Netflix Strikes Deal With Comcast on Videos

Netflix has agreed to pay Comcast, the nation’s largest home Internet carrier, to ensure its online videos are streamed smoothly.

The arrangement highlights the vast power of Comcast, which is in the middle of an ambitious expansion effort, and how the firm’s dominance in the broadband Internet market can hold sway over how consumers ultimately experience the Web.

In a multi-year deal, Netflix will pay Comcast to directly connect its servers to Comcast’s network, removing third parties that bog down the delivery of its streaming-video traffic.

Terms of the arrangement were not disclosed, but the deal could set the stage for similar payments by Netflix and other deep-pocketed Web companies to the Internet service providers who deliver content into homes and on mobile devices, analysts say.

“This deal opens a lot of different doors so that any firm has to pay more for back-end connections in order to take advantage of higher last-mile speeds” into homes, said Harold Feld, a senior vice president at the consumer advocacy group Public Knowledge.

Comcast said that the multi-year deal does not give any preferential treatment to Netflix’s videos. The firm said it regularly charges Web companies and other third parties that route traffic to its 22 million home subscribers. Netflix’s deal is no different from the many interconnection deals it and other Internet service providers such as Verizon Communications create for the routing of Web traffic, Comcast argued.

As part of a condition to its 2011 merger with NBC Universal, Comcast is prohibited from blocking or slowing down traffic for a profit.

But the deal is controversial because it shows Comcast’s sway over the media and technology industries. With its bid for Time Warner Cable, Comcast would have 30 million U.S. Internet subscribers, in every major U.S. market, making it powerful in any negotiations for the carriage of programs and apps to cable television and Internet users, analysts say.

Verizon has reportedly slowed down traffic for Netflix video streaming in a similar behind-the-scenes dispute over fees on the routing of Internet traffic.

Netflix has been at the crosshairs of the fight in “peering” deals because it generates massive amount of traffic on the Internet. The firm had for months sought to connect its servers directly to Comcast’s network for free. But Comcast refused, and other Internet service providers say Netflix should pick up some of the costs for such a huge increase in traffic on their networks.

After months of negotiations, Comcast chief executive Brian Roberts and Netflix chief Reed Hastings reached an agreement on payments during meetings at the January International Consumer Electronics Show in Las Vegas. The companies agreed to their deal well before Comcast’s bid two weeks ago to acquire Time Warner Cable, a deal that would combine the top two Internet service providers.

“Working collaboratively over many months, the companies have established a more direct connection between Netflix and Comcast, similar to other networks, that’s already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic,” Comcast said in a statement. “Netflix receives no preferential network treatment.”

Consumer advocates criticized the companies for putting consumers in the middle of their massive moneymaking contract disputes.

Subscribers of Comcast and other Internet carriers have seen their bills steadily rise while regularly encountering frustratingly slow speeds, often below what is promised when signing contracts.

They fear the Federal Communications Commission may not be able to defend consumers after a court struck down Internet access rules that prevent companies such as AT&T and Verizon from purposefully blocking sites or slowing down traffic in pursuit of higher profits.

“It appears Comcast had no problem knowingly letting its users have a bad experience with their broadband service while waiting to resolve this issue,” said Matt Wood, policy director at Free Press. “Only a giant like Netflix could afford to withstand a protracted battle like this, and it may have just surrendered more than it would have if ISPs weren’t allowed to abuse their gatekeeper status.”