March 21, 2014 10:07 AM
Yesterday, Neflix CEO Reed Hastings published this blog post
, arguing that "strong" net neutrality rules would not require Netflix to pay for the costs to augment its inbound ports to Comcast's ISP gateway (it did last month
). I have no problem with Netflix buying something from Comcast, and then complaining about having to pay for it. It kind of makes Mr. Hastings seem like every other Comcast customer, no?
But (to paraphrase
"the Nature Boy" Ric Flair): you may not like it, but you better learn to love it, because it's the best thing going, brother. What I mean is this. We're all appreciative of Netflix's success, but we would like more companies like Netflix. This means that it's possible to imagine a day when people don't buy subscription TV service from their ISP at all.
Yesterday, I talked
about the difficulties that the present system that prevents broadband-only customers from getting access on any terms to in-market streamed games (if those games are available only through an RSN). When these problems are resolved, consumers will presumably be able to buy content from a number of sources online, in addition to the HD channels you can get over the air (which covers most local NFL, a good amount of college basketball/football, and some baseball).
In a future where the Internet is the primary video delivery media, but programming is purchased by consumers from multiple vendors, it is unrealistic for video providers--who will be getting paid by consumers to deliver the service being sold--it is unfair and unrealistic to expect that all of the ISP's users should pay for each upgrade of inbound capacity required by a limited number of subscribers.
For example, at the end of last year, Netflix probably had about 33.5 million users (based on this article
). The total number of broadband customers at the end of last year was around 84.3 million, based on this recent report
from Leichtman Research. So, at present, Netflix would have 100% of ISP customers pay for a service that only 40% are signed up for, and an even smaller percentage use Netflix service intensively enough to require the inbound capacity upgrades.
On its face, Netflix's request doesn't seem huge when it and YouTube may be the only really large video content providers. However, even if only Netflix switches IP transit vendors or CDNs, every so often, the ISP will have to make the investment again because not all backbones handle Netflix traffic.
Moreover, in a world where the traditional "cable" company is selling a much smaller amount of programming than today--and the average consumer may be buying Netflix-style, over the top video from 4-5 independent providers--it seems more unfair for the ISP to be required to charge all of its customers for service only some will use.
The only reason Hastings' argument has a scintilla of appeal to consumer groups is because consumers pay so much for cable today. If/when everyone will get video from their own over-the-Net service, then Netflix will better understand that if you're the one taking the people's money, then you pay for any incremental additional costs to deliver your product--and it's your responsibility to make sure traffic hits the ISP's network at a high enough speed to be useful to your customer.
The bottom line is that consumers want more "Netflix's" and less subscription TV, and the fairest way to apportion inbound capacity costs is to bill the incremental cost causer--which is the party collecting the revenues from the customers that are using the service which requires in-bound capacity upgrades. To do otherwise, is to simply re-adopt the unfair cable price structure of the existing pay TV market (everyone pays for the people that use the most high cost--a/k/a "sports" programming).
When you're the only widely used alternative to Comcast, you get a lot of sympathy--as Netflix does, and often deserves. But, business arguments disguised as "public policy" arguments don't work unless they work for all users. In the past, Netflix has also shown
an indifference to costs that its heavy users impose on general, lighter use Internet customers. But these arguments are near term winners for Netflix that don't get all members of the public into a better place; understandable, but not persuasive, arguments that the government should reject.
February 25, 2014 3:04 PM
On Sunday, Netflix
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
, 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
) 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.