Netflix, Net Neutrality, and the Future of OTT
The CDN World Summit in London last week was well attended by many of the world’s best-known CDNs, telcos, operators, content publishers, internet exchange points (IXPs), and OTT providers.
I had the privilege to lead a roundtable discussion where representatives from each of these groups were asked two questions: Are there Net Neutrality and policy threats to CDNs, and should operators see Netflix as friend or foe? Interestingly, the answers to the two questions ended up being intertwined.
As a group we looked at why Net Neutrality was probably the wrong term for arguments that were often put in the public eye by pseudo-technical politicians, when in fact the issues raised were typically concerning competition law or civil rights issues that already have solid legal frameworks localised to the operators' territories. We broadly agreed that "the" internet is a purely conceptual idea, and in fact refers to many thousands of privately owned networks, which all have autonomy to determine their own policy—within the laws of the land.
Market forces mean that many of these networks simply open themselves up to allow third-party OTT services through their networks with no particular prioritisation, and this is an expectation of the service that is perceived to be "inherent" when offering "internet access" to subscribers. However, this network is their investment and these operators have every right to wall their garden if they so wish.
Where it becomes slightly more complex—and here's where the discussion frequently turned to Netflix and its recent deals with Comcast and other operators—is where the operator abuses a monopoly advantage to favour its own on-net competing service to Netflix. However it was broadly agreed that in this case competition law in most countries was absolutely sufficient to ensure that the market remained competitive and open, without any need for further internet-specific regulation of the kind that has recently been debated under the Net Neutrality moniker. In fact, internet-specific regulation was seen by all parties at the table as counterintuitive to maintaining a healthy internet/content ecosystem.
To operators and CDNs—and to Netflix itself—this should come as no surprise. However, what was a surprise to me—and I think to all of those who took part in the discussion—was that for all the parties Netflix was perceived to very much be a friend, and not a foe. For operators who simply allowed Netflix over their network as part of their overall traffic mix, they acknowledged Netflix as being of critical value to a large number of their subscribers—and for this alone Netflix added value.
For larger ISPs with more complex peering propositions, who need to ensure that Netflix enters into a commercial and technical arrangement in order to ensure they can provision sufficient CDN capability internally to deliver usable quality for Netflix customers, not only was there a valuable proposition for their subscribers but also a potentially interesting revenue stream to ensure their internal CDN was able to sustain itself and grow.
For the broadcasters in the discussion, there were several reasons why Netflix was adding value to the ecosystem: First they were helping to establish a working commercial and technical ecosystem for OTT content delivery online, and second, by doing so they created a great way to reduce piracy. A comparison was drawn to Spotify and iTunes which were cited as contributing to a significant reduction in piracy—principally due to the fact that through these services linear audio, on-demand audio, and on-demand video had been made accessible enough and an affordable price, and were all easier and better to use than pirate alternatives.
There was some discussion looking at Netflix not as the 800-pound gorilla in the current market, but the first major player in this space, soon to be followed not only by copycat VOD models, but perhaps a service or services that really crack the question of bringing live TV online broadcast aggregation into a mutually viable model for consumer, distributor, and producer.
So despite the fact that many organisations would like to build up a war between rival OTT operators, ISPs, access providers and content providers, it actually seems that, while Netflix has doubtless had to change and adapt to the market that it has created, it is forcing an alignment of the players in the ecosystem and paving the way for continued growth right across the sector.
To be really honest I wouldn’t have been surprised, going into the discussion, to have found that organisations around the table had strong competitive feelings about Netflix and could have imagined the outcome being very negative toward them. I was both mildly surprised and pleased that there was a a real open arms enthusiasm about Netflix, and about not only its own future, but the future it has pioneered for many other players, and the problems they have started to overcome in piracy just by operating a great service well. Absolutely, this is the iTunes moment for on-demand video.
But just at the internet radio feature in iTunes is still weak, and this leaves space for the likes of Pandora and Spotify, Netflix offers no live TV and is unlikely to start anytime soon, this leaves the door open for a live linear online service that may yet deliver even larger traffic volumes than Netflix does today.
And that, at the end of the day, is good news for everyone in the ecosystem.
While it's fashionable to announce oneself as being for Net Neutrality, our columnist argues that the idea is built on a fallacy.