War for the Web
12 12.11

Verizon to buy Netflix?

Recent chatter on the market, and a subsequent uptick in Netflix stock price suggests that Verizon may be interested in purchasing Netflix. This is interesting for a lot of reasons. Netflix is struggling currently in the face of rising content costs and an exodus of subscribers, and as they expand into European markets they have projected a loss for 2012. For beleaguered investors hoping to see the stock price rise, the news of a Verizon takeover is good.

Suggestions of a Verizon takeover of Netflix, however, mirrors the January merger of Comcast and NBC Universal. This is vertical integration of content and service providers and it has potentially scary consequences for every day consumers. As cable delivery giants like Comcast (which is currently the largest cable internet provider in the United States) and Verizon (which owns Fios, the fastest service provider in the United States) begin to purchase content owners and providers such as Netflix and NBC, they have an increased incentive to force users of the Internet Service that they provide to view their content. They also have an incentive to make it more expensive for their customers to access content owned by others, as this is more expensive for them to provide.

It is also important to note that there are no laws protecting consumers from this outcome. As things stand currently, only a set of contracts and “peering agreements” between providers dictate how Internet data moves back and forth across the vast cable networks that provide the majority of broadband service in the United States. Up to now, there have always been market incentives to encourage cable providers not to restrict what their customers can see on the Internet, but the status quo is changing. As more streaming video moves online, it becomes more expensive for cable companies to provide access to the entire web. In many cases they would need to upgrade and expand their infrastructure to support consumers use of streaming video. In the face of this, a race to acquire content has begun, and the consolidation of content and service has the potential to end the Internet as we know it.

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