The Netflix-Comcast Deal: Much Ado about Nothing?

March 14, 2014

Concern over the Netflix-Comcast deal has been greatly exaggerated, says Daniel Lyons, an assistant professor of law at Boston College Law School.

Netflix and Comcast recently signed an interconnection agreement, though the companies did not release details of the deal. The assumption, however, is that Netflix will pay Comcast to connect the Netflix servers directly to Comcast's network, allowing Comcast customers to stream content more efficiently.

While net neutrality proponents have condemned the agreement, there is little cause for alarm.

  • Currently, Netflix uses "transit providers."
  • These are essentially middlemen that handle Netflix-related traffic and transfer it to various internet networks.
  • Netflix customers began to see delays last year in their Netflix streaming when one of Netflix's transit providers, Cogent, became engaged in a dispute with Verizon, to whom Cogent was transferring Netflix traffic.

Because of these delays, Netflix seems to have moved to eliminate the middleman figure and contract directly with Comcast. Rather than use Cogent, for example, Netflix will attach its servers directly to Comcast's network so that Comcast customers can stream video directly. This is not much of a change. Simply, rather than pay Cogent to transfer Netflix's videos to Comcast's network, Netflix will pay Comcast directly.

Public policy-wise, there is little to worry about. Agreements that eliminate third parties tend to bring greater efficiency, and Netflix clearly saw the move as one that would improve its service quality or provide the same service at a better price. The agreement should be no more controversial than Netflix's previous agreement with Cogent -- all that has changed is the identity of the transit provider.

Lyons says, "Netflix and Comcast's decision to eliminate the middleman is not inherently anticompetitive and is likely welfare-enhancing because it gets services to consumers faster and with fewer potential interruptions."

Source: Daniel A. Lyons, "Peering into the Comcast-Netflix Deal," Free State Foundation, March 5, 2014.

 

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