Netflix’s newly announced opposition to Comcast’s proposed merger with Time Warner Cable is about protecting the streaming media company’s bottom line, not its customers, a Comcast official charged on Monday.
In laying out its case against the merger, the Los Gatos company is skewing the facts, said Jennifer Khoury, senior vice president of corporate and digital communications at the cable giant, in a blog post. While Netflix is trying to portray its opposition as part of an effort to promote net neutrality, at heart, its opposition has to do with its apparent unhappiness with a simple business arrangement, Khoury said.
“Netflix is free to express its opinions. But they should be factually based,” Khoury said. “Netflix should be transparent that its opinion is … about improving Netflix’s business model by shifting costs that it has always borne to all users of the Internet and not just to Netflix customers.”
Khoury’s post was in response to Netflix move earlier Monday to take a formal position against the Comcast-Time Warner Cable deal. In a letter to shareholders announcing Netflix’s first-quarter earnings, Reed Hastings and David Wells, the company’s chief executive and chief financial officers, cast their opposition to the deal as being consistent with Hastings’ recent call for “strong” net neutrality rules.
Netflix in February agreed to pay Comcast to upgrade the connections between the companies after seeing the quality of its video streams to Comcast customers deteriorate. In a blog post in March, Hastings called on regulators to require broadband providers such as Comcast to interconnect with other networks without charging them.
The roots of the dispute between Netflix and Comcast have to do with how data is transmitted on the back end of the Internet and how big networks connect with each other. When networks connect directly with one another, it’s called a peering relationship and traditionally each side bears its own costs in making that connection. When a network transmits its data to the broader Internet via a second network, it’s called a transit relationship and typically the first network pays the second for that access.
In seeking to improve the quality of its streams to Comcast customers, Netflix proposed to form a direct peering relationship with Comcast rather than sending its data to the broadband provider through third-party services. While the companies eventually struck a deal, it was an unusual kind — Netflix ended up paying for the peering relationship.
Netflix has charged since that Comcast essentially had it over a barrel; in order to reach its customers on Comcast, Netflix had to pay the service provider. In his blog post last month, Hastings decried such “tolls” and called for a strong version of net neutrality that would bar them.
Net neutrality is the principle that broadband service providers should treat all legal data on the Internet equally and shouldn’t block, slow or charge extra for access to particular online sites or services. Typically net neutrality has focused on the end of the connection, where consumers access the Internet. But Hastings called for regulators to look further upstream. Even if they treat all data equally once it enters their pipes, broadband providers can essentially thwart the principles of net neutrality before the data enters their networks through their interconnections with providers of Web content or services. Broadband providers can limit the amount of bandwidth available for such connections — thus degrading service — or charge what Hastings called a toll for better access.
In her post, Khoury argued that how networks connect on the back end has nothing to do with net neutrality. She tried to paint the arrangement with Netflix as a typical transit arrangement between two networks. In fact, she charged, Netflix’s motivation for the deal was that it wanted to save money by cutting out its partner who had previously provided a transit connection from Netflix to Comcast.
“If Netflix did not like the terms of our agreement, or if they do not like the terms Comcast provides at any time in the future, Netflix can work with any of the multiplicity of partners that connect with Comcast,” Khoury wrote.
Meanwhile, Khoury painted Comcast as something of a champion for net neutrality. While a federal appeals court in January invalidated the Federal Communications Commission’s net neutrality rules for most providers, they are still legally binding on Comcast, thanks to an agreement in made as part of its acquisition of NBC Universal, she noted. Comcast is proposing to extend those net neutrality protections to Time Warner Cable customers as part of the merger, she added.
Whatever the merits or motivations of Netflix’s own arguments, Khoury is herself being disingenuous. She seems to be purposefully trying to confuse transit relationships with peering ones and standard fees with atypical ones.
Netflix was seeking a peering relationship with Comcast, not a transit one. It wasn’t seeking to replace its transit provider with Comcast. And the fee Comcast is charging is not correctly deemed a transit fee, because Netflix wasn’t asking Comcast to transmit data on its behalf to other networks but to Comcast’s own customers.
While Netflix may have been seeking to avoid paying fees to its previous transit provider, that’s a standard practice. In connecting with another network, you can choose to pay your cost of the connection or you can pay someone else (a transit provider) to make the connection for you. What you don’t typically have to do is to pay the other network to send data to it.
And while it’s true that Netflix had several options to reach its customers on Comcast — it could pay another company for transit or try to connect directly with Comcast — it didn’t have the choice to not connect to Comcast at all if it wanted to reach its customers there. And it couldn’t avoid Comcast’s toll either way. As Hastings noted in his own blog post last month, Comcast is demanding roughly the same tolls from third-party transit providers as it demanded from Netflix.
Even on the customer end, Comcast’s support for net neutrality is questionable at best. Its own actions in thwarting legal peer-to-peer traffic are what prompted the FCC to write formal net neutrality rules. The neutrality rules Comcast agreed to as part of its NBC acquisition are set to expire in 2018. And even though they are still in force, Sen. Al Franken and consumer groups have charged the the company hasn’t abided by them or other rules put in place as part of its NBC deal.