Netflix tags in PayPal to cut off VPN users, but will it work?

Why PayPal's move to cut off VPN services may not be as effective as it, or Netflix, might hope.

Netflix block VPN services PayPal

In very convenient timing for Netflix, whose planned expansion to 130 new countries will require a crackdown on people who use Virtual Private Networks (VPNs) to view content that is restricted in their region due to copyright, PayPal has announced that it will stop processing payments to VPN services, BGR reported today.

The reported announcement comes just a few days after one VPN service, UnoTelly in Canada, informed its users that PayPal had ceased processing payments for its customers on copyright grounds. UnoTelly called the decision an attack on "services that enable open and unrestricted Internet access." However, an Ars Technica article pointed out that UnoTelly's site claims its SmartDNS service "removes geo-blocks imposed by streaming sites and allows you to watch geo-restricted channels regardless of where you live."

See also: Netflix will have trouble blocking VPNs used to stream blocked content

That kind of language is likely what attracted the attention of copyright holders. The studios that hold the rights to the content made available on Netflix have restrictions on which regions are allowed to access which content. This means Netflix users in Canada, for example, can't access certain content that is available just over the border in the U.S.

To get around this, many users have turned to VPN services that re-route their streaming traffic to make it look like they're located in the U.S., granting them access to the content available in that market. Netflix announced in January that it will begin cracking down on these services as it looks to expand into new worldwide markets, and the PayPal announcement looks like an attempt to help.

PayPal is setting a controversial precedent with the announcement, essentially outlawing a web tool that is used for a variety of purposes, including privacy for users in countries whose web browsing activity falls under scrutiny from government censors and monitors. The decision is likely to alienate privacy advocates – whether they use PayPal or not – for withdrawing support for VPNs out of concern for the studios that hold the rights to the content on Netflix. PayPal found itself in a similar situation when it cut off donations to WikiLeaks in 2010.

The announcement might eventually seem even more questionable when you consider whether it will actually work. PayPal is just one method of payment at a time when we have more alternatives available than we care to use. UnoTelly has already told its customers who were paying via PayPal to just switch to credit cards, for example.

However, the move could have some kind of financial impact on VPN services like UnoTelly. The subscription business model is so attractive because it withdraws money whether customers use the service or not, and since the monthly payment requires no direct action on the part of the customer, the customer doesn't always notice. By cutting off payments from its customers, PayPal is doing a favor for those who have been meaning to close their accounts with the VPN services, but just hadn't gotten around to it. That's revenue that VPN services will lose.

However, those who don't want to lose service to their VPN accounts will just switch to an alternate payment method. Some of them might even abandon PayPal and urge others to join in the boycott. This even opens up an opportunity for a PayPal competitor to step up as a hero for VPN users.

So what will PayPal accomplish? Attract backlash from privacy advocates and push VPN users worldwide to abandon PayPal, all for a decision that may or may not have an effect on the number of VPN users evading copyright restrictions on online content. Meanwhile, Netflix reveals that its only recourse to thwart VPN users is financial (we already knew they'd have difficulty shutting them down), and the role of VPN services in evading regional content restrictions gains worldwide publicity in the process.

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