Out of Control Policy Blog

Netflix Blows It All Up

So now you can pay Netflix $7.99 a month and stream all the video you want? Damn cool if you ask me!

What does the Netflix decision mean for consumers—two words: More choice! This is what functional markets deliver. There was a time when if you missed an episode of your favorite show, that was it. You might have gotten lucky and caught it on its single rerun, but that was hit or miss. These days, I can watch The Office at 8 p.m. on Thursday nights. Or I can record on my DVR and watch it later that night. Or I can watch it the next day on my PC by visiting nbc.com. Or I can watch it on-demand from my cable box. Or I can wait a few months and watch it on DVD. Or, soon, via Netflix stream.

I can’t help but wonder if this makes moot all the handwringing about the FCC’s desire to place conditions on the online services a merged Comcast-NBC Universal company can offer. Come on, Netflix has blown up the whole cable TV model.

Remember when everyone from Congress down to city utility commissions were demanding the cable industry create “a la carte” pricing plans, allowing subscribers to pick the channels they wanted and pay only for those. Netflix, as the ultimate video-on-demand service, has come close to doing so, absent any government mandate.

I don’t consider myself a TV junkie, but I’ll allow that I watch my fair share. Yet except for sports and news, I rarely watch regular programming at the time it airs. I timeshift nearly everything with my DVR.

In the past couple of years, I find myself doing a more dramatic form timeshifting. Thanks to DVDs, I can wait a year or two for a series to really prove itself before committing the time to watch. My wife and I came to "The Office" and "Burn Notice" late, catching up on past seasons on disk before (recording and) watching shows as they regularly air now.

Do I still pay for cable? Sure. But I dropped premium services such as HBO because I know I can eventually get “The Pacific” and “Big Love” on DVD. If Netflix pulls Web streaming off to the extent it hopes, all I may need is basic cable.

Naturally, Netflix's streaming service is disruptive enough to stir up the usual “concern” in legislative circles as to whether something or other about it is unfair. You can bet someone’s going to accuse Netflix of trying to monopolize streaming licenses, just like you can bet that Congress or one of the federal watchdog agencies is going to insist Web streaming constitutes an individual market, and is not one of many business models for entertainment distribution. The Federal Trade Commission exhibited this mentality when it blocked the merger between Blockbuster and Hollywood Video. It ignored the measurable threat Netflix posed to both companies’ survival and persisted in seeing brick-and-mortar video rental as its own sector, distinctly separate from video rental via the mail. Although the FTC desired to preserve consumer choice, both companies ended up in bankruptcy.

That’s why the best thing regulators can do now is let this play out.

The big question is whether Netflix will be able to stock enough streaming titles to encourage people to use their service instead of DVD or on-demand cable. Cable companies have the right to protect their investment in programming. They should not be forced to yield licenses or programming exclusivity to Netflix. Similarly, the government should not prevent Netflix from seeking competitive advantageous content agreements with studios and distributors. Regulators should also avoid the temptation to "encourage competition,” namely by propping up failing business models to protect favored companies and segments. They’re big boys now. Let ‘em play.


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