In an agreement announced last week, Netflix will be paying Internet Service Provider (ISP) Comcast an undisclosed amount to “relieve internet congestion,” which is promised to improve Netflix’s streaming performance for Comcast’s customers. The Netflix/Comcast deal comes hot on the heels of Comcast’s announcement that it plans on acquiring Time Warner Cable for $45 billion which, if approved by federal regulators, will result in an ISP behemoth, dwarfing the nearest competitors and providing even more leverage for Comcast when negotiating with content providers like Netflix for adequate throughput to their shared customers.
The Comcast/Netflix deal is being called by many the death knell of net neutrality, even as the FCC scrambles to devise a strategy to ensure content providers have unfettered access to customers in the wake of recent court ruling on the issue, creating facts on the ground and precedent of a major content provider “willingly” paying for it’s bandwidth usage on their customers’ ISP.
Netflix’s streaming services has grin by leaps and bounds in recent years, reportedly constituting over 30% of all internet traffic during peak viewing hours, And Comcast and other ISPs have long been seeking to monetize the traffic. Under what has become the traditional internet business model, backbone providers would receive money from subscribers, whether from consumer ISPs or from businesses, but data transaction between backbone providers were handled via “settlement-free peering,” washing backbone transmission costs. Under this new model, ISPs who are already being paid by their subscribers on one side have realized a whole new source of revenue.
Netflix entering this deal says a lot about the likely future of net neutrality, and while Netflix is benefiting by entering this agreement, it is the other content providers that don’t have as deep pockets as the movie giant that the effects will be most pernicious. It’s not difficult to imagine Hulu, YouTube and other big players inking similar deals, but as industry heavyweights they can doubtlessly afford to pay to play. The unanswered question is what the future holds for the next internet breakthrough service, as it will face an uneven playing field, going up against the structural advantage the big players will now have baked into the mix.
It also remains to be seen how far down the hierarchy of content providers the ISPs are willing to go seeking additional revenue, and it’s not far-fetched to imagine a tiered pricing system imposed to extract every last nickel possible from those who contribute to the content of the internet from the giants like Netflix to the less bandwidth intensive but popular sites that would see having slow-throughput as a competitive disadvantage, given that today’s internet users are notoriously impatient when it comes to page loading times. With so much money at stake and and loading times mattering more than ever, having a reliable host optimizing your own bandwidth is also an increasingly important part of any successful business plan online.