Netflix Says Striking Cap-Exempt Deals With Australian ISPs Was A Mistake It Won't Make Again

from the whoops-a-daisy dept

Early last month we noted how Netflix was taking heat for its decision to strike deals with Australian ISPs exempting Netflix’s traffic from usage caps ahead of Netflix’s March launch in the country. The decision was seen as hypocritical for a company that has been a fierce critic of usage caps and zero rating in the States. You might recall that Netflix CEO Reed Hastings lambasted Comcast on Facebook for exempting its TV services when the Xbox 360 is used as an IPTV cable box, and Netflix executives called it “almost a human rights violation” when discussing the heavy-handed implementation of caps in Canada.

Granted, as we pointed out at the time Australia is a notably different market, where the extremely high cost of transit means that most content companies strike such deals to genuinely save costs across the entire ecosystem. That’s in contrast to the States, where transit is relatively cheap and ISPs have grown to use caps arbitrarily to protect legacy TV revenues from internet video. That still doesn’t mean cap-exemption is a good business model for lovers of an open internet, and it’s notable that Netflix’s position on caps wasn’t just muted in Australia, it was entirely absent.

Fast forward a month, and Netflix now suggests it regrets having struck the deals at all (or it regrets that people noted the inconsistencies in its position and demeanor on the issue). In a letter to investors (pdf) Netflix briefly touches on the Australian neutrality fracas. After applauding the FCC’s decision to embrace Title II and examine interconnection more closely, the company issues an interesting mea culpa:

“Data caps inhibit Internet innovation and are bad for consumers. In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not). We should have avoided that and will avoid it going forward. Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing.”

We’ll have to watch closely if Netflix’s regret includes fighting to eliminate caps in Australia, or continuing to bow quietly to the status quo. Meanwhile, Netflix’s international expansion plans this year involve reaching 200 countries by the end of the year, so the company will have plenty of opportunities to put this promise to the test.

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Comments on “Netflix Says Striking Cap-Exempt Deals With Australian ISPs Was A Mistake It Won't Make Again”

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Anonymous Coward says:

They knew what they were doing before they did it

I have, use and really like Netflix.

But, their excuse here rings hollow to me. It’s characterized as some hindsight revelation that maybe it wasn’t such a good idea. I believe they knew going into it that it wasn’t a good idea and that it wouldn’t be perceived well and they collectively decided to just do it and ask forgiveness later.

Financially, it may have been the right decision for them to take given the nature of Australian broadband. But, it wasn’t a decision made in a vacuum. Their bean counters knew exactly what they were doing.

Anonymous Coward says:

It’s a really difficult area for them to tread. Do what’s right for the customers in the short term by breaking net neutrality and negotiating deals to provide customers with cap-free viewing or stick to their net neutrality stance to benefit customers in the long term, but providing customers with no short-term relief.

Anonymous Coward says:

As an Aussie consumer...

OK, that’s the disclaimer out of the way.
Seriously, with the state of broadband caps in Australia, the only way to get any sort of video penetration is to get the ISPs to to exclude your traffic from the cap. Note that they don’t promote the traffic to the detriment of other traffic – you’ll get the same speed and ‘reliability’ as anyone else. All that it means is that the user can stream, say, 50-60 GB of Netflix movies in a month without exceeding their 40Gb cap and paying an extra $30/Gb in the bill at the end of the month, or getting their connection throttled to dial-up speed if they go over the cap.

AdrianHunt64 (profile) says:

Re: As an Aussie consumer...

As a fellow Aussie 🙂
I can vouch for the the high price of data in Australia. If it was uncapped this would not have been an issue at all.

The local media (which are quite partisan given their competing interests) gave the impression that Netflix was also regretful due to so many users trying the free month and getting a poor quality experience.

Also as a background, Aussie ISP have often offered “un-metered” content for stuff stored on their local mirror/proxy sites. For example if they have the latest 10Gb game patch on their local mirror they don’t charge you for the bandwidth to download it. Theory being, the highest cost of data is via the expensive undersea cables that connect Oz to the our neighbours so pass on the savings to your customers.

vdev (profile) says:

different scenario

The situation in Australia is very, very different. Transit is quite expensive and wired connections are capped – not just wireless as is the case for most usage in the U.S.

In addition, local competitors already had exemptions in place. So Netflix had not a lot of choice.

That said, the better solution would have been colo boxes in Australia and work with the ISPs to do unmetered, as Adrian’s comment suggests.

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