& cplSiteName &

Comcast-Netflix: It's Really All About TWC

Alan Breznick

So do you really think it's a coincidence that Comcast and Netflix inked their IP interconnection deal just a week or so after Comcast agreed to fork over $45.2 billion for Time Warner Cable?

If so, think again, say two different Wall Street analysts covering the broadband and video markets. In fact, the two senior financial analysts -- Craig Moffett of MoffettNathanson LLC and former partner Carlos Kirjner of Bernstein Research -- contend that the Comcast Corp. (Nasdaq: CMCSA, CMCSK)-Netflix Inc. (Nasdaq: NFLX) pact had almost everything to do with the much larger and far more important Comcast-Time Warner Cable Inc. (NYSE: TWC) pact. (See Comcast-Netflix Peering Deal: A Game-Changer? and The Dangerous Reaction to Netflix-Comcast.)

In separate notes to investors this week, Kirjner and Moffett advance similar arguments that Comcast sought to strike the peering pact with Netflix because it wanted to remove the online video giant as a looming obstacle before the regulatory review of its TW Cable purchase by the U.S. Department of Justice (DoJ) and Federal Communications Commission (FCC) . They note that while Comcast and Netflix may have been negotiating their pact for many months, Comcast reportedly stepped up to seal the deal with sweetened terms for Netflix in the past week.

"Why has this deal happened now?" Kirjner asks rhetorically in his note. "We suspect the fundamental motivation for the deal is an attempt by Comcast to remove the IP interconnection issue from the regulatory review of its proposed merger with Time Warner Cable."

With Comcast poised to have nearly 32 million broadband subscribers if the TWC deal closes, the analysts note, the giant MSO will potentially wield great power over the US broadband market. Netflix, which has been frustrated in its efforts to connect directly to those subscribers, had been expected to raise the IP interconnection issue with federal regulators overseeing the merger review process.

"By reaching an IP-interconnection agreement with Netflix, Comcast reduces the risk that the issue will play a major role in the merger review," Kirjner writes. "We would be surprised if the deal was not conditional on a tacit (if not explicit) agreement by Netflix not to lobby regulators to add IP-interconnection to the merger review and, if the deal is approved, to its conditions."

Indeed, consider what might have happened if Comcast had stuck to its guns in the peering negotiations and insisted that Netflix shell out great sums for the direct connection to the MSO's broadband subscribers. Netflix would likely have continued to balk at an agreement, potentially making it look as if Comcast were trying to squeeze out one of its main rivals in the video subscription business.

"Throwing its weight around and bullying Netflix, a company that many (regulators included) mistakenly view as Comcast's direct competitor, would open Comcast to a charge of anti-competitive behavior," Moffett writes. "That would almost certainly have raised eyebrows at the DoJ."

That doesn't mean that the IP interconnection issue will go away for good as a leverage point between the two companies, Kirjner notes. Assuming that Comcast gets the TWC deal through the DoJ and FCC without too many conditions, he says, it will be able to flex its broadband muscles more powerfully again at some point. Likewise, it could be added, Netflix will be free to lobby for new restrictions on Comcast's market power.

For now, though, it certainly seems to be in both companies' interests to shake hands and act like friends. Comcast gets to silence Netflix as a potentially pesky opponent of its TWC purchase, while Netflix gets its direct connection to Comcast's broadband base at a reportedly nominal price of several million dollars a year.

So both companies go home happy in the end. Win-win, anybody?

— Alan Breznick, Cable/Video Practice Leader, Light Reading

(9)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
User Rank: Blogger
2/28/2014 | 5:22:09 PM
Re: Short-term win for Netflix
Perhaps, Dan. But now Comcast can reasonably argue that the market is regulating itself by causing them to make deals with OTT players like Netflix. So, if the market is operating just fine and dandy, then there's no need for the feds to step in, right? And if Netflix isn't complaining about the deal, who's being harmed? I'm not saying I necessarily agree with all that argument but I think Comcast can make a good case along those lines. 
User Rank: Light Sabre
2/26/2014 | 10:37:00 PM
Re: Last Licks
I think the actions of these megacompanies speaks for itself.  If it were a growing concern, then each would be duking it out for profits.  As it is, what we see are two tired prize fighters holding on to each other to keep from hitting the mat.

It comes down to math and topology.  The cable networks were never built for data.  The cables are too thick and bulky and expensive and prone to wear comparied to an optical fiber or wireless.   Quite frankly, based on the numbers were getting out of wireless broadband, I'm not so sure about fiber either except that 10Gpbs is hard to argue with.

And latency.  Can a network designed for one way transmission ever hold its own with the type of two way realtime transmission and submillisecond ping needed for real time gaming?

Look at where Google is going...clouds, Chromecast.  They are completely removing computing "boxes" from the home and simulating them in the cloud.  Eventually, all they will have to do is ship screenshots as HDMI.   That means big fast bandwidth.  Cable can't do it.  Cable is defunct.   Grab the cash while you can.

User Rank: Blogger
2/26/2014 | 9:46:09 PM
Re: Short-term win for Netflix
So I'm trying to figure why this helps the chances of the Comcast-TWC deal making it past regulators. Won't Comcast wielding its influence to get an Internet giant to pay for access actually hurt its chance of getting approval for a deal that will make it a much bigger and more influential player?

Comcast supposedly took Netflix's opposition out of the equation, but didn't it also just highlight the reason why just about everyone else should oppose it?
User Rank: Blogger
2/26/2014 | 9:16:55 PM
Re: Last Licks
More doom and gloom for cable's future, eh? Sounds like you know something that Brian Roberts' managemewnt team doesn't. Do you think that cable operators can shift their strategy in time to avoid Armageddon? Or is there nothing they can do?  
User Rank: Blogger
2/26/2014 | 9:13:10 PM
Re: Short-term win for Netflix
I say short-term win for Netflix too. But very possibly long-term win for Comcast. Once they get their merger thru the DoJ and FCC, they my well be free to try to bully Netflix around again. Would you like to see Brian Roberts and Reed Hastings together in a boxing ring?   
User Rank: Light Sabre
2/26/2014 | 7:06:40 PM
Last Licks
I see this as last licks for cable to squeeze as much money out of the business before it starts being replaced by high speed fiber and wireless broadband.   You're already seeing 100Mbps speeds with wireless Wimax/LTE in South Korea and Google is rolling out 1Gbps and experimenting with 10Gpbs.   I've even read that Google might give away it's "old fashioned" 10Mpbs fiber for free!  Where does that leave cable?   And then you've got DirecTV offering more synchronized programming for very little per month, and it's bundling itself with telco/optical providers.   A $30 a month super fast optical fiber and a $30 DirecTV content license plus $8 for netflix is still way under cable premium with all the extras and yet will supply enough content to keep a household fairly saturated.

Netflix figured it's not worth arguing or losing subscribers, and in a few years, we'll be bouncing our service over everything from satellites, to fibers, to ... who knows what!

User Rank: Light Sabre
2/26/2014 | 2:54:42 PM
Re: Short-term win for Netflix
Good points. Which is why we won't know the financial relationship. There is an NDA between the parties because if it was public, it was affect other ISP negotiations.
User Rank: Light Sabre
2/26/2014 | 11:39:38 AM
Re: Short-term win for Netflix
I'd agree. It sounds like Comcast was willing to strike a deal at a lower rate and for a longer contract than they otherwise would. Primarily so they can rid the press of criticism of the Netflix streaming problems at a time they're trying to insist they would bring technological advacement to new territories -- and point to regulators and say how they get along well with Netflix.

But yes, a few years down the road and does anybody think the likes of AT&T, Verizon and Comcast aren't going to raise rates whenever and however possible as they elbow further into core network markets?
User Rank: Blogger
2/26/2014 | 10:57:21 AM
Short-term win for Netflix
I think this is a short-term win for Netflix. If/when Comcast and TWC merge, Netflix will have a deal in place that covers the largest distributer in the country. (Don't the combined numbers give Comcast/TWC something like 40% of broadband customers?) However, farther down the line, there is nothing to stop Comcast from increasing the amount of money it demands. And I would think Netflix would have a harder time threatening a content blackout than traditional programmers given its dependence on direct revenue from consumers. It could certainly make a stink and try to drive public opinion, but I assume the financial pain would be significant. 
Educational Resources
sponsor supplied content
Educational Resources Archive
More Blogs from Breznick Unbound
Light Reading and SCTE/ISBE are teaming up again to create multimedia content aimed at helping cable operators cut energy use and costs.
In a questionable call, the cable trade group is planning to hold its INTX show next year at the same time as NAB's big trade show in Las Vegas.
Light Reading and NCTC are teaming up to create and market webinars, video interviews and other multimedia content for smaller and independent cable operators.
Now that Sony has launched a 4K movie streaming service and AT&T/DirecTV is broadcasting golf and baseball action in UHD, is 4K video ready to go prime time?
Did CableLabs jump the gun by announcing its Full Duplex DOCSIS 3.1 initiative so early? Some senior cable technologists think so, and so do I.
Light Reading’s Upskill U is a FREE, interactive, online educational resource that delivers must-have education on themes that relate to the overall business transformation taking place in the communications industry.
Wednesday, September 14, 1:00PM EDT
What Is Agile?
Kent J. McDonald, Product Owner, Agile Alliance
Friday, September 16, 1:00PM EDT
How to Implement Agile
Wednesday, September 21, 1:00PM EDT
What Is DevOps?
Colin Kincaid, CTO, Service Provider, Cisco
Friday, September 23, 1:00PM EDT
How to Implement DevOps
in association with:
From The Founder
Light Reading today starts a new voyage as part of a larger Enterprise.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
Between the CEOs
CEO Chat: Intel's Alexis Black Bjorlin

8|17|16   |   06:23   |   (0) comments

Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
Telecom Innovators Video Showcase
Accelerating Telecom Digital Transformation With Nominum DNS

8|1|16   |   12:04   |   (0) comments

Light Reading's Steve Saunders gets an update from Nominum CEO Gary Messiana on how his company is helping carriers on the digital transformation journey.
LRTV Custom TV
Reinventing Operations for a Virtual, Software-Defined World

7|28|16   |   5:23   |   (0) comments

Heavy Reading Senior Analyst Jim Hodges speaks with Accenture's Larry Socher and Matt Anderson about what service providers must do to transform their business to get the benefits of SDN and NFV including: leveraging DevOps, introducing real-time OSS and implementing analytics.
Women in Comms Introduction Videos
Fujitsu Sales Leader Shares Lessons Learned

7|27|16   |   5:12   |   (1) comment

As Fujitsu's only female sales leader, Annie Bogue knows the importance of asking for what you want, being flexible (she's been relocated five times), keeping a meticulous calendar, 'leaning in,' working harder than everyone else around you, being aware and more.
Telecom Innovators Video Showcase
VeEX Test & Measurement Solutions

7|25|16   |   08:57   |   (0) comments

Cyrille Morelle, president and CEO of VeEX Inc., talks test and measurement with Light Reading's Steve Saunders at BCE 2016. This includes innovative products such as VeSion Cloud-Based platform for network monitoring; MTTplus Modular Test platform for Access, Business, Carrier Ethernet, Transport and Core services; and OPX-BOX+ for Fiber Optics.
LRTV Custom TV
VeEX: Live From BCE 2016

7|25|16   |   03:20   |   (0) comments

VeEX's Senior Director of Business Development, Perry Romano, explains how VeEX provides tools to help install, maintain, monitor and manage network infrastructure efficiently and effectively. The portfolio of products on display include the RXT-6000, MTTplus and TX300s.
LRTV Custom TV
Real-Time Telemetry & Analytics for Intelligent SDN Orchestration

7|25|16   |   03:09   |   (0) comments

Packet Design CEO Scott Sherwood discusses how real-time network telemetry and analytics are enabling a new breed of SDN orchestration applications.
From the Founder
The Russo Report: Driving Disruption

7|25|16   |   07:44   |   (2) comments

In the first episode of a four-part series, Light Reading Founder and CEO Steve Saunders and Calix President and CEO Carl Russo drive around town discussing the disruptive mega-changes in the communications industry and where hope lies for service providers to meet the escalating demands of the cloud.
LRTV Custom TV
NetScout: Maximizing Enterprise Cloud for Digital Transformation

7|20|16   |   04:53   |   (0) comments

Light Reading Editor Mitch Wagner talks to NetScout CMO Jim McNiel about maximizing the benefits of enterprise cloud and digital transformation while minimizing potential pitfalls with a proper monitoring and instrumentation strategy.
Women in Comms Introduction Videos
Ciena's VP Offers a Career Crash Course

7|20|16   |   4:14   |   (2) comments

How did Ciena's Vice President of Sales, Angela Finn, carve out her career path? Simple, she tells WiC. She stayed true to her company, customers and principles. She shares her advice for women on how to be authentic and credible, as well as for companies that want to make a real change to their culture and practices.
LRTV Custom TV
NFV in 2016: Part 2 – Climbing the Virtualization Maturity Curve

7|19|16   |   06:56   |   (0) comments

Many of the initial use case implementations are single-vendor and self-contained. The industry is still climbing the virtualization maturity curve, needing further clarity and stability in the NFV infrastructure (NFVi) and greater availability and choice of virtualized network functions (VNFs). Interoperability between NFVis and VNFs from different vendors ...
Telecom Innovators Video Showcase
Versa Networks' Kumar Mehta on SD-WAN Managed Services

7|19|16   |     |   (0) comments

In Silicon Valley, Steve Saunders sits down with Versa's Kumar Mehta for an interview focused on why service providers are building SD-WAN managed services, and how Versa's telco customers are innovating.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
November 3, 2016, The Montcalm Marble Arch, London
November 30, 2016, The Westin Times Square, New York City
December 1, 2016, The Westin Times Square, New York, NY
December 6-8, 2016, The Westin Excelsior, Rome
May 16-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Five of the Top 10 most targeted countries in Check Point Software Technologies' global Malware & Threat Index for Q1 2016 are in Africa.
Hot Topics
Cisco Developing 'Monica' Digital Assistant
Mitch Wagner, West Coast Bureau Chief, Light Reading, 8/22/2016
Cisco Throws 5,500 Overboard on Cruise to Richer Waters
Mitch Wagner, West Coast Bureau Chief, Light Reading, 8/17/2016
VoLTE Can Drive 4G Small Cells Adoption
Ravi Narayanan, Senior Analyst – Cloud & Next Generation Mobile Networks, Heavy Reading, 8/18/2016
Slow Roll Builds for DOCSIS 3.1
Mari Silbey, Senior Editor, Cable/Video, 8/17/2016
Rocket Fiber Lights Up Detroit With Gigabit
Elizabeth Miller Coyne, Managing Editor, 8/22/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
There's no question that, come 2020, 5G technology will turn the world's conception of what mobile networking is on its head. Within the world of 5G development, Dr. ...
Animals with Phones
Live Digital Audio

Bridging the tech skills gap is a major challenge for service providers and suppliers alike today – and the challenge is two-fold when it comes to increasing the number of women in the comms space. Level 3 Communications has made it a priority to overcome both challenges by implementing several unique programs focused on building the right candidates from within – in addition to filling the funnel by supporting STEM and other education programs. During this radio show, you’ll learn about these programs from Mary Beth McGrath, SVP of Global Talent Management at Level 3, and the best ways to bridge your own skills gap so that you are motivated and equipped for change. Plus you’ll have the chance to ask Mary Beth your questions live on the air.