Since January 2016, Netflix has continually cracked down on users who use virtual private networks (VPN) to bypass some of the geographic streaming restrictions. This block has created backlash from users around the world who are unhappy with the limited content in their jurisdictions.
Since its conception Netflix has restricted users’ access to regional shows from other locations. However, due to pressure from content providers, the streaming service has become more aggressive with reinforcing the ban. While much of the popular content on Netflix today is original programming, it still has a lot of content that is only available in certain countries.
To stream this content, Netflix has to pay to license the programming, much of which is only available in certain countries. Subscription payments do not account for users in other regions attempting to view the content using a VPN to disguise their locations. This creates a massive issue for content creators who seek to protect their work, as well as the profits derived from the programming.
To combat this issue, Netflix is working with studios on global licensing for the programming it offers. Currently, securing licensing agreements with networks and other content owners is the greatest expense for Netflix. The company spent nearly $13 billion in 2018 on content licensing, which increased to $15.3 billion the following year.
A global strategy could extend Netflix beyond the regionally determined parameters. When addressing the matter of how people use VPN services to get around geographic content restrictions, Netflix CEO Reed Hastings admitted the solution is for the company to offer the same content to everyone, irrespective of where they are in the world.
This move to provide international content would undoubtedly be good for business, as it helps to reduce the licensing agreement costs, while also ensuring users have a more interesting selection of programming, potentially increasing the number of users. While the prospect of a global content library is promising, getting around regional licensing restrictions presents a tricky hurdle.
Additionally, privacy concerns also spring to the forefront with any restrictions on VPN use. The ban fails to account for users who rely on VPN services to protect their data while using Wi-Fi. These users pay for local access and use Netflix without violating the terms of service, and as such, should not be unduly restricted, nor forced to abandon their privacy safeguards.
These issues need to be resolved quickly as reports indicate that Netflix’s revenues are not growing fast enough to cover its rising licensing expenses, which are projected to be on pace for $17.5 billion this year. Ultimately, the more reliant the company is on licensed content, the more money they will have to spend to remain competitive in the coming years with companies like Hulu and Disney Plus on the rise.
Written by Jason Clarke, a third year JD Candidate at Osgoode Hall Law School. Jason is also a Clinic Fellow at the Osgoode Innovation Clinic.