Getting a clearer picture on Netflix-Comcast deal
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| FILE - In this Aug. 6, 2009 file photo, the Comcast logo is displayed on a TV set in North Andover, Mass. After years of bickering, Netflix and Comcast are finally working together to provide their subscribers with a more enjoyable experience when they’re watching movies and old television shows over high-speed Internet connections. The new partnership is part of a breakthrough announced Sunday, Feb. 23, 2014, that requires Comcast’s Internet service to create new avenues for Netflix’s video to travel on its way to TVs and other devices. |
SAN FRANCISCO
(AP) -- After years of bickering, Netflix and Comcast are working
together to provide their subscribers with a more enjoyable experience
when they're watching movies and television shows over high-speed
Internet connections.
The new partnership is
part of a breakthrough announced Sunday that requires Comcast's Internet
service to create new avenues for Netflix's video to travel on its way
to TVs and other devices. In return for the improved access, Netflix
will pay Comcast an undisclosed amount of money for the next few years.
The
arrangement represents an about-face for Netflix Inc., which had
steadfastly refused to pay high-speed Internet service providers already
collecting $40 to $60 per month from its customers. Netflix CEO Reed
Hastings had contended that his company's Internet video service is one
of the main reasons why households pay for broadband, making it
unreasonable for Internet service providers such as Comcast Corp. to
demand additional money from content providers.
Comcast
and other broadband providers argued Netflix's growing popularity
should require the Los Gatos, Calif., company to shoulder some of the
financial burden for delivering its video. In evening hours, Netflix's
33 million U.S. subscribers generate nearly a third of the Internet's
downloading activity, according to the research firm Sandvine.
Now
that Netflix has relented to Comcast, the largest U.S. broadband
service, similar deals are more likely to be reached with other Internet
providers such as Verizon Communications Inc., AT&T Inc. and
Charter Communications Inc.
Here's a closer look at what this shift means for subscribers to Netflix and high-speed Internet services:
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HOW WILL CONSUMERS BE AFFECTED?
Netflix
subscribers relying on Comcast should already be seeing fewer
interruptions as video streams over the network. The quality of the
picture should be better, too. The improvements started to appear
Thursday when Comcast and Netflix began working together, though their
collaboration wasn't revealed until Sunday. Some analysts believe the
alliance might set the stage for Comcast to eventually include an
application for Netflix's service on its cable-TV boxes, making it even
more accessible.
If the claims of better
performance are true, it would reverse how Netflix's video had been
performing on Comcast's Internet service - the average speed during
prime-time viewing hours fell 25 percent from January 2013 to this
January, based on Netflix's own measurements.
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WHAT WAS THE PROBLEM?
That's
a matter of debate. Critics of Internet service providers suspect
Comcast and its peers were deliberately slowing Netflix's video as a
negotiating tactic aimed at extracting additional fees. But plenty of
analysts traced the slowdown to Netflix's increasing viewership and the
limited number of ports that Internet service providers have built to
receive online content.
Netflix has long been
hiring third-party vendors such as Cogent Communications Group Inc.,
Akamai Technologies Inc. and Level 3 Communications Inc. to deliver its
video to the doors of Comcast and other Internet providers - as if
Netflix had been hiring a fleet of delivery trucks to transport its
products to a store. As more people stream Netflix video, the company
had to dispatch more trucks. Meanwhile, other Internet services also
were sending trucks with their merchandise.
Like
any congested highway, bottlenecks were slowing traffic down as all
those trucks carrying digital content tried to get into the entry gates
of Internet providers.
Now that it's getting
paid extra money, Comcast is going to create special roads for Netflix's
video. By bypassing the bottlenecks, Netflix video should stream more
smoothly for Comcast subscribers.
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IS NETFLIX THE ONLY SERVICE WITH EXPRESS LANES FOR DEDICATED CONTENT?
No.
Google Inc., which owns the YouTube video site, and social networking
service Facebook Inc., among others, had already reached similar deals
with Comcast and other Internet providers. Netflix is falling in line
with other services that generate a lot of traffic.
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WHAT PROMPTED NETFLIX TO ANTE UP?
No
one knows for certain, but Comcast's clout probably had a lot to do
with it. Comcast already has nearly 21 million broadband subscribers and
that number will swell to about 30 million by the end of the year if
the Philadelphia company wins regulatory approval to buy rival Time
Warner Cable Inc. for $45 billion.
If
Netflix's video streaming quality continued to deteriorate on Comcast,
Netflix risked alienating its own subscribers. The discontent would have
undercut Netflix's subscriber growth and ultimately hurt its stock.
Comcast
also may have been more willing to reach a compromise to reduce the
chances of Netflix amplifying its complaints about the deteriorating
performance of its video service while government regulators scrutinize
the Time Warner Cable deal.
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COMCAST SAYS IT ISN'T GIVING NETFLIX PREFERENTIAL TREATMENT. IS THIS REALLY TRUE?
Sort of, but it's a fine and highly technical distinction.
Comcast
is referring to the ongoing debate over "Net neutrality." This term
refers to the idea that Internet providers should treat all digital
content equally, regardless of the originating website. The issue has
become especially sensitive since last month when a federal appeals
court overturned the Federal Communications Commission's regulations
enforcing Net neutrality. That decision raised fears that Internet
providers would impose tolls to guarantee websites run at optimal
speeds.
But Net neutrality governs the
performance of bits and bytes once the digital packages are inside the
gates of Internet providers. The Comcast-Netflix alliance is limited to
how quickly content gets to those gates.
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WILL NETFLIX RAISE ITS PRICES TO HELP OFFSET THE EXTRA MONEY THAT IT'S PAYING
COMCAST?
The
$8 monthly price for a Netflix subscription in the U.S. may eventually
rise, but the increase probably won't be tied to the Comcast deal.
Although
the precise terms aren't being spelled out, it appears Netflix may just
be reshuffling its expenses for video delivery. The company already had
been paying other contractors to handle those deliveries. Now, some of
the money is going to be paid to Comcast instead.
In
a telling sign that Netflix isn't anticipating dramatically higher
expenses, the company didn't revise its profit projections for the first
three months of this year when it announced the Comcast deal. Investors
interpreted that as a sign that Netflix's expenses aren't going to rise
above the levels that management already budgeted. Netflix's stock
climbed by about 4 percent to a new all-time high of $449.69 Monday
before falling back slightly. The shares closed at $447, a gain of
$14.77.
Meanwhile, Netflix is still
experimenting with new prices for subscribers who want to be able to
simultaneously stream video on more than the current limit of two
devices. A plan allowing four simultaneous video streams is being tested
at $12 per month. Netflix has emphasized any potential price increases
are still many months away.
