Netflix Inc., (NFLX) the provider of video by mail and over Internet connections, asked U.S. lawmakers to prevent cable providers from squelching its growth by imposing online-data consumption limits for customers.
Netflix, with 23.4 million subscribers, made its request at a hearing today before the House communications and technology subcommittee in Washington.
“When you couple limited broadband competition with a strong desire to protect a legacy video distribution business, you have both the means and motivation to engage in anticompetitive behavior,” David Hyman, Netflix’s general counsel, testified.
The session was called to examine changes since the last broad revision to cable law in 1992, when few consumers used the Internet and cable companies controlled 98 percent of the pay- television market, according to a staff memo. The 1992 law set terms for broadcasters to demand payment from cable companies for their signals.
Since then, the U.S. television market has been reordered by the emergence of satellite providers Dish Network Corp. (DISH) and DirecTV (DTV) as competitors to cable, and an array of online video providers including Netflix and Google Inc.’s YouTube.
The hearing is “the opening shot in a 2013 congressional battle that could reshape the pay TV landscape” as lawmakers look to recast old rules, Paul Gallant, a Washington-based analyst with Guggenheim Securities, said in a note to investors today.
Republicans said they want to trim regulations, and members of the Democratic minority said new rules may be needed to protect nascent companies.
“The creative chaos in the marketplace is healthy as parties fight to out-innovate each other and win viewers,” said Representative Greg Walden, the Oregon Republican who is chairman of the panel. “The last thing we want is to shackle everyone’s entrepreneurial spirit with one-size-fits-all rules.”
Representative Henry Waxman, of California, the top Democrat on the Energy and Commerce Committee that houses the subcommittee, said Congress needs to ensure video innovation can continue to flourish.
“Competitors need a fair shot at gaining access to content, and independent creators need rules that prevent discrimination against carriage of their programming,” Waxman said.
Cable’s share of the pay-TV market has dropped to 57 percent, Michael Powell, chairman of the Federal Communications Commission under President George W. Bush and now president of the National Cable & Telecommunications Association, a trade group, said yesterday.
The hearing was scheduled as the Justice Department is investigating whether companies including largest U.S. cable company Comcast and No. 2 Time Warner Cable Inc. (TWC) have created incentives to consumers to watch programming and high-speed Internet through their services to put online providers such as Netflix at a competitive disadvantage, according to two people familiar with the matter who weren’t authorized to speak publicly.
Cable companies have begun charging subscribers more for exceeding certain levels of Internet-data consumption. The practice discourages viewing of online video, Gigi Sohn, president of the policy group Public Knowledge, said.
“I’m concerned about the potential impact of data caps on the growth of the streaming video market,” Representative Anna Eshoo, of California, the subcommittee’s top Democrat, said in a statement prepared for today’s hearing and distributed by e- mail. “It falls on this subcommittee to thoroughly examine the issue and ensure future innovation is not curtailed.”
Netflix could face higher prices and lowered growth from limits on data consumption by providers of high-speed Internet service, or broadband, the Los Gatos, California-based company said in a filing.
Greater Internet consumption is good for cable companies, he said.
“It’s just flatly wrong” to suggest cable companies are harming Netflix’s growth, Powell said.
Powell, in a briefing yesterday, said he isn’t worried about the reported antitrust investigation.
Many of the practices reportedly being probed, such as data caps and favorable pricing for the largest customers, were cleared by regulators who vetted Comcast’s purchase of NBC Universal that was completed last year, Powell said. Comcast told the FCC it would treat affiliated and unaffiliated Internet traffic the same, the agency said as it approved the purchase of NBC.
The Justice Department hasn’t contacted the Washington- based cable association “in any meaningful way” to discuss its reported probe, Powell said.
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