End of Net Neutrality to Kill Netflix

Written By Christian DeHaemer

Posted January 16, 2014

Two days ago, a federal appeals court threw out Federal Communications Commission rules that forced Internet service providers to treat all traffic equally.

Net neutrality is a big deal. It has been championed by Internet companies that worry if carriers like Comcast could start charging fees for better treatment and faster lines, it would force the little guys out.

The more data you send, the more — presumably — you’d be charged.

But first, a little background from the New York Times:

“What is net neutrality?

Net Neutrality is a concept that says the Internet should be free and open: users should have unfettered access to any service or application on the Internet, and the company operating the pipes that connect a user to the Internet cannot discriminate against or block any content, just as a phone company has to transmit a call that one phone user makes to another.

The F.C.C. exempted Internet service from utility like regulation in 2002, when Michael Powell, a Republican appointee, was chairman. The F.C.C.’s net neutrality rules were enacted in 2010, under Chairman Julius Genachowski, a law school chum of President Obama, who made net neutrality a campaign issue.

Now, the decision on how to proceed is up to Tom Wheeler, the new chairman, who was appointed by Mr. Obama but who has worked as a lobbyist for the cable industry and wireless phone companies. Mr. Wheeler has said he supports an open Internet, but he also has expressed willingness to allow companies to experiment with new ways of delivering Internet service.”

The Big Six

The problem is, there are six massive media companies in the world that control a large portion of the data that goes into the home.

They are: Comcast/NBCUniversal, News Corporation, Walt Disney Co., CBS, Viacom, and Time Warner.

These six companies own just about every media outlet you can think of, from ABC to Showtime.

Obviously, the last thing a company like Comcast wants is competition from content upstarts like Netflix. This ruling changes the game.

According to USA Today:

“Netflix is the leading streaming video provider on the Internet and regularly accounts for a notable chunk of the data flowing across the web, so Wall Street expects the company to be exposed to extra costs from this ruling.

Netflix may face an incremental $75 million to $100 million in annual content delivery costs to cable companies for access to their residential customers who are streaming Netflix content.”

This is yet another example of crony capitalism stifling innovative companies. It is simple extortion. Pay up, or slow down.

Here’s how the two stocks traded after the ruling:

netnut

The trade here is obvious. Buy Comcast (NASDAQ: CMCSA) and short Netflix (NASDAQ: NFLX).

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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