Netflix Doesn’t Deserve Special Treatment
If you happen to own a computer, television or other streaming device, you’ve probably heard that Netflix recently reached an agreement with Comcast to streamline the delivery of Netflix’s videos to Comcast customers.
You’ve probably also heard that the chairman of the Federal Communications Commission has circulated new “net neutrality” rules to govern how traffic moves across the so-called “last mile” connection between an internet service provider and your home.
What do these have to do with each other? The short answer is “nothing,” but you wouldn’t know that from listening to Netflix’s CEO.
In short, the Netflix-Comcast agreement deals with something known as interconnection – how big content providers transmit their huge files over the internet’s backbone in order to get to Comcast (and other ISP) last mile facilities in the first place. Net neutrality deals with how traffic is handled once it arrives at the last-mile, and whether it makes sense for certain traffic to receive priority treatment once it gets there.
Let’s take the issue of interconnection first.
Big content providers have always had to pay someone to manage delivery of their shows, movies and services. Typically these companies use specialized services called “content delivery networks” (CDNs) to manage this traffic as it travels from the provider to the ISP, which then moves it over its “last miles” to individual customers and screens. CDNs often build significant infrastructure of their own to improve speeds, and content providers (including Netflix) have always paid for this.
A company like Netflix can also connect to ISPs directly to cut out the middleman. Companies like Google, Microsoft, Amazon and others do just this, paying for network “ports” that enable them to manage their own traffic and offload their massive data streams directly, instead of paying a third party to handle it.
Netflix’s much-loved videos take up as much as 30 percent of all internet bandwidth in the U.S, creating longstanding traffic management problems for the company that have been costly to address. Netflix had used a number of CDN middlemen to deliver its traffic, but ran into problems when it overloaded one CDN, Cogent, which didn’t want to pay for the extra infrastructure needed to offload the additional content.
So Netflix chose to interconnect directly with Comcast, which had already invested heavily in the infrastructure to handle large volumes of content. Although Netflix pays Comcast for interconnection, it has reportedly saved a ton of cash in cutting out the middleman— and increased its speeds by 65 percent.
Net neutrality, on the other hand, addresses the issue of discrimination on the last-mile networks owned by Comcast and other ISPs. In essence, it seeks to prohibit unfair treatment of unaffiliated content traveling within an ISP’s network. Under the new proposed rules, according to reports, if an ISP decides to provide premium speeds to Netflix over its last mile facility, it can’t deny that same quality of service to Netflix’s competitors.
So if the issues of interconnection and net neutrality are entirely different, why did Netflix CEO Reed Hastings take to the airwaves to complain that the interconnection deal with Comcast – one that he initiated and over which he stands to save money – amounts to an unfair “toll” on Netflix that threatens net neutrality?
Apparently, Mr. Hastings figured he could confuse longstanding, widely accepted interconnection practices with the debate over net neutrality, hoping politicians and regulators who favor net neutrality might help him get a free pass on interconnection costs.
But free to whom? Someone has to pay for the infrastructure needed to handle Netflix’s traffic. If Netflix (or Cogent) doesn’t pay, everyone using the network would have to, whether they were Netflix customers or not.
In reality, Hastings was looking for a government handout – either in the new net neutrality rules or via “conditions” attached to approval of the Comcast/Time Warner Cable deal. Given that Sen. Al Franken recently asked Netflix to help him kill the transaction using similar “gatekeeper” metaphors, Hastings’ ploy may well be effective. But that doesn’t make it logical or fair.
There is simply no justification for offering Netflix any special treatment in its interconnection arrangements. Online content providers have countless ways to connect with broadband networks. Competition has forced prices for these interconnection services down by a remarkable 99 percent in recent years. ISPs can do nothing to thwart interconnection, and, in fact, Comcast has every incentive to keep the online video spigot wide open.
There is a reason every iteration of the FCC’s net neutrality rules, including the latest, have explicitly not applied to backbone interconnection agreements: Interconnection over the backbone has always been open and competitive, and it simply doesn’t give rise to the kind of discrimination concerns net neutrality is meant to address.
That Netflix would prefer not to pay for delivery of its content isn’t surprising. But net neutrality regulations don’t — and shouldn’t — have anything to do with it.