Why Netflix Wants The AT&T/DirecTV Merger Killed

Netflix was a leading critic of the failedComcast/Time Warner Cable merger, so it should come as no surprise that the streaming video company has come out against the proposed deal forAT&T to acquireDirecTV.

In general Netflix seems opposed to consolidation in the cable and Internet provider business because it gives consumers fewer options, which gives the remaining players increased leverage over competitors. ISPs have great power over streaming services because they can make the experience of using them bad or, in some cases, just less good, and the streamer has little recourse.

In this case, because DirecTV only offers pay TV and is not an Internet service provider, its objections were less obvious. The company clearly does not think so and stated in a brief filed with the Federal Communications Commission, "If approved by the Commission, this merger would result in a combined entity with increased incentive and ability to harm online video distributors ("OVDs") and other edge-based Internet content that Applicants view as a threat to their broadband and video programming businesses."

If that language is not blunt enough, the streaming service was emphatic a little later on. "Netflix urges the Commission to reject the merger as currently proposed."

Netflix has thrown down the gauntlet and taken a stand against this merger. There is, of course, a lot of self-interest in that stance -- just as there was during Comcast/TWC -- but that does not mean the company does not have a point.

What Netflix is sayingNetflix is attempting to show the FCC that AT&T has a history of using its power to undermine rivals and that if it owned DirecTV it would have even more incentive to do that.

It also attempts to make the case that AT&T has used its leverage before and there is no reason to believe it would not do so in the future.

It's hard to argue that AT&T would at least think about doing that and probably worth noting that the ISP ranks near the bottom of Netflix's most recent ISP Speed Index for both its U-Verse and its slower-speed DSL service.

Source: Netflix

AT&T denies the chargesIn response to Netflix's charges, AT&T filed its own brief with the FCC. The heavily redacted document -- which takes out details about the deal where Netflix pays AT&T for a direct network connection to its users -- pushes the idea that the streaming service is objecting solely to support its own agenda.

The document also points out that the two companies have 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."

It's a little bit in the middleNetflix has made deals like the one it has with AT&T with its teeth gritted while being very public that it does not think it should have to pay for this type of access. The streaming service has done so only to avoid bad user experiences for its subscribers.

AT&T, on the other hand, is wrong to deny the idea that it uses its standing in the market to make the best deals possible for itself. Streaming services are a direct threat to the current pay-television model, and it's silly for the company to pretend that it welcomes them with open arms.

If the FCC allows this merger to proceed, it should do so with conditions that guarantee fair treatment for not only Netflix, but all streaming services and cord cutting options. AT&T and Netflix are out to support their own goals and it's the federal agency's job to see that the needs of the public are protected.

The article Why Netflix Wants The AT&T/DirecTV Merger Killed originally appeared on Fool.com.

Daniel Kline owns shares of Apple. He has never filed a brief with the FCC. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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