The Comcast Netflix Merge

The landmark deal between Comcast Corp. and Netflix Inc. resolves a simmering dispute over who will support America’s growing Internet video consumption.

The agreement, which was confirmed this weekend, comes after Netflix customers complained about deteriorating service, as videos they tried to watch stuttered and stalled in midstream.  The difficulties highlight the increasing problem of Internet network congestion.  To improve the quality of its streaming service, Netflix had been commissioning third parties, such as Cogent Communications Inc., to stream video traffic to Comcast and other Internet providers.  However, Netflix wanted to cut out the middleman and deal with Comcast directly.

Netflix makes up for about 30% of Internet traffic during evening hours, and that percentage is expected to swell as more people subscribe to the popular streaming service.  The company is undergoing one of the fastest growth spurts in the industry, boasting more than 30 million subscribers in the U.S.

It took several months of negotiation before Netflix agreed to pay for direct lanes into Comcast’s networks.  At first, Netflix argued that it should be allowed to install its servers inside Comcast’s network to provide smoother traffic connections.  Comcast argued that Netflix should help shoulder the cost of delivering additional traffic to its networks since it was the heavy consumption by Netflix customers that caused strain to the system.  Comcast was obliged to make sure all traffic was treated equally, a concept known as “net neutrality”, after its 2011 merger with NBC Universal.

Though the storm could have been weathered, Comcast needed to come to an agreement with Netflix as they prepare for a lengthy review by the U.S. Department of Justice and the Federal Communications Commission to gain approval for the purchase of Time Warner Cable at $42 billion.  This merger would give Comcast nearly 30 million pay-TV and Internet service customers.

Netflix and Comcast have portrayed their agreement as a run-of-the-mill business arrangement, this is a win for consumers.  Similar to deals that already exist between the high-speed Internet service provider and companies delivering large volumes of content to its servers such as Google Inc.’s YouTube and Yahoo.  Confrontation between streaming content providers and ISP’s will be pushed years down the line.

I think this merger was a deliberate move initiated by Netflix considering they started streaming directly to Comcast.  This merger will allow Netflix to save money by cutting out middle man while improving their streaming by going straight to the source.  On that same token they will retain their individuality due to the fact they provide a different service from what Comcast provides and are already house hold name in a niche market.  I guess will have to see how everything plays out.

Onyx Contributor:  R.L. Knight