Netflix hoped for ‘non-regulation’ solution to net neutrality

David Wells

Netflix’s chief financial officer David Wells has said that the firm was hoping for a “non-regulation solution” to net neutrality, following the FCC’s adoption of strong rules last week. 

Speaking at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco, Wells said he was “super pleased” there is now a vehicle for a complaint about web speed restrictions, but indicated that the company had hoped for a solution that stopped short of the imposition of ‘Title II’ re-classification of US telecom service providers.

“Over the last year we’ve been very pleased that we’ve been able to rise the issue [of net neutrality]” said Wells. “Were we pleased that it pushed to Title II? Probably not. We were hoping that there might be a non-regulated solution to it, but it seems like companies that are pursuing their commercial interests, including us, have to arrive at something like that.”

Last week the FCC adopted strong net neutrality rules, going beyond goals set by FCC chairman Tom Wheeler last year and reclassifying broadband providers as telecommunication services under Title II of the US Federal Communications Act, effectively subjecting them to stronger regulation.

The rules will ban paid prioritisation so that “’fast lanes’ will not divide the internet into ‘haves’ and ‘have nots’,” in Wheeler’s words. They will also ban blocking of lawful content and throttling – degrading access to certain content by reducing the bandwidth available.

The rules will for the first time apply to both fixed and mobile networks, which the FCC estimates now account for 55% of internet usage. The FCC also extended its remit to include interconnection between backbone networks and last-mile service providers as well as the last-mile networks themselves.

Netflix has done a string of inter-connect deals over the past year in a bid to secure quality of its service – including a July 2014 deal with AT&T designed to reduce buffering problems for its US customers watching via AT&T’s broadband services.

Separately, Wells spoke at the conference about Netflix’s expanding original content expansion plans, claiming the firm is placing “more emphasis on exclusivity.”

Asked about the mix of content on Netflix between acquired and originated content, Wells said Netflix would continue to “feel our way along” but pointed out that “frenemies” like HBO got to a mix of 40% to 50% within 10 to 15 years.

“We know that the overwhelming convenience of an internet delivered entertainment platform is not a sustainable advantage,” said Wells.

“Technology is shifting, there are more and more consumers shifting there [online], that’s going to continue to happen, so we need to have a differentiated content offering. Exclusivity is part of that and original programming is part of that.”

The comments come a month after Netflix announced it is raising US$1.5 billion (€1.35 billion) in new debt that it will use on “general corporate purposes, which may include content acquisitions, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”

In its Q4 earnings announcement in January, the firm also said that it plans complete its global expansion over the next two years, upping its footprint from 50 to 200 countries.

Netflix will launch in Australia and New Zealand later this month and is also confirmed for Japan later this year.

Wells acknowledged that Japan as a market is “famously difficult for American media companies to figure out,” with Hulu previously closing down its operations in the country. However, he said that the market has “all the fertiliser for a great Netflix market” – high speed broadband, wealth and huge consumption of online video.