If you are in the middle of a House of Cards binge, the news from Netflix over the weekend is good — video streaming quality will improve. After reports of declining performance in recent months, Netflix — which accounts for 30 percent of broadband traffic — cut a deal with Comcast to pay the cable provider for direct access to its systems.
The implications of this deal are complicated and wildly different, depending on whom you ask. We rounded up a few ways to look at the deal, which allows a broadband giant to charge Internet companies for direct access to consumers:
1) Paying for access could become a norm that could stifle opportunities for startup Internet services.
Existing companies with deep pockets can afford to pay fees to broadband giants for simply delivering Internet service, but what about the next generation of Internet-based services? Public-interest groups are worried that "such deals could normalize an environment" in which broadband providers can charge fees for delivering content, Time reports. With its dominant market power, Comcast could, for instance, charge prohibitive fees to stifle upstarts.
2) Payments for access have always happened. Now they're just going to different parties, since the "middleman" was cut out of this deal.
Netflix has been paying fees for access to Comcast and other servers — it paid content distribution networks, which are third-party middlemen. Now, Netflix will pay Comcast directly for access, instead of the content distribution networks. Streaming industry blogger Dan Rayburn excoriated traditional media outlets for writing that consumers may have to foot the bill for Netflix's deal with Comcast:
"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. It should actually be cheaper for Netflix to buy direct from Comcast." See his full post.
3) The deal transforms the "net neutrality" debate.
The Federal Communications Commission recently lost its battle to continue regulating so-called net neutrality, though it's writing a new framework now. For the feds to ensure a level playing field and no haves and have nots in terms of Internet speeds, net neutrality advocates assumed residential Internet service providers receive the Internet from one big pipe, and net neutrality rules could prohibit the creation of "fast lanes" and "slow lanes." But if Netflix can connect directly to the service providers, every company would have its own pipe, making policing those a really thorny problem.
"Cutting out the middleman might make the Internet more efficient, but it will also make it less competitive," Timothy Lee at The Washington Post writes. "Cogent [a third-party content distribution network] has many competitors. Verizon's FiOS service does not. If companies like Cogent are squeezed out of business, it will make these already powerful network owners even more powerful."
4) It affects the way federal regulators will view the proposed Comcast-Time Warner mega-merger.
The FCC may have recently lost the fight to regulate Internet provider interconnection, but regulators were inevitably going to look at those issues in the proposed merger between the two cable giants. Via The Street:
"If ISPs did begin charging for access, Netflix CEO Reed Hastings vowed to fight such a move in Washington. [Bernstein Research analyst Carlos] Kirjner said he wouldn't be surprised if Sunday's agreement was conditional on an agreement by Netflix not to lobby regulators to add IP-interconnection to its Time Warner Cable merger review."
Lee at The Post, however, argues otherwise, saying "the growing power of residential broadband providers will put growing pressure on the FCC to do something to prevent the abuse of that power."