Netflix takes on internet providers: the fight for the future of online media

A report published this afternoon by The New York Times details one of the possible plans the FCC may debut in their attempt to establish new rules around net neutrality and the open internet. It takes a "hybrid" approach, dividing the new regulations between commercial or wholesale internet traffic and retail or residential internet traffic. In a nutshell, this would mean content companies like Netflix will get the price controls they want when it comes to dealing with companies like Comcast, Verizon, and AT&T. But those companies will also be allowed to give certain data a fast lane over their networks if it was "justified," cementing the gutting of net neutrality that occurred when Verizon defeated the FCC in court.

Earlier this week the research consortium M-Lab released a big report on the way data moves through the guts of our internet infrastructure. It focused on interconnection points, the shared equipment nodes where different networks exchange data so that it can move around the world and into your home. What it showed was that business disputes — between transit ISPs like Cogent and Level, which carry data around the world, and access ISPs like Verizon and Comcast, which carry it the last mile to your home — were having a dramatic effect on the ability of many American consumers and businesses to access the internet, reducing the flow of data to the point where even basic tasks like email would be slow or impossible.

Apple has apparently turned on its new content-delivery network, and is reportedly paying Comcast and other big ISPs to move hardware into their data center and build direct interconnects to their networks. This is the exact same evolution that Netflix has been going through, building out its own CDN and agreeing to pay ISPs for interconnection. The major difference is that Netflix has loudly opposed the fact that ISPs can charge a fee for this arrangement, while Apple has stayed mum on the issue.

Netflix has signed another interconnection deal with another ISP: AT&T. The two sides have reached an agreement that should over time result in better streaming performance for Netflix subscribers. Terms of the deal aren't being disclosed, so we don't know how much Netflix paid for direct access to AT&T's network. But it's likely modeled after similar deals Netflix reached with Comcast and Verizon earlier in the year. Mashable first reported the new agreement between Netflix and AT&T.

Unbeknownst to customers, Netflix and AT&T actually came to an interconnection agreement back in May. But the company is only now "beginning to turn up the connections," a spokesperson told The Washington Post. That process will be completed within a couple days, though it may take longer before buffering and playback interruptions become a thing of the past for U-verse customers. Verizon hasn't exactly taken the ISP performance chart by storm in the months since reaching its deal with Netflix, and AT&T has traditionally ranked fairly low on the list. The FCC has said it's looking into streaming hiccups customers have experienced as Netflix, ISPs, and companies like Level 3 and Cogent continue to spar over who's responsible for shouldering the costs of delivering content across the web. "Consumers must get what they pay for," FCC Chairman Tom Wheeler said last month.

There's a new volley in the war of words over the internet congestion that is hurting the performance of Netflix streaming video: Verizon published a blog post this morning pointing out that, back in 2005, Level 3 got into a dispute with fellow internet provider Cogent over an imbalance in the way they shared traffic. Level 3's position was that Cogent needed to find a way to balance that traffic or pay for the difference. Verizon argues that this is exactly the same dispute now playing out between itself and Level 3, except this time Level 3 is the one sending too much traffic and trying to avoid paying to correct the imbalance.

Colin Nederkoorn, a startup CEO living in New York City, was unhappy with his Netflix service. He pays Verizon for FiOS service that promises 75Mbps down. But when he tried to stream video, it was a miserable experience, with buffering and low-definition pictures. So Nederkoorn decided to measure the speed of his connection. What he found was that when he was streaming Netflix he was getting speeds of just 375kbps, or 0.5 percent of what he was paying Verizon for.

In essence, Verizon's story matches up pretty well with the one being pushed by Netflix and Level 3. It's saying that Netflix traffic has overwhelmed the points of connection between the ISP and the middlemen who deliver this data for the streaming video giant. The key difference is that Verizon says Netflix could solve this problem easily by spreading its traffic over multiple transit providers. Level 3 is arguing that the best solution would be to simply upgrade Verizon's network, a process it claims to have offered to pay for.

The Internet Association, a trade group composed of some of the biggest tech companies in the world, has filed comment with the FCC asking it to intervene in the conflict over payments being demanded by big ISPs. According to a report in The Hill, companies like Comcast and Verizon are charging Netflix and others for direct interconnection to their networks, a move which allows these companies to bypass congestion and avoid service issues like video buffering. The group wrote in its letter that "interconnection should not be used as a choke point to artificially slow traffic or extract unreasonable tolls."

This is the latest volley in a war of words between big internet companies and the ISPs that carry their data into customers' homes. On Friday Verizon published a chart illustrating what it said was the real problem. According to Verizon companies like Netflix are intentionally allowing congestion to develop by trying to push massive amounts of data through a few chosen providers. If Netflix wanted to, Verizon alleges, it could simply spread that data across more third-party transit providers, a slightly more expensive solution that would alleviate the bottlenecks that are causing performance issues. Netflix, on the other hand, says the ISPs are refusing to perform simple upgrades to their system in an attempt to create bottlenecks and extract payment.

Verizon, in an ongoing and escalating war of words with Netflix, put up a blog post today arguing that the streaming television provider is the real cause of internet "congestion" that has created performance issues for its customers. Netflix had previously sent its customers messages blaming congestion on Verizon's network, messages it withdrew after a Verizon filed a cease and desist. And while many consumers have been siding with Netflix in blaming the big ISPs, the truth is that Netflix shares a big chunk of the blame.

After months of complaints by Netflix, the Federal Communications Commission is beginning to look into the streaming quality issues that Netflix subscribers have been seeing on Comcast and Verizon. Netflix has been in a heated and public battle with internet providers over network congestion that's supposedly slowing its service down, with both sides pinning responsibility on the other. "Consumers pay their ISP and they pay content providers like Hulu, Netflix, or Amazon. Then when they don’t get good service they wonder what is going on," FCC Chairman Tom Wheeler says in a statement. "I have experienced these problems myself and know how exasperating it can be."

The FCC has obtained the terms of the agreements that Netflix made with both Comcast and Verizon earlier this year that have it paying them both in order to resolve these issues. The FCC says that it doesn't yet have a full understanding of what's occurring between the companies, and it's continuing to evaluate to see who's at fault for the connection problems. "Consumers must get what they pay for," Wheeler says. "As the consumer’s representative we need to know what is going on." Wheeler says that the FCC is continuing to request information from internet and content providers.

Netflix will stop sending messages to its subscribers blaming internet providers for poor streaming speeds — though it may start sending them again in the future. In a blog post accompanying its monthly speed reports, released today, Netflix says that it will be ending the "small-scale test" of these messages, one of which gained wide attention last week for claiming that Verizon's network was congested. Verizon issued a cease and desist against the messages on Thursday, claiming that Netflix could not prove that its network was at fault. While Netflix won't be ending them immediately, it says that the tests will stop on June 16th, at which point the company will consider whether or not it should roll them out on a wider scale later on.

Though the terms of Netflix' deal with Verizon are not public, it should ultimately give Netflix's traffic a direct connection to Verizon, theoretically improving streaming performance a good deal. It's likely then that those connections are yet to be fully established and that an improvement in speeds will still be seen in the near future. Comcast's customers also saw a slight dip in May, so it's possible that there are other factors at play for the decreased performance this month. Verizon declined to comment on Netflix's report, but previously told The Wall Street Journal that putting the new deal into place would take months.

Verizon has sent Netflix a cease and desist order demanding that it stop presenting its subscribers with messages that blame Verizon's network for poor streaming performance. Netflix's messages are actively meant to knock Verizon — among other service providers — that it alleges have been hurting streaming quality, either actively or through failing to properly maintain their networks.

Verizon has vehemently disagreed that it's at fault for dips in performance, and it reiterates that in the order. "There is no basis for Netflix to assert that issues with respect to playback of any particular video session are attributable solely to the Verizon network," reads Verizon's letter.

Verizon has struck back at what it calls a Netflix "PR stunt" that blames its network for poor video quality. In May, Netflix began testing an error message telling users that congestion with their ISP was hurting their service quality. "The Verizon network is crowded right now," said one message shown during buffering. But "this claim is not only inaccurate, it is deliberately misleading," says Verizon, suggesting that the choice was a political move meant to score points in the net neutrality fight. "It is sad that Netflix is willing to deliberately mislead its customers so they can be used as pawns in business negotiations and regulatory proceedings," it says. Here's its reasoning:

Netflix wants you to know whose fault it is that your movie isn't loading — and, big surprise, it's pinning the issue on internet service providers. As spotted by Vox Media designer Yuri Victor last night, Netflix is testing a notification that would inform subscribers when their internet provider's network has become congested and started to hurt their video. "The Verizon network is crowded right now," Netflix's message to Victor, a FiOS subscriber, read, after playback was paused to adjust the stream. As Recode points out, Netflix's communication chief, Jonathan Friedland, replied on Twitter to say that it was testing the message as a way to "keep members informed."

The new notification is just the latest strike by Netflix in an increasingly heated battle that it's entered with service providers over net neutrality and overall quality of service for its videos. Over the past several months, it's signed deals with Comcast and Verizon meant to increase performance, though Netflix has argued that it shouldn't have to make these deals in the first place, suggesting that internet providers were throttling its speeds in order to force it to start paying. Indeed, Comcast's speeds shot up dramatically after a deal was cut; Netflix hasn't yet reported on streaming speeds following its deal with Verizon though, so it's unclear if it saw a similar improvement there.

Google fired a shot across the bow of big ISPs like Comcast and Verizon yesterday, stating in a blog post from its Fiber division that it would never charge a content company like Netflix fees for a direct interconnection with its network. This positions Google squarely behind Reed Hastings, who has argued that such interconnect fees are an unfair toll being charged by internet gatekeepers and that the FCC should ban them as part of an expanded definition of net neutrality. The public display of allegiance from Google, siding with Netflix against the ISPs, is part of the larger battle heating up as the FCC debates the future of its open internet rules.

Netflix just confirmed that it will pay Verizon for direct access through the carrier's network, allowing for improved streaming video for customers. According to a brief statement, "We have reached an interconnect arrangement with Verizon that we hope will improve performance for our joint customers over the coming months." The announcement mirrors a similar peering deal inked earlier this year made by Netflix and Comcast, and likely won't be the last of its kind.

The details of the arrangement are currently confidential. However, they surely must come as a foregone conclusion at least for Verizon CEO Lowell McAdam, who said that he expected to sign a deal with the streaming company days after the Comcast agreement. However, the deal flies in the face of the stance Netflix has thus far espoused, saying that preferential treatment violates their definition of true and total net neutrality. In an impassioned blog post, CEO Reed Hastings wrote, "The essence of net neutrality is that ISPs such as AT&T and Comcast don't restrict, influence or otherwise meddle with the choices consumers make." After the company made what many saw as a Faustian pact with Comcast in February for direct connectivity, Hastings conceded that the company would reluctantly make deals of that kind going forward, while still fighting for net neutrality.

When Netflix opposed Comcast's looming merger with Time Warner Cable on Monday, the streaming video company did so by raising net neutrality concerns. It argued that Comcast could use its newfound power to charge a toll for content that might compete with its own video offerings — a toll like the one that Netflix already found itself paying to improve the quality of streaming for Comcast customers. Comcast wasn't too happy about that, of course, firing back that it was Netflix's decision to cut out the middleman and work directly with Comcast to speed things up, and that the fee is standard practice for companies that offer "transit service" to quickly move data between networks.

But in a new blog post, Netflix now claims that Comcast isn't truly offering "transit service." It accuses Comcast of extorting content companies and its own customers by charging twice for the same content.

Netflix has come out in opposition of Comcast's proposed purchase of Time Warner Cable, writing in a letter to shareholders that the merger would give the combined service provider "even more anticompetitive leverage" to charge businesses "arbitrary" fees before they can access customers. This view is, of course, no surprise: Netflix has already been pressured by Comcast into paying what it views as a net-neutrality violating fee in order to improve streaming service to its subscribers, and it's certainly fearful that it'll have to pay more of these down the road and that Comcast could even eventually come to directly compete on streaming with a service of its own.

"If the Comcast and Time Warner Cable merger is approved, the combined company’s footprint will pass over 60 percent of US broadband households," Netflix writes, noting that this figure includes Comcast's proposed divestiture of equipment that would bring it down to serving just 30 percent of the US market after the deal closed. Netflix says that with the decline of DSL, "Comcast could control high-speed broadband to the majority of American homes."

Netflix customers on Comcast are already seeing the benefits of a controversial pact between the streaming service and cable provider. Comcast jumped five spots in Netflix's ranking of ISP performance for the month of March. It now sits in fifth place, delivering an average streaming speed of 2.5Mbps — up from the pitiful 1.15Mbps average Comcast delivered to Netflix subscribers in January.

"This month’s rankings are a great illustration of how performance can improve when ISPs work to connect directly to Netflix," said Netflix. It's also a great illustration of what happens when Netflix pays off cable providers to speed things up: Comcast now charts above Verizon FiOS and even Time Warner Cable, the very company it's hoping to snatch up in the coming months.

The Federal Communications Commission made clear today that it won't heed Netflix CEO Reed Hastings' call to expand the scope of net neutrality to regulate the way companies connect across the physical infrastructure of the internet. This system, which includes internet companies like Netflix, middlemen like Cogent, and internet service providers like Comcast, is the backbone that moves data across the country from Netflix servers into consumers' homes.

Netflix CEO Reed Hastings published an impassioned blog post last week criticizing internet service providers like Comcast and Verizon for asking his company to pay interconnection fees in order to ensure that their data reaches customers with speed and quality. "Some big ISPs are extracting a toll because they can — they effectively control access to millions of consumers." he wrote. This toll, says Hastings, violates Netflix’s definition of true and total net neutrality.

So why did Netflix agree, just one month earlier, to pay Comcast and violate its own stated principles? According to Hastings, "Netflix believes strong net neutrality is critical, but in the near term we will in cases pay the toll to the powerful ISPs to protect our consumer experience." That is certainly part of the truth. Given Comcast’s massive size, Netflix could no longer afford to have so many customers suffering poor service.

AT&T's Jim Cicconi, who oversees the telecom's global public policy, waded into the increasingly heated debate over the future of net neutrality today. Cicconi published a response to Reed Hastings, who earlier this week accused the big American ISPs of violating net neutrality and harming consumers by creating data bottlenecks in their networks and then asking companies like Netflix to pay for upgrades that would alleviate this congestion.

It was revealed over the weekend that Netflix and Comcast had struck a historic deal: for the first time the streaming-video service would pay the cable giant in order to ensure that the huge volume of data it was sending would arrive swiftly and smoothly in customers' homes. This came after months of Netflix traffic performing increasingly poorly on Comcast's network. Also at issue is the massive increase in the last few years of Netflix's size; it grew to encompass roughly one-third of all internet data piped across the United States during prime-time video-viewing hours.

Verizon's CEO wasted no time in announcing that the company expected to strike a similar bargain. On CNBC this morning Verizon's chief Lowell McAdams revealed that Netflix and Verizon have been in talks for almost a year now, and that he expects to finalize a deal soon. "If you see someone come in with a lot of load on the internet, [with] video, you've got to get that in an efficient place. So making the connection far out on the network is a good thing, and frankly, paying for it," said McAdams. "To me this shows you don't necessarily need a lot of regulation in a dynamic market here. By doing these commercial deals we'll get good investments and good returns for both parties."

US cable giant Comcast has announced a deal with Netflix allowing Netflix's video-streaming service a more direct route through Comcast's network, which should improve streaming video quality for viewers. The first indications of the new deal between the companies came last week after App.net founder Bryan Berg observed more direct routes for Netflix data through Comcast's network. The Wall Street Journal reported on Sunday night that the change was the result of a formal, paid agreement between the two companies, but Comcast does not specify how much the deal is worth.