Ted’s Rambling

WILD WILD WEST

And they’re off an running! Netflix struck a deal with Comcast to pay for direct access to the Netflix customers via Comcast internet pipe or their last mile. The deal marks the first time in the cable industry’s history a content provider (Netflix) will pay for this direct access. Verizon and AT&T are also in talks with Netflix to pay these internet service providers as well and all parties expect similar deals (such as the Comcast agreement) to happen in the near future. Nobody is releasing the terms of the agreements, which if released could hinder current negotiations with other ISPs and content providers who will now be looking to sign deals as well. It’s kind of like going back to the Wild Wild West once again. Consumer advocacy groups say the deal will usher in a new era in which content providers have to “pay to play” and only those who can afford it will take priority. Most of these consumer groups also believe consumer prices will go up.

Netflix, in some internet circles is known as the hog, occupies about 32% of the downstream traffic in North America according to network technology company Sandvine. Often it’s Netflix, and other video streamers that cause the traffic jams that clog up the pipes or the road and ISPs believe that the party who is jamming up the road should pay to relieve the traffic, which Netflix will now be doing. In all likelihood Netflix subscribers, who use Comcast as their ISP, will end up paying more so that Netflix can pay Comcast to access their network.

*Special note: At this point one can’t help but think the added cost that ISPs are charging Netflix and other content providers will either increase subscription cost or lower profits for content suppliers, meaning less money to invest in supplying content.

With so many consumers across the country becoming frustrated with the ever-increasing cost of cable, satellite and internet service, now even Netflix, who was once considered one of the better values, will cost them more. It just stands to reason that video retailers and the value of what and how movies are offered will experience an increase in that value to consumers. It’s too early to really tell how much added value will be experienced until the dust settles, but it will happen.

Comcast customers have been vocal online and in social media channels lately about the slow streaming speeds for Netflix content. Released in January, Netflix said Comcast is ranked 14th out of 17 ISPs that they measured transmission speed. Verizon, who Netflix is also negotiating with, ranked last. The problem occurs at the bottleneck or the point where Netflix data enters Comcast and other ISP’s networks. It’s like going from a four lane to a two lane highway. Causing even more problems was the fact that Netflix was using third-party data distributors to store its movies and TV shows on their servers and transmit them to ISPs on its behalf. This adds more cars on the highway, which needs to get through the bottleneck and on the ISPs network. What the Comcast agreement does is what is called “Open Connect.” ISPs can opt to connect directly to Netflix’s servers that are placed in data centers throughout the country rather than receiving content from third-party data distributors that Netflix has contracted with. This eliminates a lot of the traffic which increases speed. It also, for lack of a better description, adds another lane with a toll booth, that eliminates the bottleneck. Comcast and other ISPs own the toll booth. All those who want to bypass the bottleneck will need to pay the toll to enter the bypass.

With Netflix striking deals with the larger ISPs, others will be lining up to do the same, which again all holds potential to add value to what video retailers offer. The days of cheap entertainment online may be numbered and that is, in my opinion, a good thing.