For Netflix, silence may be golden

Over-The-Top Video One of the more striking aspects of the dispute between Level 3 and Comcast that erupted earlier this week has been the resolute silence of Netflix. To hear Level 3 tell it, after all, it is Netflix’s competitive over-the-top video service that Comcast ultimately is seeking to disrupt by jerking around Level 3, and which ultimately makes the dispute a matter of net neutrality. Were it not for the involvement of Netflix, Level 3 would have the FCC believe, none of this would have happened.

Yet Netflix has said nothing, either in support or opposition to either party. If it indeed is the injured party here, it is accepting its martyrdom with remarkable equanimity.

Or perhaps it finds itself too conflicted to speak up. It must realize that on some level it is indeed the casus belli. Even if the dispute truly and only is about the volume of bits, rather than the content of those bits, as Comcast claims, the reason there are so many at issue between Level 3 and Comcast is that Netflix’s video streams comprise a very large number of bits. So you might think it would be sympathetic to its streaming partner, Level 3.

Yet Netflix also reason not to pick a fight too directly with Comcast right now. Comcast is on the verge of gaining control over the entertainment assets of NBC Universal (albeit probably with conditions) and Netflix is very much in the market for those assets. It recently scored a coup in securing next-day streaming access  to episodes of Saturday Night Live, something even Hulu has been unable to do despite being part-owned by NBC. As the New York Post reported Thursday, Netflix is back looking for more “in-season” TV content from NBC and others, offering the networks as much as $100,000 per episode.

Those negotiations will be delicate enough, given the networks’ ambivalence toward online and over-the-top distribution generally. Blowing up its relationship with Comcast by going to the FCC over the Level 3 dispute probably wouldn’t be Netflix’s best move right now with respect to its dealings with NBC. Especially so since Netflix can’t yet know what sort of conditions the FCC might put on the Comcast-NBC deal regarding third-party access to NBC content online.

And so it remains silent, waiting to see what the new lay of the land will be when the regulatory dust settles on the Comcast-NBC deal, and how its discussions go with the networks generally.

The best-case scenario for Netflix would be for the FCC (or the Justice Department) to require NBC to make its content available to third-party online distributors at “fair-market rates” as a condition of the NBC merger. Netflix could then effectively establish a fair-market rate for the industry in the neighborhood of $100,000 per episode. That might bring the other networks on board, too, and would raise the stakes for Hulu to stay in the game while it tries to pretty-up its numbers for a potential IPO. Such rich stakes might also discourage anyone else from even trying to get into the game.

If called upon by the FCC, if it hasn’t been already, Netflix will, of course, have to say something, which could well become part of the public record. But I would expect that something to be very carefully phrased.

Further reading:

Hey Netflix, Not So Fast

Why Netflix Won’t Get What It Wants Most For Christmas

Bad Timing: Comcast, NN, Cable Models, and NBC-U