One of the success stories of the Internet era has been Netflix, the company that provides movies and TV shows to home viewers. In its earlier years, Netflix was a snail-mail-only service. You ordered a movie. It showed up in your mailbox. You watched it, and then put it back in the mail for return to Netflix.
With the ubiquity of household broadband Internet, Netflix changed its business model to stream content. The benefits to Netflix? No more postage, no more production of DVDs, no packaging and no labels.
Netflix’s current pricing model allows unlimited downloads for $7.99 per month. Netflix saves, with every download, approximately 40 cents that would otherwise be paid to the U.S. Postal Service. If the average customer downloads 10 movies and TV shows a month, Netflix will save $4 a month for each of its 23 million customers.
Obviously these massive transmissions over the Internet are not really free. Someone is paying for them. That “someone” is the millions of broadband subscribers, whether or not they are Netflix customers.
How is that fair?
Netflix argues that the marginal cost to the network providers of streaming a half-hour TV show to a residential customer is “one penny.” This ignores the hundreds of billions of dollars in sunken network investments needed to create that one-penny marginal cost efficiency at the customer’s end.
If each of its 23 million customers downloaded one half-hour show per day and Netflix paid that one cent, that would be an increased cost to Netflix of $1.6 million per week — or over $83 million per year.
That’s a far cry from the “take a penny, leave a penny” cup on the counter of the coffee shop.
We need an approach that is more socially responsible and fair.
Consumers tend to pay more when they consume more goods and services, and pay less when they consume less.
The reality is that Netflix and similar services want a free ride on the networks built with more than $250 billion in design, engineering, manufacturing, construction and maintenance — a system that now provides broadband services to 95 percent of American households.
Broadband networks are delivering more than just the latest sitcom episodes and hottest movies. They facilitate telemedicine, education, job training, telecommuting and many other functions. It hardly seems fair to make users of these services pay more in order to subsidize Netflix’s costs of delivering their videos online.
This call for a fairer pricing model and a more realistic long-term investment strategy has bipartisan support. In 2010, the FCC said government policy should not discourage “broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more.”
No one questions that Netflix provides a valuable service to its customers. But many increasingly question a service that forces tens of millions of non-customers to pay for something they never use.
JOHN SUNUNU is a former member of the U.S. Senate. HAROLD FORD JR. is a former member of the U.S. House of Representatives. They are the honorary co-chairs of Broadband for America, a coalition of 300 members ranging from independent consumer advocacy groups to content and application providers to the companies that build and maintain the Internet. They wrote this for the Mercury News.
