After a major court case last month, many people worried that cable companies had won the power to throttle Web sites to force them to pay extra fees. Those fears seemed confirmed over the weekend, when Netflix agreed to pay Comcast to ensure reliable access to its users’ screens.
Comcast and other cable companies hold effective monopolies in many areas. If a site such as Netflix wants to reach users, that site has to go through the cable company. That has always been the case, but now, after last month’s decision against net neutrality, broadband companies are no longer obliged to offer the same price to all comers. Comcast controls the tollbooths on the digital highways into many U.S. cities, and now the company can legally demand more from certain travelers. Netflix viewers account for nearly a third of all online traffic, so the popular streaming service is particularly dependent on the cooperation of cable providers.
The deal with Comcast isn’t necessarily a loss for Netflix. Perhaps paying more to guarantee favorable treatment for its customers would ultimately benefit Netflix’s bottom line, by making the experience of watching a film online more enjoyable and more popular. Yet the deal is certainly disastrous for any company that hopes to compete with Netflix and can’t afford to negotiate with cable providers.
The cable companies’ victory was really the result of a legal technicality, and it may proved short-lived if the Federal Communications Commission can rewrite the rules on net neutrality in a way that satisfies judges. A new set of regulations might well forbid Comcast’s current arrangement with Netflix.
Yet even if net neutrality is restored, the more fundamental failures of the cable industry will remain. Netflix users who subscribe to the major cable companies — AT&T, Comcast, Verizon — might have noticed that downloading movies took much longer last month, as the chart above shows (with data from Netflix). It is hard to know whether January’s slow speeds were related to the court decision, however. Those speeds have been decreasing for several months now. Meanwhile, speeds through some smaller networks, notably Cox, Charter and Google Fiber, have been improving. The larger firms were probably not illegally discriminating against Netflix users last year. It’s more likely that they simply weren’t investing adequately to respond to increasing demand. Whatever the reason, those firms would certainly not have allowed these speeds to decrease if they were operating in a truly competitive market, as shown by the example of the smaller companies, which can’t afford to sell their customers short.
Click below for a detailed discussion of the deal between Comcast and Netflix.