Will This Be the Death of Netflix?


The market sent shares of Netflix (NAS: NFLX) nearly 6% lower yesterday, and it wasn't just a case of Wall Street jitters: FCC Chairman Julius Genachowski threw his weight behind tiered broadband pricing at a cable-industry trade show yesterday.

"Usage-based pricing would help drive efficiency in the networks," he said, arguing that it would be fairer and encourage competition.

Consumers certainly wouldn't mind the lower rates that would come from competition, but we've seen what happened when AT&T (NYS: T) and Verizon (NYS: VZ) nixed unlimited data plans in favor of similar tiered pricing. Not only are both companies still the two dominant players in the field, but they are also actually making more -- not less -- off each subscriber since rolling out different levels of pricing plans.

Netflix is naturally opposed to anything that ends the data buffet. It's a major component of Internet consumption, especially during primetime usage.

Cox Communications President Pat Esser, at the same conference, pointed out that 40% of his 4 million Internet customers generated Netflix streams during the month of March. Comcast (NAS: CMCSA) (NAS: CMCSK) bumped its monthly broadband cap higher earlier this month, but the country's largest cable provider is also testing tiered pricing in two markets.

What will it mean if broadband customers are on the clock? Tiered pricing for Internet usage is the norm in many foreign countries, but a rollout here would naturally make it less attractive to stream chunky video files.

Netflix obviously doesn't want that, and you can be sure that it lets Genachowski know that while cracking down on data hogs by installing tollbooths may seem like a good strategy on paper, it may kill the spirit of streaming media.

Netflix has more riding on this trend than you can probably imagine. Shareholders had better hope that the days of guilt-free streaming consumption aren't numbered.

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At the time thisarticle was published The Motley Fool owns shares of Netflix.Motley Fool newsletter serviceshave recommended buying shares of Netflix. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizhas been a Netflix subscriber and shareholder since 2002. He owns no other stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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