Netflix: Peering Deal Was To Reverse Quality Decline

Netflix has told Congress that it did not seek out Comcast for a peering agreement in order to "cut out the middleman," as Comcast has asserted, but to reverse a decline in its customers’ video experience.

In a letter to Sen. Al Franken (D-Minn.), who had asked the company to weigh in on the potential impact of a Comcast/Time Warner Cable merger, Netflix VP, global policy, Christopher Libertelli, said that Comcast Senior VP David Cohen was off base in his characterization of the peering deal struck between the two companies.

"During the Senate Judiciary hearing on the proposed merger [Franken is a member of the committee], Mr. Cohen said that it was ‘Netflix's desire to pay us directly and cut out a middleman.' That is not an accurate description. Netflix agreed to paid peering with Comcast to reverse an unacceptable decline in our members’ video experience," he said.

"Netflix developed an entire CDN architecture, called “Open Connect” based on settlement-free peering. This no-fee interconnection norm avoids the gamesmanship and blackouts that plague cable carriage and retransmission-consent negotiations in the traditional video space. Indeed, Netflix is directly interconnected with ISPs all over the U.S. and internationally without any exchange of payment from either side. Our agreement with Comcast is the first time that Netflix was forced to pay an ISP for what amounts to access to their subscribers."

Netflix opposes the merger, and Libertelli told Franken that "[b]y degrading consumers’ experience, Comcast can demand that content providers pay them a toll to avoid congestion and reach their captive subscribers."

Netflix has suggested peering is a network neutrality issue, but FCC chairman Tom Wheeler's proposed new rules do not address that issue, though he has said it is important in the context of interconnection in general, which is one of the elements in his "network compact" theory of basic network values the FCC needs to preserve and protect, which are openness, access, security, and public safety.

“Netflix’s argument is a House of Cards," said Jennifer Khoury, Comcast SVP, corporate and digital communications.  "But there is no need for us to engage in a point-counterpoint with Netflix to demonstrate the continued distortions and inaccuracies on which it relies. As we and other industry observers have already noted, Netflix’s decision to reroute its Internet traffic was all about improving Netflix’s business model. While it’s understandable for Netflix to try to make all Internet users pay for its costs of doing business (as opposed to just their customers), the company should at least be honest about its cost-shifting strategy.

"Comcast has a multiplicity of other agreements just like the one Netflix approached us to negotiate, and so has every other Internet service provider for the last two decades. And those agreements have not harmed consumers or increased costs for content providers – if anything, they have decreased the costs those providers would have paid to others," said Khoury. "As at least one independent commentator has pointed out, it was not Comcast that was creating viewability issues for Netflix customers, it was Netflix’s commercial transit decisions that created these issues. No ISP in the country has been a stronger supporter of the Open Internet than Comcast – and we remain committed both to providing our customers with a free and open Internet and to supporting appropriate FCC rules to ensure that consumers’ access to the Internet is protected in a legally enforceable way.”

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.