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What’s the first thing a brash new business does when it reaches a certain level of success and profit? Easy: Frantically protect its position, either through regulation or cracking down on customers.
Netflix, which has blazed a path through my business (television) with the kind of merciless focus you see in truly great companies, nevertheless has a problem. Its business was built on the exponential increase in bandwidth. People everywhere and anywhere can touch a few buttons and connect to a vast library of viewing choices, confident that some combination of wireless data transfers and fiberoptic cable will bring them movies, television shows, whatever they want. At peak traffic hours, Netflix is sending about a third of all the data zooming around the Internet.
But with nearly unlimited bandwidth comes the expectation of nearly unlimited access. Which is a problem, because Netflix is building a business dependent upon geographic zones: i.e, some shows are licensed for the US market, some for Europe, some for wherever.
Data doesn’t like those artificial barriers. Data — especially in its most popular form, movies and television — wants to go where the eyeballs are, wherever they are. So smart folks have figured out a way to circumvent location restrictions by using virtual private networks — VPNs — to get everything on Netflix anywhere they are.
And now Netflix is fighting back. From Wired:
In January, Netflix announced it would begin blocking a popular tech workaround known as a VPN, or virtual private network, that allowed customers beyond the US to access the same shows and films as American audiences. But as Netflix has aggressively pursued an ever-bigger global audience, simmering unhappiness over the ban is reaching a boil. An online petition demanding that Netflix change its policy has more than 36,000 signatures. And a new survey reveals that the crackdown may lead to piracy.
May lead to piracy? Will lead to piracy.
For Netflix, the issue is a fragile one. The company, after all, is dependent on studios and networks for much of the content that it streams on its platform. The crackdown is a way to show Hollywood studios that Netflix respects its regional licensing agreements—in essence, that it will only let people who it’s paid to let see certain shows and movies see them.
But paying Netflix subscribers don’t care what, say, Sony or the CW want: they want (and expect) to see what they want to see. They also want to be able to use a VPN for privacy and practical reasons. Until Netflix can offer the same content everywhere to everyone who pays for it, many users—especially the overseas users the company most covets—won’t be happy.
This is a big issue — to me, especially — because multiple markets for entertainment means, essentially, a lot more money. The television business has collapsed, in part, because the independent local broadcasters no longer have the money (thanks to the expanding cable universe) to buy lots of reruns. Bigger scale and fewer markets means smaller margins (think Walmart) and, for those of us who happen to make our money in those margins, it’s a scary thing to imagine one worldwide market for everything in the entertainment business.
For Netflix, the solution is clear: Make a lot of original content where you can set the terms any way you like while simultaneously making a big show of cracking down on VPNs, despite knowing it’s a doomed game. Data wants to be everywhere all the time. Data doesn’t care that I have a mortgage.
Neither do the customers. And, like all free-market economic principles, that’s as it should be. But like all free-market economic principles, they’re so much easier to like when it’s the other guy getting clobbered.