If you've been watching the news, you've probably heard that Netflix recently (and grudgingly) agreed to pay two large Internet service providers, Comcast and Verizon, to get better streaming for its customers. Those arrangements, often referred to as "peering" deals, will probably be expanded to include other larger ISPs, such as AT&T.
But what do these deals really mean for Netflix subscribers?
If you're a Netflix subscriber who gets your broadband service from Comcast or Verizon, the deals should mean that your movies and TV shows will look better and suffer less buffering— the dreaded spinning wheel—thanks to faster streaming. Earlier this year Netflix complained about declining streaming quality on several ISPs, including Comcast and Verizon. (It's even accused some of throttling, or slowing down, Netflix traffic intentionally.)
But peering seems to work: According to Netflix's monthly ISP index, which monitors Netflix streams across more than 15 ISPs, Comcast—recently one of the slower providers—showed a 65 percent jump in speed since the deal. According to Netflix, the average speed on the Comcast network for Netflix streams jumped from 1.51 Mbps in January to 2.5 Mbps in March. Similar improvements are expected for Verizon now that a similar deal has been struck.
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The other question is whether these deals will affect pricing. We can't imagine Comcast or Verizon passing along any of the fees they're now collecting as savings to subscribers. And since Netflix was already paying other entities to get its streams to Comcast, we don't think it will affect subscription pricing, especially since Netflix already recently announced a dollar or two increase in its monthly subscription charge for new customers, largely due to rising content costs.
How the Internet really works
To understand why these peering arrangements might be able improve your Netflix experience, you'll need at least a basic understanding of how the Internet—and the traffic that flows through it—works. The Internet isn't really one thing; instead, it's a huge collection of independent networks that are connected to each other in a variety of ways. While larger companies such as Google or Amazon may connect directly with other larger networks, most are connected indirectly, through "transport providers" that agree to route data to other networks for a fee. Transport providers act as traffic hubs that enable data to move from a source to all the other networks on the Internet, and they're why you're able to "see" the whole Internet when you log onto your computer.
So, for example, when you hit "play" on your remote to watch "House of Cards" on your TV, a typical scenario would be that it moves from Netflix's main servers and through its network to a transit provider (such as Cogent or Level 3), which sends it—often over long distances—to your local ISP. (See the illustration at the top of the page.) Your ISP, in turn, sends it along the "last mile" into your home and TV set.
The problem is that as more and more traffic flows through these intermediaries, they can become congested and jammed up like traffic during rush hour. For video streaming, TV rush hour is usually right after work until about 11 p.m., and during those peak times, Netflix can account for a third of all Internet traffic.
Netflix has been trying to address these issues in a few ways. One is with the peering arrangements we're seeing with companies such as Comcast and Verizon, where Netflix connects to each ISP directly, essentially cutting out the middlemen—third-party transit providers—where congestion bottlenecks often happen.
But another way that large companies such as Amazon, Google, and Netflix help improve their customers' experience is through the use of content delivery networks, or CDNs. A CDN is basically a network of servers situated at various points at the "edge" of the Internet. That means that instead of everything coming all the way from Netflix, programs can be stored locally at or near the various ISPs. This can greatly speed up the delivery of, say, an episode of "Orange Is the New Black," since your request is automatically routed to the closest server holding that content.
For some time, Netflix has tried to peruade ISPs to use its CDN, called Open Connect, but most of the larger ones—except for Cablevision, the highest-rated company in Netflix's ISP speed rating—have declined. That's why Netflix is now paying for these peering arrangements.
Even though Netflix signed these deals—and more are expected—it doesn't like them, and has been very vocal about it. It argues that Comcast shouldn't be paid like a transit network, since it doesn't carry Netflix traffic long distances, and it doesn't connect Netflix to other networks on the Internet, things that companies such as Cogent and Level 3 do.
Also, some of the transit providers have stated that the real congestion is with the ISPs, not the intermediaries. In a blog post on its website, Level 3 clearly lays the blame on ISPs, which typically don't have any competition, and thus not as much incentive to upgrade capacity. Level 3 says these ISPs refuse to upgrade their networks unless content providers pay a toll—and that this situation doesn't happen in countries or markets where cnsumers have a choice among broadband providers.
Consumers Union, the policy and advocacy arm of Consumer Reports, has asked regulators to look into the deals, and possible throttling of content, which would violate the principles of net neutrality, which pertain to traffic traveling over the last mile into consumer homes. Comcast is bound by an agreement it signed when it purchased NBCUniversal to abide by net neutrality rules, which require ISPs to treat all Internet content equally.
Recently, the FCC announced it was proposing new net neutrality rules that would apparently allow for ISPs to be paid by content providers to create "fast lanes" for those able and willing to pay for them. We'll be following any developments, so keep checking back for the latest news.
—James K. Willcox
Consumer Reports has no relationship with any advertisers or sponsors on this website. Copyright © 2007-2013 Consumers Union of U.S.
