A little more than a week ago, Comcast and Time Warner Cable announced plans to merge into one internet behemoth, an idea that's been universally panned and one that some lawmakers are already preparing to counter. Allowing one company to control 38 percent of broadband subscribers—and in many places, being consumers' only option—would create obvious anti-trust and net neutrality concerns. And yesterday, such concerns appears to be confirmed, with the announcement that Netflix and Comcast had come to a deal whereby the latter would carry Netflix traffic.
On its face, the fact that Netflix would have to pay Comcast for better streaming appears to be the exact death blow to net neutrality—a principle that's meant to assure all internet traffic gets treated the same—that people feared would happen after the recent Verizon v. FCC decision.
But as fragile as the net neutrality concept is right now, this deal most likely isn't the coup de grâce. Instead, the deal helps connect Netflix's own content delivery network directly with Comcast's own network; by cutting out the middleman, both parties hope that Comcast subscribers will have an improved streaming experience.
It's important to note that neither Comcast nor Netflix has made the terms of the deal public, and neither company is talking, so stating definitively that the deal is limited to network connections is difficult. (Both companies stated in their release that "Netflix receives no preferential network treatment under the multi-year agreement," but you're welcome to take that with as large a grain of salt as you like.) However, their joint release does call the deal an interconnection agreement, which hints at what's going on.
Netflix is in a unique position as an internet company because it's huge; its 44 million subscribers account for some 28 percent of internet traffic in North America, a number that's only going to rise. Because Netflix doesn't actually own physical networks—the tubes, as it were—it has to pay other firms to carry its data. And in 2012, Netflix unveiled Open Connect, its own content delivery network (CDN) that, as Tech Crunch put it then, "reduce[s] its costs of delivery and could improve delivery of its content" by connecting directly with ISPs, rather than third party CDNs.
So instead of paying a third party CDN, like Akamai or Level 3, to deliver video content, Netflix's largesse made building its own CDN a smarter proposition. With Open Connect, Netflix is able to negotiate interconnection agreements—better known as peering agreements—directly with ISPs and networks. Now's probably a good time for a reminder on how the backbone of the internet works:
Sending data across the web means relying on networks of varying size and shape, from Tier 1 networks—which largely make up the internet backbone—to last mile providers. You can visualize these connections for yourself by running a traceroute, which tracks what path your computer takes to connect with another site.
In fact, the Comcast-Netflix arrangement appears to have first been discovered by Bryan Berg, who noted that Comcast and Netflix had a direct connection, without any third parties. (Credit to Ars Technica for digging that up. Also, Berg's discovery might be why the two companies unveiled the agreement so soon after the TWC deal and Verizon ruling.) Previously, Netflix delivered traffic to Comcast through Cogent's network, according to the Wall Street Journal. By connecting directly to Comcast, Netflix can ensure that its content takes the shortest route to subscribers.
Such connectivity is part of the goal of Open Connect. And with the initiative, Netflix has generally been able to set up free peering agreements with ISPs worldwide, largely because Netflix is such an important draw to consumers that ISPs want to make sure they can provide a smooth Netflix experience.
But according to the Los Angeles Times, "Comcast balked at such an arrangement, seeking an agreement in which Netflix would pay to connect directly to its high-speed network—as do other large data providers, such as Google Inc.'s YouTube."
In essence, the Comcast-Netflix deal appears to be a situation in which giant was pitted against giant, with Comcast not blinking at Netflix's expectation that it could directly connect with Comcast's network for free.
"Working collaboratively over many months, the companies have established a more direct connection between Netflix and Comcast, similar to other networks, that’s already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic," reads the companies' joint statement, hinting that the deal took a fair bit of wrangling.
So while the deal may result in improved streaming quality for Comcast customers, is it a blow to net neutrality? No. The principle of net neutrality is that all content gets treated the same by a network on that network. This deal is about connecting Netflix's CDN to Comcast's network more directly, not getting Netflix preferential bandwidth treatment on Comcast.
Essentially, Netflix has to pay someone to get its content delivered to Comcast, and the most direct route is likely the cheapest, as Dan Rayburn wrote in a widely-circulated post pushing back against early media reports:
Naturally, many of these same people are also implying that because Netflix has to pay Comcast, consumers will foot the bill for this as Netflix will have to charge more for their service. This could not be further from the truth. Those stating this have no clue how Netflix delivers their content today or what costs they already incur. If they did, they would know this is not a new cost to Netflix, it’s simply paying a different provider, and it should be at a lower cost.
While the deal seems to pretty clearly not be a net neutrality issue, and rather strictly a business arrangement, it still isn't necessarily a good thing for consumers. Speaking with the New York Times, net neutrality advocate and Columbia Law professor Tim Wu said the arrangement is problematic.
“This is the water in the basement for the Internet industry,” Wu said, suggesting a torrent of such arrangements could follow. “I think it is going to be bad for consumers,” he continued, because if Netflix isn't saving money, the added costs will likely be added to subscription fees.
Net neutrality or not, the deal does show what happens when the internet is ruled by a handful of giants. Netflix surely found value in the arrangement, but what about content providers or CDNs with smaller footprints? The concern is that, as the giants increasingly duke it out with each other, the bar to entry will be raised high enough to keep upstarts out.