Earlier this week, Netflix said in a letter to shareholders that it opposes Comcast’s proposed merger with Time Warner Cable. They said the Internet faces a long term threat from large ISPs driving up profits for themselves as well as costs for everyone else. In fact, this echoed a blog post the company put out last month called Internet Tolls and “The Case for Strong Net Neutrality”.
Comcast fired back by releasing a statement saying that Netflix’s opposition to the merger is based on “inaccurate claims and arguments”. It also said that no company has had a stronger commitment to openness of the Internet that Comcast.
By the way, in case you’ve been off the Internet for a couple days, this happened.
Netflix has now put out another blog post called “The Case Against ISP Tolls“. This one shows a chart looking at Netflix performance before and since it paid Comcast’s toll to get better quality to its customers. It’s a pretty drastic difference, and the quality still leaves room for a great deal of improvement.
Ken Florance, vice president of content delivery at Netflix, said in the post:
In sum, Comcast is not charging Netflix for transit service. It is charging Netflix for access to its subscribers. Comcast also charges its subscribers for access to Internet content providers like Netflix. In this way, Comcast is double dipping by getting both its subscribers and Internet content providers to pay for access to each other.
It is true that there is competition among the transit providers and CDNs that transport and localize data across networks. But even the most competitive transit market cannot ensure sufficient access to the Comcast network. That’s because, to reach consumers, CDNs and transit providers must ultimately hand the traffic over to a terminating ISP like Comcast, which faces no competition. Put simply, there is one and only one way to reach Comcast’s subscribers at the last mile: Comcast.
There cannot be an “intensely competitive” market when Comcast alone sets the terms and conditions for access to Comcast subscribers. Comcast can simply refuse to provide capacity to any network at any time, constraining the ability for Comcast users to use the services they want.
We do a great deal of work at Netflix to provide our users with great video quality whenever they chose to use our service. Comcast already controls access and sets the terms of access to a substantial portion of people who connect to the Internet in the United States. We’re very concerned that a combined Comcast-TWC will place toll taking above consumer interests and will use their combined market power to the detriment of a vibrant and efficient Internet. That’s why Netflix opposes the merger.
Comcast responded again. Here’s a statement from SVP, Corporate and Digital Communications:
Netflix’s argument is a House of Cards. 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. 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.
Netflix will be raising its prices for new customers soon, which will help offset some of its costs.
The Comcast/Time Warner merger is being reviewed by the Department of Justice’s antitrust division and the FCC as well as multiple states.
Images via Wikimedia Commons, Netflix