Netflix Folds; Agrees To Pay Comcast To End Streaming Congestion

Tyler Durden's picture

There go the margins... For months, Netflix and Comcast have been 'negotiating' over whether the video streaming service should pay for the apparently excessive load it places on Comcast's network, but now, as the WSJ reports, Netflix has agreed to pay to stop the network provider slowing its stream and impacting customers. According to Netflix data published in January, the average speeds of Netflix's prime-time streams to Comcast subscribers had dropped 27% since October.

Percentage share of traffic on the web...

 

With Netflix accounting for almost 30% of web traffic at peak times, it is no surprise that Comcast's squeeze finally paid off. There are no details yet on the multi-year "mutually beneficial" deal but it is clear that broadband providers are gaining leverage over content providers.

Via WSJ,

Netflix Inc. has agreed to pay Comcast Corp. to ensure Netflix movies and TV shows stream smoothly to Comcast customers, a landmark agreement that could set a precedent for Netflix's dealings with other broadband providers, people familiar with the situation said.

 

In exchange for payment, Netflix will get direct access to Comcast's broadband network, the people said.

 

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For months Netflix and Comcast have been in a standoff over Netflix's request that Comcast connect to Netflix's video distribution network free of charge. But Comcast wanted to be paid for connecting to Netflix's specialized servers due to the heavy load of traffic Netflix would send into the cable operator's network.

 

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Netflix Chief Executive Reed Hastings decided to strike the deal after Netflix saw a deterioration in streaming speeds for Comcast subscribers. According to Netflix data published in January, the average speeds of Netflix's prime-time streams to Comcast subscribers had dropped 27% since October. Mr. Hastings didn't want streaming speeds to deteriorate further and become a bigger issue for customers, the people said.

 

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The deal could force Netflix's hand in its standoff with other major U.S. broadband providers, including AT&T Inc., Verizon Communications Inc. and Time Warner Cable Inc.? all of whom have also refused to connect with Netflix's servers without compensation. Netflix's streams with Verizon in particular have gotten worse in recent months.

 

Netflix has little room to pay more to transmit its TV shows and movies. In a February regulatory filing, Netflix said that if providers don't interconnect with its servers, its ability to deliver streaming video, its business and operating results could be "adversely affected" due to increased costs.

The deal is the latest sign that broadband providers are gaining leverage in their dealings with content companies.