On Sunday, Netflix agreed to pay Comcast an undisclosed amount to ensure that its videos stream smoothly to Comcast customers. But fans of Francis Underwood’s manipulations on House of Cards might want to temper their celebrations.
This is more than a deal between two giant companies: It will affect everyone who uses the Internet. And as with so many things involving Comcast, consumers will end up paying for it in the end.
The deal should also be a wake-up call to regulators who are weighing the proposed Comcast-Time Warner Cable merger and grappling with what to do about Net Neutrality.
And if the game of chicken that preceded this pact becomes the norm, it will be a disaster for the future of online video.
Nobody Wins, Everybody Pays
The exact terms of the Comcast-Netflix deal are secret, but this much is clear: Millions of consumers who already paid handsomely for a premium broadband experience received poor service for months on end. Comcast refused to make minimal investments to deliver what its customers already bought — and simultaneously pushed people to upgrade to more expensive services.
Comcast and friends like to cry foul at the sheer amount of traffic video-streaming companies use. But the actual investment these extremely profitable ISPs would need to make to ensure their customers get the quality of service they paid for is extremely small. We're talking so small it wouldn't make the slightest dent in the continued growth in broadband profits these companies enjoy year after year.
The dispute between Comcast and Netflix had gone on for months. It’s likely that millions of unsuspecting consumers paid to upgrade to faster speed tiers thinking it would fix their problems. Comcast customers report hearing about this “solution” from customer-service reps after trying — without success — to fix the problem on their own.
Comcast had no qualms about letting its customers suffer lousy speeds and service. To Comcast, bad service is just another negotiating tactic — the company knows that most of its customers have nowhere else to turn for high-speed broadband. (And for the few that do, the options aren’t great: Verizon is apparently degrading Netflix, too.)
This is what happens in a broken market: Powerful players abuse their power to serve their own anti-competitive ends.
Why Comcast Is Afraid of Netflix
Cord cutters hail the new streaming marketplace as a land of competition and diversity. Instead of shelling out big bucks to pay for 500 cable channels, consumers can cut the cord and get their programming from on-demand libraries on platforms like Amazon Prime, Hulu and Netflix. But the Comcast-Netflix agreement changes the landscape.
Online video scares the cable companies, which have enjoyed a monopoly on entertainment and information distribution since the 1990s, when broadcast viewership over the airwaves began to decline. Cable companies like Comcast make tons of money by elevating their own programming on their cable systems. And since Comcast acquired NBC, the company now controls a media empire that includes Universal Studios, cable networks like Bravo, MSNBC, and USA, and more than two dozen local TV stations across the country.
It benefits Comcast to keep independent programmers off of its own cable lineup and to make space for its own properties, because it's way more lucrative than paying someone else for their content. And even today, any new cable channel essentially has to get picked up by Comcast, because the company is already the gateway to so many homes.
This deal spells bad news for future startups and anyone interested in creating or consuming online media (read: pretty much all of us). It will likely chill investment in online video startups as investors look to safer bets that don't involve battling Comcast, a company that’s poised to control over half of the bundled home video and broadband Internet market.
“No Oversight? No Problem!”
Let's be clear. The Comcast-Netflix agreement is not the outcome of a free market. This is Comcast having Netflix over a barrel, and backing off only when it became clear that this sort of trickery could potentially derail its mega-merger with Time Warner Cable.
This deal is a glimpse into the future of the Internet — and that future will look even worse if that merger goes through.
Disputes like this hurt the open Internet. They hurt consumers. And they'll become par for the course if ISPs are allowed to get even bigger and operate without the Federal Communications Commission stepping in.
This is a critical moment for our country. If Comcast acquires Time Warner Cable, it will control 55 percent of the U.S. market’s pay-TV/Internet bundled customers. It will be the only provider of this advanced communications package to nearly four out of every 10 U.S. homes. With this much control over the platform we all use to communicate and share with the outside world, the new normal will be whatever Comcast wants it to be.
Our country used to guard against the consolidation of this much market power, but in recent years policymakers have forgotten the lessons of history. We need to put the “public” back into public policy and some teeth back into our antitrust enforcement.
The average Internet user is at the mercy of companies like Comcast and Verizon, which won’t hesitate to degrade their services as a negotiating ploy. We need a watchdog in Washington who will demand transparency and who has the authority to stop discrimination and anti-competitive behavior.