Last month, Netflix and Comcast announced that they have come to an arrangementthat should ensure quality television and movie streams for Comcast customers for the foreseeable future.
Here are the basics: Netflix will pay Comcast an undisclosed sum, and in exchange Comcast will connect directly to Netflix’s servers, improving streaming quality for all Netflix content.
At the time, it looked like both companies got what they wanted: Comcast didn’t have to foot the bill for handling all of Netflix’s traffic, and Netflix was able to provide better service for its customers.
Besides reports that other ISPs were trying to work out similar deals with the video-streaming company in the immediate aftermath of the agreement, it seemed like things had settled down.
Until this week, that is. Netflix CEO Reed Hastings came out of nowhere with a blog post blasting Internet service providers like Comcast and Verizon for their “Internet tolls” and claiming that there is a need for “stronger” net neutrality rules to protect a competitive Internet.
Several of Hastings’ claims didn’t jibe with what we know about the agreement Netflix made with Comcast. As we’ve noted before, the deal actually has more to do with standard industry practices than the issue of net neutrality. Here’s a refresher on the deal:
- Comcast wasn’t slowing down Netflix’s traffic because it’s HD video or because it wants to hurt Netflix in order to support its own streaming service.
- Netflix has been using a middleman, Cogent Communications, to connect its network to Comcast and other Internet service providers while negotiating for a direct connection (which would improve stream quality). For some time, the connections where Cogent and Comcast meet have been running at capacity.
- When these interconnects run at capacity, some data packets get dropped. This reduces stream quality for Netflix subscribers who also happen to be Comcast customers. Comcast wasn’t doing this intentionally — its hardware simply couldn’t handle more incoming traffic.
- Normally, Cogent and Comcast would both pay to upgrade their interconnects. But this isn’t a normal situation: most of the traffic is moving one way, from Cogent’s network to Comcast’s. Comcast felt that in this case, Cogent/Netflix should handle the costs to upgrade.
- In the end, Netflix was left with the following options: pay Cogent to upgrade, pay another company to act as another middleman between its content and Comcast’s customers, pay Comcast to hook up directly to its servers, or have video stream quality fall further.
Netflix decided to go with the third option: Comcast will hook up directly to one of Netflix’s Open Connect servers at a third-party data center, and Netflix will pay to deliver content.
Here’s the thing: it’s the fact that Netflix had options that makes Hastings’ post ring only half-true.
In his post, Hastings wrote:
Without strong net neutrality, big ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service. The big ISPs can make these demands — driving up costs and prices for everyone else — because of their market position.
Comcast isn’t charging Netflix because it’s the big ISP who can just shove little Netflix around. Comcast wanted Netflix to pay up because a single connection — between its servers and Netflix’s middleman, Cogent — was running into its physical capacity limits because Netflix moves an absurd amount of U.S. residential Internet traffic.
For years, Netflix moved all of its data by paying multiple middlemen like Cogent and Level 3 to connect to ISPs so that its users could have optimal stream quality. Netflix could have done the same thing with Comcast: instead of raising fuss about net neutrality, it could have paid up to reduce the pressure on Cogent’s “pipes.” That’s pretty much the standard industry practice for these kinds of things.
As Dan Rayburn writes, Hastings’ claims ignore many factors that went into the company’s deal with Comcast. Netflix knew that Cogent’s connection to Comcast was running at capacity, but decided to play a game of brinkmanship with the ISP to see if they could get a sweetheart deal. Similarly, one could say that Cogent shouldn’t have promised peering capacity to Netflix when it knew that the torrent of HD video would be too much for its connection.
Here’s what Rayburn has to say about Netflix’s motives in this whole situation:
One could also argue that, by Netflix not routing around the performance issues with Cogent, the end result is that it forces the ISP to take angry calls from consumers. And if the ISP gets enough of those calls, maybe the ISP would then agree to join Netflix’s Open Connect program and allow Netflix to come into the ISPs last mile to place their own servers. Netflix’s motives in this whole argument is to protect their business, which is fine, but then they should not portray their argument as one where they are “fighting for the Internet.”
For Hastings to prove that this week’s rant wasn’t simply posturing in order to get better deals in the future, he needs to elaborate on a few things:
- What does he mean by “stronger” net neutrality? He used that phrase numerous times in his blog post but never gave a definition for what that would look like other than saying that media companies shouldn’t have to pay for “adequate access” to ISP networks.
- Why is he acting like Comcast had all of the leverage in this situation? Were middlemen besides Cogent unwilling to provide Netflix with a connection to Comcast? Or is it simply that Netflix had to have Comcast connect to its Open Connect servers?
- If that’s the case, how is this an issue of net neutrality? It’s not as if Netflix is the first Internet company that needed to move around a lot of data. YouTube, Facebook, Apple, Microsoft — at one point or another, they have all had to pay up to ISPs in order to get better connections to their end users. Why didn’t they raise any fuss about net neutrality before?
Hastings seems to think Netflix is different from all those companies — YouTube, Facebook, etc. — but he has yet to say why.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.