Comcast And Netflix -- What’s The Big Deal?

[Commentary] While some commentators think the Netflix and Comcast deal is problematic, the reality is that the agreement reflects a common market transaction that yields an outcome more efficient and more quickly than any regulatory intervention could have.

When Netflix pays Comcast, the cost is passed through to Netflix subscribers. This is both efficient and fair, because the consumer of Netflix services is paying for the cost of that service. In the absence of such an agreement, quality would suffer or the ISP would bear the cost. The ISP might recover these costs by increasing prices to subscribers generally. This would involve a cross-subsidy of Netflix subscribers by non-subscribers, which would be neither efficient nor fair. Alternatively, Comcast could increase prices for those subscribers who consume a lot of bandwidth, which might have similar effects to the just-announced deal, but would probably lose some efficiencies. In any event, it is difficult to see how such an arrangement would be better for consumers than the announced agreement.