Netflix flexes its muscle on mergers

Netflix’s power in Washington is growing as it becomes a bigger threat to traditional television. 

The streaming service over the last several years has boosted its programming, airing shows that are winning Emmys and viewers. Its membership and profits have exploded, and more growth is expected. 

{mosads}In the capital, the fast-growing company is looking to make sure its business model isn’t threatened by cable and satellite companies — which also provide an increasing share of the public’s Internet service. That leaves potential rivals in control of the pipes that Netflix relies on to transfer its shows to customers. 

The streaming company was a strong supporter of net neutrality rules issued by the FCC and a vocal opponent of the failed merger between Comcast and Time Warner Cable. 

Netflix is also taking an aggressive position on the $48 billion proposed merger between AT&T and DirecTV. In a filing this week, it argued the Federal Communications Commission should reject the deal unless conditions are imposed on the two companies.

“AT&T’s investment in a business model that profits by selling bundled programming packages will result in a powerful incentive to protect that model,” Netflix lawyer Markham Erickson wrote in the filing.

The young company’s lobbying in Washington has ballooned since 2009, when it spent its first $20,000. Since 2012, it has spent more than $1 million per year — consistently ranking among the top 10 Internet lobbying companies. 

It spent $1.26 million last year, which narrowly made 2014 its biggest year. It is on track to spend a similar amount in 2015. 

That is still far from the top spot, with Google spending nearly $17 million in 2014 and Facebook spending more than $9 million last year. It is also less than AT&T and DirecTV, which spent nearly $17 million combined in 2014, with most of that coming from AT&T. 

Other streaming services like Amazon Prime and Hulu are well established and new online services from HBO, Dish and others have popped up in the past year. Because of Netflix’s slice of the online video market, its voice carries weight with regulators. It reported more than 41 million subscribers in the United States in the first quarter of 2015. 

“The FCC’s clear objective here is to protect and promote competition from online video. Netflix is the best example of that. That gives them a very loud voice,” said Craig Moffet, a telecom analyst at Moffett-Nathanson Research. 

Throughout the past year, Netflix has been most interested in regulating deals that involve interconnection points, where traffic is transferred from the backbone of the Internet to the last mile where providers route the content to customers. Netflix has complained about having to pay large sums of money to providers, such as AT&T and Comcast, to unclog congestion so its video can stream smoothly. 

Now Netflix is calling on the FCC to bar AT&T from charging for interconnection as a term of the merger. 

AT&T argues it has responded to Netflix’s complaints about congestion with interconnection deals, and that the price has not hurt Netflix’s bottom line.

AT&T also argues it does not make economic sense for it to intentionally degrade Netflix’s service.

“Amid all its recent protests, Netflix neglects to mention an important fact—Netflix has entered into a long-term agreement for direct access to AT&T’s network on terms that will allow Netflix to continue to thrive in the marketplace,” The company wrote in a filing with the FCC this week. 

Netflix’s input on the AT&T-DirecTV merger is significant since Netflix was seen as influential in helping to kill the Comcast merger. Then-Attorney General Eric Holder and FCC Chairman Tom Wheeler both pointed to protection of the online video market when the deal went under.  

Netflix CEO Reid Hastings had argued just weeks before the merger fell apart that blocking the deal was “our main goal.”

While Netflix has demanded conditions that be imposed on the AT&T merger, it has been far less aggressive than during the Comcast talks.

This week the company clarified “we are not opposing the merger.”