There’s been a lot of speculation involving the business and technical details surrounding the recent deal between Comcast and Netflix and plenty of wrong numbers and information being used. I thought it would be helpful to detail what’s really taking place behind the scenes, highlight some important publicly available data in the market, talk about the deal size, and debunk quite a few myths that people are spouting as facts. It’s time we cut through a lot of the misconceptions of the deal, from both a business and technical level, and focus on what’s really happening. This is a long post, but if you really want to know what’s happening, I’ve tried to make it really detailed. [My first post on the deal can be found here: Inside The Netflix/Comcast Deal and What The Media Is Getting Very Wrong]

From a technical level, Netflix has their own servers that are sitting inside third-party colocation facilities in multiple locations. To connect Netflix’s servers to ISPs, Netflix buys transit from multiple providers, which then connect their networks to the ISPs. Netflix pays the transit providers for those connections and with that, gets a certain level of capacity from the transit provider. While Cogent is one of the companies Netflix is buying transit from, they are not the only one. Netflix buys transit from multiple companies, including Cogent, Level 3, Tata, XO, Telia, and NTT, with Cogent and Level 3 being the primary providers. Transit providers like Cogent then connect their networks to ISPs like Comcast in what’s called peering. This is where a lot of the confusion starts as many are under the impression that ISPs like Comcast are suppose to allow any transit provider to push an unlimited amount of traffic into their network without any compensation. This isn’t a Comcast specific policy, but rather one that is standard for all ISPs.

ISPs have something called a peering policy (comcast.com/peering), which are rules that govern how networks connect with one another and exchange traffic. ISPs like Comcast will allow transit providers like Cogent to connect to their network, for free, in what’s called settlement-free peering. However, once the transit provider sends more traffic to the ISP then they are allowed to, per the ISPs peering policy, the transit provider pays the ISP for more capacity to get additional traffic into their network. Remember, Netflix is the one paying Cogent and Cogent is selling Netflix on the principle that it can get all of Netflix’s traffic into an ISP like Comcast. As a result, Cogent has to take all the necessary business steps to make sure Cogent has enough capacity to pass Netflix’s traffic on from Cogent’s network to Comcast. But Cogent isn’t doing that.

The reason for the poor quality streaming is that Cogent refuses to pay Comcast to add more capacity, even though Cogent is taking Netflix’s money for the service. Cogent is charging Netflix for a service it can’t deliver. Some are arguing that Comcast should be the one to pay to upgrade that connection with Cogent since Comcast charges consumers to get access to the Internet and is double dipping by charging both the consumer and the content owner. In reality, they aren’t. Netflix does not need to go direct to Comcast and pay them anything, they chose to because they could not get the level of service they were paying Cogent for directly. Netflix has also decided it makes more business sense for them to build their own CDN instead of relying 100% on third party CDNs (cdnlist.com) like they used to.

You will notice that when Netflix was using third party CDN providers Akamai, Level 3 and Limelight for 100% of their video delivery, there were no quality issues. Just look at their speed ratings from 2012. The reason for this is that those CDNs already have their servers connected to ISPs like Comcast and have put in place all the necessary links, both free and paid, to guarantee, via an SLA, that they can deliver Netflix’s video. So for all the people who say that Comcast forced Netflix into paying or is strong arming them, that is not true. Netflix has multiple options in the market for delivering good quality video, but Netflix chose to build their own CDN and change their delivery strategy because they want to have more control over it and save money. Netflix’s streaming quality is based on business decisions, that’s it.

In a little known, but public fact, anyone who is on Comcast and using Apple TV to stream Netflix wasn’t having quality problems. The reason for this is that Netflix is using Level 3 and Limelight to stream their content specifically to the Apple TV device. What this shows is that Netflix is the one that decides and controls how they get their content to each device and whether they do it via their own servers or a third party. Netflix decides which third party CDNs to use and when Netflix uses their own CDN, they decide whom to buy transit from, with what capacity, in what locations and how many connections they buy, from the transit provider. Netflix is the one in control of this, not Comcast or any ISP.

As a result, this also shoots down all the arguments where people are saying that this deal is bad because streaming services that aren’t as big as Netflix won’t be able to cut the same direct deal with Comcast. Why would they? They don’t need to connect directly to Comcast as they don’t have enough traffic for it to make sense and haven’t built out their own CDN. All they have to do is use a third party CDN provider to be able to get their content to the ISP with excellent quality, guaranteed with an SLA by the CDN. Nearly every single content owner today outside of Netflix, Google, Microsoft, Yahoo, AOL, Amazon and a few others all use third party CDNs for video delivery. Pick any major broadcaster, sports league, Hulu etc. they all use third party CDNs as they are cheap and back up their service with a guarantee. It works really well.

Now that Netflix has a deal direct with Comcast, here’s how it will work. Netflix’s servers that are sitting in third party data centers connect to Comcast’s network, which is also in the building, via a cross connect that Netflix buys from the co-lo facility provider. While I have heard people say that Netflix will need thousands of physical interconnects into Comcast’s network, that’s not accurate. Comcast has a total of 18 national locations (public info) and Netflix and Comcast will initially connect in about 10 of those locations to start. Out of those 10 locations, Netflix will need 300+ 10GigE ports. Netflix gets a guaranteed level of service from Comcast but as the two companies have announced, Netflix does not get any prioritization in the last mile. This is also where many are getting confused. Some are saying that Netflix is now getting “guaranteed delivery through the last mile”, but that’s not true. That would be paid prioritization, which Comcast cannot do and does not offer.

Moving on to the deal size, I’ve seen all kinds of crazy numbers put out there, with many saying Netflix will spend $25M-$50M a year with Comcast. Some even reported that Comcast was asking Netflix to pay $400M, based on a report put out by Wedbush Securities, which I will get to in a moment. While I do have a lot of sources and are privy to a lot of details others aren’t, there is plenty of public and easily accessible data that allows you to get a good estimate on the size of this deal and debunk the numbers being reported. For starters, no one has reported how much traffic Netflix is actually sending into Comcast’s network and you need to know that before you can discuss the size of the deal. Without doing that math first, any dollar signs attached to this deal are pure guesses.

In 2012, Comcast said they were carrying 4 Tbps of traffic and with the current Internet growth rates, one could easily extrapolate that Comcast’s network is now at 8 Tbps. Based on Sandvine’s data that says Netflix account for 1/3 of traffic, Netflix would need about 3 Tbps of capacity from Comcast today, with that number growing. The way these deals are priced is on a per Mbps sustained model, also known as 95/5 or 95th percentile. Wedbush Securities put out a report that ran numbers based on a per GB delivered model, not per Mbps sustained, saying “Comcast likely sought as much as $0.01/GB transmitted”.

They then estimated that each of Netflix’s 33M U.S. subscribers consume 100 GB of data per month and came up with a total of 3.3B GB of data delivery per month, saying “Netflix would be required to pay approximately $400M per year.” While Wedbush’s numbers are wrong and aren’t using the per Mbps sustained model, the number they gave out was for all of Netflix’s delivery, across all ISPs, not just Comcast’s. However, the media didn’t read it right and went with the idea that Comcast was asking Netflix for $400M, which is sloppy reporting. Once one media outlet said it, many never second guessed the number and started re-quoting it. In the end, Wedbush said they “estimate that Comcast will charge Netflix between $25M-$50M annually”, which still isn’t right and they provide no methodology of how they came up with that range. I provide methodology below to show it’s not accurate.

What no one seems to have noticed is that Comcast has previously stated that less than .1% of their total revenue came from these kind of commercial interconnect relationships in 2013. That means that for all of last year, Comcast got paid between $30M-$60M, which included all of the similar deals they have with Google, AOL and others. So the idea that Netflix would be larger than all of those deals combined, makes no sense. If you want to get a sense, not an exact number, but an idea of what Netflix is paying use transit pricing.

I laugh when I see all of these “save the internet” people saying these deals are bad as they are clouded in secrecy and no when knows what’s really taking place. When we know how much traffic Netflix has and we know the average going rate of transit, both public numbers, you can estimate what Netflix’s cost is. That said, keep in mind a few things. Transit pricing is higher than what Netflix pays Comcast as wholesale is cheaper than transit. Also, Netflix is not the “average” customer and their contract clearly has to have a lot of variables in it, with lots of sliding scale pricing, and different ways to measure it, since the volume of their traffic increases so quickly.

So with those caveats, some of the lowest transit pricing I have seen, which I have previously published here, is around $.50 per Mbps. If Netflix needs 3 Tbps of capacity from Comcast to start, that would cost Netflix $1.5M per month. But, and this is a big one, Netflix isn’t the average customer. Their price will be special and they have a multi-year contract and a lot of variables. So to get a “rough estimate” of what this deal costs Netflix, simply pick whatever per Mbps price you want and multiply it times 3 Tbps. Some will pick a higher number, some lower. If you pick a number a bit lower than $0.50, this deal would cost Netflix about $12M per year. But run the numbers yourself using whatever variable you want, now that I have outlined how much capacity Netflix needs.

I have seen people suggest that Comcast will pull a bait-and-switch on Netflix and raise rates or not deliver good quality video now that they have them locked in a contract. That’s a lame argument as Netflix isn’t a bunch of dummies, they are anything but. It’s the whole reason why Netflix signed a multi-year deal and, this is really important to note, Netflix is getting 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.

To date, Cogent has had peering disputes with AOL, Teleglobe, France Telecom, Level 3, TeliaSonera, Sprint-Nextel and Verizon. I find it interesting no one in the press mentioned how Cogent always seems to be the one major transit provider who continues to have disputes with so many other network providers, year after year.

A few weeks ago there were all these viral Internet reports of Comcast throttling Netflix content, supposedly backed-up by experiments where somebody would stream Netflix at home on Comcast and get a lower bitrate. Then they’d run that same stream through a VPN (which connects to a different ISP) and get a different and better bit-rate and stream quality. It was the smoking gun gotcha for a lot of folks and 100% sure-fire proof of throttling to some, even though Netflix’s own CEO publicly denied ISPs were throttling. What was happening in the VPN experiment backs-up my earlier points that Netflix was making these networking and performance decisions based on ISP and other factors.

Also, let’s play out what might have happened if Comcast gave Cogent all the capacity it wanted for free. Does that mean Netflix would work well into perpetuity and everyone would be happy? No. Netflix switches providers quite frequently. What if Netflix then moved traffic to NTT and Telia, we’d be back where we started, as those providers would then need all the capacity they wanted on Comcast. What if Netflix started making other traffic shifts to extract greater concessions from ISPs and transit vendors? Fortunately we’re now past that with this Netflix and Comcast deal, but instead of seeing the benefit here to Netflix’s customers, the picture is clouded with far-fetched negatives. The winner in the whole deal is you and me, the consumer. We get better quality video and Netflix gets a cheaper cost over time to deliver the stream to us, which keeps them from having to raise the price of our subscription to give us better quality.

Now all of this aside, I get that many people don’t think the proposed Comcast and TWC cable merger is good for consumers, that cable TV providers raise their rates every year and that Net Neutrality is something that needs to be watched. Those are all valid concerns to debate. However, don’t use the deal between Netflix and Comcast as ammunition in those arguments as it’s not relevant. If you have further questions about the deal, put them in the comments section and I will try to answer them if I can. I know this is a touchy subject for many, but be professional. Lively debates are welcomed but comments that use foul language will be removed. Also for those that have asked, I do not have Comcast as my ISP, I have Verizon FiOS as I live in the NYC area.

Roku has recently disclosed that to date, the company has now shipped “nearly 8 million devices” in the U.S., which is a combination of Roku boxes and their Roku Streaming Stick. The company won’t say what the overlap is of people like myself who have more than one Roku box, so we don’t know the exact number of unique households Roku is reaching. However, if we think that 25% of their customers have more than one Roku device, which seems like a reasonable percentage, Roku would then be reaching about 6 million unique households. According to the United States Census Bureau, there was an average of 2.6 people per household in 2012 so based on those numbers, Roku would be reaching somewhere around 15 million unique viewers. That’s starting to become a pretty big number for Roku in terms of their reach. To date, the company has raised $140 million in funding.

Roku told me that most of the Roku boxes sold in the market, including those from years ago, are still being used today. Usually most electronic devices get retired and replaced by new ones pretty quickly, with the old one going into the junk pile. But in the case of Roku, I’m the perfect example of someone who always passes my older Roku’s on to someone else to use, every time I upgrade. I can’t think of another sub-$99 electronic device in the market that even though is years old, is still a device someone else wants to take off your hands and use.

In addition to the sales numbers, Roku also disclosed some other interesting details around usage:

• Streaming on Roku devices grew by 70% in 2013 to 1.7 billion hours for the year
• The average Roku player streams 13 hours per week though 25% of Roku players stream 35 hours per week (the average household TV watching from Nielsen is 34 hours per week)
• Roku doubled the number of channels in the past year – currently at more than 1,200
• Roku added YouTube, Showtime, WatchESPN, TWC TV, AOL, FOX NOW, Watch Disney Channel
• Roku has 20 Roku Ready partners right now and will likely certify 125 devices this year

While there are close to a dozen $99 or less streamers in the market today, Roku still beats all of them hands-down when it comes to ease of use and the number of content choices available on their devices. Worldwide, Apple has sold more Apple TV’s than Roku, (around 18 million based on their current run rate) but the majority of people who buy them do so because they are already using Apple’s ecosystem, or use it for the AirPlay functionality. AirPlay, not online video streaming, is the primary reason consumers purchase the Apple TV. Roku is a real streamer, and once you get one, it’s hard not to fall in love with it since it enables you to get so much premium content. I have both devices, on multiple TVs in my home and for streaming, Roku is always my go to box every single time. I use the Apple TV for AirPlay or iTunes audio streaming and really nothing else.

If you are trying to decide which box to get, this post will help you decide. Roku 3 vs. Apple TV: How To Pick The Right Box. Still have questions about the two boxes? Put them in the comments section here, and I’ll try and answer them for you.

For the past six years, I’ve organized a one-day event in NYC called the Content Delivery Summit. It brings together ISPs, carriers, service providers, content owners, and industry vendors for a detailed look at CDN platforms for the delivery of video and other content.

Last year, Netflix was one of the keynotes and Ken Florance, VP of Content Delivery at the company presented an overview of Netflix’s CDN strategy and detailed how Open Connect works. He covered a lot of topics including Netflix’s first try at building out a CDN seven years ago, common misconceptions about video traffic and outlined Netflix’s take on the most efficient way to deliver Netflix content to ISP subscribers.

Some of the numbers and specifics presented was to my knowledge, the first time Netflix had discussed them in a public forum. One thing Ken made very clear in his presentation is that the company takes video delivery quality very seriously, and he details steps they take to try and make sure all subscribers get the best user experience they can. Netflix has some of the most detailed video performance data in the market today, thanks to what many consider to be one of the best intelligent video players that makes real-time delivery decisions based on that performance data. You can see Ken’s presentation and download his slides below. If you want to attend this year’s event, May 12th in NYC, email me and I’ll send you a discount code so you can attend for only $395.

One infrastructure service that’s gotten a lot of coverage in the media lately is transit, with many using the term incorrectly or defining it as something it’s not. I thought it might be helpful to explain what transit it, the different types of transit services sold, a list of providers who sell it, what it costs and why it is so important to the Internet. There are a lot of pieces that make up the Internet including products like wholesale, transit, wavelengths, backhaul and others which all share the same underlying optical transport infrastructure, which is the foundation for all Internet and IP services. Many of these terms are used interchangeably, but they shouldn’t be as they all provide a very different function in the market.

In its simplest definition, transit is a “network that passes traffic between networks in addition to carrying traffic for its own hosts”. The Internet is made up of a collection of networks, and in order to get traffic from one end user to another, all service providers, hosting providers and ISP networks need to have an interconnection mechanism. These interconnections, which allow the sharing of traffic, can be either direct between two networks or indirect via one or more other networks that agree to take the traffic. Many of these network connections are indirect as most providers don’t have a global network footprint and as a result, the traffic will be sent through several different interconnections to reach the end user.

The commercial interconnect relationships that allow networks to directly and indirectly connect are referred to as peering and transit relationships. While both those terms are often used interchangeably, they aren’t the same thing and they are many flavors of each. Peering is when two or more networks interconnect directly with each other to exchange traffic. While many think peering is “free” to both networks, that’s almost never the case. Like transit, there are many types of peering both public and private, and paid and settlement free. Peering is between two networks whereas transit allows you to connect to multiple networks.

Transit is where one network agrees to carry traffic that flows between another network and all other networks connected to it. No single provider in the market connects directly to all the other networks on the Internet, so any network that provides transit will deliver part of their traffic indirectly through multiple other transit networks. Transit providers’ routers lets other networks carry traffic to the network that has bought the transit and get a fee for that service. It sounds complicated, but really all the transit provider is doing is allowing multiple networks to exchange traffic with one another.

Some have written that transit allows two networks to exchange “bandwidth”, but that’s not accurate. Transit allows providers to exchange traffic, but bandwidth and traffic are not the same things. When it comes to how transit is sold, companies can buy full transit, partial transit, select routes, on-net routes, etc. and ISPs will create the service and pricing around the customer request. Transit deals vary greatly, in size, type, price and performance and are not a one-size-fits-all model. Many transit deals are alike, but transit relationships also vary greatly based on the region of the world you are buying transit in.

There are a lot of transit providers in the market, but many get confused as some companies just sell transit, while others sell a wider portfolio of products. For example, one of Cogent’s core products is selling transit, while others like Level 3 sell transit, but also VPN, CDN, WAN optimization and a host of other managed services. Many transit providers also only sell access in specific regions of the world, while others sell in multiple continents. Combined, there are lots of transit providers all over the world, of all sizes. While not a complete list, some of the more well known transit providers are:

• AT&T
• CenturyLink
• Cogent
• GTT
• Hurricane Electric
• KPN
• Level 3
• NTT Communications
• Sprint
• Tata Communications
• Telefonica
• TeliaSonera
• Verizon
• XO Communications

A lot of mainstream outlets talk about transit, but never seem to mention what it costs. While transit prices are all over the map based on location and quality of what is being bought, today, most transit in the U.S. costs less than $1 per Mbps, for large volume deals. In Australia, I’ve seen it as high as $150 per Mbps. Japan can easily be $25 per Mbps, but it all depends on the volume being bought. Most companies who buy transit, including Netflix, buy from multiple providers, at different price points and most important, with different SLAs. So many of those who buy transit from multiple providers distribute traffic, across multiple transit providers, in real-time, based on performance metrics. I’ve compiled some of the most common prices I have seen in the market, from those I speak to who buy transit. Again, there are many variables that determine the price, but here are the most common monthly rates I see in the U.S., with commits:

• 10Mbps $7.00
• 50Mbps $4.00
• 150Mbps $2.00
• 300Mbps $1.00
• 600Mbps $0.80
• 1500Mbps – 1.5Gbps $0.65
• 3000Mbps – 3Gbps $0.50

While there has been a lot of talk about Netflix delivering content inside the last mile, via Open Connect or commercial interconnect relationships, it’s important to remember that 18 months ago, CDNs were still accounting for 40% of the overall traffic volume flowing into ISP networks. I’d have to check what that number is today, but it’s still going to be high as most content owners today use third-party CDN service providers, they don’t try to build out their own CDN as Netflix and a few others have done. This is where transit comes in and allows all of these CDNs to connect to all the different ISPs, so that video gets to end-users.

Transit is so important because without it, the Internet would not work. We’d have a bunch of closed networks that don’t connect with one another and traffic would not make it to end users. From a business standpoint, there are many backbone and transit providers to choose from in a highly competitive market, which all CDNs and some larger content owners work with and gain price reductions every year. Transit pricing has and continues to get cheaper every quarter, and it is expected it will decline in price once again this year.

If you have questions on the transit prices I have shown, please contact me. There are many variables but I am happy to share with you the data I have collected on transit pricing, free of charge.

On Sunday, Comcast and Netflix announced a commercial interconnect relationship between the two companies, which is in the very early stages of implementation, and as a result, many who clearly don’t understand how the Internet works are writing about the news. [Here’s How The Comcast & Netflix Deal Is Structured, With Data & Numbers] Those who don’t cover network infrastructure for a living should not be trying to explain the technical details behind today’s announcement. Articles from mainstream outlets like TechCrunch, WSJ, NPR, Time and many others aren’t even getting the basics right. Words like transit, peering, speed, bandwidth, capacity, etc. are being used interchangeably without any understanding of what they mean. [Updated 10:15pm: Time was originally mentioned due to a short piece they quickly put up when the news was announced. Since that post, they have done extensive, detailed coverage which is actually very good, so in fairness to them, I have removed them from the list.]

Naturally, many of these same people are also implying that because Netflix has to pay Comcast, consumers will foot the bill for this as Netflix will have to charge more for their service. This could not be further from the truth. Those stating this have no clue how Netflix delivers their content today or what costs they already incur. If they did, they would know this is not a new cost to Netflix, it’s simply paying a different provider, and it should be at a lower cost. It should actually be cheaper for Netflix to buy direct from Comcast, and they also get an SLA, which also improves quality and that’s a good thing. Given that Netflix has many options to buy transit from many different transit providers, why would they pay more? They wouldn’t.

Some are mad at this deal as they say this will start a trend where content owners will need to pay multiple ISPs to have good video quality, which isn’t true. The problem with that idea is that the vast majority of all content owners use third party content delivery networks (www.cdnlist.com) to get the content to ISPs and are NOT trying to build their own CDN like Netflix has. Only Netflix, Microsoft, Yahoo, Apple, Google and a handful of others have built or are building out their own CDNs. Every other content owner out there including MLB, CBS, FOX, Disney, Viacom, NFL, etc. all use third party CDNs. So this has no impact on any of them as they aren’t trying to place servers inside last mile networks and use companies like Akamai, Level 3, Limelight and EdgeCast for content delivery.

Even worse, some want to imply that today’s announcement has to do with Net Neutrality and Tech Crunch went as far to say that the deal “may be legally outside of the traditional net neutrality rules.” May be? Are they serious? Commercial interconnect relationships, also referred to as paid peering agreements, have been around since the Internet started, and it’s how the Internet works. Commercial interconnect deals have NOTHING TO DO WITH NET NEUTRALITY. Implying otherwise shows a complete lack of regard in understanding how traffic is and has been exchanged across networks for the past twenty years. The media as a whole should stop trying to insinuate or imply that everything that happens between two networks comes down to Net Neutrality. It doesn’t. [See: Netflix’s Streaming Quality Is Based On Business Decisions by Netflix & ISPs, Not Net Neutrality]

In the hopes of trying to educate the market, let’s clear up a lot of the confusion many in the media have created. The first one is that consumers need more “speed” from Comcast or Verizon to get better quality video streaming from Netflix. This is not the case. Netflix’s videos are encoded at a certain level of quality, which requires the consumer to have a specific level of throughput, to get that quality. It has nothing to do with “speed”. If you want to stream a 2Mbps video or a 4Mbps video from Netflix, you don’t need more “speed”, you need more throughput. Speed is the rate at which packets get from one location to another. Throughput is the average rate of successful message delivery over a communication channel. SPEED AND THROUGHPUT ARE NOT THE SAME THING. Next up are articles where it says that transit allows two networks to exchange “bandwidth”, which is not accurate. Transit allows providers to exchange traffic, but bandwidth and traffic are not the same things. Bandwidth is simply the data rate measured in bits per second. Traffic is data in a network encapsulated in network packets.

Another statement I have seen people write about is saying that the deal focuses on the “two company’s pipes”. Netflix is not a network operator, they don’t have any “pipes”, they buy capacity from other network providers who have the pipes. So while this deal is about the interconnection between Comcast and Netflix, Comcast is the only one who actually owns the pipes. Netflix is simply leasing capacity from other network providers. In addition, Netflix does not own an “Open Connect Network”. Open Connect is a program, it’s not a network that Netflix “owns” as the servers caching and delivering Netflix’s content are sitting inside the ISP networks, which isn’t owned or operated by Netflix. Open Connect is just another CDN. It is most similar to Akamai, except Open Connect doesn’t have SLAs with their customers.

Lately, many have been writing about transit with no real idea of just how many types of transit one can buy or how transit deals work. You can buy full transit, partial transit, select routes, on-net routes, etc. and ISPs will create a service and price around the customer request. Transit deals vary greatly, in size, type, price and host of other factors and are not a one-size-fits-all model. So when people write about “transit” without any definition, they are being too generic in its description. Many transit deals are alike, but transit relationships also vary greatly based on the region of the world you are buying transit in. CDNs like Netflix typically connect with many transit suppliers. This helps them route around problems and helps them avoid becoming a traffic problem by overloading any one path.

One thing not mentioned in all of these stories is all the different ways in which Netflix is currently streaming video. To date, a large percentage of Netflix’s traffic, by my guess 50% or more in the U.S., hasn’t been moved away from third-party CDNs and into the last mile. There are three different ways Netflix currently streams their videos. Via ISPs that are in their Open Connect Program, through third-party CDNs Level 3 and Limelight Networks and via Netflix’s own CDN where they lease network services and run their own servers. So most writing about Netflix don’t even know the basics of how their content is delivered today or how CDN and transit providers are involved.

Today’s news is very simple to understand. Netflix decided it made sense to pay Comcast for every port they use to connect to Comcast’s network, like many other content owners and network providers have done. This is how the Internet works, and it’s not about providing better access for one content owner over another, it simply comes down to Netflix making a business decision that it makes sense for them to deliver their content directly to Comcast, instead of through a third party. Tied into Netflix’s decision is the fact that Comcast guarantees a certain level of quality to Netflix, via their SLA, which could be much better than Netflix was getting from a transit provider. While I don’t know the price Comcast is charging Netflix, I can guarantee you it’s at the fair market price for transit in the market today and Comcast is not overcharging Netflix like some have implied. Many are quick to want to argue that Netflix should not have to pay Comcast anything, but they are missing the point that Netflix is already paying someone who connects with Comcast. It’s not a new cost to them.

This how the Internet has grown since its inception. Senders and receivers of content have funded access, services, backbone and growth costs across the Internet. Each may pay different costs per Mbps based on volume, competition, location and many other factors. This is where being big and powerful helps negotiate a more favorable deal based on efficiencies you may be able to drive. If you get into picking and choosing that a really big CDN player gets bandwidth free because they are powerful, but a small CDN or content owner has to buy transit, that’s not fair either. That is why companies have settlement-free interconnect policies, which are based on balanced and shared network investment. Commercial deals around interconnect help alleviate the bright lines between settlement-free interconnect (or peering) and a customer buying a retail product. Wholesale commercial deals take into account efficiencies and many other factors to drive a much lower unit cost.

There are no major “peering wars”, as the media likes to portray, disagreements yes, but they are based off of business decisions, like any other contract for services. [See: Netflix’s Streaming Quality Is Based On Business Decisions by Netflix & ISPs, Not Net Neutrality] Many options exist in the market for exchanging traffic and what is taking place between Netflix and ISPs is not new. These types of commercial arrangements between carriers, ISPs, content owners and transit providers happen every day. This time its simply high profile because it involves Netflix and the media picks up on it and implies or assumes things that simply aren’t accurate.

Outside of authors who cover networking for a living, I wonder if any member of the media even knows how to do a traceroute. You’ll notice that this whole Comcast/Netflix story broke early as a networking person who isn’t a member of the media, published what he saw in a traceroute. If you write about content delivery, LEARN HOW TO DO A TRACE ROUTE and see how content is being delivered how you get to the source of where the content is being delivered from. If you are too lazy to learn, then you should really stop writing about the subject. I’m no networking engineer, so even for my piece I made sure to speak to those who design, build and connect networks for a living. Bottom line is this is good for Netflix, Comcast and for consumers and it has absolutely nothing to do with Net Neutrality.

Updated 9:46pm: Someone emailed me to suggest that I picked the title I did simply to fight with other media outlets as a way to push more traffic to my blog and make more money. So let me put it on record right now that no sponsor of my blog is charged based on how many page views I get. They all pay a flat fee per month no matter how many page views I get. I have no financial incentive to try and bump my page views quickly.

Programming for the Streaming Media East show, taking place May 13-14 in NYC, is coming along nicely with more than 50% of the speakers now placed. We’ve gotten a lot of great proposals this year and spots are filling up much faster and earlier than past shows. With 50% of the program now filled, if you wait too long to get back to me about what session(s) you want to speak on, they may no longer be available. Many companies have the agenda and are looking it over, but if you wait weeks to decide, spots will be gone.

Every year come late March and into April, I get a lot of inquiries from companies who really want to speak at the show and are very disappointed when nearly all the spots have been filled. So I want to make sure I give everyone fair warning that the show is filling up even faster this year. As always, you can reach me anytime at 917-523-4562 with any questions or speaking pitches.

You can see the full lineup of confirmed speakers here, and some of the content/broadcast companies include: Netflix, A+E Networks, Yahoo!, LG, EPIX, Viacom, WWE, Fox News Digital, MLBAM, CNN MediaCom, AOL Video, Huffington Post, Verizon, NY Giants Football, Scripps Networks, MTV and others.

Some of the enterprise and education speakers include: Prudential, NASA, SymantecTV, NASDAQ, CME Group, The University of Toledo, University of Texas at San Antonio, Temple University, Syracuse University, Fox School of Business, T-Mobile and others.

Over the past two days, there’s been some news articles suggesting that some ISPs, like Verizon, may be purposely throttling or slowing Netflix’s video content over their last mile network, because of the recent Net Neutrality rulings. While that sounds like a great headline and something to get people all worked up over, that’s not what’s really taking place. The reality is that business decisions that Netflix and ISPs make regarding quality of service determine how good Netflix or any other content looks when streamed to consumers. Both Netflix and ISPs are constantly having to add capacity to their networks, of all kinds, and make decisions on how much money they want to spend versus the level of quality they want to offer.

To make it simpler, if Netflix or the ISP can deliver content right now and the video starts up within three seconds and has SD quality, they have to decide if it is worth spending the additional money to make it startup within one second and have HD quality. From a business decision, it does not help any ISPs business to improve the quality past a certain point. Each ISP decides what that point is and the quality that is good enough, versus how much they would have to spend to improve it. These decisions that Netflix and ISPs make determine how much transit, peering and other technical resources they deploy and what impact it has on their bottom line. While the technical pieces like servers, transit, peering etc. is what makes streaming services work, it’s the business decisions made behind the scenes that determines the user experience, not Net Neutrality.

From a technical standpoint, it’s also extremely complicated how Netflix’s content is delivered as they have a total of three different CDNs, all delivering content in different ways. Some content is delivered inside last mile networks via Netflix’s Open Connect program, some is delivered via third party CDNs like Level 3 and Limelight Networks and other content is delivered via servers Netflix controls outside the last mile. When it comes to ISPs, no two are identical in footprint and number of subscribers so there are many variables. Netflix buys transit from many different providers, which come at different price points and with different SLAs.

None of the big ISPs buy much in the way of transit and those that do, buy it primarily for minor destinations they can’t get to through peering. The majority of U.S. originated traffic comes through peering points into the big ISP networks and ISPs who choose to, can make those runs congested for many hours a day. The whole process of getting Netflix content, or any video for that matter at scale, to consumers is very complex. Many of those who write about Netflix streaming don’t understand all of the pieces involved, how they all tie together and are quick to point fingers as things like Net Neutrality, which isn’t the case. There are also a lot of issues on the consumer side, inside the home, that affect the quality of video being delivered where many times, it’s not the ISPs fault for the poor experience.

I had an issue over the weekend where Netflix would not stop buffering on my Xbox 360, but once I used the Roku, streaming was perfect. After spending time to diagnose the problem, it turns out my Xbox 360 was having NAT problems with my router and even though it had a static IP, it had to be flushed out and setup again. In a lot of these types of cases when there is a problem, most consumers don’t know how to do a trace route, assign a static IP, log into their router and really diagnose the problem. ISPs can and do have issues, but I’m willing to bet that more than 50% of the time the poor QoS is due to the device, WiFi or local network issue inside the home.

Some are suggesting that because Verizon, Comcast or other ISPs have been dropping in their ranking via Netflix’s “ISP Speed Index Results“, it’s evidence that these ISPs are purposely making Netflix streaming from their network look bad. That makes no sense at all and would only hurt the ISPs business. If it looked bad enough and impacted enough customers, many would leave. Some can’t as they only have one ISP in their area, but many have choices. Also, keep in mind that the ISP ranking that Netflix provides is NOT comparing apples-to-apples nor does it even say what exactly it is defining. As usual, no one seems to question the data that many of these companies present to the market. Netflix does have a lot of very detailed performance data and intelligent video player that makes real-time delivery decisions based on that data, but Netflix doesn’t share those metrics or their methodology of how they say one provider is better than another.

Google Fiber is at the top of Netflix’s ISP Speed Index list, yet has the smaller footprint of any ISP in the top 10 of Netflix’s rankings. While Google refuses to reveal subscriber counts or uptake numbers for Google Fiber, research reports predict it will be another two years before they have 3 million subs. So even if they have 1 million subs today, it’s easier and cheaper for them to make the Netflix experience on their network the best it can be, compared to Comcast that has 20 million Internet subscribers. You can’t compare the two fairly.

In addition, what exactly are Netflix’s ISP results measuring? At the bottom of the Netflix page, it says the results “reflect the average performance”, but then they don’t define what methodology is being used to define performance. The only thing they show is the “Average Speed in Mbps”, but what exactly does that mean? That’s the speed at which the streaming is being delivered, but that measurement alone doesn’t show startup time, buffering, or a whole host of other factors. Where is Netflix methodology of exactly what is being measured and shown in their ISP charts? Netflix was very smart when they launched the “ISP Speed Index Results” as it puts the pressure on ISPs to be seen in a good light from their customers. It also means that in most cases, instead of the customer complaining to Netflix when they get bad quality video, they will instead complain to their ISP, but that may or may not always be fair. Some ISPs simply don’t appropriately add capacity between their network and all of their peers, while other times it’s Netflix, not the ISP who has made decisions that impact quality.

While there is this idea that Netflix has moved most of their video delivery to inside the last mile, by working with ISPs, the reality is that in the U.S., Netflix is still delivering a lot of their own streaming, via third party CDNs Level 3 and Limelight Networks as well as Netflix’s own caches. From what I have seen, only Cablevision, Suddenlink and Google Fiber have allowed Netflix to put caches inside their networks so many times the quality issue a consumer is having might not be the ISPs fault. It could be the CDNs, the connection between the CDN and the ISP or a whole host of other factors. It’s true that some ISPs won’t add more capacity when they need it, but they have made the decision that it does not make sense from a business standpoint, based on the return. At some time, the ISP has to decide the trade off between quality and how much money they spend upgrading their network. So while no ISP wants to come out on record and say it, many see Netflix as a threat and don’t want to give a competitor any advantage in the market.

It’s easy to use Net Neutrality as an excuse for why there are quality issues with streaming, but that’s not accurate. Delivering video over the web has inherent flaws and it’s not like traditional broadcast distribution that scales much easier. It’s one of the main reasons why pay TV won’t be replaced by Internet streaming at scale. It’s too expensive to support so many eyeballs while also providing the best quality possible. Case in point. If all we wanted was to have better video quality, why doesn’t Netflix encode their videos at a higher bitrate, say 8-9Mbps and deliver all of their content that way? Reason is that the ISPs would have trouble delivering it with good quality, which is the whole reason why Netflix is trying to get ISPs to join Open Connect and allow Netflix to put servers inside the ISPs network. While that sounds like a simple and free solution Netflix is providing to ISPs, the reality is far from that.

This is the problem that Netflix is currently facing with most of the major ISPs in the U.S. who won’t join Open Connect, which has made Netflix’s current multi-tiered approach to video delivery complicated. Even though Netflix is not causing a lot of people to cancel their cable, many ISPs sell pay TV services, have their own OTT services and see Netflix as a competitor. Some ISPs have also told me they would rather deploy a solution like transparent caching which would help the ISP with caching all types of video content, not just Netflix’s. Netflix has to make some decisions about how they work with ISPs, what role third party CDNs will have delivering their content and how much of a network they want to own and operate on their own. The good news is that I think all of these things can be worked out over time, amongst Netflix, ISPs, CDNs and transit providers, but it’s going to require Netflix to change their current approach. I’ll have more on that in a follow up post.