Netflix's CEO Is Trying To Use Net Neutrality To Deflect The Real Issue, Competition

| About: Netflix, Inc. (NFLX)

On Sunday, Netflix's (NASDAQ:NFLX) CEO took to his Facebook page to complain that Comcast (CCT) isn't being fair when it comes to net neutrality principles. His argument is that Comcast's Xfinity TV streaming app on the Xbox 360 doesn't count towards consumers monthly bandwidth cap, yet services like Netflix and Hulu do. While it's a nice try on his part to drag net neutrality in the subject and get people all worked up, he's simply trying to deflect away from the real issue at hand, which is the competition Netflix is facing from Comcast and others.

For their part, Comcast says Xfinity does not count towards consumers 250GB cap per month because the Xbox 360 acts as an additional cable box for your existing cable service. No matter which side you take, the point that is being missed is that today, Comcast's cap doesn't matter. Comcast has said that less than 1% of their customers go over their 250GB cap each month. And based on Reed's own post on Facebook, a one hour show takes up about 1GB of data. That means a user would have to consumer 250 hours of video a month, or 8.3 hours per day, encoded at 2.5Mbps in order to go over their cap.

Netflix could back up their argument by saying how many of their customers use Comcast and what percentage of them go over their cap, but of course, they won't say. Because if they did, the real numbers would be so small it would not reinforce their argument. When was the last time you heard Comcast customers complaining their cap was "too small"? Almost never. And those that have gone over their cap, the vast majority of them never get charged overages. Just look a the comments on chat boards like DSLreports.com and others. Comcast has a cap in place so they can enforce it if they need to, for those that abuse the service, but most users who have done 300GB or 350GB a month haven't been charged overages at all.

If Comcast does not raise their caps over time as consumers use more data, then that could be an issue and could affect a larger percentage of subscribers. But the fact is, today, the cap is not impacting the market or keeping content owners like Netflix from growing. Caps are something consumers in the U.S. don't like as Americans don't like being told they can't do something. They want all you can eat for a fixed cost, which is evident by how well Netflix has done in signing up subscribers for a flat fee per month.

If caps are such a big issue like some want to make them out to be, then consumers should be happy that Comcast is allowing them to stream more content from Xfinity TV, without it counting towards any kind of cap. Isn't that what consumers want? To be able to stream more content and not have to pay for it? Of course Netflix will argue that this kind of tactic could lead to MSOs deciding which content get priority, which is what net neutrality is all about. But Netflix's CEO doesn't really care about Comcast's cap, he cares about how this could impact his costs. I challenge Netflix to share data with the industry that shows a large percentage of their consumers are going over their caps. Where is the data to validate their point? To date, Netflix won't give out any real details on the consumption of their service, other than to talk about high-level numbers like total minutes of TV shows and movies streamed in a quarter.

Bringing this back to Netflix's argument that this is a net neutrality issue, if you look at what net neutrality is about, this is not it. Net neutrality principles say that all traffic originating on the Internet be treated equally. But streaming Xfinity TV on the Xbox 360 originates from within Comcast's own network and not from the Internet. Netflix and others are confusing "neutral" with give Netflix a free way to access the Comcast network. Now I don't agree that Comcast should charge more to CDNs like Level 3 just to turn up ports on their network, but this Netflix argument really has absolutely nothing to do with anything "net neutrality" related. It's simply Netflix trying to deflect from things like their stock being downgraded, their churn getting higher and more competition starting to impact their growth.

When Netflix was flying high, with no competition, you never saw them whining in the market and their CEO wasn't complaining on his Facebook page. The company was focused on making their service better and doing a good job with customer service. They should go back to focusing on those things again.

Disclaimers: I have never bought, sold or traded stocks in any public company ever. I have a FiOS triple play bundle with Verizon and am not a customer of Comcast. I have been a customer of Netflix for many years.