Comcast accused Netflix of coming out against the cable operator’s proposed $45 billion takeover of Time Warner Cable because of a desire to shift delivery costs to all broadband users — rather than just the streaming-video service’s customers.
On Monday, Netflix said it opposed the combination of the two biggest U.S. MSOs, saying the resulting entity would pass more than 60% of U.S. broadband households and give it unprecedented control over the high-speed Internet market.
“Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix,” Netflix CEO Reed Hastings and CFO David Wells wrote in their Q1 2014 letter to shareholders. “The combined company would possess even more anticompetitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger.”
Comcast countered that Netflix’s opposition is based on “inaccurate claims and arguments.”
“Netflix is free to express its opinions. But they should be factually based,” Jennifer Khoury, Comcast’s senior VP of corporate and digital communications, said in a statement. “And Netflix should be transparent that its opinion is not about protecting the consumer or about net neutrality. Rather, it’s about improving Netflix’s business model by shifting costs that it has always borne to all users of the Internet and not just to Netflix customers.”
In February, Netflix reached a deal with Comcast under which the streaming-video company is paying for direct connections to the cable giant’s Internet networks. But Hastings last month issued a call for a “strong” form of net neutrality that would prohibit broadband service providers like Comcast from “charging a toll” to deliver content.
“Some big ISPs are extracting a toll because they can — they effectively control access to millions of consumers and are willing to sacrifice the interests of their own customers to press Netflix and others to pay,” the Netflix CEO wrote. According to Hastings, Netflix agreed to pay Comcast only “reluctantly” to improve video quality.
Comcast reiterated its position that private Internet interconnection agreements have “nothing to do with net neutrality.”
“There is nothing unprecedented about our agreement with Netflix,” Khoury said. The deal is very similar to those that companies like Akamai Technologies, Yahoo, Limelight Networks and Google have with companies like Comcast, Verizon, AT&T, Level 3 and Sprint, she said.
In fact, according to Khoury, “Netflix approached us for this direct connection between Netflix and Comcast, cutting out the wholesalers with whom Netflix had traditionally contracted and paid for transit. This arrangement was thus about Netflix exercising its market power to extract a more favorable arrangement directly from Comcast than what Netflix had been paying for through third-party providers.”
Asked for a response to Comcast’s charges, a Netflix rep referred to Hastings’ prior blog post on the subject.
The Federal Communications Commission’s net neutrality rules, which prohibited ISPs from blocking or degrading traffic based on source, were struck down by an appeals court in January. But Comcast is still bound to abide by those rules until 2018 under its agreement with the U.S. government in connection with its deal for NBCUniversal. According to Khoury, “One of the many benefits of our proposed transaction with Time Warner Cable will be the extension of net neutrality protections to millions of additional Americans.”