(Revised) Netflix to Pay Comcast; May Cause Future Problems

A couple of months ago, Netflix announced that they would be paying Comcast for faster streaming to Comcast’s customers. Comcast, who recently acquired Time Warner, is the largest internet service provider (ISP) in the country with around thirty-two million households as customers. This move may have unintentionally harmed Netflix, other internet based companies, and setback everyone in the United States who requires access to speedier internet. This post will analyze the effects on all three of these groups of actors in the internet market.

1) Netflix

While Comcast is the dominant internet provider, there are numerous other internet providers who have just gained a substantial bargaining edge with Netflix. Since the move has increased streaming speeds for Comcast’s Netflix users, CNN reported that Netflix is in talks with Verizon and other ISPs to work out a similar deal. While the financial terms of the Comcast deal haven’t been announced, I think it is a fairly safe bet that this was costly for Netflix. They may have the cash on hand to pay Comcast and Verizon for this kind of arrangement, but It would surely be too expensive to pay every ISP in the country. Additionally, if an ISP wants such an agreement, what is to stop them from slowing Netflix’s streaming speed if they don’t pay up? Despite entering these agreements to pay ISPs, Netflix is publicly condemning the fact they have to in order for their customers to stream their movies and TV shows at a reasonable pace.

2) Other Web Based Companies

Not only has this move opened Netflix up to the problems mentioned about, they have set a dangerous precedent that may force other websites into such arrangements in order to get the same speed for their users. This will particularly effect websites who have massive traffic but don’t have the massive revenues to pay ISPs.

Since the previously slow streaming speed on Netflix was the result of their massive number of users, we can assume that internet speed is a zero sum game. If one website loads faster, others must load slower. This will also pressure websites who don’t want to frustrate users with slow load speeds to enter into agreements with ISPs and pay them so that their users can enjoy the same speeds.

3) Internet Users Everywhere

Finally, internet users in general are harmed by the direction that net neutrality is headed. Websites who previously had very minimal advertising may be forced to cover their websites with banner ads to make up the revenue that will be spent paying internet service providers. While the websites that we use that do agree to pay for faster streaming will speed up, other websites who don’t have the cash to pay ISPs will relatively slow down. 

A Proposed Solution

As the FCC’s net neutrality rules no longer hold ISPs from throttling websites’ speeds, ISPs are in a position to take advantage of websites, as they are doing with Netflix. To stop this, websites like Netflix can stop entering such agreements and instead use the money to help fund or lobby for increased expansion of services like google fiber, the 1 gigabit internet that is reasonably priced relative to companies like Comcast. (Currently it is only offered in a handful of cities). If Netflix would simply refuse to pay Comcast, Verizon, and other ISPs and instead try to help google fiber reach the entire country, there would soon be no need to pay for increased speeds, and websites would have no problems loading faster than ever.

2 thoughts on “(Revised) Netflix to Pay Comcast; May Cause Future Problems

  1. gkugler

    Not only does the potential merger of Comcast and Time Warner have an important impact on the cable market, but it also has a meaningful impact on the wireless internet market. Furthermore, the merger’s effect on wireless internet might be more of a concern than its effect on cable. For this reason, lawmakers are likely to focus on the market for wireless internet during the review of the merger. Comcast has already indicated that it is willing to divest 3 million cable customers in order to avoid obtaining over 1/3 market share in the cable industry, but will this be enough?

  2. bdinger

    I am watching options markets closely for tells of where this case may be going, I have a gut feeling that the merger may actually get blocked, especially with comcast winning the worst company in the country award for the second time in as many years. While I thought the FCC saw the verizon case as a chance to write more legislation, this one seems to be over the top.

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