Will Netflix customers pick up the tab?

This battle between Netflix and the broadband world has been going on for a year. Before the Comcast deal, there was what Sam Rosen, a practice director with with ABI Research, refers to as a "spat" between Netflix and Verizon.

"So Verizon said, 'Hey Netflix, pay us for the traffic you’re pushing over our network!' And Netflix said, 'Hey, maybe not...”

Verizon’s CEO said today, in light of the Comcast deal, Verizon expects Netflix to start paying it directly. Rosen says growing pains are to blame for all this telecom drama. Netflix has gotten too big for what’s called the content delivery network. Those are the middlemen companies like Netflix pay to help get us our "House of Cards" and "30 Rock" reruns. Now, with its new deal, Netflix will pay Comcast directly and Rosen says the move makes sense for a company of Netflix’s size.

"Just as Walmart has started to take over a lot of their own shipping because they can do it more efficiently than some of their smaller suppliers, Netflix is basically doing the same thing," he says.

Rosen says while we don’t know how much Netflix is paying Comcast, he thinks consumers won’t get hit with a bigger bill. It’s likely, notes Rosen, that Netflix is getting a better price by cutting out the middle men, but he says that doesn’t mean good news for consumers, either. While Rosen estimates Netflix was paying middlemen about forty cents a month to stream each viewer’s video, the company will now have to pay Comcast directly instead.

"I wouldn’t expect your bills to go down," he says.

Michael Hodel, a telecommunications analyst with Morningstar, says the deal is more about quality than price.

"If anything, this would be good for consumers. It will improve the performance of Netflix content to Comcast’s Internet access customers."

But Hodel says no matter how you cut it, Comcast is holding a lot of the cards, and so it could be tougher for companies to negotiate in the future -- for both start ups who would now feel compelled to try to work directly with the Comcasts of the world, and the middlemen who used to be able to negotiate their own deals with the clout of Netflix behind them.

"There are implications for the long term development of innovative new services and new media and technology as the result of deals like this," he says.

About the author

Sally Herships is a regular contributor to Marketplace.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...