What FCC decision means for cable-cord cutters «
TV fans on the fence about ditching their cable boxes may want to see how the legal tussle between Verizon /quotes/zigman/262341/delayed/quotes/nls/vz VZ -0.37% and the Federal Communications Commission shakes out. If Tuesday’s court ruling against the FCC is in fact the series finale of “net neutrality,” then the cost of cutting the cord in favor of streaming shows on Netflix /quotes/zigman/87598/delayed/quotes/nls/nflx NFLX -0.49% and other services could soon rise, experts say.
The U.S. Court of Appeals in Washington, D.C., rejected the FCC’s so-called open-Internet rules, paving the way for cable companies to give some broadcast companies and video streaming services preferential treatment. The 2010 Federal Communications Act forced companies like Comcast and Verizon Communications to treat all video streaming equally. “Net neutrality puts users in control,” says David Sohn, general counsel at the Center for Democracy and Technology, a non-profit public interest group in Washington, D.C. “Services succeed or fail based on what users like and—until now—YouTube, Netflix and Hulu didn’t have to worry about striking a deal with the Internet service providers.”
Click to Play Costs of cord cutting about to soar?If this week’s court ruling against the FCC is the series finale of “net neutrality,” then the cost of cutting the cord in favor of streaming shows on Netflix and other services could soon rise. Quentin Fottrell explains on Lunch Break. Photo: AP.
“The ruling will be bad for cord cutters, especially if they get their broadband from a cable company,” says Yung Trang, president of deal aggregator TechBargains.com . Cable companies and other broadband providers have an incentive to slow down the delivery of bandwidth-hungry competing services like Netflix and Hulu,” he says. If net neutrality is eroded, cable companies will likely charge Netflix, Hulu and YouTube to prioritize their services and could even limit the quality of those services the same way wireless companies “throttle” heavy data users. “Netflix and Hulu could pass these costs on to the consumer if they don’t want to eat into their profit and YouTube might force users to watch more ads to make up the additional cost.”
Not everyone is so sure that consumers will lose, however. “It’s hard to say how aggressive broadband providers will be in trying to get content owners to pay,” says Nick Del Deo, senior research associate at MoffettNathanson. Cable companies are keenly aware that video streaming services are extremely popular with the public, he says. “A plea from Internet companies—among the most beloved companies in America—to restrain big bad cable and telephone companies and demonize them as monopolists would likely find a receptive audience,” Del Deo says. Indeed, video streaming companies have won over a significant number of customers over the last year: 38% of Internet users subscribed to Netflix in 2013, up from 31% in 2012—although some of them likely have shared accounts, according to research firm Nielsen; 13% used Amazon Prime Instant Video in 2013 versus 7% in 2012; 18% used Hulu in 2013, up from 12%.
Enlarge Image To be sure, the battle is not over yet. FCC Chairman Tom Wheeler said this week the agency will consider all available options, including an appeal, “to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression.” Michael Beckerman, president and CEO of the Internet Association—a trade organization for the industry—says “innovation without permission” should not be taken for granted, but he says the organization will study the appeal court’s opinion and work with the FCC and policy makers on Capitol Hill to protect Internet freedom.
But an end to “net neutrality” could also have unseen consequences for consumers, making life more difficult for the YouTubes and Netflixes of tomorrow. “If history is any guide, it’s likely that a lot of people will be using new online services that don’t exist today or really aren’t on anybody’s radar screen,” Sohn says. “But a multi-tiered Internet service creates a whole new entry barrier.” And Netflix—now one of the biggest players with 31.1 million U.S. subscribers—already works with Internet service providers to secure faster streaming speeds. “ISPs with a direct Netflix connection will continue to deliver the best Netflix experience,” according to Netflix. It has a monthly “Netflix ISP Speed Index” based on service providers within the U.S. Google Fiber /quotes/zigman/93888/delayed/quotes/nls/goog GOOG -0.49% , Cablevison /quotes/zigman/221038/delayed/quotes/nls/cvc CVC -0.97% are ranked Nos. 1 and 2, while TimeWarner Cable /quotes/zigman/528868/delayed/quotes/nls/twc TWC +0.31% and Comcast /quotes/zigman/89307/delayed/quotes/nls/cmcsa CMCSA 0.00% are ranked Nos. 7 and 8, according to the latest update .