You may have heard that Netflix has agreed to start paying Comcast in exchange for smoother streaming on its network. Some, like Wedbush Securities analyst Michael Pachter, predict that Netflix will raise its prices in order to cover the cost. Others, like telecom analyst Jeff Kagan, tell me that dealing directly with Comcast won't incur any new costs for Netflix and could actually be cheaper for the company because it will no longer rely on third-party middlemen to route videos to Comcast subscribers.
Will Netflix pass the cost of its new Comcast agreement onto its own customers? If so, would that cost be tripled or quadrupled if Netflix then signs separate deals with other Internet providers, such as Verizon? It's hard to say. Neither Netflix nor Comcast is talking specifics about the deal, but it has spawned a great deal of speculation on the issue.
The central problem here is a lack of information. We don't know how Comcast's deal with Netflix is structured and how much money is changing hands. That makes it hard to judge whether critics are right when they claim Comcast is engaging in anticompetitive business practices. And it makes it hard to know whether consumers will wind up paying more as a result of the deal.
We could fix this by having the government require Comcast to be more forthcoming about its Netflix relationship. And, in a way, the government already has. In their 2010 order on net neutrality, federal regulators imposed a transparency rule on broadband providers mandating that they disclose information about, but not limited to, their policies on network management and their commercial terms.
"Effective disclosure of broadband providers’ network management practices and the performance and commercial terms of their services promotes competition," the Federal Communications Commission wrote, "as well as innovation, investment, end-user choice, and broadband adoption."
What's more, the FCC added, such disclosures would help Internet content companies — the other Netflixes of the world — assess risk and make important business decisions. Even analysts like Kagan who believe Netflix won't raise prices say the Comcast agreement is a precipitous event for these other companies.
"This is the first shot in the dark," said Kagan. "This is the one that will change the economics of how the industry works."
This "shot" is arguably just the kind of development the transparency rule was meant to unpack and inspect. Although a federal court struck down other parts of the FCC's order, namely a key ban on traffic blocking and discrimination, the D.C. Circuit court left the portion on disclosures intact. (For what it's worth, Verizon also never challenged that part of the regulation on the merits, claiming only that if part of the rules were struck, they all ought to go.)
Netflix's deal with Comcast, and others like it, affect all of us. The FCC has established the principle that ISPs' network management practices should be more transparent. The deal between Netflix and Comcast seems like a great place to put that principle into practice.