The Netflix/Comcast deal: higher fees for subscribers

And this is why Comcast sucks

Can we all expect to start paying more for Netflix? That’s the common refrain among analysts and experts in the wake of the deal struck between Netflix and Comcast, in which Netflix has agreed to pay Comcast for direct access to Internet users. As a Comcast subscriber, this is one more thing to add to my List of Reasons Why I Hate Comcast.

The two companies jointly announced the deal Sunday, which is not exactly a violation of net neutrality rules (had they been applicable here), but it comes pretty darn close. Net neutrality rules were meant to ensure that all content providers had free and equal access to consumers.

Netflix’s deal with Comcast is not actually paying for prioritization. Rather, Netflix is paying to deliver its content directly to consumers rather than going through middlemen, like Cogent Communications.

Netflix previously noted that since October, traffic speed and performance for Comcast users had declined 27%, now delivering 1.5 megabytes per second versus the 2.07 it was delivering in October.

Considering the fact that Comcast is the number one cable and Internet provider, that doesn’t bode well for Netflix. Netflix streaming traffic speeds under Verizon have also declined considerably over the last few months.

Meanwhile, cable/Internet providers like Time Warner Cable and Charter have remained stable at 2.01 and 2.16 megabytes per second, respectively. That’s likely because those companies have upgraded their incoming ports. So while they’re going ahead and doing what they need to do to be effective, competitive cable/Internet providers by upgrading their ports at their own cost, Comcast has dragged its feet and is now being paid extra to offer the same quality service. Awesome sauce.

Comcast insists there was no wrong-doing and blamed the intermediaries (like Cogent Communications) for attempting to push through too much data at once. That seems like a stretch when you consider the fact that Time Warner and Charter haven’t had this problem, but whatevs.

“We believe Comcast was willing to use its size and scale to force Netflix’s hand,” wrote BTIG analyst Richard Greenfield in a blog post. “Essentially, Comcast made the bet that its overall programming offerings were robust enough that it could survive degraded Netflix performance across its broadband subscriber base. With the prospect of Comcast buying Time Warner Cable, we suspect Netflix knew it was time to cut a deal with Comcast.”

The Netflix/Comcast deal amounts to Netflix bypassing the ISP pipes altogether and getting a direct route to Comcast subscribers. So it’s not getting preferential treatment over other content providers because it has essentially quit the race to take a shortcut. But at what cost?

If Comcast was able to hold out on upgrading its incoming ports to strong-arm Netflix into paying for better service (Netflix is a notoriously heavy user of broadband, gobbling up up to 30% of traffic), what’s to stop Time Warner, Charter, and all the other cable/Internet providers from doing so? Will Netflix now have to pay everyone to deliver its content to consumers? If it does, those costs will translate to higher subscription fees for Netflix users.

And what will happen when this deal expires? It’s not entirely clear how much Netflix is paying Comcast. The company hasn’t released a new Q1 2014 outlook, which would imply that the deal isn’t going to take too much out of Netflix’s coffers. But what happens when Comcast decides to up the price? With any luck, Netflix will be large enough to be in a better bargaining position in a few years’ time.

But there’s also the very real fact that this puts other content providers at a distinct disadvantage—startups that don’t have the money to pay for their own direct lines to subscribers. This could end up cutting them out of the loop.

All this to say: this is why Comcast sucks.