Netflix Performance Jumps After Controversial Comcast Deal

Last month, Comcast and Netflix announced a controversial deal in which Netflix would pay Comcast directly for improved service. The reason this deal is controversial in many quarters is that it's seen as triple-dipping by Comcast -- the company is already paid by companies like Level 3, which provide Internet back-haul across the country, and it collects fees from subscribers too. Nonetheless, in the wake of the court case gutting net neutrality, the deal went ahead.

That deal has paid off, at least in the short term -- Comcast subscribers are now seeing vastly improved performance with an average stream speed of 2.5Mbps, up from a miserable 1.15Mbps in February.

Loaded with perverse incentives

Unfortunately, Netflix's decision to take this step highlights just how terrible the current US market for broadband is. There's literally no reason for broadband providers to invest in improving the quality of their network's service -- why should they, when they can squeeze more money out of Internet content providers rather than responding to consumer pressure and delivering a faster product?

If Netflix will pay Comcast, it'll pay TWC. If it'll pay TWC, it'll pay Chartered. At no point is the consumer's needs or goals a serious question. As Senator Franken noted last week in hearings over the proposed Comcast-Time Warner merger, today, Comcast insists that it doesn't compete with TWC in any markets, so allowing the two to merge shouldn't be seen as a threat to competition. That's a far cry from a few years ago, says Franken:  "When Comcast wanted to acquire NBCUniversal, Comcast's CEO told this committee not to worry about it because there were still other robust distributors, and he specifically named Time Warner Cable, which would prevent Comcast from setting anti-competitive prices for Comcast content."

Netflix had previously declared itself willing to stand up to ISPs over net neutrality, but the company has decided it's better to pay for mediocre service than risk losing customers over a battle for the standard. Look for this type of arrangement to become more, not less common in the future -- there's no organization or government agency willing to stand up to the ISPs over rent-seeking behavior.

With Netflix capitulating, ISPs have every reason to take this approach to any company that wants to scale a significant service across the network. It's not even clear that YouTube or Netflix could ever have established themselves under such a scheme, but that's the new "competitive' market that Americans are left with.