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Netflix Preps War Plan For Net Neutrality Battle

Subscribers help to pay the freight at Netflix. And if the ongoing battle around network neutrality continues to swing the wrong way for the streaming-video firm, it might also enlist them as soldiers.

Netflix said it would count on its subscribers to join the fight if Internet-service providers were to unleash policies requiring consumers to pay extra in order to have its video streams run unhindered on a broadband fast lane, after an appeals court tossed out the bulk of the Federal Communication Commission’s Open Internet Order earlier this month.

“In principle, a domestic ISP now can legally impede the video streams that members request from Netflix, degrading the experience we jointly provide,” the company said in its fourth-quarter shareholder letter. “The motivation could be to get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver.”

But Netflix is hopeful that it won’t get that far, predicting that ISPs will likely “avoid this consumer-unfriendly path of discrimination” as to avoid further government action, adding that it’s also in their best interest to support bandwidth-intensive apps and services that require faster speed packages.

Netflix also predicted that its app will soon be offered on cable operator-leased boxes in the U.S., following recent launches on TiVo-powered set-tops distributed by U.K.-based operator Virgin Media and Com Hem, the largest MSO in Sweden. “[W]e anticipate rolling out our first domestic MVPD [multichannel video-programming distributor] integrations soon with some of the smaller MVPDs,” Netflix said.

In the U.S., TiVo partners such as Suddenlink Communications, Mediacom Communications and RCN are among the candidates for an integrated Netflix option. Among larger operators, Comcast has so far resisted the idea of snapping Netflix into the set-top, partly due to Netflix’s insistence that the MSO join Open Connect, the video streamer’s private content-delivery network.

READY FOR AN 4K RIPPLE

On the Ultra HD/4K front, Netflix acknowledged that the short term impact of its entry into the market with a small library of content in the format, including the second season of Netflix original House of Cards and all five seasons of Breaking Bad, has more to do with “consumer perception of Netflix as a leader in Internet TV” than about bracing for an expected flood of 4K sets hitting the market.

“There is no tidal wave coming in the next 18 months,” Netflix CEO Reed Hastings said during the company’s earnings call.

BY THE NUMBERS

Netflix posted net income of $48 million (79 cents per share) on revenues of $1.17 billion, beating yearago results of $8 million (13 cents per share) on revenues of $945 million.

Netflix ended 2013 with more than 44 million subscribers, including 33.42 million in the U.S. and 10.93 million coming internationally. It added 2.33 million domestic subs in the period, up 14% versus the year-ago quarter. Netflix said it expects to end the first quarter of 2014 with 48 million subscribers.

To make its service attractive to a broader set of consumers, Netflix is also testing new subscription tiers beyond its current standard service ($7.99 per month for standard- and high-definition streaming to two devices concurrently) and a family-focused tier ($11.99 per month for streaming to as many as four devices at the same time). It’s currently testing single- and three-stream variants with SD and HD options, but expects to eventually standardize on “three simple options.”

TAKEAWAY

Should network neutrality lose in court, Netflix may enlist its subscribers to pressure providers not to charge extra for fast-tracking its video streams.