February 25, 2014 3:04 PMNetflix and Comcast announced that they had reached an agreement to provide better quality traffic delivery for the Netflix customers using Comcast's ISP. The terms of the agreement have not been disclosed, but many assume that Netflix will be paying Comcast for the additional capacity necessary to ensure better service delivery.
Some have correctly explained that this isn't really news. See this excellent piece by Dan Rayburn, and this one by Richard Bennett, which is also very good. Both commenters point out that Netflix was, presumably, paying something to its "CDN" partners, Cogent and Level 3 for the poor performance it was previously receiving, so Netflix was able to improve its position by reaching the direct agreement with Comcast.
Make no mistake, though, it is absolutely normal for content providers (that care about their customers' experience) to pay ISPs for the additional inbound capacity needed to ensure the customer gets good quality service. However, a few articles (e.g., here, here, and here) suggest that the Netflix-Comcast agreement somehow changes the dynamic of "the Internet." It does not.
The WWE's Bold Experiment
Yesterday, the WWE launched its online video channel available through its website. Most in telecom policy are probably unaware of this launch, because, you know, the content isn't erudite enough. But, since every article lamenting the Netflix-Comcast announcement also predicts devastating effects on the hypothetical "new entrant" it's worth considering the newest streaming video entrant.
The WWE's online channel is notable for a couple reasons: 1) it's the first time an established, successful provider of live entertainment has offered a subscription service directly to the public that is designed to circumvent subscription TV distribution, and 2) its streaming channel is available in beautiful high definition over practically any/every Internet-connected device. Everything you would want to know about the new channel is available in this excellent article.
How does a new entrant that competes directly with its existing subscription TV partners make sure its customers get a great online experience over those same companies' ISPs? Well, it certainly helps if the new entrant is a company that offers methyltestosterone at the coffee machine, just to make the coffee "taste right" to their super macho employees.
But the real "magic" for the WWE, and tons of other quality video providers, is that they use a company that long ago made quality content delivery their main service--Akamai. Significantly, Akamai has paid ISPs to place its servers are as close as possible to ISP distribution and they have adequate capacity to the ISP's network access point. This is why the Olympics, ESPN, the NBA, NHL and MLB also use Akamai for their live, streaming high definition services. Akamai is a premium CDN (see its customer list).
Why Netflix Traffic Seems to Make News
Netflix's traffic is always in the spotlight, because the company is so successful at acquiring, and creating, video content that customers want--accounting for more than 30% of peak time downstream, fixed line Internet traffic. But, Akamai also carries (cumulatively) a lot of high definition, premium traffic, and you never hear complaints from the customers of Akamai customers.
If I had to guess, I would say that Netflix has wisely chosen to spend its limited resources on building quality content, rather than video delivery quality. Why do I say this? Well, recall that Netflix has its own CDN--called Open Connect. Netflix also publishes the delivery performance of various ISPs that carry its traffic. The ISP that performed the best in January was Google Fiber.
Google Fiber is directly interconnected with Netflix. Google Fiber sells no service to its customers slower than 1,000 mbps, yet its Netflix throughput was a relatively meager 3.78 mbps. No other Open Connect ISP partner even achieved 3 mbps. Thus, all Netflix customers were paying for much higher speeds from their ISPs than they were getting from Netflix.
So, the Netflix ISP Speed Index tells you more about Netflix's CDN performance than ISPs' Internet access performance. In fact, GigaOm recently noted that the best Netflix could say about Open Connect was that it "sucked less" during peak hours for ISP partners than others.
When the minimum necessary speed for even low-level high definition video is at least 4 mbps, it's clear that Netflix has a little ways to go in order to provide higher quality online video delivery. But, direct interconnect agreements with ISPs--like the Comcast deal--position Netflix with much better control over its service quality than it has today.
Why Content Delivery Services Need to Exist
A lot of media coverage (e.g., here) has mistakenly appropriated any story involving Netflix traffic as a proxy for some kind of meta-online video policy issue with reverberating consequences. But the ISP is not the "troll on the bridge" and the CDN is not a hapless victim.
The ISP is in the business of providing Internet access from the customer premise to the ISP's point of interconnection with the Internet. If the ISP was responsible for augmenting ingress capacity from a content provider's backbone to the ISP's point of access every time inbound capacity surged based on an application's popularity, then the ISP would have to involuntarily shoulder the risk of an entirely different business model.
For example, 10 years ago My Space was the dominant social networking site. Today, it's a relative ghost town. If the ISP's had born the cost of carrying My Space's swelling downstream demand at the time--by building capacity dedicated to carrying My Space traffic from its backbone provider(s) to the ISP point of access--this would now be stranded, wasted capacity. These costs would have been absorbed by all of the ISP's customers (including the ones that never even used My Space).
Netflix is a great service, but it isn't the ISP's service. Moreover, it can be quickly abandoned by the ISP's customers if a better substitute comes along. The ISP shouldn't have to bear the risk of someone else's Internet business model--especially when there are firms like CDNs that are in the business of accepting risks associated with delivering content to the ISP.