Net Neutrality Winners and Losers

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This week, the U.S. Court of Appeals for the D.C. Circuit upheld a ruling that supports net neutrality. The concept refers to the distribution of content by telecom providers, and specifically their ability to restrict certain content in order to favor content supplied by providers who pay for a speedier delivery. The net neutrality debate has been ongoing for about five years, and it looks set to rage for the foreseeable future. Net neutrality will impact certain stocks if it ever comes into force, primarily telecom companies and content providers.

Here’s a look at which companies win and which ones lose on the latest ruling, or at least which will be perceived as winners and losers.

Netflix, Amazon, Disney and Fox Win

The big winner here is Netflix Inc. (NASDAQ: NFLX). Netflix has long been an advocate of the net neutrality concept, but its opinion is likely rooted in self-interest rather than moral outlook. If a provider has the potential to restrict bandwidth associated with a particular service, companies like Netflix that require a comparatively fast and consistent speed to offer their content could be hit by user streaming issues. If the ruling had gone in the providers’ favor, Netflix would have been forced to pay for priority distribution, or risk making its users sit through buffering content.

The ruling means Netflix won’t have to worry about this. Of course, the same concept applies to other streaming services such as Amazon.com, Inc. (NASDAQ: AMZN) Prime and the Walt Disney Co. (NYSE: DIS), Twenty-First Century Fox Inc. (NASDAQ: FOX) and NBC combined effort Hulu.

Telecoms Lose

Losers, of course, are the telecom companies. The potential to charge for priority distribution could have been a huge earner for providers like AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), and the latest ruling effectively removes this potential. This may change because the decision is set for appeal before the close of the year, but it’s unlikely. Even if it does, it won’t be for another five years, so near to medium term, the impact is the same.

Wildcard

As a wildcard, here’s one that’s a little less obvious: GoDaddy Inc. (NYSE: GDDY). GoDaddy has been a major benefactor of the internet’s influence on small businesses over the past two decades. A commerce company or a media publisher can set up a site, register a domain and host it through GoDaddy, and with a bit of search engine optimization can target a market unrestricted by the usual brick-and-mortar/print media barriers to entry.

If telecom providers were able to restrict content distribution based on payment, this would clearly favor the content produced by the big names in the relevant spaces, and make it more difficult for new companies to gain traction. Net neutrality attempts to benefit small business at the expense of big business (whether it actually will is doubtful) and should at least be perceived as playing into the continued success of companies that facilitate entry into small business, such as GoDaddy. What it will more likely do is simply slow down internet speeds for everyone by socializing bandwith.

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