Tuesday, February 25, 2014

Comcast and Netflix Get Together and Solve Their Own Problem

I didn't quite fully understand the big deal about his story earlier, at WSJ, "Netflix to Pay Comcast for Smoother Streaming: Deal Ends Standoff, Might Serve as Precedent for Relations With Other Broadband Suppliers" (via Google). Also at the Verge, "Netflix is paying off Comcast for direct traffic access."

But Holman Jenkins has an excellent primer on the (significance of the) deal, "How the Internet Was Meant to Be":
Netflix's NFLX +1.35%  Reed Hastings routinely touted their ideal to gain leverage over downstream carriers like Comcast. CMCSA -0.74%  Then a federal court in January invalidated Washington's net-neut rules and he rushed out a statement of the obvious to reassure shareholders, saying in essence: Never mind! Comcast et. al. don't really have an economic or political incentive to block our service. Just the opposite. Consumer expectations of the Internet are set. Carriers must supply unimpeded access to every kind of web content or else.

The net-neut zealots would have been wise at this point to declare victory, if not admit they had been praying to a false god all along. Now they've been thrown into fresh confusion by Mr. Hastings's deal this week with the ultimate devil symbol, cable giant Comcast.

Mr. Hastings's agreement with Comcast does not actually violate the letter of net neutrality, but it does violate the big hazy ideal of a single vast pipe through which anonymous ones and zeros democratically and communally flow. In essence, Netflix will pay to dump its bits directly into Comcast's last-mile network, rather than by way of an Internet backbone supplier. But let's wipe away our tears. The deal is a triumph of the Internet's nonideological adaptability and flexibility.

Netflix faced a problem: stuttering video performance because of upstream bottlenecks that belied the high-speed downstream service customers are paying for. Why? At bottom, the happy equilibrium of the old two-way Internet has gone bye-bye thanks to a one-way video deluge stemming mainly from YouTube and Netflix.

Now in other newspapers you can read experts fretting that the cost of Netflix's solution will be "passed along" to Netflix's customers. This is idiotic. All businesses collect their costs from their customers or they aren't long in business. But the real question here wasn't who bears the cost. It was who bears the incentive to handle traffic efficiently.

Cogent Communications, CCOI -5.57%  a content delivery network, was getting paid by Netflix to deliver loads of content to Comcast, without any incentive to care about Comcast's capacity to receive it.

So Comcast could either accept an unlimited obligation to accommodate whatever traffic Netflix and its intermediate partners wanted to send, however inefficiently they wanted to send it—as, in fact, happened after Mr. Hastings in September decided every Netflix customer would get its new "SuperHD" feed.

Or Comcast could resist a blank check being drawn on its network in the only way available to it—by letting traffic back up at its interconnection point until Cogent and Netflix cried uncle.

A better solution was shriekingly obvious: Let Comcast and Netflix transact directly. Because Netflix would be helping to pay for the costs it imposes on Comcast, Netflix would have proper incentive to deliver its services efficiently. This would benefit Netflix customers and everybody else trying to send traffic through the backbone.

But if the net-neut crazies are flummoxed, the media are desperately confused about what just happened, saying it amounts to proof of Comcast's overweening power...
Keep reading.

RELATED: At LAT, "Comcast strikes deal to buy Time Warner Cable for $45 billion."