The Netflix VPN move will put pressure on the company (and distributors) to satisfy customers worldwide
According to a report in Wired, Netflix customers are upset the the company (finally) cracked down on the use of VPNs (virtual private networks) that allowed users to access Netflix content not available in their home country. The result is a lot of unhappy puppies, so unhappy in fact that they’ve signed a petition asking Netflix to reconsider. Of course, some of the same tired canards are being pulled out to attack the move. According to Wired, Open Media, the group behind the petition, claim that VPNs are used as a “privacy tool.” Their petition uses the following language:
My Netflix, My Privacy
News reports say Netflix has already begun blocking paying customers who are using privacy-protecting services like virtual private networks (VPNs).1,2 The move comes in response to pressure from media giants3 who want to ‘geoblock’ us from our favourite content.4Blocking VPNs means innocent customers will become collateral damage: it will block VPN users from accessing domestic content they paid for,5undermine privacy,6 and could push users to illegal alternatives.7
Tell Netflix NOW: “Stand up to Big Media bullies and do not block pro-privacy VPN technology.”
I would ask, where’s the privacy concern with logging onto Netflix? I would venture to guess that the vast majority of folks using VPNs to access their Netflix account aren’t particularly worried about their privacy–they simply want to watch content they haven’t paid for. Geo-blocking isn’t a sin. In fact it’s a legal obligation for Netflix (and any other streaming entity). YouTube geo-blocks content every day.
There also seems to be confusion as to what paying for a Netflix subscription actually means. For a standard subscription of $10 per month customers are paying for access to content that Netflix has paid for ONLY in a specific territory, not worldwide. According to Wired, many are indignant about the crackdown:
Maique Madeira of Portugal says his VPN still works just fine as well, but if it stops, he has no problem going back to torrenting shows and films. “I’m using a VPN because I feel I should get access to the same catalog as the US customers, or any other country’s user,” he said in an email. “We pay the same amount and yet we get a fraction of the content available elsewhere.” -Wired
Sorry Maique, but if you don’t like the quantity or quality of the content you’re getting from Netflix, don’t subscribe. Filmmakers who sold Netflix the rights to their film(s) in the U.S. may not have been able to sell Netflix the same rights in Portugal. Why should you be allowed to watch something that Netflix hasn’t paid for in your territory? Your subscription does not included access and despite what you think, you really haven’t paid for it. Perhaps Netflix should do a better job explaining that part of its business model. Netflix Portugal does not equal Netflix U.S. or Netflix U.K. or so on….
Part of the confusion lies in the fact that most Netflix customers don’t understand how film financing and release territories work. Why would they? It is, however, the way many films get financed and produced. If the viewing public doesn’t respect these arrangements, many of the films they watch would never be made.
Ultimately the crackdown on VPN use may well be good news for Netflix customers as it will force the company to license content (and pay for) content its customers want to watch. It will also require that worldwide film and television markets and distribution licensing scheme continue to evolve and adapt to changing consumer habits.
In the meantime, if one is desperate to watch a foreign program, buy the DVD or Blu-ray. I’ve done that with a number of British programs and Nordic Noir (Danish) shows I enjoy. Yeah, I pay extra (above and beyond my Netflix, Hulu, and Prime subscriptions), but that’s the price of watching something I enjoy. Otherwise I can wait.
This entire VPN issue is one I covered in a blog post in February, 2015 so I won’t rehash, but I will repost my original piece from a year ago below.
–First published, February 15, 2015.
Netflix doesn’t pay for all the content it allows subscribers to stream
Netflix profits grow as its brand spreads around the world–but who’s paying the price?
In January the popular online streaming service claimed its subscriber base had grown to nearly 60 million worldwide. Although nearly 3/4 of those are in the U.S., Netflix has already extended its reach to 50 countries and by 2017 has plans to expand to 200. Just this past week Netflix opened up shop in Cuba.
As Netflix grows, so too should the amount of money filmmakers earn right? Well, no…not really. Enter the VPN, or virtual private network, a simple technology that allows internet users to access geo-blocked websites by providing access via a local IP address. Also known as “tunneling,” a VPN makes it easy to jump virtual fences.
How does it work? Let’s say I want to watch a movie that isn’t available via my Netflix account in the U.S. but it is available on Netflix’s Danish site. With the help of a free browser plugin that takes just seconds to install, I can click a button and surf the web from an IP address in Denmark. When I go to Netflix.com/dk/ and login using my U.S. account, and voilá–I can stream the program (see example above).
Why is this a problem? After all, I have a legit, Netflix account which I pay $8.99 per month for, so why shouldn’t I be able to watch content via Netflix portals around the world? It’s a problem because while I’m happy as consumer to watch a film via Netflix sites worldwide, those who actually paid to produce it are financially left out in the cold. For Netflix it can be viewed as a win, win. Netflix pays for U.S. rights, but forgoes purchasing rights elsewhere knowing full well its subscribers worldwide can still watch. Netflix profits grow at the creators’ expense.
This scenario also hurts smaller distributors of independent film who negotiate with Netflix to license titles for streaming rights in their territories. Why should Netflix worry about spending more money to (legally) acquire rights for from distributors operating in small territories when subscribers can happily watch their films on U.S. Netflix via a VPN?
As Netflix expands offerings to attract subscribers worldwide who pays the price?
How much of an impact might this type of VPN pirate viewing be? GlobalWebIndex, a UK firm, estimates that some 54 million people access Netflix via VPNs each month, 21.6 million of them from China alone. How do subscribers in China get Netflix accounts in the first place? It’s easy using PayPal or other payment method like a virtual credit card. Apparently Netflix doesn’t dig too deep–since it can pocket more cash and grow its brand to reach markets outside its realm. Why should the company crack down on a winning, albeit slimy, way to attract customers?
There was some speculation that Netflix was changing course when it reportedly tweaked its Android app to make accessing content via illegitimate VPNs more difficult, but according to the BBC company officials denied reports that it has changed its approach:
“The claims that we have changed our policy on VPN are false,” said Netflix’s chief product officer Neil Hunt….”People who are using a VPN to access our service from outside of the area will find that it still works exactly as it has always done.”
According to Variety, Netflix supposedly employs other methods to thwart subscribers who don’t belong:
Netflix has always tried to block such unauthorized access, via a multistep verification process that encompasses credit card info, mailing addresses and Internet addresses.
Despite company claims to the contrary, this morning, as I sat at computer to write this post I found it only took me seconds to login to Netflix sites in the UK, Denmark, Cuba and Brazil. Instead of blocking me, a pop-up window politely explained since I was “traveling with Netflix” I might notice a different offering of movies, etc. Of course, one could ask shouldn’t I be able to travel with Netflix? Of course that should be OK, but the problem is, using a VPN I can travel with them while seated at my home computer.
In fact, in order to confirm that I had full, unfettered access to geo-blocked content I searched for a TV series unavailable in the U.S. I chose the Danish series Den som dræber (Those Who Kill) I own on dvd. By selecting Denmark via the VPN (see graphic at the top of post) I was able to log into Netflix.dk and easily stream the program. Question is, are the producers of the program being paid by Netflix for viewers, like me, who watch outside of Denmark? I believe the answer is no.
Generally distributors receive a flat fee for programs/films Netflix adds to its catalog. Rights are given for specific territories and, while sometimes rights are worldwide, often they’re restricted. Why not just give Netflix worldwide rights? Well, easier said than done.
Contrary to the rhetoric promoted by piracy apologists, financing TV and films productions is not a simple task. In many cases foreign rights pre-sold as part of financing deals cobbled together to cover the costs of production. Without such agreements many of the films and TV shows we enjoy could never be made. So for now, when it comes time to distribute them, these financing packages are invariably part of the equation. It often means a single entity doesn’t hold all the (territorial) distribution cards, hence the complexity.
However, with VPNs, Netflix doesn’t have to make negotiating territorial rights a priority. By not restricting the use of VPNs and indirectly allow users to watch programming they aren’t paying for, Netflix can continue to grow its subscriber base and pocket more profit. Why pay the producers of Den som dræber for U.S. rights when U.S. viewers, using their VPN, can use their accounts to watch it anyway?
Emails uncovered in the Sony hack show that Netflix do-si-do around the geo-blocking issue is of growing concern to producers and distributors. As noted in a recent piece by Sean Gallagher in Ars Technica:
The latest data leaked from Sony Pictures Entertainment by hackers reveals that Sony executives had accused Netflix of breaching its licensing contract for Sony Pictures Television (SPT) shows by allowing customers in foreign markets to use virtual private networks to stream them, calling it piracy that is “semi-sanctioned by Netflix.”
Sony pressed Netflix for increased “geofiltering” control over its customers to prevent the practice, including restricting payment methods for the service to ways that would allow screening for customers living outside countries where Netflix had contractual rights.
Gallagher quotes a hacked email between Sony Pictures Television’s president, international distribution,Keith LeGoy and the division’s president, Steve Mosko that outlines concerns over Netflix’s tacit acceptance of VPN abuse:
Netflix are [sic] heavily resistant to enforcing stricter financial geofiltering controls, as they claim this would present a too high bar to entry from legitimate subscribers. For example, they want people to be able to use various methods of payment (e.g. PayPal) where it is harder to determine where the subscriber is based. They recognize that this may cause illegal subscribers but they (of course) would rather err that way than create barriers to legitimate subscribers to sign up.
…Netflix of course get to collect sub revenues and inflate their sub count which in turn boosts their stock on Wall St., so they have every motivation to continue, even if it is illegal…
So what to do? Clearly, there’s a problem. In certain situations VPNs can be a good thing, particularly for those who live in places like China where access to web services is routinely restricted by government firewalls. However, when tens of millions of Netflix subscribers are using VPNs to access unlicensed content it’s clear that the company isn’t doing enough to make sure that content creators receive fair compensation.
Netflix isn’t cracking down on VPN use because it’s good for (their) business
When Australian journalists attending the recent Consumer Electronics Show in Las Vegas tried to ask Netflix officials about a VPN crackdown reported by Torrent Freak, they were rebuffed–even though, according to an article on news.com.au, “An estimated 200,000 Australians pay for Netflix subscriptions, and access the service by masking their computer’s location so they appear to reside in America.” The story also notes:
The movie giant is due to launch its service in Australia this March, but many of its popular shows including Orange is the New Black and Better Call Saul, are unlikely to screen on the local service due to licensing agreements, potentially providing little incentive for existing subscribers to switch.
It’s yet another tangible example of how a program’s producers may be left holding the bag. Netflix gets 200,000 paid subscribers from Australia, but it doesn’t have to pay the filmmakers for rights to their films in that territory.
Some make the argument that overall, Netflix is a good online influence and has helped diminish the lure of piracy, because, as this piece in Billboard explains, it offers consumers, “Content, value and ease of use.” While that’s mostly true, it’s really a tangential issue and certainly doesn’t exempt Netflix’s business practices from scrutiny. Nor does the fact that Netflix has opened the door to new creative possibilities–both in terms of production and distribution. Creators are justified in demanding that the content Netflix subscribers stream is actually paid for–otherwise it becomes just another variant of (corporate) piracy.
What next? Well, as moves forward its with global expansion plans, either Netflix needs to spend some of its profit to find a way to begin effective geo-blocking, or–if that’s not possible–find another formula to calculate a fair price for content that factors in total (worldwide) views, VPN or no VPN. It might be a bitter pill for stockholders to swallow, but for now, it’s the only legitimate way forward.