Really, the way to understand ‘net neutrality’ is it’s all about Netflix. The cable companies are outraged and scared to death about Netflix. If you’ve tried a Roku Internet TV appliance (or Apple TV, or Google Chromecast, or Amazon Fire TV), it’s a 10x user experience improvement on a cable box. For less money. Netflix and cordcutting are hurting the cable TV bundle business model. Internet customers are growing, and TV customers are declining.

The idea that Internet TV could break the cable TV bundle and leave ISPs as a dumb Internet pipe is anathema to the cable companies.

The FCC made rules to prevent cable companies from blocking or throttling specific sites and services like Netflix. Verizon sued to overturn them. They won, the court said the FCC doesn’t have authority to impose rules like that, except under Title II, the phone regulatory framework, which hasn’t been applied to ISPs.

After winning in court, the cable companies throttled Netflix and made them pay for ‘peering.’

The argument that this has something to do with the costs that Netflix imposes is weak, very weak. Netflix is more than happy to build a data center next to Comcast, run a big pipe to Comcast, and pay for all their network equipment. That does not impact Netflix’s business model in the slightest.

And if Netflix customers use more bandwidth, the cable companies already charge the customers according to the speed and bandwidth they use, and if the costs are not in line, they can be adjusted accordingly.

If ISPs can charge any Internet service whatever they want, it will devolve to a tax on Internet service profits. They may or may not charge random Internet hosting services tiered rates based on speed. But by the time something grows to a Google or Amazon, they will have to negotiate one-off deals. And how much the cable companies can demand will depend on how profitable these services are.

And the key question you have to ask yourself is, if the cable companies could throttle Netflix or charge them to connect to their customers, could Netflix ever have gotten off the ground? And the answer, to me, is no chance. This is not hypothetical. ISPs have blocked apps that cost them money, like FaceTime, and wifi tethering. The tax the cable company would have to charge would have to reflect not just Netflix’s profits, but the customers the cable company loses.

So a world where Internet services have to get permission and pay to get in front of customers is not going to be the world of hot consumer Internet startups. (And who knows what happens to other services, if for instance, Verizon can charge companies to have employees work at home.)

So, the FCC, after a massive outpouring of consumer outrage, aided and abetted by John Oliver and the Internet industry, and an intervention from President Obama, is saying they will apply Title II.

Frankly, that’s (mostly) how free markets and democracy are supposed to work. What cable companies were proposing is an abuse of market power to restrain trade. What the FCC is doing is asserting its authority to maintain the status quo, after the cable companies pushed to tilt the playing field in their direction.

How is the over-the-top Internet TV world going to evolve? The $100-a-month bundle is going to be under pressure. I don’t watch sports, and I don’t want to pay $20 a month out of my bill for carriage fees for ESPN, YES, MSG, SNY, not to mention a bunch of other networks I don’t use. So I cut the cord about 5 years ago.

Is over-the-top going to be good for consumers? Bundling is complicated. There are good bundles and bad bundles. Microsoft can charge $100 for each of the 4 big products in MS Office. And people will buy 1.5 on average. Or price it at $200 for the bundle, which everybody prefers and makes more revenue for Microsoft. Or there is the music bundle, the LP album/CD. It turns out when people can buy singles for $1 a pop, revenue goes down.

Which do we think the cable TV bundle is closer to? Will people pay independently for Animal Planet or Shark Week? I kind of doubt it. I think you can safely short DISCA and SNI. Of course, it’s a hit-driven business, they could change format, have the next Mad Men, or sell out to an Al-Jazeera. The race is not always to the swift, nor the battle to the strong, but that’s the way to bet.

When the consumer decides, it’s pretty safe to assume they choose what’s good for them. And people will have the choice of skinny bundles or jam-packed bundles, cable TV bundles or over-the-top bundles or just a la carte individual services from HBO, CNBC, ESPN. And it will be good.

What about Netflix? I find myself watching more Amazon Prime than Netflix. Their bundle is that awesome. They have a strategic imperative to own digital media distribution, from books to music to video. They’re tremendous at execution. Netflix is rather fully priced at > 100x earnings. I think Netflix could get Amazoned, and it could be a long time before anyone makes any monopoly profits in this business, if ever.

PS. The talking points against applying Title II are breathtakingly cynical and self-serving. The FCC is applying 1930s telephone regulation in a naked power grab? So why did the industry sue against the lighter-touch regulation the FCC had in place before? Why did they force the FCC’s hand, so the FCC had to apply Title II just to maintain the status quo? It’s a problem that doesn’t exist? So why did ISPs throttle Netflix, why did telco ISPs block FaceTime, wifi tethering? Basically, Comcast and others say their position is, we’re for net neutrality, but Title II is the wrong solution. One one hand, you have Comcast saying, we’re not going to do anything bad, and you shouldn’t apply this broad regulation to us. And on the other the FCC is saying, we need to take this broad authority but we’re not going to do anything bad with it. Because it’s the only legal way you’ve left us to get you to do the things we’ve asked you to do in the past, like not blocking Facetime or throttling Netflix. Frankly, the FCC, and the millions who commented, are a lot more credible. Of course it’s about cable industry profits, and if you give them an incentive to do bad things, they will do them.