A number of media pundits like Cecilia Kang are all over this notion that Netflix is somehow the biggest threat to the cable and telephone companies when the facts simply don’t support that theory, at least not for the foreseeable future.  That’s because Netflix does not provide a substitutable service for Multichannel Video Programming Distributors (MVPD) services like AT&T U-verse, Verison FiOS, Cable TV, or satellite because it doesn’t provide live or first-run television programming.  Netflix isn’t even a substitute for the theater or DVD rental outlets like Redbox because Netflix mainly goes after the leftover content that didn’t sell during the theater release window and the DVD rental window.

Cable and Telco are the biggest threats to each other in terms of subscription TV services.  People who buy Netflix buy it in addition to their cable or Telco TV service and the few people who only use Netflix tend to be people who weren’t paying for subscription TV to begin with.  Netflix not competing with subscription TV services is actually a good thing because it means that Netflix has carved out a very important niche that it dominates.  In light of this and other facts, it’s unfortunate that Kang decided to play up the Telecoms are trying to kill Netflix conspiracy angle.  Kang quoted Consumer Union’s Parul Desai’s unsubstantiated paranoia.

“There are many incentives to create hurdles for online video firms like Netflix,” said Parul Desai, policy counsel for Consumers Union, parent of Consumer Reports magazine. “They are going up against powerful media and Internet service providers who are trying to come up with their own Internet video strategies and could limit access to content and access to their consumers.”

Charges are thrown out there that Netflix is being attacked by the broadband providers, but nothing specific is mentioned.  The broadband providers actually provide a digital delivery service for pennies on the dollar compared to the US Postal Service and Netflix’s Chief Content Officer even cites this fact that Netflix stands to save $700 million in postage to calm investor fears of rising content licensing fees.

The one specific threat that Kang mentions in her article is that Netflix is hiring lobbyists to combat metered Internet pricing.

“In January, Netflix responded by hiring its first Washington lobbyist, Michael Drobac. He has told lawmakers and Federal Communications Commission officials that allowing Internet service providers to charge based on how much bandwidth people use is unfair and poses risks to online video services.”

But Netflix is hypocritical here because they are the ones lobbying the FCC to have consumers to carry the entire burden of higher infrastructure costs.  Netflix wants the government to prohibit broadband providers from charging Netflix or its distribution partners like Level 3 for thousands of gigabits of private peering connectivity, and Level 3 publicly states:

“Comcast can either lower the cap or charge more for higher usage as many other broadband access providers have already done”

Not only is this hypocritical, it also jeopardizes the cheap delivery mechanism that is enabling Netflix to save hundreds of millions of dollars on DVD postage.  It’s not clear what Netflix has to gain by siding with Level 3, but what they stand to lose is very clear.

[Cross-posted at Digital Society]