Netflix Agrees to Pay Comcast to End Traffic Jam


Coverage Type: reporting
Location:
Comcast, 1500 Market Street, Philadelphia, PA, 19102-2148, United States

Apparently, Netflix has agreed to pay Comcast to ensure Netflix movies and TV shows stream smoothly to Comcast customers, a landmark agreement that could set a precedent for Netflix's dealings with other broadband providers, people familiar with the situation said.

In exchange for payment, Netflix will get direct access to Comcast's broadband network, the people said. The multiyear deal comes just 10 days after Comcast agreed to buy Time Warner Cable, which if approved would establish Comcast as by far the dominant provider of broadband in the US, serving 30 million households. For months Netflix and Comcast have been in a standoff over Netflix's request that Comcast connect to Netflix's video distribution network free of charge. But Comcast wanted to be paid for connecting to Netflix's specialized servers due to the heavy load of traffic Netflix would send into the cable operator's network. Under the deal, Netflix won't be able to place its servers inside Comcast's data centers, which Netflix had wanted. Instead, Comcast will connect to Netflix's servers at data centers operated by other companies. The deal could force Netflix's hand in its standoff with other major US broadband providers -- including AT&T, Verizon Communications and Time Warner Cable -- all of whom have also refused to connect with Netflix's servers without compensation. Netflix's streams with Verizon in particular have gotten worse in recent months.

Netflix has little room to pay more to transmit its TV shows and movies. In a February regulatory filing, Netflix said that if providers don't interconnect with its servers, its ability to deliver streaming video, its business and operating results could be "adversely affected" due to increased costs. The deal is the latest sign that broadband providers are gaining leverage in their dealings with content companies. Over the past several years, technology companies like Microsoft, Facebook, and Google have also started paying major broadband providers for direct connections to their networks that would provide faster and smoother access.

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