After months of simmering tensions, the companies go public in their fight over the future of television
After months of pretending that that they liked each other just fine, Netflix and Comcast gave up the act Monday.
In a letter to shareholders, Netflix came out in opposition to Comcast’s proposal to buy Time Warner Cable for $45 billion. “If the Comcast and Time Warner Cable merger is approved, the combined company’s footprint will pass over 60 percent of U.S. broadband households,” wrote Netflix CEO Reed Hastings and CFO David Wells. A newer, larger Comcast would wield “even more anticompetitive leverage” and allow it to charge “arbitrary” fees to online content producers for delivering their streaming video to customers, they wrote.
Hours later, Comcast shot back, accusing Netflix of making “inaccurate claims and arguments.” “Netflix should be transparent that its opinion is not about protecting the consumer or about net neutrality,” wrote Comcast senior vice president Jennifer Khoury in a statement. “Rather, it’s about improving Netflix’s business model by shifting costs that it has always borne to all users of the Internet and not just to Netflix customers.”
The tête-à-tête comes two months after Netflix said it was pressured into paying Comcast to improve the video quality and loading speed of popular Netflix shows, like House of Cards.
Advocates for a so-called open internet pointed to that deal, reached in late February, as a clear violation—if not legally, then in spirit—of Comcast’s public commitment to net neutrality, which bars internet service providers from prioritizing some types of internet traffic over others. (While a DC court threw out the Federal Communications Commission’s net neutrality rules in January, Comcast had promised, as part of its merger with NBC Universal in 2010, to abide by them until 2018.) Open internet advocates worry large internet providers, like Comcast and Verizon, will wield too much power and be able to strong-arm online content producers into paying them huge sums to deliver their product to people’s homes.
Comcast, for its part, said that neither the February deal nor Netflix’s opposition to the merger has anything to do with net neutrality at all. “It’s all about Netflix wanting to unfairly shift its costs from its customers to all Internet customers, regardless of whether they subscribe to Netflix or not,” Khoury wrote.
Netflix’s decision to break its silence last night marks the end of what has been a rather awkward, months-long political dance between the two companies. Since Comcast announced in February its intention to buy Time Warner Cable, Netflix has been strangely silent about it, despite consumer rights activists, including Minnesota Senator Al Franken himself, begging the company to speak out. Netflix’s choice not to come out publicly was an indication that it, along with the majority of industry analysts, thought the merger was a done deal. (Time Warner Cable is a former subsidiary of TIME’s parent company, Time Warner.)
Despite the fact that fifty public interest groups have publicly opposed the merger, the Justice Department’s anti-trust team is unlikely to object to it, and while the FCC could impose certain regulations on the newer, larger Comcast, it’s not expected to hold the deal up indefinitely. As a result, the political calculus for Netflix was clear: if—or when—the merger becomes official, Netflix, along with all other content producers, will have to work with Comcast, whether they burn bridges before hand or not.
It’s possible that Netflix’s decision speak out last night is an indication that it will, going forward, cut its losses and actively fight the merger in coming weeks. If that’s the case, Comcast is prepared. In an effort to boost the chances that the merger goes through without a hitch, Comcast has begun exploring the idea of divesting 3 million customers to Charter Communications, or another cable provider, which would reduce its reach in the U.S. high-speed internet market.
In its letter Monday, Netflix specifically referenced that potential deal and said that it was not enough. Even after “the proposed divestiture,” the majority of American homes will have “Comcast as the only option for truly high-speed broadband,” Hastings and Wells wrote. “As DSL fades in favor of cable Internet, Comcast could control high-speed broadband”—and therefore the delivery of Netflix and other online content—“to the majority of American homes.”