Netflix Strikes a Blow for the Open Internet

Netflix (NAS: NFLX) CEO Reed Hastings is pulling some unusual strings nowadays. Social media has become a weapon in the company's lobbying arsenal.

Last month, Hastings posted a Facebook comment chiding Comcast (NAS: CMCSA) for not letting him watch HBO GO programming through his Comcast-provided cable modem. "When I try to use HBO GO on my Xbox or on my Roku, I find that Comcast is blocking HBO GO, and won't let me use HBO GO on these TV-connected devices," he wrote. "Comcast: I'm paying you a lot of money for HBO, so please let me watch HBO GO on my TV."

Fair enough. Ten days later, Comcast chirped this happy little official tweet: "Good news, @Comcast subscribers: your TV provider has made #xboxhbogo available to you."

Comcast's response both confirmed Hastings' accusations and made the root cause go away. Score one small win for Reed Hastings, but HBO owner Time Warner (NYS: TWX) should also send a fruit basket to Los Gatos to thank Hastings for this service. Never you mind that Warner and Netflix aren't the best of friends -- Hastings used HBO's streaming product as leverage anyway. All is fair in love and business wars.

Encore! Encore!
But that wasn't enough for the disgruntled Netflix executive. This weekend, he pressed on in another Facebook post: "I spent the weekend enjoying four good Internet video apps on my Xbox: Netflix, HBO GO, Xfinity, and Hulu. When I watch video on my Xbox from three of these four apps, it counts against my Comcast Internet cap. When I watch through Comcast's Xfinity app, however, it does not count against my Comcast Internet cap. ... In what way is this neutral?"

Let's pause for a moment to admire the polished rhetoric in the post. Hastings praises the quality of several semi-direct competitors, then asks Comcast to give all of them a level playing field. Oh, and by the way, Netflix should enjoy that egalitarian treatment too. Well played, sir.

Here, Hastings is accusing Comcast of breaking the principles of open competition and communications that made the Internet great in the first place. The principle of net neutrality is at stake here.

Hastings is right, of course: Comcast could use bandwidth caps to cajole its customers into using the Xfinity app instead of Netflix, Hulu, and other third-party services. Given that all of these companies depend on the service provider's pipes in order to reach your living room, that's a pretty unfair advantage.

The backstory
Overtheyears, various arms of the government have tried to put laws or regulations in place to protect the neutrality principle -- but not with much success. The FCC published a set of neutrality rules last November. Though better than nothing, these rules impose stricter limitations on wired service providers like Comcast than on wireless connections like the ones provided by AT&T (NYS: T) and Verizon (NYS: VZ) . The idea is that wireless data networks are less mature than their hardwired counterparts and so should be given more freedom to operate and innovate. (Keep that argument in mind when you ponder the future of digital media services -- another innovative model that's still in its infancy.)

Even so, Verizon and other wireless operators sued to block the new rules, and Comcast seems intent on skirting them whenever possible. You could argue that the FCC's action was more bark than bite -- so far.

So Hastings must be pleased as punch to hear that the FCC is reading his Facebook posts. The agency now says that it is looking into the Comcast situation because it "takes seriously any allegations of violations of our open Internet rules."

Hastings' unconventional strategy for putting pressure on his rivals is made all the more delicious by the fact that he serves on Facebook's board of directors. If the government takes this platform seriously in matters of public policy, the social network gains another chunk of business clout.

Where's the next show?
It remains to be seen whether Facebook and Twitter ever join power lunches and campaign contributions on the tool belt of your average Washington lobbyist. But it does make sense for Netflix, a child of the digital age if there ever was one, to leverage these tools for whatever advantage they may be worth.

And whatever methods Hastings might use, I applaud every effort to keep Internet pipes as ubiquitous, flexible, and open for a variety of uses as water pipes or electric power lines. Connectivity needs to become a simple utility in the long run, not a point of leverage for the cable company's marketing ambitions. The cable guys might not want to turn into commodity utilities, but the metamorphosis is inevitable. It'll just take a while.

Is Reed Hastings just pushing a brazenly Netflix-friendly agenda in politically correct terms or actually promoting an idea that's good for the Internet as a whole? You know where I stand -- now drop down to the comments box below to give me your take.

Netflix's rise has been documented as one of the great growth stories of the last decade. To highlight another stock we think has big-time potential, the Fool created a research report detailing one stock poised to benefit from a new technology revolution. Better yet, we made it absolutely free, so just click here to access your free copy today.

At the time thisarticle was published Fool contributorAndersBylundowns shares in Netflix but holds no other position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+.Motley Fool newsletter serviceshave recommended buying shares of Netflix. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.