg.

The Internet Association lists members including Netflix, Alphabet Inc.’s Google, Facebook Inc. and Inc. The trade group “has been incredibly active on behalf of our members,” said Scott Haber, a spokesman. “We speak for all our members in opposing Chairman Pai’s new rule."

Social media giant Facebook in a statement said it “has always supported the kind of strong net neutrality protections that will ensure the internet remains open for everyone.”

©2017 Bloomberg L.P.