Netflix Price Increase is Only the Beginning

Netflix

In an open letter to shareholders earlier this week, Netflix confirmed that by the end of June they will increase the monthly cost by one or two dollars. The increase will initially only affect new customers, and those who already pay for the service will have a lengthy grace period where they will be continued to be charged fees at the rate of their existing Netflix plan. If someone is interested in subscribing to the provider they may want to do it soon and lock in the current price. Regardless of grace period however, eventually the price will be increased for all Netflix customers. The impending price hike may also only be the first of more to come as internet providers are starting to put pressure on the streaming service.

Net neutrality is a term that has been thrown around a lot lately. Net neutrality refers to maintaining a fair and open internet where all web sites and streaming services are subjected to the same internet speeds. So on a Sunday night when many people are home on the internet and streaming content to their televisions or tablets, the internet speed and quality is the same for Amazon Prime as it is for a smaller start-up provider. A recent study found that during some peak times, Netflix accounts for over one-third of all internet traffic, including other streaming services and general online browsing, but they do not have to pay more for all of  the data they are sending through the servers.

If net neutrality is not upheld, then larger companies like YouTube or HBO Go could pay more money to internet providers like Comcast and Verizon so that if there is a lot of internet traffic their sites get priority. It would make the barriers for entry that much higher for start-ups who cannot pay cable providers to assure access to their sites. During peak times the smaller sites could be blocked to free up service to the big streaming services. The discrepancies would be similar to the upper and lower class of America today. Mr. Wheeler, the FCC Chairman, recently released a new proposal that would allow internet service providers to charge increased prices to companies like Netflix to stream their service in a reliable manner, which would only be the beginning of the breakdown of net neutrality.

This would be bad for two reasons. The first is it makes it more difficult for new start-ups to enter the marketplace when big companies like Netflix can pay to make sure their content is always delivered. The other problem is that the prices for all these streaming providers would go up as well. Not only would the cable companies be able to charge streaming services more money, but they would charge them depending on how much data they send through their servers. For example, HBO Go crashed during the season premiere of Game of Thrones earlier this month. If HBO was able to pay the cable providers more money, they could have allocated more power towards HBO Go and it would not have crashed. But those trying to use Hulu or Amazon Prime at the same time would suffer because their speed and quality would go down, unless they too paid more.

Customers are not the only ones who oppose these new rules, the streaming providers do too. If they have to pay more they have to charge more, and that is something they are trying to avoid. The higher prices would not enable them to produce more original content, rather, it would be the exact same service for a higher price, which no one wants. If the new rules do go into effect it will be a double loss as smaller companies will suffer and larger ones will have to charge customers more. Those wanting to sign up for Netflix or other providers would be wise to do it now, while the price increases are not in effect, because this may only be the beginning of what could be, the end of net neutrality.

Commentary by Chris Dragicevich

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Sources:

Huffington Post Tech

Bloomberg

Netflix

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