Netflix, Inc. (NASDAQ:NFLX) has agreed to pay an undisclosed amount to Comcast Corporation (NASDAQ:CMCSA) to guarantee that its viewers will be able to watch streaming video without any of the hiccups associated with slow or intermittent connection speeds, a decision that should eventually raise Netflix’s prices and has major implications for the future of net neutrality, reports Dawn C. Chmielewski for The Los Angeles Times.
Comcast agreed to abide by net neutrality, the idea that all internet traffic should be treated equally by service providers, when it acquired NBC Universal in 2011. Comcast Corporation (NASDAQ:CMCSA) said that even under the new deal “Netflix receives no preferential network treatment,” but it’s hard to imagine how that could be true. If Comcast Corporation (NASDAQ:CMCSA) is guaranteeing that traffic from Netflix, Inc. (NASDAQ:NFLX) is seamless, but doesn’t make the same guarantee for all other data that it transmits, then it isn’t treating everything the same way.
Netflix focusing on viewer experience
Netflix, Inc. (NASDAQ:NFLX) has benefited from net neutrality up until now, as does any internet startup before it becomes successful, but now that the company is seeing strong growth and facing high expectations from investors it is working hard to enhance the viewer experience any way it can. If it’s willing to spend money producing original content and developing capacity to deliver ultra-high definition 4K resolution, skimping on connection speeds would be a strange decision.
The bigger question is where this leaves everyone else. If Netflix, Inc. (NASDAQ:NFLX) signs deals with other big ISPs like Verizon Communications Inc. (NYSE:VZ), it will either have a competitive advantage over its competitors because of the smoother viewing experience, or it will open the door for all major internet companies to start paying for more consistent speeds. If Comcast Corporation (NASDAQ:CMCSA), which is trying to acquire Time Warner Cable Inc (NYSE:TWC), is allowed to charge whatever the market will bear, those costs will eventually reach consumers, and new startups will have a harder time establishing new services, which could stifle online innovation.
There is also concern that tiered levels of internet access will give any company that is both a major ISP and a content producer an easy way to drive competitors out of business.
FCC to rework net neutrality rules
The Federal Communications Commission has tried to guarantee net neutrality before, but federal courts have ruled that it didn’t have the authority to enforce the rules as they had been written. FCC chairman Tom Wheeler is working on a new set of rules that would have the same effect while staying within the limits set up by the court, but not everyone at the FCC is on the same page. FCC commissioner Mike O’Reilly has argued in favor of further deregulation instead.