"lets say the ISP does not have a business relationship with either Netflix (because its illegal under net-neutrality)"
That is not illegal under net neutrality, and it is basically irrelevant. Netflix, like any Internet user (yes, that is what Netflix is) must contract with some ISP (probably many ISPs given their scale). Net neutrality does not prevent ISPs from selling rack space in their data centers and allowing companies to colocate their servers with the ISP's routers.
Net neutrality is really about the logic ISPs use for routing, and the basic requirement is that routing decisions should not be based on the sender address or the application. There is plenty of room for argument about how strictly that should be enforced e.g. some experts support different priority classes for different application types while others believe in a stricter form of net neutrality. The general idea is that the performance of Internet applications should depend solely on technical details and that ISPs should not be allowed to impose artificial or arbitrary restrictions. There are plenty of legitimate questions over what is truly a technical reality and what is artificially imposed by an ISP (e.g. if an ISP uses the same physical infrastructure for Internet and non-Internet services, is it artificially constraining the Internet users by denying them capacity that is not being used for the non-Internet services?) but for colocation there is no real debate and nobody is claiming that is a NN violation.
> some experts support different priority classes for different application types
That's a thoroughly outdated QoS paradigm. It's almost impossible to make rule-based traffic classification neutral and fair, because it always privileges existing applications and protocols over upstarts that aren't correctly identified by the ruleset. It's also far too easy for ISPs to "forget" to properly classify their competitor's traffic when the ISP is also a content provider, and poorly-designed rulesets can be gamed by using protocols/applications on non-standard port numbers.
Fortunately, this QoS paradigm is no longer necessary and the state of the art for QoS has moved on to techniques that only need to look at the quantity and size of packets in order to correctly infer the correct latency vs throughput tradeoffs for each traffic flow. Packet scheduling is now much more like CPU scheduling, in that it works well enough out of the box without requiring manual tuning or prioritization.
That is not illegal under net neutrality, and it is basically irrelevant. Netflix, like any Internet user (yes, that is what Netflix is) must contract with some ISP (probably many ISPs given their scale). Net neutrality does not prevent ISPs from selling rack space in their data centers and allowing companies to colocate their servers with the ISP's routers.
Net neutrality is really about the logic ISPs use for routing, and the basic requirement is that routing decisions should not be based on the sender address or the application. There is plenty of room for argument about how strictly that should be enforced e.g. some experts support different priority classes for different application types while others believe in a stricter form of net neutrality. The general idea is that the performance of Internet applications should depend solely on technical details and that ISPs should not be allowed to impose artificial or arbitrary restrictions. There are plenty of legitimate questions over what is truly a technical reality and what is artificially imposed by an ISP (e.g. if an ISP uses the same physical infrastructure for Internet and non-Internet services, is it artificially constraining the Internet users by denying them capacity that is not being used for the non-Internet services?) but for colocation there is no real debate and nobody is claiming that is a NN violation.