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Comcast, Netflix Forge a Stronger Streaming Connection

Netflix Said To Be Paying Comcast For Deeper, More Direct Connection To MSO's Broadband Subs 2/23/2014 1:40 PM Eastern

Following rumors that surfaced on Friday, Comcast and Netflix confirmed Sunday that they have forged a “mutually beneficial interconnection agreement” that will provide the MSO’s U.S. broadband subs with “a high-quality Netflix video experience for years to come.”

Comcast and Netflix didn’t announce financial terms of the multi-year transit deal, but a source confirmed a The Wall Street Journal report that Netflix has agreed to pay Comcast for this deeper, more direct access to its broadband customers. The WSJ said Netflix CEO Reed Hastings and Comcast CEO Brian Roberts had met on the subject in recent months and established the “framework” for the resulting deal during last month’s Consumer Electronics Show in Las Vegas.

According to a person close to the agreement, Netflix realized it needed a compromise to move forward with Comcast and put together a transit agreement that would improve the Netflix experience now while also providing a path toward future scale.

“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,” the companies said in a joint statement issued Sunday. “Netflix receives no preferential network treatment under the multi-year agreement, terms of which are not being disclosed.”

The addition of capacity resulting from the new interconnection points “won’t come online overnight,” Comcast VP of Internet & communications engineering Jason Livingood wrote in this post on the DSL Reports message board. “That said, we've obviously both been working on this for awhile and both know what areas need ports first, so hopefully very soon,” he added.

The agreement, in development well before Comcast inked its proposed $45 billion acquisition of Time Warner Cable, comes amid evidence that the quality of Netflix streams delivered to Comcast customers had been decreasing in recent months, with some industry observers attributing it to the peering relationship between the two companies and degradation and congestion resulting from Netflix’s increasing reliance on Cogent Communications’ as its transit pathway into Comcast.

People familiar with Sunday’s agreement also confirmed that it does not involve a classic Netflix Open Connect deal in which ISPs install and colocate single-purpose Netflix caches at the edge of their networks. Several ISPs and MSOs, including Suddenlink Communications, Clearwire, Cablevision Systems, Virgin Media, Cox Communications, Google Fiber, British Telecom, Frontier Communications, Telus, and Bell Canada, are hooked into Netflix’s private content delivery network.

Netflix provides those caches for free to Open Connect partners, but Comcast and others have been reluctant to cede that degree of control to Netflix. The new deal struck with Comcast could set the stage for similar agreements between the video streaming giant and broadband service operators, including TWC and Verizon Communications, that have, so far, resisted the classic Open Connect model, believing that Netflix should be paying them for that access.

A person familiar with the agreement said Comcast’s new deal with Netflix is similar to the types of interconnection agreements it has with other larger Internet partners, and clears the way for Netflix to connect to the Comcast network at various regional interconnection points around the country. The WSJ pointed out that other Internet firms such as Facebook and Google has also begun to pay major broadband ISPs for more direct connections.

Because the deal is strictly about interconnection, it does not necessarily mean Netflix will suddenly be in position to strike an integration deal that will enable it to offer its video streaming app on Comcast set-tops that power the MSO’s next-gen X1 platform. Comcast and Netflix have held set-top-related talks, but it has not been a priority for Comcast, which is trying to build a following for its own multiscreen subscription VOD service, Streampix.

“This is nothing new from the perspective of how these agreements already happen in the marketplace,” said one person who is familiar with the new Comcast/Netflix agreement, adding that the interconnection deal also takes into consideration future growth of Netflix traffic.

The agreement between Comcast and Netflix coincidentally comes together as the debate around network neutrality heats up amid the Comcast/TWC deal.

Although a court vacated the anti-blocking and unreasonable discrimination provisions for wireline broadband were have been vacated from the FCC’s Open Internet Order, Comcast must continue to adhere to them through 2018, per the conditions of its acquisition of NBCUniversal. New FCC Chairman Tom Wheeler announced last week that he will seek to restore the Commission’s network neutrality rules.

September