Netflix struck a deal with Comcast to improve its video-streaming speed and reliability for customers. On Sunday both companies announced Netflix would be paying millions of dollars annually to Comcast for direct access to content, improving quality of service but Netflix isn’t the only one. Companies like Google and Facebook already have made such agreements with Comcast.
Netflix had struck similar deals with other companies like Cablevision and Cox, although they did not pay for those connections. By connecting directly to Comcast’s network Netflix removes a middle layer service. Previously, Netflix would use third-party services to deliver its movies and TV shows. Through an initiative known as Open Connect Netflix made arrangements with various internet providers like British Telecom, Bell Canada. This new direct connection with Comcast is to take place at data centers known as open internet exchanges that would be run by Equinix Inc. and a few others.
Netflix, a video-streaming subscription service is one of the largest and most recognizable in the world. The company has about 44 million subscribers worldwide and 34 million subscriber in the U.S. Alone. 7 million pay for their mail delivery service. Netflix agreement came when customers complained that their video quality had slowly deteriorated. The company was quoted as saying the agreement would deliver a higher quality experience to costumers while allowing for growth of Netflix traffic. The negotiations happened over phone conversations between Netflix and Comcast Chief Executive Reed Hastings and Brian Roberts over the last year. An agreement had been struck just before Comcast surprise bid of $45.2 billion on Time Warner Cable in February 13. Comcast has more than 20 million broadband subscribers and provides internet services to about 23 percent of U.S. households.
With the worlds largest broadband provider backing them, Netflix plans to add ultra high-definition content later this year, possible because of the improved bandwidth acquired. Some think the arrangement is bad news, Tim Wu a professor for Columbia Law School says such agreements usually passes the increased cost to customers.
The deal comes as a bit of a surprise to some who expected Netflix to hold out with The Time Warner Cable deal still in the air. Craig Moffett, Founder of MoffettNathanson LLC said Netflix would have had a reasonable shot of getting any conditions they wanted put on the merger for long-term benefit. Although, Comcast might have enacted the arrangement to deal with Netflix before the regulatory review. Comcast had stated that Netflix would not get any preferential treatment.
The agreement brings back the issues of net neutrality for broadband providers and whether they can slowdown traffic to sites, forcing companies to pay for faster service. The Federal Communications Commission plans to rewrite rules that would forbid content blocking and promote web traffic equality after U.S. Courts denied the commissions previous version. For now, the deal seems to have bolstered growth for both companies. Increasing Comcast providing base and allowed Netflix to expand its selection and content quality. Netflix customers will see immediate improvements in service although the possible increase in cost remains to be seen.
By Eric Ohm