Netflix costs may rise after court ruling on net neutrality

2:49 PM, Jan 15, 2014   |    comments
Netflix - AP image.
  • Share
  • Print
  • - A A A +

SAN FRANCISCO (USA TODAY) - Netflix may be exposed to higher costs in the wake of a major court decision that voided rules governing Internet access known as net neutrality.

On Tuesday, the U.S. Court of Appeals for the DC Circuit struck down FCC rules requiring Internet Service Providers, or ISPs, to be neutral in their restrictions on bandwidth. The move means ISPs will be allowed to charge content providers based on how much bandwidth they use, according to Michael Pachter, an analyst at Wedbush Securities.

"This ruling will impact those websites that transmit the most data, so sites that stream video content (particularly in high definition) will potentially feel the most significant impact," he added in a note to investors.

Netflix is the leading streaming video provider on the Internet and regularly accounts for a notable chunk of the data flowing across the web, so Wall Street expects the company to be exposed to extra costs from this ruling.

Netflix may face an incremental $75 million to $100 million in annual content delivery costs to cable companies for access to their residential customers who are streaming Netflix content, George Askew, an analyst at Stifel Nicolaus, estimated in a note to investors on Wednesday.

Netflix shares fell 3.2% to $327.11 in early afternoon trading on Wednesday.

The ruling may also be an opportunity for Netflix. The company might be able to obtain preferential treatment by paying to ensure that its videos stream faster and in higher fidelity than competitors, Wedbush's Pachter noted.

However, it is more likely that profit-seeking ISPs will try to extract as much money as they can from websites like Netflix that use up a lot of bandwidth, the analyst added.

"It is most likely that ISPs would seek to extract a set fee per gigabyte (GB) of data transmitted; if we are right, the result would be more costly for Netflix than the status quo, with little or no incremental benefit," Pachter wrote.

"It is impossible to predict how this will play out in dollar terms, but directionally, it should mean higher payments by Netflix and/or higher payments by Netflix subscribers," he concluded.

USA TODAY

Most Viewed Articles

Most Watched Videos