The Economic Fallacy Behind Making Netflix Pay

Internet providers are intent on making Netflix pay in order to send their content. This is part of the ongoing debate on “net neutrality.” I don’t have a fixed opinion on net neutrality, but it seems that the arguments against Netflix keep demonstrating an economic fallacy.

netflix loading

Today, Netflix plans to show the loading symbol in order to lobby against their adversaries. As Fox 2 in Missouri reported yesterday,

Top sites on the Internet, including Netflix and Reddit, will be displaying a constant “loading” symbol — the so-called “loading pinwheel” or, alternately, the Spinning Wheel of Death.

It’s part of a protest called “Internet Slowdown Day,” a push against the U.S. government’s support for so-called Internet fast lanes.

The Federal Communications Commission in May proposed allowing broadband providers to charge companies like Amazon and Netflix for prioritized access to consumers. The proposal is now open for public comment and could be changed before a final vote to implement it.

As part of the Internet Slowdown Day protest, the websites will also include a prompt to contact your lawmakers about the FCC proposal.

“It’s always hard to explain complicated topics to a lot of people, and the FCC made it harder by trying to fool the public into thinking their proposal was real net neutrality, when it was actually what the cable and phone lobbyists always asked for,” said organizer David Segal, executive director of civil liberties group Demand Progress and a former Rhode Island state representative.

Net neutrality refers to the principle that high-speed Internet providers should treat all types of Web content equally, which led to a set of rules the FCC approved in 2010, designed to keep the companies that hold the keys to the Web from playing favorites.

So what is the argument that Amazon’s video service and Netflix should have to pay more to use the internet?

Broadband Internet providers, many of them cable companies, argue that as businesses providing a service, they have a right to charge websites. Netflix accounts for around a third of data consumption online during peak hours, and Internet providers say the company should therefore help foot the bill for delivery.

I wish that the internet was an unregulated “wild west” where companies simply tried to get the best deals they could, without any FCC to dictate to anyone. I don’t really know what Netflix would pay in that situation. What I do know is that the above argument is flawed.

The broadband internet providers are acting as if they are harmed by the fact that streaming services like Netflix are taking up so much bandwidth. But why does anyone want broadband in the first place? Duh; so they can watch video online! So without Netflix and Amazon, these broadband companies would have nothing to sell the public.

The economic principle here is that the value of an item is found in its end use. If broadband companies had no video to deliver, none of their broadband capacity would have any real value. No one would pay them to have all that bandwidth available. Netflix and Hulu and Amazon are the reason why these companies have customers.

So, whether or not broadband companies are getting enough revenue, it isn’t necessarily Netflix’s responsibility to give them more money. If the FCC is thinking that they are taking without giving back, then the FCC is making a policy decision on a flawed premise.