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Week In Review: Ajit Pai Rolls Back Net Neutrality; Netflix Goes To China

1. Ajit Pai Rolls Back Net Neutrality

By now you’ve no doubt read countless Facebook posts decrying the end of net neutrality written by erstwhile friends moonlighting as public policy advocates.  And while your friends no doubt mean well, odds are high they don’t really understand all the nuances

The problem with enforcing the vague concept known as “net neutrality” e.g., preventing Big Cable from shunting small companies to some theoretical “slow lane” is that there’s no foolproof way to enforce it.

The problem starts with the FCC. The FCC is a government agency whose members are appointed, not elected. As such, it’s never been all that clear where their jurisdiction begins and ends and what they can or can’t do in order to enforce their edicts.

So there’s that.

Then there’s the “how” of net neutrality. What Chairman Wheeler did was rule that MVPDs qualify as “common carriers” under Title II of the Telecommunications Act of (wait for it) … 1934. As such, the FCC would have jurisdiction over them and could force them to stop treating some companies less fairly than others. (The actual wording is that common carriers need to act “in the public interest” … whatever that actually means.)

Now what’s important to remember here is that “less fairly” (or “not in the public interest”) has never been defined in regard to ISPs—no one ever approached the FCC to say they’d been discriminated against in favor of companies willing to pay more money for “fast lanes.”

So there’s never been any kind of determination of what “net neutrality” actually looks like. Because had someone actually complained, the FCC would have had to review the intentions behind Title II of the eighty-three year old Communications Act of 1934 and apply them to the internet era. And whoever lost would likely have sued and sent the issue into the courts, where it likely would have wound up in front of the Supreme Court, which would then have issued a final decision.

The telecom industry is not claiming that they want to start discriminating against companies who can’t pay up. Their claim is that the internet is still a vast and uncrowded place, and while they’ll certainly take Netflix’s money to ensure better delivery, companies who don’t pay aren’t going to be at a disadvantage.

What the cable companies would like the FCC to rely on is Section 706 of the much more current Telecommunications Act of 1996, which gives the FCC the authority to regulate ISPs to “promote competition in the local telecommunications market” and “remove barriers to infrastructure investment.”

This is equally vague but the cable companies lawyers obviously feel that any rulings that come out of Section 706 will be less onerous than those made under the guidance of Title II. Or at least easier to defend against.

Why It Matters

Both pieces of legislation were written prior to the advent of the modern internet and a better, more coherent piece of legislation is long overdue. The problem, of course, is that few people in the Federal government actually understand how the internet works, and the people who could explain it to them all work for the industry they’re trying to regulate.

In other words, don’t hold your breath.

What You Need To Do About It

Stop encouraging your friends by “liking” their net neutrality posts on Facebook. Right now no one seems to be quashing anyone else’s bandwidth, but that doesn’t mean it won’t ever happen, so be vigilant. And try and get Congress to pass some more coherent internet-related legislation.


2. Netflix Goes To China

Netflix, which is in every country in the world except Syria, North Korea and China, can now cross China off that list: they announced a deal with Baidu-owned internet firm iQiyi this week, whereby Iqiyi would license Netflix’s programming and show it to the 750 million users-and-growing Chinese market.

All well and good, except the original reason that Netflix wasn’t in China—government interference and a tendency to shut down successful Western companies (Disney, Apple)—still stands.

Details of the deal are not yet public, but the assumption is that Netflix is banking on (a) the fact that iQiyi is a Chinese company will make the Chinese government less prone to shut them down and (b) even if they do, the financial burden will be on iQiyi.

There are many burdens here, not least of which is that the Chinese government likes to review entire seasons before shows are released, and since Netflix releases entire seasons at once, it’s unlikely that Netflix can get their shows to the censors in time for them to be released on the same date as the rest of the world. Chinese censors not being inclined to work overtime for large U.S. companies and all that. The delay may or may not matter to Chinese consumers, who are no strangers to pirating either.

Why It Matters

China is a huge market and Netflix is in, long before its Western competitors. That means it can collect data on what shows work and don’t work and maybe even start creating programming that feels more Chinese than Western, a smart move, given the size of the market. Regardless of how it pans out, it’s a big win for Netflix.

What You Need To Do About It

Watch how it all plays out, how popular Netflix becomes in China, what the government’s reaction is. If things seem to be moving smoothly, consider creating your own Chinese strategy by cutting a deal with iQiyi or one of its competitors.

It’s a lucrative market, one that’s still far from fully tapped.

UPDATE: iQiyi issued a statement on Friday, 4/28 that made it sound as if they had just licensed a few shows from Netflix–Black Mirror and Stranger Things were the two they named. It’s unclear whether this is the extent of the deal or if iQiyi was attempting to do some damage control with he censorship board, given the amount of press the story has gotten. It’s also unclear if Netflix was exaggerating the size of the deal or some combination of the two. We’ll find out soon enough.