Netflix, Comcast Strike Deal That Improves Video Quality

Film Navigating Netflix
Paul Sakuma/AP

By MICHAEL LIEDTKE

SAN FRANCISCO -- Netflix's videos are streaming through Comcast's Internet service at their highest speeds in 17 months, thanks to a recent deal that bought Netflix a more direct connection to Comcast's (CMCSA) network.

The data released Monday by Netflix (NFLX) may become another flash point in a debate about whether the Federal Communications Commission should draw up new rules to ensure that all online content providers are treated the same by Internet service providers.

The equal-treatment doctrine, known as Net neutrality, has become a thornier topic since January when a federal appeals court overturned the FCC's regulations on the issue. Net neutrality is also drawing more attention as Comcast tries to gain approval of its proposed $45 billion purchase of Time Warner Cable (TWC), another large Internet service provider.

As the world's largest Internet video subscription service, Netflix has long supported Net neutrality as a way to prevent online service providers from giving better treatment to websites willing to pay additional fees for the privilege.

Nevertheless, Netflix agreed in mid-February to pay an undisclosed sum to Comcast Corp. to create a new avenue for its videos to reach Comcast's service.

Netflix previously had been paying third-party vendors such as Cogent Communications Group (CCOI) and Akamai Technologies (AKAM) to deliver its content to Comcast. Some analysts suspect Netflix may be saving money by paying Comcast directly instead of the vendors, but the specifics remain unknown as part of a confidentiality agreement.

The arrangement clearly seems to paying off for Netflix subscribers who are among the nearly 21 million households and businesses that rely on Comcast's high-speed Internet service to watch movies and television shows.

Comcast delivered Netflix video at an average rate of 2.5 megabits per second during March. That was a 66 percent increase from a recent low of 1.51 megabits per second in January.

The March performance also topped the previous monthly high of 2.17 megabits per second that Netflix had recorded on Comcast. Netflix began tracking the streaming speeds of Internet service providers in November 2012.

Higher streaming speeds allow users to watch higher-quality video and translate to fewer interruptions in the picture.

That's good news for Netflix because higher-quality video should please many of its 33 million U.S. subscribers who pay $8 a month for the company's video streaming service. But that doesn't necessarily mean the Los Gatos, Calif., company is happy about the circumstances that prodded it into Comcast partnership.

Netflix CEO Reed Hastings has steadfastly insisted that his company and other online content providers shouldn't have to pay any tolls to Internet service providers, or ISPs, already charging their customers $40 to $60 a month.

Comcast and other broadband providers contend Netflix's growing popularity should require the company to shoulder some of the financial burden for delivering its video. In evening hours, Netflix's U.S. subscribers generate nearly a third of the Internet's downloading activity, according to the research firm.

By early this year, Comcast's streaming of Netflix video had slowed to the point that Hastings felt compelled to work more directly with Comcast to retain his company's subscribers.

'Interconnection'

The better access that Netflix is getting from Comcast is known as "interconnection," a term referring to digital content's journey to an Internet service provider's gates. That path technically isn't covered by the current definition of Net neutrality, which refers to how service providers treat digital content once it's inside the gates.

Comcast has promised to honor the previous rules governing Net neutrality through 2018. In a blog post last month, Hastings argued that future Net neutrality guidelines should be expanded to address interconnection issues, too.

"Without strong Net neutrality, big ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service," Hastings wrote. "The big ISPs can make these demands -- driving up costs and prices for everyone else -- because of their market position."

Google's YouTube video site and many other websites were paying interconnection fees to Comcast before Netflix struck its own deal with the carrier.

Even with the March improvements, Comcast's delivery of Netflix content lags behind several other major service providers. Cablevision (CVC), Cox, Suddenlink and Charter (CHTR) each delivered Netflix video at higher speeds than Comcast in March, according to Monday's breakdown. Netflix has interconnection deals with Cablevision, Cox and Suddenlink, although those arrangements don't require Netflix to pay fees.

When Netflix announced its deal with Comcast, both Verizon Communications (VZ) and AT&T (T) expressed interest in reaching similar alliances. No deals with Verizon or AT&T have been announced yet.


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