Question

1. Netflix started to pay ISPs to ensure fast and seamless access to its end users.

   1. Does this violate net neutrality (the rule that internet service providers should treat all data equally, and not charge differentially by user, content, site, etc.)? Why or why not?

   2. Do you favor net neutrality? Explain why or why not?

   3. How do ISPs use “zero-rating” of data to circumvent net neutrality rules? Is this legal? Is this ethical? Explain.

   4. As ISPs will extract more fees from Netflix, the company continues to invest heavily in its proprietary “Open Connect” network, which allows Netflix to connect its servers directly to those of ISPs (via peering). Since most users upgrade their internet connections to faster broadband in order to watch video, are the incentives of broadband providers aligned with Netflix, or will the broadband providers continue to extract significant value from this industry? Apply a five forces analysis.

2. Netflix growth in the United States seems to be maturing. What other services can Netflix offer that might increase demand in the United States?

3. International expansion appears to be a major growth opportunity for Netflix. Elaborate on the challenges Netflix faces going beyond the U.S. market.

   1. Do you think it is a good idea to rapidly expand to 190 countries in one fell swoop, or should Netflix follow a more gradual international expansion?

   2. What are some of the challenges Netflix is likely to encounter internationally? What can Netflix do to address these? Explain.

Answer 1

The Net neutrality rule implies that all data should be treated equally and there should be no preferential treatment to any website . Sine ISP's are accepting payments from Netflix , it means they are giving a preferential treatment to Netflix (as Netflix would not paying without a reason ) - hence this violates net neutrality .

I favor net neutrality as Internet was built around this premise - free for all and without boundaries and it has served well . Let's not try to make it a business tool to serve the interest of a few businesses who will try to use this public resource for their own gains .

Zero rating again violates the net neutrality principle from the backdoor ; if people know that they will not be charged for data if they use certain websites , then they will spend more time on that website ( provided they like the website ) - which is again enticing customers to use a particular service . Ethical ? you decide . Legal ? Depends on the laws of the country .

Five Forces analysis of Netflix :

Bargaining Power of Suppliers : Is very strong as Netflix has little of its own content or at best not as strong

Bargaining power of Buyers : Right now not very strong as Netflix has few competition but for Amazon etc. who are not very strong , but as the cooperation grows , it will become strong .

Threat of substitute products : High , as other companies like Amazon, Apple , Sony etc. are getting stronger by the day . Netflix is just an aggregator , hence a strong substitute can shake Netflix .

Threat of new entrants : High , as described above .

Competitive rivalry : Is high

Overall , prospects of Netflix looks bleak .