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POSTED BY Alex Zamenof

Earlier this year, Netflix and Comcast announced a special arrangement that the two have entered into: namely, that Netflix streaming will be faster for people who have Comcast as their ISP. In a recent article, I found a fantastic description that breaks down exactly how video traffic on the internet works:

“Video traffic on the Internet, like the service that Netflix runs, is very sensitive to delays. As a result the Internet is built in such a way that content is distributed throughout the network in what’s known as content delivery networks, or CDNs. These services strategically place servers throughout the Internet and then they cache certain content, like streaming video, on these servers, so that when customers request a particular video it can easily and quickly be delivered to them. This reduces overall traffic on what’s known as the Internet backbone. And it results in a more efficient use of network resources. It also greatly improves performance and quality of service.”

Netflix has already built its own CDN (Content Delivery Network). The idea behind this is that Netflix would not have to pay a third party to provide its service to an ISP. However, big ISPs believe that Netflix should have to pay for the requisite increase in service necessary to stream effectively. While Netflix is trying to cut out the middle-man, the big ISPs are aiming to charge Netflix just as if it were a CDN itself. How do they achieve this? By dropping not so subtle hints that should Netflix refuse their offers of deals, then Netflix streaming may experience a slower connection on their servers.

This is tantamount to extortion in my book. Netflix is stepping on the toes of big ISPs, and they recognize this. With Comcast’s imminent merger with Time Warner, the ISP provider is slated to become the biggest provider in the US, owning some 30% of the market. Aside from antitrust issues, which are already being lobbed, it creates problems for emerging services like Netflix, Hulu, and Amazon who are all on the verge of premiering their own video streaming services, networks, or other similar things that have historically been the sole ground of the ISPs.

Netflix has made the logical statement that users who stream using Netflix’s own CDN experience significantly better viewing – a fact that is not in dispute by ISPs. This is now the critical juncture, where either Netflix tries to stand up for itself, or gets amalgamated into one or more of the existing ISPs.  Unfortunately, because Netflix is on top of its game in the streaming world, it is true that ISPs must spend more money to upgrade their servers to keep pace with Netflix – therefore, it does make sense that those ISPs want a portion of the pie in exchange for upgrading their servers. I believe that in the near future, we will either see one or two ISPs dominate, or a whole host of choices: perhaps Netflix, Amazon, Hulu, Facebook, etc. will begin to pioneer their own subscription services to compete with the big ISPs. This would put the US more in line with other nations around the world, where there are a multitude of choices, rather than just a few big names.

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