If net neutrality is gone for good, the telecoms don't even have to bother entering the streaming business. They just have to look at Netflix's profits each year and charge (profits-$1) the next year, letting Netflix stay barely in business and capturing the surplus.

Netflix is not a replacement for a traditional pay-TV video service, nor will it be. It's really more of a premium channel like HBO or Showtime -- both of which already offer streaming for a similar price as Netflix. I see the industry going one of two ways:

1) Cable TV over Internet -- in this scenario your cable subscription just becomes an app that runs on a wide variety of devices. Watch live TV, DVR, on-demand, etc. with a user interface that is somewhat reminiscent of what exists today. Channels will continue to be bundled and distributed through cable providers (though I expect non-infrastructure owning companies will also be spun off or started up). This scenario is most likely as it is least disruptive to the financial structure that's been set up on the content creation side (also all the big cable/telco companies are building this already).

2) Dissolution of the "big bundle" -- in this scenario, the content owners just decide to skip the middleman and become more like Netflix themselves. For example, Disney decides to just offer their own subscription service for $12/mo which gets you ABC, ESPN and the other Disney channels. Bundling would still happen here, just on a smaller scale. This fundamentally changes the business model though, and it will take a long time for content owners to develop the appetite and model to assume the risk of running a consumer-facing service.

Until the last 2 years or so, the content owners have also been licensing content to Netflix at low prices -- nobody else was interested in their library content so it was a way to monetize the long tail. But now that Netflix has established that consumers are willing to pay for the content, the content owners are raising prices significantly because the content they own had more value than they initially thought. The existential threat to Netflix is not rising distribution fees, it's rising content licensing fees.

I am not disagreeing with you in general, but for me Netflix really could be a replacement for traditional channels. Not too OT: I am visiting my Dad and yesterday morning we saw the new Godzilla movie in IMAX 3D and later last night watched Hitchcock's "Dial M for Murder" which was such a better experience than Godzilla. Old movie/TV technology done artfully beats less artful tech. Netflix can deliver old and some new content cheaply and on my time schedule.

Yeah; there is more than one use case for viewing video, one of which is on-demand video. Netflix does really well there. But it doesn't handle "event" TV (think sports events or American Idol) or the "I'm bored and don't want to have to think about what to watch" use case. Those two are huge, and while I think that eventually those use cases will change generationally, the 30+ demographic isn't likely to change their viewing habits any time soon.

Suppose Netflix has profit P, and AT&T charges them X. Netflix has the option of not paying AT&T, which could cost them (P-X) and cost AT&T X. This gives Netflix leverage to get AT&T to lower the price.

Actually going through with this threat costs both companies money, so they will likely work out a mutually acceptable division of profit without doing so. However, if one company thinks the other is bluffing, they may try calling the bluff.

Also, this likely means more expansive for end users.

Exactly, see Pandora for a current example of this "just profitable to be in business" model.

They can and will jack up their prices regardless of net neutrality.

but... with no neutrality, they can raise their prices to multiple sets of people - people who right now aren't even their customers directly. It'll be quite a win.

I disagree. If that happens, a new solution will emerge to replace the telecoms. To name a few, decentralized DNS, open wifi, google fiber etc.

The United States is too big (in terms of population density) for a replacement solution to gain traction outside major metros without massive government subsidies.

It's cool to think as techies we could come up with some massive disruption technology, but short of a super blue sky type project, our best bet to leave a better internet to our children is to throw money into tech lobbying.

Regardless of technology who is going to build it? Techies? A large portion of the high speed internet we have today was done with private investment, the same goes for all that cell power out there.

The government hasn't spent nearly as much on infrastructure as private business yet far too many think that the same government who cannot maintain highways and bridges sufficiently would be best to handle the internet? Even city governments are scrambling to fix sewer and water systems they invested in ONCE and left to rot.

I still don't see the value in investing so much in broadband other than cellular. Wired solutions require far too much expense, meet more regulatory hurdles, and simply isn't quickly deployed. With all the small businesses available, let alone franchise businesses, there are millions of locations across this country to anchor transmitters. The big stumbling block is the cash to start it all.

Actually the US government spent quite a lot on the infrastructure. Around '97, I moved from Sweden to the US, after running an ISP there since '93. Since it was an obvious concern I checked and the US was pumping in slightly more per capita, while being ~40% more population dense. So no problem (I thought) - if anything speed and availability will rocket up faster here. However, back there the government kept control of the lines (not entirely unlike US telecom). Net neutrality was kind of a given - obviously the government can't (at least without massive legal changes) give preferential speed to some peoples information directly (i.e. blatant censorship - if you're a private enterprise you can limit stuff like that, not so much if you're the govt). Back home things rolled along swimmingly, the same crew I ran with back then are still online, some of them whining that they haven't pulled gigabit fiber into their areas and have to settle for 100 megabit symmetric. Even before the millennium 10 Mbit symmetric fiber was becoming pretty normal all the way into residences. No one really pulled copper wire for comm anymore really, if a new line went in, fiber. Need to redraw power lines? Throw in fiber. Water? Fiber. Just dug up a sewer line? Throw down some fiber, you never know..

Here? I can get 20 Mbit (5 down) in a fairly large town. Some cities have more, but I've seen none where 50 or 100 Mbit symmetric is considered the sort of "lowest tier" broadband (kind of like "at least it's not dialup"). For only 2-3x the price. Why? Because no one with the peoples actual interest kept the reins, they just handed shit over to the six majors and told them to get building. Why would they, when they're already competing against no one but themselves? Cuts into profit, stuff like that.. So you get to pay more in tax dollars for it, more for the service itself and it's way slower. The same seems to be true for korea (et al, the other fast nations), they're not spending more, they're just negotiating harder with those contracted to build it. Now, Sweden is talking about selling it off (since the whole place is shifting right). Predictably, prices are going up and speed increase is stagnating. Idiots, all of them. The free market rocks for optimizing low entry threshold fields and optimizing already existing solutions. It's horrible at things that are mostly infrastructure based, with high cost of entry and nearly all costs being in fixed infrastructure improvement chunks. Highways, telecom, power, water, etc all work the same - if you want to run them free market style, prepare to suffer until you decide to simply join forces and run it jointly without a profit goal bidding it out in small enough chunks to make actual competition possible.

Well, history repeats itself. See the mobile phones for cellular networks (aka GSM). Made initially by Motorola, the technology spread all over the world and the US networks were actually lagging behind everyone else for quite a while.

> The United States is too big (in terms of population density) for a replacement solution to gain traction outside major metros without massive government subsidies.

Thankfully most people live in major metro areas.