A top Netflix exec is probably wishing he'd stayed in bed.
The company's chief financial officer, David Wells, told an investor conference Wednesday that Netflix isn't "pleased" about the Federal Communications Commission's recent vote on net neutrality, which slapped strong new rules on Internet providers.
It's a shocking admission for a company that led the charge on aggressive regulations for Comcast, Verizon and other broadband companies. Last week, the FCC handed Web companies a big victory when it decided to regulate Internet providers under Title II of the Communications Act — just like legacy telephone companies.
Given how vocally Netflix was advocating for Title II, it's surprising to see Wells suddenly throwing the regulations under the bus, as Variety is reporting.
"Were we pleased it pushed to Title II? Probably not. We were hoping there would be a non-regulated solution," said Wells, according to Variety. (A recording of the call is forthcoming and will be posted here.)
Opponents of the FCC's net neutrality rules were quick to pounce.
"This must be a storyline for a very bad Netflix movie," said Randolph May, president of the Free State Foundation. "I don't know whether it's a comedy or a tragedy."
Out of context, Wells's quote certainly sounds damning on its own. But Netflix spokeswoman Anne Marie Squeo denied that Wells was actually condemning the strong measures.
"David was simply trying to convey the evolution in our thinking," said Squeo, "and give some sense of how our initial position evolved over time from an industry agreement to a regulatory solution."
In short, Netflix is trying to say that it's not turning its back on net neutrality. It's a tough argument to make, however, in the wake of pieces in Gigaom and the Verge that highlight a controversial deal Netflix just struck in Australia. That deal appears to violate the spirit of net neutrality because it exempts Netflix from user data caps — a practice that the FCC has said it would look at askance here in the United States.
In response to charges of hypocrisy by the Verge, Squeo said other content companies in Australia commonly struck such deals.
"We won't put our new members at a disadvantage to those of rival services," said Squeo.
In some ways, the Australian data cap deal is not unlike the way Netflix held its nose and signed a set of paid agreements with Comcast, Verizon and other U.S. Internet providers last year, said a Netflix official, who spoke on condition of anonymity because the terms of the deal were confidential.
"We don't endorse ISPs having data caps or zero-rating [exempting content from data caps for a fee], but what are you supposed to do? Not launch in Australia?" the official said.
Even if Netflix's argument is that it's simply playing by local rules, the whole situation looks pretty bad for Netflix politically.
Wells's remarks Wednesday don't help matters. They simply add to the impression that Netflix secretly doesn't like the FCC's net neutrality rules.
But it's important to keep in mind the bigger picture. Netflix spent months arguing before the FCC that the agency should use strong rules — such as Section 201, Section 202 and Section 208 of the Communications Act — to regulate Internet providers. It explicitly called for broadband companies to be regulated with the same law used to regulate legacy telephone service. To think that Netflix was up to some head-fake play here doesn't make much sense.
From my own reporting, it's clear Netflix much preferred that the private sector come up with a voluntary solution so that it didn't have to pay Comcast, Verizon and other Internet providers a fee to send its videos to consumers. What it really wanted was something called "settlement-free peering": The transfer of its content with no money changing hands.
When it realized that that wasn't going to happen, it lobbied the FCC for regulation.
So is Wells really displeased about Title II? Insofar as he wasn't able to get his ideal outcome (industry self-regulation), sure. But that probably doesn't mean Netflix is somehow opposed to Title II now.