Following a deal with Time Warner Cable, Netflix is now paying all four major Internet service providers for reduced congestion and faster video streams.
Netflix had already signed interconnection deals with Comcast, Verizon, and AT&T. Time Warner confirmed to GigaOM that it made the deal with Netflix in June, and is currently rolling out the direct connections that allow for smoother streaming.
The idea of Netflix paying ISPs for better performance sounds bad on its face, but whether it’s actually a net neutrality issue is up for debate, with plenty of posturing from all sides.
Netflix has publicly lamented these deals even as it makes them, noting that most of its direct connections with ISPs around the world don’t involve access fees. But major ISPs in the United States are reasonably wary about letting every major streaming video service dump huge amounts of traffic onto their networks without taking much traffic back in return. And as industry observers have pointed out, paying ISPs directly isn’t necessarily better or worse than paying third-party content delivery networks to act as middlemen for the traffic. In that sense, it’s hard to tell whether Netflix is saving or losing money on these deals.
Still, Netflix does have a legitimate concern: As it relies more heavily on these interconnection deals, it’s possible that ISPs will demand increasingly higher tolls. So far, there’s been no evidence of predatory pricing, GigaOm reports, but with Comcast’s looming acquisition of Time Warner, the fear is that the combined entity—controlling more than half of all U.S. residential Internet connections—would have all the bargaining power.
Netflix CEO Reed Hastings explained his company’s fight against interconnection deals in an op-ed in Wired:
“We’ll never realize broadband’s potential if large ISPs erect a pay-to-play system that charges both the sender [read: Netflix] and receiver [read: Netflix subscribers] for the same content. That’s why we at Netflix are so vocal about the need for strong net neutrality, which for us means ISPs should enable equal access to content without favoring, impeding, or charging particular content providers. Those practices would stunt innovation and competition and hold back the broader development of the Internet and the economic benefits it brings.”
All that explains why Netflix is simultaneously signing these deals and speaking out against them. There may be a short-term benefit to direct connections, but there’s a long-term risk if ISP power goes unchecked. And as ISPs have shown in the past, they’re absolutely willing to let their customers suffer as negotiations drag on.