Feb 25, 2014

Did Netflix make a mistake by agreeing to pay Comcast to carry its content?

It seems to me that it would have made sense for Netflix to wait a while for the FCC to rewrite net neutrality rules now that the existing rules have been invalidated. Instead, Netflix apparently agreed to pay Comcast to deliver their content. I thought that’s what I paid my ISP for already. Doesn’t this set a poor precedent and pretty much guarantee that Netflix is going to either have to pay every ISP or have its content “slow walked” to customers. Plus, it isn’t as if Netflix is just going to pay it and be nice, they are probably going to have to charge more, which means I pay three times to see content - once for my Netflix membership, once for ISPs charges to Netflix, and once when I pay my monthly service charge.


I understand why Netflix agreed to pay Comcast, and I'm conflicted about it. Joshua Brustein at Businessweek.com raises a good question:


"The most vulnerable companies here aren’t the likes of Netflix, which is big enough to force Comcast to the table. If nothing else, Comcast couldn’t afford to anger regulators with a fight against such a household name right now. But smaller companies will have much less leverage and could get worse terms."



I don't think they had the time to wait for the FCC. It seems that a significant amount of Netflix customers were having problems with the service. If they had waited they might have lost those customers, and I'm sure they weren't willing to risk that. They can always revisit their agreement with Comcast later on if the FCC changes the rules.

The planned merger of Time-Warner and Comcast will result in a single company in charge of almost ¾ of the cable industry, which means that same company will also be one of the largest ISP in the country, if not the largest. There is essentially no governmental resistance to the formation of this monopoly, and at the same time, there are essentially no net neutrality rules remaining in effect that would prevent Comcast from throttling Netflix. Comcast is a direct competitor to Netflix with RedBox, and if Comcast “encourages” Netflix streaming quality to degrade, the loss of customers is a very real possibility for Netflix.


To be fair to the ISPs, Netflix is responsible for a huge amount of traffic. Peering agreements for Netflix used CDNs like Limelight and Level 3 to push content to users. What Netflix wanted to do, and what Comcast had refused, was to use caching hardware within ISPs network to more efficiently deliver that content. This isn’t unusual, Google, Amazon and Ebay all do it. Comcast refused to do the same for Netflix until they paid up, and Netflix decided that it was worth it.

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