It may very well be in their best interest to give NetFlix free co-location space but because of the PR battle this has become kind of a proxy war for bigger issues. ISPs have a legitimate concern now that if NetFlix 'wins' the PR battle they will have a long line of companies knocking on their door demanding peering arrangements and free co-location. It's also worth noting ISPs could rent out 4RU of space in their facilities to other companies for way more than $0 and often do.