Comcast Netflix deal sets new precedent

2014-02-25 13:22

(Shutterstock)

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

Washington - Netflix's agreement to pay Internet giant Comcast for smoother delivery of its video-streaming service sets a precedent which could upend the model for who pays for online content.

The agreement, confirmed over the weekend by the companies, will see Netflix pay an undisclosed amount for "a more direct connection" to consumers using Comcast's Internet service.

Some analysts say this kind of deal threatens the model of "net neutrality" or equal access for all kinds of online services, a concept enshrined in US regulatory policy until a court ruling last month invalidated most of the rules.

"For the first time in the cable industry's history, a content provider will pay for direct access to the pipe", said Kannan Venkateshwar, a Citi analyst, in a note to clients.

"This flips the traditional distribution model thus far whereby content has been paid by the pipe."

Rivals may follow

The announcement came after reports that Comcast, the largest US cable and Internet provider, was slowing Netflix traffic, making it harder for viewers to see programmes such as the hit series House of Cards.

It also comes after the federal communications commission regulator announced that it would seek to rewrite its "Open Internet" rules in an effort to achieve many of the goals of the "net neutrality" principle, struck down by a federal appeals court.

Earlier this month, Comcast announced a massive deal to acquire rival Time Warner Cable, which would boost its already dominant position in the United States.

Youssef Squali at Cantor Fitzgerald said the Comcast-Netflix deal could set a precedent for other Internet and content providers.

"We believe that this agreement is likely to precipitate others in the US and internationally", Squali said in a research note.

This was confirmed on Monday by telecoms giant Verizon's chief executive Lowell McAdam, who said his company was looking to follow Comcast's model.

"We are pleased to see that Netflix and Comcast had an arrangement", McAdam told analysts.

"We will have to see what the details of that are but we have had discussions with Netflix ourselves and feel that the commercial markets can come to agreement on these to make sure that the investments keep flowing."

John Bergmayer at the consumer activist group Public Knowledge said the news is troubling because it shows how Internet service providers can assert themselves as powerful gatekeepers.

Netflix 'paying its share'

Bergmayer said the Internet and cable firms "should be in the business of charging their users for access to the Internet, not of charging the rest of the Internet for access to their users".

Sarah Morris at the New America Foundation said that if the precedent takes hold it could hurt smaller companies that provide services online.

"Netflix didn't become the company it is overnight", Morris told AFP.

"If we want to see competitors to Netflix going forward there is a risk that the barriers to entry are so high" and will be prohibitive.

But Scott Cleland, a former White House telecom adviser now with consulting firm Precursor, said news is positive because it helps distribute the cost of delivery to the Internet's heaviest user.

"The Internet backbone is a very expensive high-tech infrastructure and Netflix has realised it needs to contribute to that cost recovery because it's the Internet's largest user in the United States, with 30% of traffic", Cleland told AFP.

"Kudos to Netflix for stepping up to the plate and paying their share of costs."

Dan Rayburn, an analyst who writes the StreamingMedia blog, said the deal should not increase costs for Netflix or its customers, contrary to what critics say, because Netflix has been using third parties for Internet delivery.

"This is not a new cost to Netflix, it's simply paying a different provider, and it should be at a lower cost", he said. "It should actually be cheaper for Netflix to buy direct from Comcast."

Everett Ehrlich, a senior fellow at the progressive policy institute, said the deal reflects the unique position of Netflix, which as the largest streaming video service needs a robust delivery system.

"This isn't your grandfather's Internet where academic researchers exchange papers", Ehrlich told the media.

"It's now the medium for a far greater array of traffic. The good news is that the markets that govern interconnection work and were able to find a solution without government intervention."

Netflix shares rose 3.4% to close at $447 on Monday while Comcast advanced 0.2% to close at $51.15.

Read more on:    netflix  |  verizon  |  us  |  internet  |  technology
NEXT ON NEWS24X
SHARE:

Read News24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Add your comment
Comment 0 characters remaining
 

Inside News24

 
/Sport
 

BMW drift battle: M235i vs. speedway bike

Watch this insane drift contest with four-times dirt-track World champion Karl Maier riding a speedway bike against a BMW M235i.

 
 

Men24.com

Everyday struggles of naturally skinny guys
And this year's Miss Bumbum title goes to...
How to maintain your mo, bro
Hottie of the day: Colette

Jobs in Cape Town [change area]

Property [change area]

Travel - Look, Book, Go!

Magical Massinga

Spend 5 nights at the gorgeous Massinga Beach Lodge in Mozambique and only pay for 4 from R13 220 per person sharing. Includes return flights, accommodation, transfers and romantic turndown. Book now!

Kalahari.com - shop online today

20% off ALL TV Series

Choose from 1000’s of the hottest TV Series . While stocks last. Shop now!

Festive gifts!

Check out our awesome range of festive gifts to make everyone’s wishes come true. Shop now!

Seen something you like in our catalogue?

Find the perfect gift and save up to R5000 – As seen on the catalogue. Hurry and shop now!

Save up to R2200 on electronics! – As seen in the catalogue

Wishing for tech gadgets this festive? Save up to R2100 on hot tech products at kalahari.com. While stocks last. Shop now!

Up to 35% off books

Save up to 35% on the latest page-turners. While stocks last. Shop now!

OLX Free Classifieds [change area]

Samsung Galaxy s4

Mobile, Cell Phones in South Africa, Western Cape, Cape Town. Date October 24

Best bargain in big bay

Real Estate, Houses - Apartments for Sale in South Africa, Western Cape, Cape Town. Date October 25

VW Golf 6, 1.6 Trendline (Excellent condition)

Vehicles, Cars in South Africa, Western Cape, Cape Town. Date October 25

Horoscopes
Aquarius
Aquarius

There is a strong focus on social interaction and connecting with your friends. You may have the need to expand and connect with a...read more

There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.








Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.