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Getting a clearer picture on Netflix-Comcast deal

EARNS COMCAST

By MICHAEL LIEDTKE
Feb. 24, 2014 6:24 PM EST

SAN FRANCISCO (AP) - After years of bickering, Netflix and Comcast are working together to provide their subscribers with a more enjoyable experience when they're watching movies and television shows over high-speed Internet connections.

The new partnership is part of a breakthrough announced Sunday that requires Comcast's Internet service to create new avenues for Netflix's video to travel on its way to TVs and other devices. In return for the improved access, Netflix will pay Comcast an undisclosed amount of money for the next few years.

The arrangement represents an about-face for Netflix Inc., which had steadfastly refused to pay high-speed Internet service providers already collecting $40 to $60 per month from its customers. Netflix CEO Reed Hastings had contended that his company's Internet video service is one of the main reasons why households pay for broadband, making it unreasonable for Internet service providers such as Comcast Corp. to demand additional money from content providers.

Comcast and other broadband providers argued Netflix's growing popularity should require the Los Gatos, Calif., company to shoulder some of the financial burden for delivering its video. In evening hours, Netflix's 33 million U.S. subscribers generate nearly a third of the Internet's downloading activity, according to the research firm Sandvine.

Now that Netflix has relented to Comcast, the largest U.S. broadband service, similar deals are more likely to be reached with other Internet providers such as Verizon Communications Inc., AT&T Inc. and Charter Communications Inc.

Here's a closer look at what this shift means for subscribers to Netflix and high-speed Internet services:

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HOW WILL CONSUMERS BE AFFECTED?

Netflix subscribers relying on Comcast should already be seeing fewer interruptions as video streams over the network. The quality of the picture should be better, too. The improvements started to appear Thursday when Comcast and Netflix began working together, though their collaboration wasn't revealed until Sunday. Some analysts believe the alliance might set the stage for Comcast to eventually include an application for Netflix's service on its cable-TV boxes, making it even more accessible.

If the claims of better performance are true, it would reverse how Netflix's video had been performing on Comcast's Internet service - the average speed during prime-time viewing hours fell 25 percent from January 2013 to this January, based on Netflix's own measurements.

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WHAT WAS THE PROBLEM?

That's a matter of debate. Critics of Internet service providers suspect Comcast and its peers were deliberately slowing Netflix's video as a negotiating tactic aimed at extracting additional fees. But plenty of analysts traced the slowdown to Netflix's increasing viewership and the limited number of ports that Internet service providers have built to receive online content.

Netflix has long been hiring third-party vendors such as Cogent Communications Group Inc., Akamai Technologies Inc. and Level 3 Communications Inc. to deliver its video to the doors of Comcast and other Internet providers - as if Netflix had been hiring a fleet of delivery trucks to transport its products to a store. As more people stream Netflix video, the company had to dispatch more trucks. Meanwhile, other Internet services also were sending trucks with their merchandise.

Like any congested highway, bottlenecks were slowing traffic down as all those trucks carrying digital content tried to get into the entry gates of Internet providers.

Now that it's getting paid extra money, Comcast is going to create special roads for Netflix's video. By bypassing the bottlenecks, Netflix video should stream more smoothly for Comcast subscribers.

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IS NETFLIX THE ONLY SERVICE WITH EXPRESS LANES FOR DEDICATED CONTENT?

No. Google Inc., which owns the YouTube video site, and social networking service Facebook Inc., among others, had already reached similar deals with Comcast and other Internet providers. Netflix is falling in line with other services that generate a lot of traffic.

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WHAT PROMPTED NETFLIX TO ANTE UP?

No one knows for certain, but Comcast's clout probably had a lot to do with it. Comcast already has nearly 21 million broadband subscribers and that number will swell to about 30 million by the end of the year if the Philadelphia company wins regulatory approval to buy rival Time Warner Cable Inc. for $45 billion.

If Netflix's video streaming quality continued to deteriorate on Comcast, Netflix risked alienating its own subscribers. The discontent would have undercut Netflix's subscriber growth and ultimately hurt its stock.

Comcast also may have been more willing to reach a compromise to reduce the chances of Netflix amplifying its complaints about the deteriorating performance of its video service while government regulators scrutinize the Time Warner Cable deal.

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COMCAST SAYS IT ISN'T GIVING NETFLIX PREFERENTIAL TREATMENT. IS THIS REALLY TRUE?

Sort of, but it's a fine and highly technical distinction.

Comcast is referring to the ongoing debate over "Net neutrality." This term refers to the idea that Internet providers should treat all digital content equally, regardless of the originating website. The issue has become especially sensitive since last month when a federal appeals court overturned the Federal Communications Commission's regulations enforcing Net neutrality. That decision raised fears that Internet providers would impose tolls to guarantee websites run at optimal speeds.

But Net neutrality governs the performance of bits and bytes once the digital packages are inside the gates of Internet providers. The Comcast-Netflix alliance is limited to how quickly content gets to those gates.

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WILL NETFLIX RAISE ITS PRICES TO HELP OFFSET THE EXTRA MONEY THAT IT'S PAYING COMCAST?

The $8 monthly price for a Netflix subscription in the U.S. may eventually rise, but the increase probably won't be tied to the Comcast deal.

Although the precise terms aren't being spelled out, it appears Netflix may just be reshuffling its expenses for video delivery. The company already had been paying other contractors to handle those deliveries. Now, some of the money is going to be paid to Comcast instead.

In a telling sign that Netflix isn't anticipating dramatically higher expenses, the company didn't revise its profit projections for the first three months of this year when it announced the Comcast deal. Investors interpreted that as a sign that Netflix's expenses aren't going to rise above the levels that management already budgeted. Netflix's stock climbed by about 4 percent to a new all-time high of $449.69 Monday before falling back slightly. The shares closed at $447, a gain of $14.77.

Meanwhile, Netflix is still experimenting with new prices for subscribers who want to be able to simultaneously stream video on more than the current limit of two devices. A plan allowing four simultaneous video streams is being tested at $12 per month. Netflix has emphasized any potential price increases are still many months away.

Join the discussion

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roberttip February 25 2014 at 2:23 PM

What a joke. Comcast can't even deliver a clear picture without interruption by itself. How is it gonna improve Netflix? Ask any Comcast customer how they enjoy the Comcast experience already. This is just another excuse to raise monthly prices. Anyone notice how many commericals there are now. Viewing time is almost equal to commerical time.

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ghelm92160 February 25 2014 at 10:09 AM

What does it mean? Uncontrolled increases brought to you by your friendly government appointed Public Service Commission!

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magus47 February 25 2014 at 10:02 AM

Why this is free enterprize at its finest. Comcast will get bigger and richer and eat up more companies until they achive the goal of capitalists everywhere, complete monopoly. Boy then we can expect lower rates and better service. RIGHT? Sure look how well that works with the oil companies. The game is called MONOPLY and the winner is when one player has EVERYTHING and the rest of us have NOTHING.
Read AMERICA WHAT WENT WRONG AND HOW TO FIX IT, now available as a kindle book.

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1 reply
ghelm92160 magus47 February 25 2014 at 10:10 AM

But it makes it easier on government as they only have to fine, audit, and monitor one company who will pass the cost back to the customer!

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plstockinger February 25 2014 at 10:01 AM

Just boycott people. We pay for enough things as it is. I haven't had cable since 2008. Cable is useless. As far as the streaming is concerned, hell just download movies, or if you have tons of movies as a collection already, get cd/dvd wallets. We have about 6 er 7 dvd wallets, and a storage case to hold our boxsets. Do red box if you have to. I know the sports fans love their games, but go to a restaurant/bar to watch it. Call your boys, grap some brews & party it up. As far as the rest of the cable, it is pointless. Whatever you need is all through the internet.

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1 reply
pmoereels plstockinger February 25 2014 at 10:54 AM

yes but you are paying someone for internet still. In my case Comcast... :(

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tgarfi1010 February 25 2014 at 9:15 AM

Had Comcast for years and after moving to another state, signed with Time Warner. Time Warner customers - watch your rates double.

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Kojac February 25 2014 at 10:31 AM

For some giving up cable would be like giving up an addiction. If we could all agree to just give up ALL the extras it might send a message. Everyone is entitled to make a REASONABLE profit but the sky should not be the limit. Before Comecast took over Adelphia I was paying 1/3 less than I now pay for basic cable. I can't believe it is costing Comcast 66% more to provide me with the same basic service. Sign up for Netflix or a similar service and give up the extras with Comcast.

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dgbarto February 25 2014 at 8:50 AM

If Netflix raises it's $8 fee I will say goodbye. Bad enough they have suddenly become flooded with tons of Chinese and Indian movies with actors no one ever heard of. I won't pay more for crap they are pushing.

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L. Hamilton February 25 2014 at 8:18 AM

If every one would give up the Internet for just one mouth and hit them where it hurts ( There pocketbooks ) in protest against unfair fees, price increases, throttling down of netflix and other services we use ( vonage, netflix, ect. ) because we don't use there servics, and making us pay for bundles we don't need (having to pay way more for internet by it's self ) when all we need is just Internet servies.

It cost them no more to deliver 1 GB of data or deliver 1 TB of data if people real take the time and think about how much money thoes companies makes ( take what you pay for service and times it by 21 to 33 millon customers it's an eye opener ) they are not going broke.

The problem as I see it is we forgot how to fight we always say someone else will take up the fight. well no one person can do it by themselves it take all of us as custmers and consumers to fight back and say no more.

I don't mind paying A fair price for services but this is on the order of racketeering ( like thoes companies that loan you money and then you pay through the nose ) the last time I checked racketeering or extorting money was illegal Ok ok maybe that's A little over to top but every time I look at my bill can it keeps going up for no more service ( my Internet service speed is 760 KB and that's ok for what I use the internet for but most of the time I'm lucky ifI get 3/4 of that for what I am payinf for my bill went from 10.99 to $27.00 over the last 3 and 1/2 years for the same speed (( now I know some companies will do this slow you down to make you jump to A newer more costly plan that you are not going to use )) it keeps going up but the speed stay's the same )
I feel like I am dealing with organized crime,

The days of companies like AOL one price for service for every one for unlimited use of the Internet regardless of what speed modem you where using are long gone.

with social media as it is it's a sham we can't get togther like some of theos other countries and fight back with are voice and money trust if theos companies each lose 1/4 of A billon dollars each for one mouth they would stop and hear us if they start losing money left and right like netflix did when they try'd to raise the price for there service they lose customer in the millions and guess what they stop and listened.

No More Bait and Switch

Make your voice count

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jsan923 February 25 2014 at 8:00 AM

Seriously concerned about price increases? Vote with your wallet - this is an industry that is highly susceptible to market forces. If enough people st

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1 reply
jsan923 jsan923 February 25 2014 at 8:03 AM

stop buying what they are selling prices will drop. You know - the old supply and demand curve.

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TruthBeKnown February 25 2014 at 10:12 AM

We need to boycott all cable stations which charge such terrible prices.
You have to be rich to have watch Tv.
I remember when you could buy a Tv plug it in and watch several stations
without paying for them. ... Yeah, I am old ~!

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2 replies
Kojac TruthBeKnown February 25 2014 at 10:20 AM

You can still watch local TV for free, all you need is the right antenna, just like in the old days.

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2 replies
smacdo8502 Kojac February 25 2014 at 11:08 AM

u must hava a old tv cause todays skinny tvs u can only hook a cablewire up to it,u cant hook a antenna up to it.if people coule still watch tv like that dont u think they would without having to pay for it,i mean theres people that dont even watch tv

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garykuz Kojac February 25 2014 at 11:23 AM

Most all cable companies are going to digital signal. So, you will in the neer future be required to have a convert box and pay for it too. More B.S. to think about...

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smacdo8502 TruthBeKnown February 25 2014 at 11:02 AM

hey ur not that old,i remember those days when everyone used antenas for there tv,its a joke what they charge today,i remember when cable first came out and theyd charge u to watch basic tv,i can understand having to pay to watch movies but basic tv should b free

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