Wednesday, January 15, 2014

Bandwidth Discriminators Must Be Cautious

With the recent destruction of the FCC's net neutrality rule, it's theoretically open-season for potential bandwidth discriminators. Quartz cleverly identified one big loser from the decision: Netflix, which currently consumes a massive amount of bandwidth and could be priced out of business by newly-enabled ISPs.

The internet has recently taken great delight in analyzing the various reasons why Netflix's business model doesn't add much value and must either change or collapse. Although I agree that Netflix faces various existential threats, bandwidth discrimination doesn't seem like a big one to me.

The reason is basically that powerful and important people in government and journalism love Netflix, and thus are highly sensitive to its well-being. Elite DC was obsessed with House of Cards for a while. If some over-eager ISP decides to crush Netflix with rate hikes, forcing sudden service and pricing changes, the town will freak out. Similar to the sequester debacle, when Congress acted only when their own creature comforts were threatened, Netflix commands a special prominence within the policymaking elite (and their interns).

My advice for ISPs searching for new profit opportunities created by the ruling is to cautiously test pricing models in areas unlikely to galvanize politically-powerful groups. Even better would be to employ a 'bootlegger and baptist' maneuver and ally with moralizing groups already opposing some internet region. Surely nobody would defend a 'bandwidth sin tax' on streaming pornographic videos or the websites of Colorado marijuana dispensaries, right?

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