Quite the brouhaha arose last week over Comcast's demands that Level 3 Communications pay exorbitant fees to deliver Netflix content to Comcast subscribers. There was outrage -- but not nearly enough.
Level 3 was just a proxy with a contract to run Netflix's wildly popular streaming service -- a service, by the way, the likes of which the American consumer has wanted for a long time. There's lots to love about a $7.99 monthly fee to access untold thousands of movies and television shows with the click of a remote control. Comcast, however, is not a fan. Hmm, do you think its antipathy has something to do with Comcast's overpriced On Demand service?
Last week's episode was another chapter in the open warfare on Internet-based streaming video by Comcast and other ISP/cable operations. They are not waging a fair fight with compelling, competing services. Instead, they are trying to extort money from Internet content providers like Netflix by sticking it to third-party communications partners like Level 3.
Peering arrangements between major carriers have always been subject to payment from one side or the other, depending on the bandwidth balance. If one carrier is shoving a ton of traffic on the other without taking a similar level of bandwidth on their own network, there's usually an agreement in place to compensate the carrier bearing the brunt of the flow. However, these agreements are about bandwidth in bulk, not about specific applications.
Comcast is whining about Netflix traffic specifically, demanding a perpetual fee to "transmit Internet online movies and other content to Comcast's customers who request such content." The customers in question are already paying Comcast bunches of money every month for Internet access. In many places, these consumers have no alternative to Comcast for broadband access.
In effect, Comcast is trying to charge everyone involved in an Internet transaction simply to carry the data that they're already obligated to carry. The company is double-dipping, and if nothing is done to regulate this type of action, this is just the beginning of what will shortly become a sea change in how the Internet operates. We can expect the costs for everything we do on the Internet to rise drastically.
I've seen estimates claiming that Netflix streaming accounts for nearly 20 percent of all Internet traffic at some points in time. That's a big number, and it speaks to the success Netflix has had transitioning itself from a DVD dinosaur to a cutting-edge content delivery service. On the other hand, Comcast and similar cable providers have been happy to sit on their spotty behinds and rake in money from their subscribers while delivering subpar content services. They're upset about Netflix's success, so they're unleashing the lawyers and shaking down the competition.
Is Netflix's success increasing traffic through Comcast's network? Yes. Is Comcast entitled to payment from Netflix or its partners because of that traffic? No, not any more than InfoWorld should pay Comcast so that you can read this post. Comcast sells its customers a path to the Internet -- the whole Internet, not just the parts that nobody visits. Netflix already pays large sums of money for Internet service to deliver its content; the fact that it doesn't pay Comcast is immaterial. Otherwise, what would stop Comcast from deciding to extort money from every Internet service that had the cash to spare? It's a classic protection racket.
Imagine an apartment building that has its own laundry facilities. They're expensive and unwieldy, but they're cheap for the building owners to run. An outside laundry business starts offering far superior off-site laundry services with free delivery to the building, meaning that fewer and fewer people use the building facilities. Rather than improve the on-site facilities to compete with the new service, the building decides to post guards and charge the off-site company a stiff fee to deliver to the building. This is in essence what transpired last week.
Shame on Level 3 for acquiescing. It could have easily made a very public furor over this demand, posting open letters and clarifying what Comcast wanted, right along with explanations of why Comcast subscribers may be having problems using Netflix. That's the only way to send this kind of nonsense back to the murky depths from whence it came.
If there's one thing I've learned from movies and television shows, it's that you never negotiate with the hostage taker -- it makes them more likely to take additional hostages.