Netflix Coughs Up Cash to Comcast for Fast Streaming
Last week, we learned that millions of Americans are having trouble getting their Netflix (NASDAQ:NFLX) accounts to load. Many Netflix subscribers have issued complaints in recent weeks about the impossible loading times and poor quality of their favorite TV shows and movies, and it wasn’t clear until recently what the problem was. Now, not only do we understand the issue, we know of at least one major broadband provider that is taking steps to fix it.
The Wall Street Journal reported Sunday that Comcast (NASDAQ:CMCSA) and Netflix have solidified a deal that ensures Netflix movies and television shows stream easily to Comcast customers. Netflix has agreed to pay Comcast a bigger total for its increased traffic on the Comcast network, and Comcast has agreed to a partnership of several years, ensuring Netflix won’t be at a disadvantage as its traffic grows. Comcast and Netflix’s pact is significant because now other broadband providers are expected seek similar settlements with the online video service using Comcast’s case as an example.
It is likely that Netflix wanted to establish a solid connection with Comcast first and foremost because the cable company agreed to buy Time Warner Cable (NYSE:TWC) earlier this month that, if approved, will establish Comcast as the dominant provider of broadband in the U.S and allow it to serve 32 million households in the U.S., according to the Journal. It is then understandable why Netflix needs to stay in good graces with the Philadelphia-based company if it wants to continue effectively serving its customers.
The primary reason Netflix needs to pay broadband providers more is because the Internet is getting more and more congested, and the increased traffic is causing interruptions for customers trying to stream Netflix movies and TV shows. Unfortunate, right? But don’t feel too badly for Netflix, because it’s largely responsible for the problem. More and more consumers are now subscribing to Netflix, and as a result, the infrastructure that is behind the scenes of the Internet is getting strained.
It is obvious that upgrades need to be made, but no one wants to pay. Major broadband companies like Verizon (NYSE:VZ) say that Netflix should be the one to do it, considering its business is the reason the upgrades are needed in the first place, but the video subscription service has contended it is the larger companies’ responsibility because part of their deals outline the guarantee that the carrier supports its traffic.
Last week, it looked as if Netflix was standing strong in its conviction not to concede, but at least in Comcast’s case, it is clear that the Los Gatos, California-based company has backed down in order to maintain a fruitful partnership with Comcast. The Wall Street Journal reported over the weekend that Netflix will pay more to Comcast so the company can handle its increased traffic. Under the deal, Netflix won’t be able to place its servers inside Comcast’s data centers, instead connecting to data centers operated by other companies. That was not what Netflix originally wanted, as it tried to negotiate a plan to place its servers inside Comcast’s data centers. However, the deal is still long term, and that long-term security is what Netflix needs from Comcast right now.
Comcast’s deal with Netflix shows that the video giant is finally showing signs of submission, and it is possible that in the future, many more deals with be penned between Netflix and other companies that involve the streaming provider paying increased sums to help manage traffic. Especially now that Netflix is debuting popular new series like House of Cards, the pipes that handle the Netflix royalty have to be secure, and if no one will pay for their maintenance, it looks like Netflix will.