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Will The Passing of a Net Neutrality Law Affect Stocks?

This is a guest post by Dave Landry. Dave Landry Jr. is a business owner, financial consultant and amateur investor who enjoys writing and infographic design in his spare time. He also enjoys linking with like-minded folk, so feel free to give him a ping on social media!

In short, it already has. Netflix was the first to feel the sting of the court’s January ruling, and it stands to reason that other popular streaming sites like Hulu, YouTube and HBO could be affected in the future. The ISP behemoths stand to increase their profits which could both hurt and hamper their stock value. So what are the factors that matter?

Fundamentals. When a company is making money with no sign of stopping, their price often goes up, conversely if they’re losing money, or are just flat for too long, their stock price tends to go down. Other complexities aside, it’s reasonable to consider that consumers might cancel their subscriptions to sites that have their prices or quality affected by a lack of Internet regulation. This could drive their stock down, whereas the ISPs could both increase profits from inflated prices but also lose customers due to moral objections to their practices. Such a contentious issue could undermine any positive gains as investors seek more stable options.

Sector Changes. Net neutrality, no matter the ultimate outcome, qualifies as a sector change. It’s a dramatic event that affects an entire industry in one swift movement. Any company whose business is made over the Internet is affected by either the increased regulation, which improves stability with certain guarantees, or the potential decrease in revenue brought on by new content specific bundles from ISPs. Massive changes in a particular industry will affect everyone involved, whether directly or indirectly, even if you’re just guilty by association.

Is Netflix doomed?

Is Netflix doomed?
Image courtesy of Wikimedia Commons

Market Swings. Whether or not revenue declines or investors jump ship, the entire market may feel the impact of as potent an issue as net neutrality. When the market itself swings in either direction, it tends to take most stocks along with it, especially the bigger companies. If the entire market is driven up by either a new law or the death of one, it will likely have an effect on both sides of the debate. As Ken Turnin mentions in his article for Deposit Accounts, the stock market is an ever-swinging pendulum.

Public Opinion. While technically falling under a sector change, when an issue in the stock market is highly controversial, the way the public feels about it can have a tremendous impact. Just the dissemination of information alone is a delicate enough process to sway an entire industry. If the majority of the process on net neutrality is positive, then any obstacles in the way, such as court rulings, may vilify the opponents in such a way that it directly affects investor opinion and thus the price.

At the end of the day, government regulation is a big factor. Whichever direction the chips fall is likely to have a significant impact on the major stocks involved, though considering that the horrors of unregulated Internet have not yet come to pass and stocks are already shifting, a net neutrality law might serve to restore prices to where they were before. Positively affecting prices with a neutral effect on the net.

Editorial note:
Net neutrality (also network neutrality or Internet neutrality) is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication.

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