There’s been many arguments by Netflix and others as to why their recent interconnect deal with Comcast is bad for them and for the rest of the market. Some have suggested that when Netflix’s contract with Comcast is up, Comcast will do a bait and switch and raise prices. Others have said that Netflix has to pay more to Comcast than it was costing them to buy transit from Cogent and other transit providers. The reality is, Netflix’s deal with Comcast, which is for more than five years, gives Netflix competitive advantages that no other OTT service provider has.

Imagine having a business where you know your fixed cost of delivery for more than the next five years. You can estimate what your costs will be and plan accordingly, even as your business grows. Based on a recent survey I just completed of more than 700 broadcast, media and entertainment customers that use third party CDNs to deliver video, the average length of contract was under two years. Netflix’s is more than 3x that.

While some want to debate whether or not it’s cheaper for Netflix to go direct to Comcast as opposed to using transit providers like Cogent, it’s not debatable. Netflix’s deal with Comcast is cheaper. Netflix knows it and won’t deny it. In fact, some money managers on Wall Street and others have told me that Netflix is quietly telling them that their deal with Comcast deal is cheaper. By going direct to Comcast, Netflix locked in their costs for more than five years and at the same time, locked in a guaranteed level of QoS with Comcast. I’m not talking prioritization of their packets, that’s not taking place, but Netflix does have an install SLA, packet loss SLA and latency SLA from Comcast, which guarantees quality. This is very different from what Netflix was getting from Cogent because Comcast is providing fully dedicated capacity, unlike sending it through someone like Cogent where those connections are potentially over-subscribed if a transit provider over-sells their capacity, which Cogent has a history of doing. So Netflix now pays less by going to Comcast, and gets better quality.

Can you think of any other OTT service in the market that wouldn’t like to have their costs and quality locked in for more than the next five years, for 1/3 of their customers? Of course not. And even though Netflix is against the Comcast and TWC merger, that deal helps Netflix even more. Netflix’s deal with Comcast covers any other companies Comcast might acquire. So all of the TWC customers that Comcast would get, if the deal goes through, would also fall under Netflix’s contract. Add in the recent deal Comcast just did with Verizon, (6.1M subs) whose contract is also for a long time and if the Comcast and TWC merger goes through, Netflix just locked in their delivery costs and quality for roughly 37% of all broadband subscribers in the U.S. This allows Netflix to spend less on delivery, increase their quality, reduce churn do to streaming issues, and has a direct and positive impact on their bottom line. Show me any company that wouldn’t want this, or feel it’s an advantage.

With all of these benefits to Netflix’s business, this raises the question of why Netflix is out in the market complaining, when it’s actually good for their bottom line and for their customers? Only Netflix truly knows what their strategy is, but I can take a pretty good guess. Even if what you are paying for now is cheaper than what it was before, nothing is better than free. If you can use the media and the public to try to get something for free and no longer have to pay for it, Netflix probably feels like they don’t lose anything by trying.

I find it very interesting that while Level 3 has also been on Netflix’s side regarding how interconnections should work, at no time has Level 3 said they should get it for free. In fact, during Level 3’s original peering dispute with Comcast, and the brief they filed with the FCC last month, Level 3 didn’t say they wanted it for “free”, just that they wanted “commercially reasonable terms”. I have yet to see Netflix asking for what they consider to be fair terms or a lower cost, they are simply saying they don’t want to have to pay anything. There is nothing logical or reasonable about their argument, especially when Netflix gets so many business benefits from their deals with Comcast and Verizon, as does their subscribers.

If Netflix simply wants peering for free, that actually hurts their business. There are no guarantees of capacity, install and performance when it’s free. So Netflix can advocate all they want for it to be free, but if it was, no one would be bound to anything in a free peering relationship and you lose certainty. Maybe all of Netflix’s arguments are intended to achieve some other objective because if you took away the deal they have with Comcast and Verizon, Netflix’s costs and their customers are worse off.

As you can imagine, the appropriate government authorities have subpoenaed the documents pertaining to Netflix’s deal with Comcast, which I’m sure will come up on the hearing on May 8th. So while many have said that there is no transparency when it comes to these deals, the government authorities do know the terms.

Related Posts

– Here’s How The Comcast & Netflix Deal Is Structured, With Data & Numbers

– Inside The Netflix/Comcast Deal and What The Media Is Getting Very Wrong

– Netflix & Level 3 Only Telling Half The Story, Won’t Detail What Changes They Want To Net Neutrality

– Netflix’s Arguments Against The Proposed Comcast & TWC Merger Aren’t Valid

– My Latest Thoughts On The FCC’s Statements and The Netflix/Comcast Dispute

Earlier in the week, I was asked by the U.S. House Committee on the Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, to be a witness at the upcoming Comcast & Time Warner Cable merger hearing, taking place on May 8th. The invite was for me to give details and background on interconnect agreements and how they work. A few people in the industry heard I turned down the request and wanted to know why, considering how much I have been writing on the topic as of late. I think it’s a fair question for them to ask, so I wanted to put it on record as to why I had to decline the invite.

While I would have liked to have testified, the timing simply didn’t work out. The date of the hearing is only two days before I pack up and leave for my CDN Summit and Streaming Media East conferences in NYC, which requires a lot of work. I made a commitment to those events first, not to mention all of the vendors, speakers and attendees that attend, to whom I have a commitment to produce the best show possible. It would have been nice to have done both, but I simply can’t get it all done in the allotted time. In addition to my oral testimony, I would have had to provide a detailed and in-depth written statement, with only six days to get it done, based on the timing of my invite. That leaves little time to prepare something that would have been rushed, which is not the kind of work I want to produce.

Some have said I am crazy not to do it based on the exposure it would get me, but I don’t select which jobs I take on based on the exposure. If I write something that a lot of people read, or do a presentation at an event that people find useful, that’s great. But I’m of the firm belief that picking and choosing which jobs you take on, simply based on how many people might see you, means you are putting your ego first, which to me, isn’t the right reason to do it.

I do realize that it is an honor to have been asked and I thank them for the opportunity. I take my commitment to the industry very seriously and will do everything I can to try to help educate others, when it is within my means to do so.

On Monday May 12th, at the Streaming Media East show in NYC, Jan Ozer will be teaching a hands-on webcasting production workshop. Learn everything you need to know about webcasting from choosing the right gear and selecting a webcasting platform, to alternatives for delivering the encoded stream to the streaming server. This two-part hands-on workshop will help give you the skills you need to execute your live events as smoothly and efficiently as possible. Tickets are only $395. Topics that will be covered include:

• learn the nuts and bolts of production
• how to select the right gear
• setting up lighting
• streaming, planning, and implementation
• choosing a webcast platform
• video encoding and optimization
• choosing a live streaming encoder
• bandwidth requirements

Attendees will leave this workshop knowing the gear they need to produce a high quality live event and receive planning and implementation checklists that will help you execute your events as smoothly and efficiently as possible. You won’t get a full day of instructional information like this anywhere else in the industry, let alone for $395. We’ve kept the price down to keep it affordable for everyone, so sign up now before all the space is gone.

I appreciate so many people being interested in what I have to think about the latest comments by the FCC and the latest hair pulling fight between Netflix and Comcast. Since I’ve gotten so many emails and questions on the topic, I figured another blog post was needed. On the FCC and net neutrality topic, I really don’t have any comments on that yet, as it’s too early and we don’t have any concrete info on what exactly is being proposed. While FCC Chairman Tom Wheeler published a blog post on Thursday, it does not say much. The post is entitled “Setting the Record Straight on the FCC’s Open Internet Rules,” but it doesn’t do anything of the sort.

The post is vague, with no real definitions and is full of words and phrases like “unreasonable” and “commercially reasonable”. We don’t have any idea what those words mean, how they are defined, or the scope of what they will or will not cover. I see people making a lot of guesses or assumptions on what will take place, but I’ll save judgement on that until I have something tangible and detailed to review. Without it, my guess is just as good, or bad, as anyone else’s on what may or may not transpire.

I will add that personally, I’m tired of hearing so many consumer advocacy groups quoted in the media telling everyone that as a consumer, I need to be saved from the harm that will come to the Internet. They don’t even have the details on what’s being proposed be it the business terms, how compliance will be monitored, who exactly will be in charge of it, or how any of these rules will work. And many of them, can’t tell you the different between peering and transit or speed versus capacity. Just because they call themselves a consumer advocacy group, does not mean they know the subject they are being quoted on. Personally, I think the Internet has worked pretty well over the past twenty years that I have been on it, so I’ll save judgement on what good or harm will come from this until I have more details.

On the Netflix and Comcast dispute, honestly, it’s getting really tiring watching two billion dollar companies try to use the media, and consumers, to convince us of their stance on the subject. Netflix is standing behind blog posts and letters filled with vague, high-level terms, which many times are inaccurate. I say stop all the posturing, show the data you have and let all of us decide what makes the most sense. Stop deciding for us what you think is best and let the consumer, or those who track the industry, decide. Netflix and Comcast both have a lot of data on what’s actually taking place on the backend, from a technical and business level, yet they won’t use any of it when they make their arguments.

If Netflix wants to solve this, make points with facts, real data and numbers, not assertions based on opinions. It’s fine if Netflix has a different take than Comcast or anyone else, but then treat it as such and don’t call things “unprecedented” just to exaggerate and get people all worked up. If either company wants us to takes sides with them, show some transparency as to what’s taking place, especially when it comes to the numbers. I don’t care what anyone says, this debate is all about big business, with both Netflix and Comcast wanting to protect their bottom line. It’s about dollars and cents and who can spend less and have better margins. Any other implication by either side is simply not genuine.

While it is about business for both sides, Comcast has the leg up in this regard as their argument is that interconnection deals have been taking place for a really long time, and they are right. This is how the Internet has always worked and anyone who builds their own CDN, like Netflix has done, has costs associated with connecting to any ISP, if it does not fall within the ISPs peering policy. If Netflix wants to argue that this is no longer the Internet of 2000, or that an ISP like Comcast is now too big and has an unfair advantage, then that’s a fine argument. But it won’t go far without facts and the burden of proof is on Netflix to prove this is bad for everyone.

Netflix has been very vocal to say it’s bad for the whole Internet and consumers, but the one point I hardly ever see anyone talk about is why Netflix is all alone in their corner? Why aren’t other large content owners/distributors backing them up? Why isn’t there a big contingent of content companies rallying around Netflix? Where is Google? Apple? Microsoft? Amazon? They all have a stake in this, if Netflix’s argument is to be believed, especially because they all operate their own CDNs. I find it odd that no one really seems to mention that to date, Netflix is standing alone on this topic, being backed up by no other major content owner.

It also does not help Netflix’s cause that they are all over the place in their statements. When the media and others were stating, with no proof, that Comcast was throttling Netflix’s stream, Netflix’s CEO said he didn’t think that was the case, and we’ve seen no proof to show otherwise. Netflix then signs a deal with Comcast saying it was “a mutually beneficial” agreement, but then weeks later says it isn’t and they did the deal because they had no choice. Netflix said it was a mutually beneficial agreement because in reality it is, from a cost and quality standpoint. The only thing more beneficial to them, would be if they didn’t have to spend any money with Comcast, but still got the improvement in quality.

As I have said before, if Netflix thinks the economics of the CDN market need to change, I’m all for that debate and listening to their reasons. But it seems, at least to me, that Netflix isn’t saying they are paying too much, but rather they should not have to pay anything at all. Am I the only one who feels like every time Netflix makes their argument they sound like someone who always wants everything for free? BOTH sides should bear the cost to improve video quality as it benefits both companies. If that’s what Netflix is proposing, then they need to detail what those numbers are and how BOTH sides pay for it. You can’t try to debate something in a public forum, but then hold back all the data that’s needed to solve the problem.

For those not following the latest happenings between Netflix and Comcast, and I don’t blame you if you aren’t, it’s very time-consuming, and frankly, getting tiring. On Thursday, Netflix’s VP of Global Public Policy sent a letter to Sen. Al Franken. In the letter, he once again reaffirmed Netflix’s statement that Comcast should not merge with TWC as it would be bad for consumers and content owners. Comcast then replied with a blog post about the letter, saying Netflix isn’t being honest about its cost-shifting strategy. Netflix’s person responsible for their CDN, Ken Florance, whom keynoted my CDN Summit show last year, published a post on Netflix’s blog, signaling out Comcast as the one troublemaker. The post points out that “Comcast alone sets the terms and conditions for access to Comcast subscribers,” which is true, because it’s Comcast that owns the Network.

In the letter Netflix sent to Sen. Al Franken, Netflix said they are “committed to sharing facts with policymakers to increase their understanding of this issue.” That’s a bit disingenuous to me. Netflix is using the public to their advantage, getting consumers to complain to Comcast, but then aren’t willing to share “facts” in a public forum. If you stand behind your argument, show what you have, give us the data, and state your case with the evidence you have. This is the same request I made in some of my previous blog posts, but I’m not expecting Netflix to do it, which is a shame.

This whole argument between Netflix and Comcast is pretty childish. Two billion dollar companies who can’t come to an agreement for the benefit of consumers and their own customers. I’m amazed that Netflix would rather the government get involved, which is crazy, considering what kind of track record they have in solving problems. And before I get hate mail saying I am talking down on our country, I’m not. I spent six years in the military, I respect my country, but our legislators don’t have a great track record when they start making policies around technologies they don’t understand.

I’ve got to get some sleep, but the comments section is open and I’ll try to get to any questions when I can.

With all the talk of how much traffic video on demand services like Netflix and YouTube take up on carrier networks, one fact being overlooked by many is that live streaming traffic is exploding, and is harder to deliver. There are a lot of solutions and options in the market to cache VOD content, but trying to do the same for live streaming isn’t easy since to date, vendors in the market haven’t been focused on live caching platforms. It’s one of the reasons why transparent caching provider Qwilt recently announced the first carrier solution I know of in the market specifically to cache live streaming. Following up that announcement, on Wednesday Qwilt updated its live stream caching platform to allow operators to cache and stream Twitch content from within the carrier network.

To put the growth of live streaming in perspective, just take a look at some of these impressive numbers. Live streams of video gaming championships are one of the fastest growing segments of the industry. Last year, the League of Legends Season 3 World Championship broadcast peaked at 8.5M simultaneous streams. Twitch, which is now on the Xbox One and PS4 has 1M people streaming live footage each month and some of the most popular gamers are doing 137,000 simultaneous streams just from their single account.

The growth of Twitch in particular is incredible with some saying that Twitch now commands 1.8% of peak U.S. internet traffic, and is in the top 10 list of video sites. Based on data from North American broadband operators who have deployed Qwilt’s transparent caching platform, in December, Twitch was sixth on the list of top video entertainment sites and number one in the live category.

Seventy five percent of carriers I speak to are now asking about caching of live video streaming and Qwilt said they saw this problem coming month ago, and had been working on a solution since then. Twitch is growing so fast that they will be the keynote speaker in two weeks at our Streaming Media East show, on Tuesday May 13th in NYC.  Matthew Szatmary, Senior Video Encoding Engineer at Twitch will kick off the show and the day before, on Monday May 12th, Alon Maor, CEO of Qwilt will present on “Building The Open Architecture For VOD And Live Caching In Operator Networks”, at our Content Delivery Summit event.

If you want more details, with data, on Twitch’s impact on the Internet, check out Qwilt’s very informative page at qwilt.com/twitch

If you want to learn how video is cached inside the last mile, how Netflix, Comcast and Google build out their CDNs and what’s taking place in the CDN industry, come to the Content Delivery Summit on May 12th in NYC. This one-day highly focused event brings together telecom carriers, service providers, content owners, and industry vendors for a detailed look at web, acceleration and media delivery infrastructure. Register with the discount code of 100DR and get a ticket for only $395.

Learn about transit, last mile video delivery, multi-CDN deployments, licensed and managed CDN, dynamic content acceleration, measuring QoS, delivering live events and hear what some of these services cost. See the latest solutions in the market from some of the leading vendors and meet the new startups who want to disrupt the industry. At the Content Delivery Summit, real business gets done as this is the place to meet those who are building out some of the largest public and private CDN deployments to date.

As conference chairman, I am providing introductions between attendees and presenters and will introduce you to those you want to do talk to. Get the personalization you don’t get at most shows. Conference topics and presentations will include:

• Building the Netflix Open Connect CDN
• Deploying A Multi-CDN Environment For Content Providers
• Google’s Approach to Content Delivery
• Scaling The Comcast CDN
• Real User Measurements for CDN Performance Monitoring
• Using SDKs for Improving End-To-End Mobile Performance
• Evaluating Different Caching Strategies Inside an Operator Network
• Uncovering the Real Reasons Why Online Audiences Leave
• Dynamic Content Acceleration: Lightning Fast Web Apps
• Optimizing Mobile Engagement & Cross-Device Experiences
• New Strategies For OTT Monetization
• The Business Challenges of Delivering Content to Emerging Markets
• Building The Open Architecture For VOD And Live Caching In Operator Networks
• CDN As A Virtual Network Function: Lessons Learned
• Using Managed DNS to Integrate Multiple CDN Providers
• Using Big Data for Real-time Video Stream QoE Optimization
• Video CDN Data: Pricing, Contract, Volume and Market Sizing Trends

The event will kick off with a keynote from Bob Toohey, President, Verizon Digital Media who will also join speakers from Comcast, Netflix, Google, Yahoo!, Viacom, Deutsche Telekom North America, Level 3, Amazon, Etsy, Cedexis, Qwilt, Ericsson, MileWEB, Yottaa, PeerApp, Tata Communications, Instart Logic, Limelight Networks, Hewlett-Packard, Conviva, Citrix Systems, DYN and others.

I am pleased to announce that Matthew Szatmary, Senior Video Encoding Engineer at Twitch will kick off the Streaming Media East show, on Tuesday May 13th in NYC. Launched in 2011, Twitch is the world’s leading video platform and community for gamers where more than 45 million gamers gather every month to broadcast live video, watch and chat about gaming. In February 2014, the Wall Street Journal ranked Twitch as the 4th largest website in terms of peak internet traffic in the U.S. fortifying the brand as an entertainment industry leader and the epicenter of social video for gamers.

Live streams of video gaming championships are one of the fastest growing segments of the industry. Last year, the League of Legends Season 3 World Championship broadcast peaked at 8.5M simultaneous streams. Twitch, which is now on the Xbox One and PS4 has 1M people streaming live footage each month and some of the most popular gamers are doing 137,000 simultaneous streams just from their single account.

Come hear how Twitch is developing next generation encoding services and playback technologies to serve live video to one of the Internet’s largest audiences. Register online for an exhibits pass using the code DR100 and you’ll have FREE access to the keynotes.