Tag Archives: netflix

New FCC Rules and competition

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A friend retweeted the Tweet below today and it got me thinking about the broader context of the FCC rules that past last Thursday

Two things struck me about this tweet. First, it’s disappointing that the author doesn’t understand Title II better considering he co-founded the EFF. Second, that Title II as implemented was designed to do nothing about ISP competition. As I wrote on KBMOD this week, Net Neutrality has no provision for “Unbundling” which would promote competition amongst ISPs at the local level. Unbudling, according to Wikipedia, is a regulation that requires existing line owners (such as Comcast) to open up their lines to anyone that wants to sell cable, internet, or telephony access. Unbundling, under a much more restrictive Title II, is the only reason that AOL was successful as a business model. Since this provision of Title II was forborne, Title II will not, in fact, be for promoting competition in ISPs at all.

Instead, the FCC, at least in my opinion, looked at the Internet as a general purpose platform technology. They were looking to ensure competition ON the technology not between technology carriers. For example, the FCC wants to see as much competition as possible between companies like Netflix, Amazon Prime Video, Hulu, and Comcast’s Xfinity service. However, they want to make sure that Comcast cannot foreclose on the video delivery service by leveraging their existing monopoly in telecommunications. What that means is that Comcast could create rules or an environment where Netflix cannot compete and Comcast customers MUST use the Xfinity service because alternatives didn’t function well (Foreclosure is the thing that got Microsoft with Web browsers).

The FCC did enact a rule that will impact competition at the local level though. It’s a limited rule because it impacts only Tennessee and North Carolina. It is preempting state law by stating that it is legal for municipalities to develop their own broadband networks. Broadband build out is prohibitively expensive for an entrepreneur to set up a network, however if they had a backing of a municipality that is willing to share the risk and the reward, it might be possible for an entrepreneur to build out their own broadband network on a limited scale. Municipalities aren’t the ideal solution to this, it would be significantly more preferable if other businesses moved into areas and built new broadband networks, however unless they have a massive amount of money, like Google, it’s unlikely to happen. A bridge between is a public-private partnership where private enterprise, which has the telecommunications expertise, partners with a municipality, which has the demand and financial support, to build a network.

With the ruling on municipal broadband being so limited, it’s not going to make much of an initial impact, however it’s likely that other municipalities will try to jump on that bandwagon and overrule laws at the state level (as a note I’m not going to argue if this is something they have the authority to do, I’m just looking at the potential impact of the rule).

When Piracy is Easy, How Do You Compete?

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Popcorn Time is something that I’ve been hearing about for a while now but I’ve never really looked into. Effectively it’s a tool that gives you an easy to use User Interface to find Torrents for your favorite TV shows and movies. Torrents, by the way are a type of file and download methodology. Effectively you get tiny bits and pieces from a large number of different users across the internet. This makes it harder to track the individual files, prevents it from easily being removed from the web, and helps manage internet usage across the multiple users. In the days of Kazaa, you directly downloaded from a single peer, now you’re downloading from multiple users, so if one goes offline or reduces the bandwidth they are sending the file to you it has minimal impact.

Torrents are what’s called “piracy” and are on the pirate bay and any number of other sites that share those files. Since they do not have to follow strict contracting like Netflix, Comcast, Hulu, HBO, and other streaming services you have access to the movies you want whenever you want them. For instance, Netflix recently lost access to the Avengers, probably because of the cost of keeping in their library and Disney trying to create artificial scarcity of the legal product. You can find extremely high quality torrents out there to watch it if you can’t get it for free. In fact I’m sure it’s on Popcorn Time right now.

Because of these difference and the historic complexity and risks of downloading a torrent, Netflix had positioned itself as a way to prevent piracy. Now this might not be the case, as Netflix is beginning to see Popcorn Time as a legitimate threat to their business model. I’m not surprised that Netflix sees risk here and I think that this is a good thing for Netflix. It means they are expecting their business to be disrupted and that they can take proactive steps to address it.

What can they do to keep their business afloat and continue to fight piracy? Well, since they are essentially seen as a cash cow on two fronts – ISPs and Content producers (MPAA and TV companies), they need to clearly articulate the amount of piracy that was reduced once the content was put onto Netflix and then show the increase in piracy after the content was pulled from Netflix for contractual reason. If Netflix can’t afford to keep it on their network, then with an easy to use app like Popcorn Time, the content will be pirated, which means that any revenue artificial scarcity was hoping to drive or to be extracted from Netflix at an elevated price goes out the window and the content will still be consumed.

In some cases piracy will happen regardless, but if the trend continues were people are switching back and forth between cord cutting and going back to cable because of rising costs of apps, then apps like Popcorn Time will become more popular because they can completely replace Hulu, Amazon Prime Videos, HBO Go, Netflix, etc.. You could be a cord cutter with this and pay for one app to get your live sports and be good to go. Content producers will begin to lose out again, because they are trying to squeeze the companies that provide easy, relatively cheap access to their content. I’d rather not go back to that, but if my costs keep rising because the companies I choose to support can’t afford the content that I want, then I’d have no choice.

Lack of Net Neutrality will be a competitive liability in the future for the US

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Net Neutrality could be dead in the US and I think that this creates problems for companies that do business in other parts of the world. Or rather, it creates incentives for companies based in the US to focus on non-US markets for conducting business. There are several reasons for this. Let’s take this from a Netflix perspective, assuming they were able to get the same catalog they currently have in the US and took it into Europe (this has been difficult for US companies while it’s been easier for EU companies to come into the US – see Pandora and Spotify as references). Let’s assume that can happen and they have they opportunity to continue to work in one region or the other.

The EU has recently enacted end-to-end Net Neutrality as the law of the land. So, Netflix traffic cannot be slowed down because of the volume. It cannot be slowed down because it is Netflix traffic, all traffic if it needs to be groomed happens at the same time (likely random or everything gets slowed down). Netflix cannot be charged by the ISP to ensure specific speed to guarantee quality of product, if Netflix wants to control this, it’s up to them (they could manage this through increased buffering before the video starts, for example). The average internet speed is significantly higher than in the US, so the quality will be higher and the need for buffering lower, because the speed can account for dropped packets much more effectively. This means if they charge 8 Euros a month, they are able to keep more of that.These conditions would also apply in Argentina.

In the US, Netflix traffic is now subject to the whims of the ISP. the ISP can slow down traffic based on the time of the day, based on the source of the traffic (using deep packet inspection). They can and have charged Netflix for equal access as, for example, Comcast Xfinity’s streaming service. The US has some of the lowest average internet speeds in the industrialized world. Netflix charges $8/month they have to pay Comcast to ensure that their service meets their end users requirements.

As a company that makes money based on the fact that they are able to deliver high quality content (where the price of said content is continually rising), I would prefer to operate in the EU rather than the US. I will have significantly less issues with the ISPs because they can’t discriminate my traffic and I won’t have to pay to make sure that they do not discriminate my traffic. This means that my quality will increase and my cost per user will not increase as it will in the US. I would begin focusing on providing local language content as well as the best content I can provide from the highest quality sources in the world.

As we start moving towards higher speed requirements in our applications, this will become a larger problem. I know of people online that have issue streaming up to Twitch and Mixify as well as streaming the content to their computer. This is a problem now. We will be moving into significantly higher quality video and games (PS4 streaming a game to your console, that will require a lot of bandwidth and low latency $$$$$). Furthermore, if we start having more tele-medicine we’ll need higher quality video feeds to ensure best results.

These are all examples of applications we know of that will suffer from a lack of net neutrality. As we get people that develop applications for gigabit connections, we’ll start to see net neutrality as paramount. These companies will not be able to afford the required costs for the internet speeds required for effective applications.

This means that the EU and other net neutral countries may become the source of innovation for these applications or companies that create them in the US will need to move to markets like the EU for a user base that can fully exploit their application.

We’ll effectively be playing on an Xbox 360, when high quality PCs are out there. We’ll be at a serious disadvantage.

Who’s responsible for the internet’s capacity?

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AT&T thinks that Netflix is trying to pass off the cost of network connections to end customers. There have been a few different displays of the architecture of the internet. Netflix operations at a different layer than AT&T does – Netflix is an application, so it runs on a layer above the network layer, which AT&T operates. Netflix doesn’t really care who actually sends their bits to the end user – they just care that they get there in a fashion that enables high def video. To this end, they purchase bandwidth from a company, mostly Cogent, and I pay Comcast (others pay AT&T) for me to receive those bits from the bandwidth provider of Netflix. I pay Netflix for access to their content.

Based on this payment model, if there’s not enough bandwidth for Netflix and I’m paying AT&T or another ISP for accessing Netflix, it’s up to them to make sure I have that connection. Content is King, so for me, it’s most important that I can access what I want when I want. That’s why I have an ISP so they can let me see what I want.

I think that the best analogy for content trumping gate keepers are the examples of higher premiums from popular channels. In some cases Timewarner cable pushed for lower rates to show a specific channel to their subscribers. In this example Forbes points out that ESPN costs $5.54 per viewer, they wanted to lower that price and pulled the channel out of rotation. This made a lot of people unhappy and in some cases people left Time warner over the issue.

Essentially, this is the same thing that is happening with Netflix. The ISPs don’t want to pay to upgrade their infrastructure to ensure that the consumers of media online (many of these people paying for higher download speeds and higher data caps). Netflix is providing a service that these people are willing to pay for but cannot control how the ISPs interact with their intermediaries so is in a tough spot. It’s a target because of it’s popularity and has no control of how anything gets to a specific user. That’s why it’s looking at the peer2peer model (which is how Skype keeps their rates low) so it won’t need to go through Cogent and will likely burden other parts of the network very differently.

I believe that if an ISP cannot meet it’s advertised speeds 90% of the time, then they need to update their infrastructure to meet my needs. If they throttle a popular service I’m watching and thus make it unwatchable, they need to upgrade their infrastructure. Most ISPs have an extremely high profit margin, which means that it’s coming out of their infrastructure investment and are not actually adding value.

There are many companies that are responsible for the capacity of the infrastructure and all of them can negatively impact our ability to use the internet. However, from an end user perspective, my ISP is on the hook first, then everyone else.

Culture wars: the battle we didn’t know we’re losing for access to our culture

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Our culture is being held hostage

Humans are a collection of story tellers. When we hang out with our friends, new and old, we spend a great deal of time telling stories. These stories define who we are. In cases where we first meet we try to find common ground through current events, current cultural experiences, like the Olympics – TV shows, books, and movies. When you know nothing about another person, these are the only basis you have for building an understanding of what they stand for and who they are. To be honest, in many ways they are terrible indicators of what type of person they are, but they can help you identify if that person is someone with a similar world view to your own. Once you move past those conversations you move on to personal stories. The things that made you laugh and, conscious or not , enter into a game of one upmanship. Now most of the time you’re just trying to find a similar experience to relate to theirs, but it can be misconstrued.

In many cases the only context you’ll ever have with the person is through a shared experience, access to our communal culture. Regardless of our awareness or how willing to admit it we are, we have cultural gate keepers. To access any of our current culture we have to pay to access it. That’s fine, the people that produced it should definitely get paid for the work that they did. However, the people we’re paying are necessarily the people that produced the work. We’re paying for internet access at least twice (if you have home internet and a mobile data plan). In some cases that means you’re paying the same company twice for access to the same thing (verizon wireless and verizon FiOS).

Additionally, these companies have no incentive to provide better access to the content that you want o see. It’s actually in their best interest to make it more difficult and have worse service, so that the services that you want to access will pay them again for you to access the service that you are paying to access. Furthermore, these same companies think that if you use the internet a lot you should pay a higher rate!

This isn’t really anything new. I’ve been saying this for a few years. But what drives this is rent seeking behavior, investors that don’t really know what’s going on, and arrogance.

Shrinking Public Domain

The public domain is the area of our culture that no one owns any more. It’s been published for so long that it’s free to be consumed by everyone. Disney hates this. The main reason is that Mickey Mouse should be in the public domain, or would be based on the laws at the time of his creation. However, Disney is not above using the public domain to make a lot of money. Here’s a list of movies they’ve created based on public domain (over 50). FIFTY movies based on the public domain – it’s great for a corporation to exploit the public domain, but if you try to do something you’re going to get sued.

I’ve written about Lawrence Lessig a lot, he’s a bit of a hero of mine. He’s got a lot of integrity and really pushes for what he believes. He recently was sued (he’s a copyright lawyer) and forced a settlement with the company. He’s one of the few people that can do this, he has the knowledge, the money, and the desire to do this. In many other cases, it’s up to pro bono lawyers to fight these cases because the person in the wrong cannot fight. It’s literally David vs. Goliath. However, if David is provided the right resources most of the time Goliath goes down.

This is the case we’re dealing with in the propose Comcast Time Warner merger. Where the people most impacted have little voices. Companies are pushing to turn more of our activities into opportunities to make money. Gamers that stream on Twitch are going to be pushed to pay more, Twitch is going to be pushed to pay more for high quality access for uploads and downloads, and the people watching those streams are going to be forced to pay for quality streams. This is our culture. We are people that don’t want to be controlled by cable companies. We don’t want to be forced to deal with this. Our needs are not being met by the market.

Because we’re disparate, companies and incumbents are winning the culture war. Most people aren’t aware that we’re in a battle over affordable access to our culture. Memes, TV shows, Movies, and whatever retarded shit we watch on the internet is our culture. Making it inaccessible is a battle our gate keepers are winning. We need to figure out how to fight back. I plan on switching from Comcast when I move and never going back. I plan on switching to T-mobile and never going back to Verizon. It’s time to put our money where our mouth is. It’s going to be painful, but without our support those companies can’t oust the incumbents and cannot force change.

We need to force change with our wallets.