Comcast and Netflix reach streaming agreement

Netflix is striking deals now to make sure its content will stream without interruption. It reached an agreement with Comcast for an undisclosed amount to directly connect to its network.

The New York Times had these details in the story by Noam Cohen:

Comcast, the country’s largest cable and broadband provider, has reached an “interconnection agreement” with Netflix to ensure that its videos would be streamed directly — and thus faster and more reliably — to Comcast’s customers, both companies announced Sunday.

The terms of the multiyear agreement, including whether Netflix was paying for its direct connection, were not disclosed, other than to say that the company “receives no preferential network treatment.”

The announcement confirmed reports that had trickled out late last week, already detecting a more direct Internet path of Netflix videos to Comcast customers. The agreement is expected to be fully put in effect in a matter of weeks.

That the technical details of how streaming videos arrive on a customer’s screen is the subject of corporate announcements and news media coverage speaks to the outsize importance of Netflix and Comcast in how movies and television are watched.

The Wall Street Journal story by Shalini Ramachandran pointed out that the agreement comes less than two weeks after Comcast agreed to buy Time Warner Cable creating the largest TV provider:

The deal comes just 10 days after Comcast agreed to buy Time Warner Cable Inc. The acquisition, if approved, would establish Comcast as by far the dominant provider of broadband in the U.S., serving 32 million households before any divestitures it might make. It also comes amid growing signs that congestion deep in the Internet is causing interruptions for customers trying to stream Netflix movies and TV shows.

People familiar with the situation said Netflix Chief Executive Reed Hastings didn’t want streaming speeds to deteriorate further and become a bigger problem for customers.

In a statement confirming the broad outlines of the deal, the companies on Sunday said the agreement would provide “Comcast’s U.S. broadband customers with a high-quality Netflix video experience for years to come.”

The debate has been heating up over who should bear the cost of upgrading the Internet’s pipes to carry the nation’s growing volume of online video: broadband providers like cable and phone companies, or content companies like Netflix, which make money by sending news or entertainment through those pipes.

While several big Web companies in recent years have started paying major U.S. broadband providers for direct connections to get faster and smoother access to their networks, Netflix has held out—until now.

Steven Musli wrote for CNet that many are concerned that the deal will damage net neutrality, which would prevent Internet providers from discriminating against traffic on their networks:

Under the so-called “paid peering” deal, Netflix will be allowed to connect directly to Comcast’s network instead of going through intermediaries, as it formerly did.

The companies have for years been locked in a dispute over the cost of delivering Netflix streams to its customers over Comcast’s broadband network. While Netflix wanted to connect to Comcast’s network for free, the cable giant sought compensation for the heavy traffic that Netflix users generate, arguing that it costs the company a lot to deliver Internet video.

In recent months, the dispute appeared to be heating up, with suggestions that Comcast customers were seeing their connections to Netflix degraded. Netflix released data last month that showed the average Netflix streaming speed decline 27 percent since October.

The deal is likely to presage similar agreements with other broadband carriers such as AT&T, Verizon, and Time Warner Cable, which have also refused Netflix’s request to connect to their servers without compensation.

Although the two companies say Netflix is not receiving preferential treatment, observers worry that the deal may deal a setback to Net neutrality, which aims to prevent broadband providers from blocking access or discriminating against Internet traffic traveling over their connections.

Timothy B. Lee wrote in The Washington Post that the deal signals the end of net neutrality:

In recent months, the nation’s largest residential Internet service providers have been demanding payment to deliver Netflix traffic to their own customers. On Sunday, the Wall Street Journal reported that Netflix has agreed to the demands of the nation’s largest broadband provider, Comcast. The change represents a fundamental shift in power in the Internet economy that threatens to undermine the competitive market structure that have served Internet users so well for the past two decades.

The deal will also transform the debate over network neutrality regulation. Officially, Comcast’s deal with Netflix is about interconnection, not traffic discrimination. But it’s hard to see a practical difference between this deal and the kind of tiered access that network neutrality advocates have long feared. Network neutrality advocates are going to have to go back to the drawing board.

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One clear lesson, though, is that further industry consolidation can only make the situation worse. The more concentrated the broadband market becomes, the more leverage broadband providers like Comcast and Verizon will have over backbone providers like Cogent. That gives the FCC a good reason to be skeptical of Comcast’s proposed acquisition of its largest rival, Time Warner Cable. Blocking that transaction could save the agency larger headaches in the future.

While blocking the transaction is the best move in one man’s opinion, access to the Internet for companies of all sizes is an important issue. If companies with deep pockets are able to buy better access then it will be harder for competition to start-up and earn customers. And when competition suffers, it’s been proven, so do consumers.