This weekend, the Wall Street Journal reported that Netflix is paying Comcast for the privilege of letting Netflix’ traffic flow across Comcast’s network. This isn’t how it’s supposed to work: different Internet providers are supposed to interconnect to share traffic without charging each other for the privilege (further explanation here).
This is bad for a couple of reasons. First, it means that Comcast can engage in the same hostage taking that cable companies use to extort content providers to pay for access to their network. Just as, for example, Dish dropped AMC for a while because AMC and Dish had a disagreement over payment, Comcast can degrade Netflix performance whenever it feels that Netflix isn’t paying enough. Second, it effectively freezes out small players in the video market. If, for example, you want to subscribe to a video service that specializes in film noir, or Spanish language films, or some other niche, there’s no guarantee that you’ll be able to stream that content because Comcast isn’t getting greased to send it to your Internet connection.
The ultimate cure for this disease is for the FCC to put on its big boy regulatin’ pants and classify cable companies as common carriers. We’re still waiting to hear what the FCC’s next move on net neutrality, but in the meantime, both Netflix and the cable companies see an opportunity to lock down their markets.
One more thing: this weekend, Kevin Drum and Felix Salmon suggested that the cure to this disease is to unbundle the local loop. This means requiring the cable providers to allow other providers to sell Internet service over their network, similar to the way electricity is sold today (at least in New York). This addresses one part of the problem: Comcast wouldn’t be able to hold Netflix hostage since Comcast subscribers could choose to switch to another Internet provider that has a good Netflix connection. It doesn’t address another issue, which is that cable providers have been notoriously slow to upgrade their local loop technology. Cable internet technology is capable of speeds rivaling fiber, but US providers don’t upgrade their technology unless Google Fiber comes to town.