After persuading Americans to look in their mailboxes rather than the local video store, online DVD distributor Netflix Inc. is fast discovering that its next business move requires a Washington, D.C., presence to do battle with Internet service providers and other industry foes.
“They’re shifting to online streaming movies, and to do that you have to have strong broadband speeds,— a technology lobbyist said of Netflix. “Frankly, Comcast has their own video-on-demand service, so they’re probably not too psyched about Internet services streaming movies — it takes revenue from them.—
A Netflix spokesman declined comment for this article. Industry experts, however, say the company’s desire to eventually swap out its ubiquitous red envelopes for an all-online delivery system is well-known. And the anticipated migration is drawing the ire of cable providers and telephone companies that are against the White House-backed net neutrality push now under way at the Federal Communications Commission.
In August, Netflix enlisted Republican lobbyist C. Stewart Verdery’s shop, Monument Policy Group, to represent the company on “issues relating [to] copyright, telecommunications, and the Internet,— according to disclosures on file with the Secretary of the Senate. Filings also show that the company hired Patton Boggs in 2005 but severed the relationship last year.
Verdery also declined to comment for this article, but another technology lobbyist said his hiring signifies an important milestone for the fast-growing 12-year-old company. Netflix’s revenue has surged 37 percent during the down economy, rising to $1.36 billion in 2008 from $997 million two years prior.
“It’s not unusual as a company grows to become more interested in Washington. … When you have five staffers and you’re drinking out of a fire hose … even if you want to be active in Washington, it’s difficult to do,— a technology lobbyist said. “As a company becomes more successful, that’s a natural part of the growth.—
While the company attempts to plot its moves quietly on Capitol Hill, industry sources agree that Netflix is being pulled into a long-standing lobbying battle to determine whether Internet providers can “prioritize— Web traffic on their countless miles of fiber-optic cable. Providers argue that a relatively small number of Internet users unfairly monopolize Internet bandwidth, bogging down Web surfing speeds. Cable companies and other ISPs are pushing regulators to allow management of their networks so they can prioritize what gets where and when. Spontaneous streaming video services like Netflix, an industry source said, are a massive stress on a network’s capacity.
“They want to have that direct link to the customer unencumbered, but their data would have to be prioritized to have no issues. When you’re talking about live streaming video, if it stops and starts, that’s a real problem and that affects your enjoyment of watching the movie,— an industry source said. “Network management is all about being able to prioritize what gets where and when. We’re at the point where we’re using broadband for heart monitors at home. You can’t all of the sudden have it go out.—
While cable companies and other providers continue to balk at unrestricted Internet flow, net neutrality advocates also have heavy hitters in their corner, including President Barack Obama, newly installed FCC Chairman Julius Genachowski and technology players such as Netflix and Google that argue providers merely want to create “toll lanes— to protect their business models.
Tension over net neutrality also is playing out among Members. While cable companies were once defended primarily by GOPers, Democrats now are coming to their defense as well. Last week, dozens of House Democrats signed off on a letter urging Genachowski to “carefully consider the full range of potential consequences that government action may have on network investment.—
The agency on Thursday will begin writing rules on net neutrality.
A telecom industry source confirmed that Netflix’s Web-only aspirations are “on the radar— of cable and telephone companies. While not an immediate threat to powerful Internet providers like AT&T, Verizon and Comcast, looser restrictions on the Internet could allow Netflix’s attractive a la carte offerings to eat away at their bottom lines. The threat is particularly acute, the source said, if Netflix attempts to flood the Internet with high-definition videos that are now only widely available from cable and satellite providers such as DirecTV.
“Most people see it more as a complement than a replacement, and a lot of people who subscribe to those services are those who have a 50-inch, flat-screen television in their living room, and they might not only want the convenience of the Internet, but they also want the quality HD product that they are able to get through a traditional service,— the telecom industry source said. “The total amount of content that’s available on the Internet really is minuscule compared to traditional provider, either cable or satellite.—