> If ISPs were able to charge for this (they want to), Netflix would have to pay a lot more for this sort of premium placement, giving smaller players much more room to compete financially.

We've already seen that ISPs will abuse peering to charge for non-premium placement. And they'll charge that to smaller players too. So the end result is that Netflix will still get colocated, while smaller players are even worse off because they're paying extra for peering.