Reed Hastings famously said this year that Netflix's goal "is to become HBO faster than HBO can become us." The CEO was mainly talking about producing compelling television like "House of Cards" and "Orange is the New Black," but take that to its logical endpoint and you wind up at a cold, numerical battle against HBO for the public's eyeballs.
Now, Netflix is set to reveal that it's virtually surpassed its rival in terms of paid subscribers, a sign of how quickly the service has matured since its experiment with Qwikster (the ill-fated idea to spin off Netflix's DVD-by-mail feature as a separate company). Netflix's enormous audience is looking increasingly attractive to cable companies, many of whom are reportedly in talks to put Netflix on set-top boxes nationwide. If successful, getting access to Netflix could soon become that much more convenient.
But while it might serve consumers in the short run, tying Netflix more closely to the cable industry could pose a threat to the open Internet that helped give rise to the company in the first place.
Netflix has been a staunch defender of network neutrality, the idea that Internet providers shouldn't tailor the quality of their service according to the type of information (video, audio, text, etc.) being transmitted. Watching Netflix requires ISPs to move a lot of data, and the company is often invoked as a potential victim of efforts to throttle that traffic. Since that tension is partly what's driven Netflix to challenge cable companies in the past, a deal with said companies might undermine Netflix's rhetorical position on net neutrality.
More importantly, though, a content-sharing agreement would also set up an actual economic opportunity for cable companies to establish greater control over the Internet.
For much of the Web's history, ISPs have stayed away from producing the Web services that travel over their wires and into a customer's home. It helps that ISPs and Web companies are separated by still other companies that move traffic over the wider Web before it reaches the last mile, which is generally the ISP's property. Consumers are protected by this arrangement because no single ISP can dictate what content producers can or can't do.
That begins to change if ISPs, through deals with Web services, gain new leverage against them. The likelihood of that seems pretty high in the case of Netflix and the cable industry:
At issue is Open Connect, a content delivery system Netflix wants broadband providers such as Comcast to use. The catch is that Netflix wants Open Connect to be installed inside the broadband provider's own networks.
Implementing this solution would be costly, the cable companies argue. They also say, according to the LA Times, that it would give Netflix the ability to make further demands later on. Denying Netflix the use of Open Connect might hurt the cable companies in the form of a lost opportunity. But it would arguably hurt Netflix a lot more, particularly since it's being squeezed from the other side by movie studios that can keep asking Netflix for more money in exchange for continuing to distribute their products.
Once cable companies bring Netflix closer into their orbit, they'll be able to justify upselling customers to more expensive broadband plans or raising the price of cable packages. And, particularly if they concede to Netflix on Open Connect, the network operators could pass the costs of integrating and maintaining the technology onto Netflix, which could mean higher prices for Netflix's own subscribers.
At the same time, in an effort to attract new customers, cable companies could sell promotions that leverage the Netflix partnership, putting other streaming video services like Hulu at a disadvantage. And since many markets are limited to one or two cable providers, giving Netflix preferential treatment at the expense of its competitors would grant cable companies a lot of control over the Internet economy.
Ironically, Netflix, often held up as a key beneficiary of network neutrality, could wind up contributing to its decline.