Originally Posted by Don Landis
All reports (except yours) indicate that Comcast, Verizon and now AT&T are being paid additional money from Netflix for a direct connect to their servers in exchange for not throttling back the delivery speed. ...
As far as Open Connect is concerned, I have always had the impression that this was a temporary measure for Netflix to get around the disagreements it had with the ISP's so it could move forward with it's plans to offer higher bandwidth video such as 4K and 3D. I never considered it a permanent approach. I never got the idea that Netflix wanted to compete with the ISP's ....
I believe there is a fundamental lack of understanding of Internet here. Let's start with some basic definitions to get the baseline understanding.
- these are Netflix, CNN, etc. of the world. The content providers store their programs in Content Distribution Networks (CDNs).
- think of these as warehouses that store "boxes" of programs from various content providers. These are Akamai, Limelight, etc. Amazon also runs CDN. ISPs would transport the contents from CDN to its subscribers.
- think of these as "transportation" companies. Many ISPs would be connected to CDNs.
I am not going to get into backbone, peering, etc.
What was happening before was that Netflix would pay CDN to store and convey its contents. CDN would, in turn, pay ISPs for transit. The problem was as Netflix grew in popularity, it outgrew the bandwidth that was allocated or that it contracted for, causing slowdowns. Think of rush hour where many cars jammed into 2-lane highway. Now Netflix could have paid CDN which, in turn, would have contracted with ISPs for larger bandwidth, i.e. 4-lane highway.
Instead, Netflix chose to build up and run their own CDN, Open Connect, and directly negotiate bandwidth with ISPs - thereby cutting out the middle man, commercial third-party CDNs. This is where the general misconception of Netflix paying ISPs arises. Yes, Netflix is paying ISPs but Netflix always have done so albeit indirectly via CDNs. This is not new nor outrageous. All content providers pay ISPs either directly or indirectly for transit.
Now for Open Connect to work out financially, the cost of building and running Open Connect plus transit cost have to be less than what Netflix has been paying the third-party CDNs. There is no reason and doesn't make any sense for Netflix to engage in PR
battles with ISPs to take on Open Connect if it's going to cost more. Costing less for Netflix means making less for ISPs (most likely). We won't know for sure until we compare the financials and somehow derive the bandwidth cost per subscriber.
If you won't take my word for it, check out http://blog.streamingmedia.com/
. Dan Rayburn is an industry insider that you're so fond of.