Netflix's Comcast Deal: Internet Fast Becoming Playground for Digital Superpowers

Netflix's Comcast Deal: Internet Fast Becoming Playground for Digital Superpowers

Getty Images

Previously the lone holdout among internet giants to not pay for direct access, Netflix is expected to make similar deals with AT&T and Verizon

By paying Comcast to improve its internet streaming service in a new deal announced this weekend, Netflix is setting the stage for similar agreements with the likes of AT&T and Verizon, as broadband access becomes the province of a group of digital superpowers.

“It sets a new business model in place,” Tony Wible, an analyst with Janney Montgomery Scott, told TheWrap. “Anybody who is sending a lot of data through the internet will presumably have to pay more.”

Netflix is one of the largest consumers of bandwidth over the Internet, and the deal makes other pacts seem inevitable in the increasingly competitive video streaming arena. Verizon CEO Lowell McAdam told CNBC on Monday that a deal with Netflix is already in the works.

Also read: Why Comcast Always Wins: Money, Friends and Influence

However, the arrangement has little to do with the core issue of net neutrality, because it is not an example of a company paying more for better placement of digital content. In a release touting the deal, Netflix made a point of stating it will receive no preferential treatment on Comcast's network.

Netflix ponied up to improve its streaming service, but companies such as Google pay fees to directly connect their content delivery networks to internet service provider's networks. Others, such as CBS and Fox pay third-party networks to link up to providers’ architecture, as analyst Dan Rayburn notes on his blog.

“The concept of net neutrality refers to the non-discriminatory treatment of traffic within a given carrier's network,” Craig Moffett, an analyst with MoffettNathanson, wrote in a note. “Contrary to what has been reported, the deal has nothing to do with paying for speed or network access; rather it is simply a commercial payment to Comcast to open up additional ports to allow traffic to flow in excess of the settlement-free ratio.”

Netflix was the lone holdout among the internet giants in refusing to pay for direct access. Seeing that Comcast was poised to dominate the bulk of the major media markets, Netflix had little choice but to capitulate and pay the fees.

The deal is further evidence that Comcast, which stands to be the high-speed internet provider for nearly 40 percent of American homes if its deal to acquire Time Warner Cable is approved, has an enormous amount of leverage when it comes to negotiations. It is yet another indication, as if more were needed, that the internet is becoming a battleground largely reserved for new media and technology titans with money and access.

“It's a game of elephants,” Paul Saffo,a technology forecaster at the investment firm Discern Analytics, said. “The vision of an open internet in which everyone is equal is in danger of disappearing.”

Also read: Why Comcast's Time Warner Cable Purchase Could Choke Internet Access

Many analysts believe that Netflix may benefit from the deal, because it unfolds over many years, during which time streaming video seems likely to continue growing in popularity and choking up more and more bandwidth.

“By going straight to Comcast's network, Netflix knocks out the intermediaries,” Saffo said. “It saves on costs and Comcast makes money by having them connect directly. The net effect on consumers is minor.”

Also read: Netflix Antes Up for Direct Access to Comcast Broadband

Yahoo and Google have already paid for direct access, but the fees that exist across America's broadband infrastructure point to a troubling reality: These costs are nothing for wealthy companies such as Netflix or Google, but the barriers to entry are becoming steeper for new players who might be interested in video or disseminating other high capacity content. That creates a playing field that is less meritocratic and harder for entrepreneurs to access.

“The plan that the cable providers, the monopolists had, is coming together,” Vivek Wadhwa, a fellow at Stanford University and a technology entrepreneur, said. “America is at a big disadvantage because the internet availability is poor, pathetically slow and expensive.”

That in turn, could provide more of an impetus for the expansion of alternatives to cable internet, such as fiber-optic cable, which carry with them more bandwidth and speed. That's something that Google has been investing heavily in, announcing last week that will roll out its high-speed internet service, Google Fiber, to as many as 34 new cities.

For Wadhwa, the Comcast deal with Netflix is an example of the short-sightedness that is prompting customers to abandon cable for the internet as a means of cost savings. It may lead them to migrate towards fiber-optic services.

“The cable industry is accelerating its own demise,” he said. “They're doing the same monopoly garbage that is hurting cable. These companies don't get it. They're living in the past.”

  • Daniel Sterling Sample

    The COMCAST/TWC Merger is an outrage, an insult to anyone who cares about America's access to the internet and FREE TV. These two cable giants seem to think they “own” the portal gates to both cable and internet. The amount of money that both of these media giants have pumped into Congress and the White House is staggering. If these two gluttons can not be stopped in their tracks, America will take a giant step backward in our constitutional right which guarantees the freedom of the press (read FREE TV) and freedom of assembly (read INTERNET). America, don't give up the good fight, even as Congress “rubber stamps” the disgusting, subversive COMCAST/TWC Merger. We have two powerful weapons that even the President of the United States can not undermine, our beautiful Constitution and the Ballot Box. Keep The Faith! Daniel Sterling Sample in beautiful downtown Hollywood. Please note that I have put my email address on these emails and my real name really is Daniel Sterling Sample and I actually do live in downtown Hollywood. The Presidential election in 2016 will be here soon and I would like to know who you think would make a good President.

  • Daniel Sterling Sample

    It is so sad to see FREE TV manipulated by blatant RACISM. Opening new opportunities on FREE TV for African-American talent demonstrates just how greedy the TV NETWORKS have become in their zeal to drive the non-African-American audience to $ubscribe to CABLE TV. One would think that after suffering the loss of six million innocent lives in the Holocaust that the powers that control so much of America's media would know better. The benefits that African-American entertainers are receiving on FREE TV will be short lived as the NETWORK TV giants slowly erode the FREE TV audience till it disappears. I hate to see America further divided along RACIAL lines. Daniel Sterling Sample in beautiful downtown Hollywood.