Netflix Blocking Internet Access to HD Movies
Thursday, January 17, 2013
The costs of the ordinary CDNs (e.g., Level 3 and Limelight) that deliver Netflix are borne by Netflix and incorporated into the price of its retail service. Netflix pays these CDNs to deliver content to Netflix subscribers, and the CDNs pay the costs of delivering Netflix content on the Internet. With this model, the additional costs of delivering Netflix content (due to its desire for distributed content servers) are ultimately borne only by Netflix subscribers.
With its “Open Connect” model, Netflix is withholding content from the customers of ISPs that decline to accede to its demands. Though the details of its demands are unknown, it appears Netflix is requiring that ISPs “peer” with them or pay for the installation of Netflix equipment inside their networks as well as the ongoing costs of operating that equipment.
Netflix’s model is inconsistent with standard Internet peering arrangements, harmful to consumers, and blatantly anticompetitive. By shifting its costs to ISPs, Netflix is distributing the costs of delivering its service across all Internet consumers. ISPs that agree to pay the installation and ongoing operational costs of hosting Netflix equipment inside their networks would have every incentive to pass these costs on to their subscribers as higher rates for Internet access. It would be one thing if ISPs were able to raise Internet access rates only for Netflix subscribers. Due to the FCC’s net neutrality rules, however, an ISP would likely be required to increase its rates for all of its subscribers to cover the additional costs imposed by Netflix – including its subscribers who don’t use the Netflix service. The result: ISP customers who subscribe to competitive streaming video providers would unwittingly be paying for the delivery of Netflix service as well, and Netflix would have a significant price advantage over its competitors.
I got a feeling this is going to get ugly. TWC is already crying foul.