SAN FRANCISCO (AP) — Netflix's Internet video service thrives on drama and suspense, but not the kind triggered by a legal ruling that threatens to affect the company's growth and pricing.
The intrigue stems from an appeals court decision overturning Federal Communication Commission regulations that prodded high-speed Internet providers to treat all online services equally, including video transmissions that placed higher demands on their networks.
The dismantling of that FCC rule, known as "Net Neutrality," raises the possibility that Netflix may someday have to pay additional fees to Internet service providers to ensure that its video continues to stream smoothly.
Netflix Inc. could still refuse to pay if the cable and telecommunications companies selling most of high-speed Internet access demand more money. But that option would risk diminishing the quality of Netflix's video streaming to the frustration of its 31 million U.S. subscribers who pay $8 per month for the service.
The potential fallout rattled investors Wednesday as Netflix's stock shed $7.58, or 2.2 percent, to close at $330.38. At one point in the day's trading, the shares had fallen more than 5 percent.
Netflix declined to comment on the fallout from the Net Neutrality decision. But the Los Gatos, Calif., company has consistently depicted its video service as one of the main reasons many households are willing to pay $50 to $70 per month for high-speed Internet access, suggesting that the providers would be foolhardy to do anything to undermine Netflix.
Given that conviction, Netflix might be willing to defy any high-speed Internet provider that demands an extra fee to carry its video service, betting that the provider would back down rather than facing a backlash from its own customers.
That's one reason BTIG Research analyst Rich Greenfield doubts that high-speed Internet service providers will dare to enter a public relations battle with Netflix over the Net Neutrality issue. Besides possibly alienating its own customers, any Internet provider that tries to collect a toll from Netflix might provoke the FCC and lawmakers in Congress to draw up tougher regulations.