Netflix Says Striking Cap-Exempt Deals With Australian ISPs Was A Mistake It Won’t Make Again

Early last month we noted how Netflix was taking heat for its decision to strike deals with Australian ISPs exempting Netflix’s traffic from usage caps ahead of Netflix’s March launch in the country. The decision was seen as hypocritical for a company that has been a fierce critic of usage caps and zero rating in the States. You might recall that Netflix CEO Reed Hastings lambasted Comcast on Facebook for exempting its TV services when the Xbox 360 is used as an IPTV cable box, and Netflix executives called it “almost a human rights violation” when discussing the heavy-handed implementation of caps in Canada.

Granted, as we pointed out at the time Australia is a notably different market, where the extremely high cost of transit means that most content companies strike such deals to genuinely save costs across the entire ecosystem. That’s in contrast to the States, where transit is relatively cheap and ISPs have grown to use caps arbitrarily to protect legacy TV revenues from internet video. That still doesn’t mean cap-exemption is a good business model for lovers of an open internet, and it’s notable that Netflix’s position on caps wasn’t just muted in Australia, it was entirely absent.

Fast forward a month, and Netflix now suggests it regrets having struck the deals at all (or it regrets that people noted the inconsistencies in its position and demeanor on the issue). In a letter to investors (pdf) Netflix briefly touches on the Australian neutrality fracas. After applauding the FCC’s decision to embrace Title II and examine interconnection more closely, the company issues an interesting mea culpa:

“Data caps inhibit Internet innovation and are bad for consumers. In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not). We should have avoided that and will avoid it going forward. Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing.”

We’ll have to watch closely if Netflix’s regret includes fighting to eliminate caps in Australia, or continuing to bow quietly to the status quo. Meanwhile, Netflix’s international expansion plans this year involve reaching 200 countries by the end of the year, so the company will have plenty of opportunities to put this promise to the test.

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