Netflix's Comcast Deal is Good for Consumers

Companies looking to please consumers, not regulators, will lead to faster connections and more choices.

Last weekend, The Wall Street Journal reported that the Internet streaming service Netflix and the telecom Comcast had reached a deal to allow Netflix to connect directly to Comcast's servers to stream video content. The deal, whose financial aspect was not disclosed by either company, means Netflix subscribers who use Comcast can expect a smoother experience, with less buffering and pixilation. Perhaps more importantly, the deal shouldn't cost Netflix subscribers or Comcast users any extra money. All good so far, right?

Cue the cries over net neutrality. "Net Neutrality is dead," wrote John Shinal for USA Today. Information Week's Doug Henschen said the deal "acknowledges a weakening of Net neutrality rules that once ensured free and equal access to Internet bandwidth regardless of capacity demands."

Let's take a step back. Many Netflix subscribers have noticed the service getting slower in recent months, something measured in this Netflix chart. Extreme Tech explained what was happening in a post over the weekend, just before the Netflix-Comcast announcement. In short, the flow of internet traffic relies on "peering," an arrangement by which traffic to and from various internet users, including Netflix and you and Reason.com and every website on the internet, is carried across whichever physical networks, owned by various companies and other entities, are needed to get from point A to B. As Extreme Tech points out, peering doesn't work well with "heavily asymmetrical connections" like the ones Netflix, which accounts for up to a third of U.S. internet traffic during peak hours, creates. Extreme Tech and others accused broadband providers of "throttling" Netflix, though with the most prominent case, Verizon, Netflix said it had no evidence or belief that the telecom internet provider was throttling the service's users. Once upon a time, Netflix was accused of "throttling" customers who rented too many DVDs.

The Washington Post's Tim Lee notes that while, indeed, the Netflix-Comcast deal isn't technically about net neutrality, "it's hard to see a practical difference," forcing net neutrality advocates "back to the drawing board." And it "threatens the survival of independent backbone companies like Cogent," the company that Netflix pays to carry its traffic to the Internet. It's not clear that would be a bad thing. While cutting out the middleman for Netflix subscribers who use Comcast doesn't appear to be saving any money for the consumer, some consolidation of backbone companies could be useful. Netflix is not the first content provider to strike a deal with an Internet service provider (which is what telecoms like Comcast also are) to directly pipe their media wares to Internet users. A Bloomberg report points out companies like Facebook and Google have similar deals with Comcast, and relays one industry researcher's "surprise" Netflix didn't use the issue as leverage in the upcoming regulatory showdown over Comcast's plan to acquire Time Warner Cable.

Indeed, the Netflix-Comcast deal could be used by opponents of Comcast's proposed Time Warner Cable acquisition to argue that the Federal Communications Commission (FCC) should block it. Part of what animates net neutrality proponents to oppose deals like that between Netflix and Comcast to improve users' experience is that the telecoms involved "wield too much power," as Information Week's Henschen wrote in his conflated net neutrality argument. In promoting the deal to get past regulators, Comcast's CEO Brian Roberts argues that the two companies don't currently compete for customers in any part of the United States. That's a result of the highly regulated cable market. As Virginia Postrel explained in the July 2000 issue of Reason, government policies created cable monopolies, even in places where there were multiple cable companies to choose from, and incentivized, and sometimes required, them to "screw their subscribers" and instead "please the powers that doled out their franchises." Back then, the fear was that the media conglomerate AOL Time Warner's fight with ABC over the carriage of ABC-owned channels was a sign of a media environment where consumers would have access to less and less content. Today, one of the concerns about the proposed Comcast-Time Warner Cable merger is that it could spell the end to the ubiquity of channels like CNN, owned by Time Warner, which spun Time Warner Cable off as an independent company five years ago. For example, Directv, a satellite provider, dropped The Weather Channel earlier this year, and, as The Street suggests, a channel like CNN, facing considerable ratings difficulties, may similarly no longer be considered essential by cable providers. Cable television could become a "sushi menu," allowing consumers to choose which channels they want on their televisison. 

The availability on your television of TV-quality content from internet services could speed that process of increased choices, and Netflix's deal with Comcast could be a harbinger of that kind of expansion. The ability to watch Netflix on your TV blurs the distinction between television and internet content. Conceivably, the streaming service could eventually negotiate with Comcast, and other televisions providers, to be offered directly through customers' set-top boxes. Most cable providers already try to offer in their packages some kind of on-demand content, from the broadcast and cable networks they carry as well as premium (subscription) channels like HBO or Showtime. Verizon has also partnered with DVD rental company Redbox to bring that company into the streaming business. As the share of internet traffic consisting of streaming videos increases, the ability of companies like Netflix and Comcast to negotiate more direct ways to bring content to consumers becomes more important to ensuring a quality of service customers will keep paying for. Government regulations that stifle competition among cable companies leave business moves like Comcast's acquisition of Time Warner Cable the only option for some companies to expand to new markets. The way to promote more competition is through less regulation, not more, allowing cable companies and other media/content companies to negotiate, self-regulate, adapt, or fall to the wayside based on the demands and desires of media consumers, television watchers, and Internet users, not government regulators and monopolists seeking to retain unfair competitive advantages.