Light Reading

Netflix, TWC Sign Pay-to-Peer Deal

Mari Silbey

Netflix has added one more major service provider to its list of pay-to-peer partners, signing a paid interconnection agreement with Time Warner Cable.

With the latest deal, Netflix Inc. (Nasdaq: NFLX) has now struck interconnection pacts with the four biggest broadband providers in North America. Previously, the Internet video giant inked similar deals with AT&T Inc. (NYSE: T), Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Verizon Communications Inc. (NYSE: VZ). (See Netflix Adds AT&T to Pay-to-Peer List.)

In a statement, a Time Warner Cable Inc. (NYSE: TWC) spokesperson said that TWC "reached an agreement with Netflix in June, and we began the interconnection between our networks this month." The spokesperson also confirmed that the paid connections with Netflix will cover all of TWC's markets.

The latest interconnection deal for Netflix comes as the debate over paid peering agreements continues to escalate in the press and in broadband policy circles. Somewhat ironically, Netflix continues to sign these agreements even as CEO Reed Hastings repeatedly rails against the practice in public forums. In an article penned for Wired this week, Hastings explained why he opposes paid peering, and why he believes that Netflix must sign these agreements with ISPs anyway.

"This year we reluctantly agreed to pay AT&T, Comcast and Verizon for access to our mutual subscribers, who were seeing a rapid decline in their Netflix viewing experience because of congestion at the connection point where we transfer content to the ISP," Hastings said. "The ISPs argue that our data-rich services take up limited capacity on their networks. But broadband is not a finite resource. Network limitations are largely the result of business decisions to not keep pace with subscriber demand in a world where the Internet increasingly is the main vehicle for all kinds of entertainment, from gaming to movies to video chats with loved ones."

In a statement specifically about Time Warner, a Netflix spokesperson insisted that there will now be no more such deals. "The agreement with Time Warner is the last," the spokesperson said. "We reluctantly signed this agreement -- and the three others -- to ensure our subscribers get the viewing experience they expect when watching Netflix. We continue to believe consumers should get the Internet they pay for without both the sender and receiver being charged for the same content."

The Netflix argument is that ISPs should pay for expanded broadband capacity to meet consumer demand for online entertainment. Many ISPs, on the other hand, believe that Netflix should pay the freight for content delivery, given that the video company is estimated to be responsible for more than 30% of downstream Internet traffic.

Other opponents of paid peering also point to the idea that if all content providers have to pay ISPs for higher-quality video streaming, then fewer new companies will enter the business because of the delivery cost barrier. That argument has some weight, but it also has to be countered with the reality that any new service would have to build a large audience before any paid interconnection agreement would be necessary.

Get the latest updates on the pay-to-peer and net neutrality battles by visiting Light Reading's OTT content channel.

One question that has not been answered is what the traffic threshold is for when a content provider must pay an ISP for direct connection. Apple Inc. (Nasdaq: AAPL) has also signed paid peering agreements, but the details of those deals -- and the ones signed by Netflix -- are all confidential.

As a result of public outcry over the issue, the Federal Communications Commission (FCC) has agreed to look into peering deals more closely. In a statement in June, FCC chairman Tom Wheeler said, "To be clear, what we are doing right now is collecting information, not regulating. We are looking under the hood. Consumers want transparency. They want answers. And so do I." (See Net Neutrality Redux? FCC Probes Peering Problems.)

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— Mari Silbey, special to Light Reading

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User Rank: Light Sabre
8/21/2014 | 4:48:09 PM
Re: OTT Business viability affect
What's going to happen when some new data-driven product or services begins taxing the ISPs? Look, I understand why ISPs don't want to be paying for content that is being delivered by another provider – it competes directly with many cable subsidiary businesses these organizations have. But this is an issue that is not going away anytime soon. 
User Rank: Light Sabre
8/20/2014 | 6:04:01 PM
OTT Business viability affect
Wonder if Netfilx will reveal any numbers at their quarterly.
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