Streaming provider Netflix and cable giant Comcast announced a pact this week that may be indicative of the post “net neutrality” era. The deal was called an “interconnection agreement” and is designed to ensure that Netflix customers who subscribe to Comcast’s Internet services do not experience reduced performance on the cable company’s network. This is in response to complaints that had accumulated over the past three months that Netflix customers were being “throttled” by Comcast. This implies that Comcast was deliberating restricting and limiting data transfers between Netflix and its streaming customers.
Netflix released data demonstrating that from October 2013 to January 2014, Netflix customers on Comcast experienced a 27 percent decline in streaming speeds during primetime hours. Netflix did not want customer complaints to increase, therefore they pursued this new agreement with Comcast. The terms of the agreement were not disclosed by either party, but it is believed to be a long term deal. The New York Times implied that cash may not have even changed hands in the deal, but most media outlets are in agreement that Netflix is paying Comcast for the ability to directly connect to its network.
This deal marks the second significant financial development for Comcast in recent weeks. Earlier this month, the company announced that it will acquire rival cable firm Time Warner for $45 billion. Comcast is already the largest cable provider in the United States and a merger with Time Warner would increase their market share considerably. The combined company would control approximately 38 percent of the broadband market in the U.S. The potential deal still faces obstacles from government regulators and the scrutiny of anti-trust groups. Pacts such as the one between Comcast and Netflix may become common in the post “net neutrality” era.
The term “net neutrality” refers to the concept that all data being transmitted across a given network is treated equally and that preference is not given to one company or provider over another. In January of 2014, a U.S. federal appeals court struck down Federal Communication Commission (FCC) guidelines mandating this equal treatment of data. This concept has become more vital in recent years as access providers, cable companies such as Comcast, are increasingly coming into conflict with content providers, such as Netflix. Streaming companies like Netflix are potentially eroding cable’s business by offering alternative methods of accessing content that was previously exclusive to cable.
“Net neutrality” advocates argue that such regulations would prevent precisely the kind of situation that developed between Comcast and Netflix. Comcast is free to “retaliate” against Netflix and limit the access of its customers because the “net neutrality” regulations are no longer in place to require it to treat Netflix data and customers equally. Free market advocates would reply that market conditions will dictate what companies like Comcast can do. If they “throttle” Netflix customers and enough customers complain or withdraw from Comcast’s services, then it becomes prohibitive for them to engage in such practices.
The counter argument to this is that in the vast majority of U.S. markets, there is little competition in the broadband market as yet. It is typical for a single cable company to have complete coverage of a metropolitan area and the alternatives are typically limited to satellite/DSL services that do not offer the same speed as cable providers. This makes it difficult for customers who are truly upset with their cable providers to seek alternatives that offer the same level of service.
The details of the agreement between Netflix and Comcast remain unclear, but the pact between the two companies may be indicative of the post “net neutrality” era.
By Christopher V. Spencer