March has been a busy month for internet policy, especially if you watch a lot of your movies and television over an Internet connection. And last week closed with a bang. After agreeing to pay Comcast a fee to improve Netflix access for consumers, the company’s chief executive, Reed Hastings, essentially said that he regretted it–or at least that the results had influenced his views on policy.
“Once Netflix agrees to pay the ISP interconnection fees, however, sufficient capacity is made available and high quality service for consumers is restored,” he wrote in a blog post. “If this kind of leverage is effective against Netflix, which is pretty large, imagine the plight of smaller services today and in the future.” The results, he said, emphasized the importance of a strong net neutrality policy that would prevent companies like Comcast from charging companies to improve the speed at which consumers could connect to their sites and services.
But the day after Hastings called out his new business partners, Cogent, one of the firms Hastings named as subject to the sort of charges he decried, proposed a different solution. Rather than paying ongoing fees to providers like Comcast, Cogent’s chief executive officer, Dave Schaeffer, said the company would, on a one-time basis, be willing to pay for infrastructure improvements that would permit for faster connections.
“Cogent believes the traditional Internet model in which each party bears its own capital costs to upgrade an interconnection should be the model for these relationships but the reality of the gatekeeper power exercised by these telephone and cable companies requires that Cogent accept these additional costs in order to provide the highest quality Internet service possible,” Schaeffer said in a statement.
Netflix did not respond to a request for comment about whether a similar arrangement might be agreeable, especially if it got some sort of financial return in exchange for chipping in for improvements. But in his post, Hastings noted that: “ISPs sometimes point to data showing that Netflix members account for about 30% of peak residential Internet traffic, so the ISPs want us to share in their costs. But they don’t also offer for Netflix or similar services to share in the ISPs revenue, so cost-sharing makes no sense.”
John Schanz, the chief network officer for Comcast, said through a representative that such arrangements would be covered by non-disclosure agreements about negotiations. But the fact that Cogent floated the proposal at all is a striking illustration of just how many kinds of business you have to be in if you want to deliver content over an Internet or cable connection, or if you want to facilitate that delivery.
Cogent is an Internet service provider, but this proposal would put it in the telecommunications business.
Netflix provides streaming content. But its negotiations with Comcast have been a vivid reminder of the advantages of being in the television network business and getting paid by companies like Comcast for the right to distribute your content, rather than paying them to faciliate smoother connections.
Comcast is a cable, telephone and Internet company that also produces content through NBCUniversal, which it owns, and now is trying to get into a device business. Time-Warner Cable, which Comcast has purchased pending Federal Communications Commission approval, was reportedly in talks with Apple to produce an Apple TV that would have cable service baked in. Now, the Wall Street Journal reports that those conversations have started up again with Comcast. And to bring the conversation full circle, as the Hollywood Reporter puts it, “Apple would is angling to get a sweetheart deal from Comcast so that the TV service could use an Internet service separate from public Internet traffic, according to the ‘Journal.’”
The challenge really is about connectivity. If you want to distribute content on the Internet today, you cannot just sign good deals for exclusive rights to shows and movies. You have to negotiate which boxes consumers can use to access that content, and then figure out where those boxes, and your service, stand in the priority queue for interconnection. If consumers think that media companies like Comcast are already too big, the Apple deal could stretch their reach even further. And upstarts like Netflix may find that there are advantages to being baked into a legacy system that are too big to ignore. Until Netflix, Comcast, Apple and all the other players in the market sort out which businesses they are in and what their relationships to each other will look like, consumers will face a shifting landscape that does not exactly present them with clear choices.