TORONTO – Add Netflix to the list of stakeholders keeping a watchful eye on the controversial issue of usage-based billing (UBB).
After its CEO Reed Hastings said last week that the California-based company “will do what we can to promote the unlimited-up-to-a-large-cap model” (over a pay-per-gigabyte model), its VP of communications Steve Swasey, told Cartt.ca that Netflix is taking a wait and see approach in Canada.
“We’re certainly well aware of everything that’s happening (with UBB) in Canada, but we’re really not commenting more than what Reed said on the earnings call last Wednesday”, he said. “This is an issue that affects anybody who watches video on the Internet – Skype, YouTube, Netflix, other services – so we’re obviously watching with great interest as well.”
In a letter to shareholders dated January 26, Hastings explained why his company is opposed to the UBB model.
“The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary”, he wrote. “Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.”
While many Canadian ISPs scoffed at Hastings calculations and questioned his research, Swasey insists that the claim is not only "based on a deep conviction", but that Netflix has the internal research to support it. (Ed note: we’ll past it along once we’ve seen it).
Swasey echoed Hastings concern that a usage-based Internet pricing regime could impact the company’s future in Canada, perhaps even limit its growth, which he described as “tremendous”.
“It would be a shame if people are billed higher than what the ISPs actually paid to deliver the bits”, he added. “We’re not going to speculate on what could happen or what would happen, other than we’re very concerned about it.”
Some additional tidbits from the conversation with Swasey on Thursday:
– Responding to criticism of its limited library of programming in Canada:
“We built this streaming functionality about three years ago in the U.S. with a very slight catalogue, it was fewer than 2,000 titles in 2007. While I’m talking about the U.S., it’s relevant because we’re modelling Canada after our growth in the U.S. We have tens of thousands of titles in the U.S. now, and with Canada, there’s obviously different licencing arrangements, but the point is, in three short years we built this catalogue in the U.S. to be very robust with whole seasons of TV shows and great movies. We’ve been in Canada all of four months and we’ve started out with a catalogue that was rather lean, but we’ve added to it and will continue to add to it, and over time you’ll see it grow and grow and grow just like we have in the U.S.”
– On what the company has learned from its first foray outside of the U.S.:
“One of the things that we’ve learned from Canada, where we had almost non-existent brand awareness, is that we can enter a market with a pure streaming plan at a very low price point and it resonates with consumers. We didn’t expect to grow as fast as we did. Now we know that there’s some halo effect from the U.S., but we were surprised by the amount of brand awareness that we had there. The key thing is there’s a great appetite for a low price, convenient, pure streaming service in Canada, and we believe that’s going to be replicated around the world.”
– On Netflix-embedded consumer electronic devices:
“Our goal is to be ubiquitous on whatever screen that you watch movies and TV shows on, whether it’s your laptop, or the big screen TV in your living room, or your mobile device, and we’re penetrating pretty well (with Netflix-embedded CE). We think it’s become a competitive disadvantage to a manufacturer if they don’t have Netflix embedded, so we’re taking that to the next level by installing a red Netflix button on the remote control for various Sony, Samsung, and Toshiba devices, for example. It’s just another way to make it easier for consumers.
