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This is a very public battle between two companies about who should shoulder the cost of delivering video to your home. Comcast's argument is that they have bu

by exelius 13y ago

This is a very public battle between two companies about who should shoulder the cost of delivering video to your home. Comcast's argument is that they have built a network at great expense for carrying content that others make a profit from, and they want to capture at least some of that value. Netflix's argument is that they have built a CDN to deliver that content to Comcast's doorstep, and that Comcast won't accept it. In my mind, Netflix charges money for their service and is not entitled to a free ride. The fact remains that running an ISP is not free, and you can't scale out a network faster than the cash flows (of which, yes, profits are a part) allow. But think about this: Netflix has a 36% gross profit margin, and Comcast's cable/Internet business has an 11% gross profit margin. Netflix's cost structure is lower in large part because Comcast does a lot of the expensive work for them (i.e. last-mile network maintenance and distribution.) Netflix drives significantly increased Internet traffic usage, and Comcast's investors should not have to accept lower profit margins so that Netflix's investors can enjoy larger margins because of investments that Comcast's investors have made. I would have a lot more sympathy for Netflix if their margins weren't so high. It just comes off as greedy when they have a 36% gross margin.

throwaway2048 13y ago
You are forgetting one central point, customers pay Comcast to receive netflix. It is their customers requesting this data, if Comcast truely has issues with the costs of this it is customers who should be paying more, not Netflix. The truth of the matter is this has absolutely zero to do with costs, and everything to do with extracting rent via market position.
- exelius 13y ago
  In this case, Comcast has two choices: raise prices on all their customers, or raise prices on Netflix's customers by charging Netflix for their increased usage. Prior to paying Comcast for transit, if Netflix decided to push 4k streams, that decision carried no repercussions for Netflix. Now they have to do a business case to see if the increased cost is worth it. I know it's not a popular opinion on HN, but I don't think it's unreasonable for Comcast to ask Netflix to shoulder some of the cost. It also has the added benefit of incentivizing Comcast to provide faster service. If they can charge Netflix more for pushing more data, then it directly leads to more profit if their users consume more data.
  - dec0dedab0de 13y ago
    It also has the added benefit of incentivizing Comcast to provide faster service. Actually it gives them an incentive to provide slower Internet service. This encourages content providers to pay to use the Comcast private network instead of the Internet.
    - nitrogen 13y ago
      Right, a "fast lane" for one service is really just a "slow lane" for everybody else.
  - nitrogen 13y ago
    Once again, it is the user who requested that data from Netflix. The user pays the ISP. The ISP is already immensely profitable. Because of these things, the ISP has no need or ethical right to demand more from the user or from Netflix for providing a service the ISP already promised and the user already purchased.
    - Touche 13y ago
      The ISP doesn't promise to make every website / service on the internet as fast as possible. It's up to every service to make themselves fast by using CDNs. In the case of Netflix, they have become big enough where they now want to be their own CDN.
      - nitrogen 13y ago
        The ISP sells "Internet" access, so it's reasonable to expect them to meet customer demand at common Internet peering points, right up to the edge of their net profits plus a reasonable return for investors.
  - mikeash 13y ago
    It incentivizes Comcast to provide faster service for those who pay. It incentivizes them to provide slower service for those who don't. We can comfortably say that 99.9% of the services on the internet are not going to pay Comcast. The big players might, but there's an extremely long tail. Thus, for most of the internet, Comcast encounters a conflict of interest. Its actual paying customers want higher speeds. But it has every incentive to reduce speeds for services that aren't paying for more. I pay my ISP for access to the entire internet. If they screw with my access to a service simply because they didn't pay, that makes no sense. If I'm paying $75/month for high-speed internet access, that means the entire internet, not just the parts they get kickbacks from. I pay my ISP for my access, Netflix pays their ISP for their access, and we get to talk to each other. That's how this stuff works. Comcast charging Netflix is double-dipping, and is directly opposed to their supposed purpose of serving me, their customer. (Hypothetically. I'm no longer a Comcast customer, thank goodness.) Edit: I usually hate real-world analogies, but I think it could be instructive here. Let's take the USPS as an example of something in the real world that looks a lot like an ISP. I can pay USPS $5.60 for a flat rate Priority Mail envelope, and they will deliver the contents anywhere in the country within 2-3 days. Doesn't matter who's getting it, and doesn't matter what's in the envelope as long as it fits. Now, let's imagine that some company ends up receiving a lot of mail. Providing mail service is expensive, right? It takes a lot of trucks and postal workers to deliver all this mail to this one company. Surely they should be charged for what they're using, right? Of course, this company says no. These people who are sending us mail already paid USPS. It's their job to deliver mail to its destination once they get paid to do so. Why should they get paid twice to deliver the same piece of mail? In retaliation, to "convince" this company to pay, USPS starts slowing their mail. Those trucks and mail carriers are expensive, we need some of them elsewhere. You'll just have to wait. And as a result, because USPS is demanding that this company pay to receive mail that I already paid to send them, my "Priority Mail" starts taking 4-5 days to arrive instead of 2-3. I hope it's obvious that USPS is completely unreasonable in this hypothetical scenario. I see no difference between this and Comcast charging Netflix for service I'm already paying Comcast for.
- couchand 13y ago
  +1 for being the first person on this thread to refer to this as rent-seeking.
deleted 13y ago
[deleted]
dangrossman 13y ago
Comcast's customers are paying Comcast to deliver Netflix's bits to them. Why does Comcast need to be paid for those bits twice? If we're going to throw out some numbers, Netflix's net income was just $112M on $4.3B in revenue last year (2.6%). Comcast's net income was $6.82B on $64.66B in revenue (10.5%). Netflix's spend on content acquisition and production is increasing, which means that 2.6% is shrinking; they're already cash flow negative IIRC. Not much room to start doubling up on bandwidth fees they already pay.
- exelius 13y ago
  Because Comcast does not incur cost per-bit, they incur cost based on the maximum required capacity of their network. Netflix significantly increases those costs on a per-customer basis.
  - pdonis 13y ago
    No, customers who want to watch Netflix increase those costs. Which really means, customers who want HD video streaming bandwidth increase those costs. To which the right answer is, build more bandwidth and charge the customers for it. Customers who want to watch Netflix, or any other HD video streaming service, can pay Comcast for "HD streaming" bandwidth; customers who don't can pay for the bandwidth they need. None of this should have anything to do with Netflix. I understand that Comcast doesn't like this because it makes them a simple seller of bandwidth instead of a "provider of premium services", or whatever marketing mantra they're using this week. But if customers do not want their "premium services", but just want bandwidth, the solution to that is to build better premium services, not to try to get paid twice for one stream of bits.
  - nitrogen 13y ago
    Customers already pay Comcast to deal with that problem.
  - mikeash 13y ago
    No, Comcast customers who use Netflix significantly increase those costs. It's not Netflix's doing. If the usage pattern of Comcast's users is changing such that Comcast's internet offerings are no longer bringing in enough revenue to support usage, that's a problem with the offerings. They need to charge more, or charge differently. However they change it (if indeed they need to change it, and it's not just a money grab, which seems more likely) then they need to charge based on how their users use the service, not what specifically they're using it for. If peak usage is a problem then charge more for peak usage, but there's no reason that A should pay more for the same peak usage as B just because A's peak usage involves Netflix.
aroch 13y ago
That's nice and all but the fact of the matter is Comcast doesn't give a crap about its own network or its customers. In the last 6-8months their PNW, SoCal, Colorado, and NY/NJ routing centers have sat, 24/7, at significantly higher than 50% util (Think closer to 70% at "lows" and 90+% at peaks). As far as I can tell, they have no real plans to fix that. Comcast's CEO is a smug bastard who doesn't think his customers want faster speeds, or cheaper internet, or higher level of service than Comcast currently provides. The CEO doesn't care that his customer satisfaction and service ranks dead last -- he things that's just dandy. Comcast's CEO thinks they were ranked the "Worst Company In America" not because they might be the least liked in general but because a few, vocal, not-representative people on the internet were mean.
- exelius 13y ago
  I guarantee you they do give a crap. But there's only so much money available from subscription fees to provide network upgrades, and Comcast spends ~$6-8 billion a year doing so. I've seen nothing of this low level of service or high cost; I can get a 150mbit connection for $89/mo. It's not Google Fiber, but it's really not bad at all (especially compared to FiOS, which I have and hate with a passion). I mean yeah, their customer service is shit, but the Internet service itself is good.
  - nitrogen 13y ago
    That's a "150mbit" connection that still stutters when watching YouTube and Netflix.
  - deleted 13y ago
    [deleted]
  - opendais 13y ago
    Odd, it would be $120 for 100mbit for me. The joys of regional pricing?
  - wmf 13y ago
    As long as Comcast is profitable that means there is more money that could have been used to upgrade their network but wasn't.
irishjohnnie 13y ago
Their gross margins are the result of their positions in the value chain which, in turn, determine their cost structure. What Comcast is trying to do is to extract more rent out of its position. As others have commented, consumers already pay for both services. If it's infrastructure cost that you're concerned about I've read somewhere (Bloomberg?) that Netflix offered to co-locate its equipment in Comcast's data centers but the latter refused.
- maxhou 13y ago
  Generating traffic is easy. Routing each bit to customer houses is the difficult part. The offer to put Netflix's servers in a Comcast data center does not help.
  - irishjohnnie 13y ago
    I agree with you, but I'm betting that's not where the actual congestion is occurring (although there may be artificial rate limiting)
  - pdonis 13y ago
    > Routing each bit to customer houses is the difficult part. That's what CDNs are for. Which, as the article shows, is how Netflix delivers video to subscribers of every other major ISP. Why is it they can somehow route all that traffic to customer houses but Comcast can't?
    - maxhou 13y ago
      To customer houses ? How many CDNs do they have ? Take "last mile" literally and divide the US in a big grid of 1x1 mile squares. If Netflix was able to dispatch its traffic up to each of these squares, there wouldn't be any problem. but there wouldn't be any Netflix either :)
      - pdonis 13y ago
        > If Netflix was able to dispatch its traffic up to each of these squares That's not how a CDN works. Look at the diagram in the article, between the fourth and fifth paragraphs. Every other ISP uses transit networks to distribute Netflix traffic (like all other traffic) to its subscribers. Netflix puts its content on CDNs that are conveniently located to make the transit networks' job easier, by making "netflix.com" endpoints closer to large populations of subscribers. Somehow all the other ISPs manage to "route traffic to customer houses" using that arrangement. Why does Comcast have to be different?
c0ur7n3y 13y ago
Looks like you hit all the ISP talking points there. Well done. /s
jwatte 13y ago
Comcast charges me, the customer, for Internet access. This means access to any network that's present in a meet-me room. That's how the Internet works - each participant pays their share for getting to the exchange. Comcast knew this when they got into the ISP business. Then, suddenly, they are complaining that the customers that already bought their service, want to use the service they paid for. The only reason they can get away with this is that they have an effective monopoly. Rent seeking monopoly middle men will squeeze both ends of the connection until the monopoly is busted.
forgottenpass 13y ago
In my mind, Netflix charges money for their service and is not entitled to a free ride. The fact remains that running an ISP is not free, and you can't scale out a network faster than the cash flows (of which, yes, profits are a part) allow. But think about this: Netflix has a 36% gross profit margin, and Comcast's cable/Internet business has an 11% gross profit margin. Netflix's cost structure is lower in large part because Comcast does a lot of the expensive work for them (i.e. last-mile network maintenance and distribution.) When you start looking at the question like this, you're abandoning any technical argument and instead move the conversation into "well, look at all this money moving near my proximity, I should be getting my beak wet." This is a pretty good warning sign someone is/has started framing the conversation on something other than the issues at hand. Fairness in profit margins is a red herring at best. I like the idea of network neutrality, but I have a much much much stronger fundamental belief: nobody is entitled to a business model. That kind of thing shouldn't even be given the slightest bit of consideration when setting policy. Unless the explicit purpose of a policy is to create a business model, as is the case in Intellectual Property. Creation, improvement, destroying, or diminishing of business models is a lever that is rushed to way too quickly in some nonsense idea of "fairness" for people that are too used to cooperate welfare and don't believe in anything but entrenchment of middle of the road "compromises" that just serve as regulatory entrenchment of the status quo.
deleted 13y ago
[deleted]

by exelius 13y ago

throwaway2048 13y ago

You are forgetting one central point, customers pay Comcast to receive netflix. It is their customers requesting this data, if Comcast truely has issues with the costs of this it is customers who should be paying more, not Netflix. The truth of the matter is this has absolutely zero to do with costs, and everything to do with extracting rent via market position.

exelius 13y ago
In this case, Comcast has two choices: raise prices on all their customers, or raise prices on Netflix's customers by charging Netflix for their increased usage. Prior to paying Comcast for transit, if Netflix decided to push 4k streams, that decision carried no repercussions for Netflix. Now they have to do a business case to see if the increased cost is worth it. I know it's not a popular opinion on HN, but I don't think it's unreasonable for Comcast to ask Netflix to shoulder some of the cost. It also has the added benefit of incentivizing Comcast to provide faster service. If they can charge Netflix more for pushing more data, then it directly leads to more profit if their users consume more data.
- dec0dedab0de 13y ago
  It also has the added benefit of incentivizing Comcast to provide faster service. Actually it gives them an incentive to provide slower Internet service. This encourages content providers to pay to use the Comcast private network instead of the Internet.
  - nitrogen 13y ago
    Right, a "fast lane" for one service is really just a "slow lane" for everybody else.
- nitrogen 13y ago
  Once again, it is the user who requested that data from Netflix. The user pays the ISP. The ISP is already immensely profitable. Because of these things, the ISP has no need or ethical right to demand more from the user or from Netflix for providing a service the ISP already promised and the user already purchased.
  - Touche 13y ago
    The ISP doesn't promise to make every website / service on the internet as fast as possible. It's up to every service to make themselves fast by using CDNs. In the case of Netflix, they have become big enough where they now want to be their own CDN.
    - nitrogen 13y ago
      The ISP sells "Internet" access, so it's reasonable to expect them to meet customer demand at common Internet peering points, right up to the edge of their net profits plus a reasonable return for investors.
- mikeash 13y ago
  It incentivizes Comcast to provide faster service for those who pay. It incentivizes them to provide slower service for those who don't. We can comfortably say that 99.9% of the services on the internet are not going to pay Comcast. The big players might, but there's an extremely long tail. Thus, for most of the internet, Comcast encounters a conflict of interest. Its actual paying customers want higher speeds. But it has every incentive to reduce speeds for services that aren't paying for more. I pay my ISP for access to the entire internet. If they screw with my access to a service simply because they didn't pay, that makes no sense. If I'm paying $75/month for high-speed internet access, that means the entire internet, not just the parts they get kickbacks from. I pay my ISP for my access, Netflix pays their ISP for their access, and we get to talk to each other. That's how this stuff works. Comcast charging Netflix is double-dipping, and is directly opposed to their supposed purpose of serving me, their customer. (Hypothetically. I'm no longer a Comcast customer, thank goodness.) Edit: I usually hate real-world analogies, but I think it could be instructive here. Let's take the USPS as an example of something in the real world that looks a lot like an ISP. I can pay USPS $5.60 for a flat rate Priority Mail envelope, and they will deliver the contents anywhere in the country within 2-3 days. Doesn't matter who's getting it, and doesn't matter what's in the envelope as long as it fits. Now, let's imagine that some company ends up receiving a lot of mail. Providing mail service is expensive, right? It takes a lot of trucks and postal workers to deliver all this mail to this one company. Surely they should be charged for what they're using, right? Of course, this company says no. These people who are sending us mail already paid USPS. It's their job to deliver mail to its destination once they get paid to do so. Why should they get paid twice to deliver the same piece of mail? In retaliation, to "convince" this company to pay, USPS starts slowing their mail. Those trucks and mail carriers are expensive, we need some of them elsewhere. You'll just have to wait. And as a result, because USPS is demanding that this company pay to receive mail that I already paid to send them, my "Priority Mail" starts taking 4-5 days to arrive instead of 2-3. I hope it's obvious that USPS is completely unreasonable in this hypothetical scenario. I see no difference between this and Comcast charging Netflix for service I'm already paying Comcast for.
couchand 13y ago
+1 for being the first person on this thread to refer to this as rent-seeking.

deleted 13y ago

[deleted]

dangrossman 13y ago

Comcast's customers are paying Comcast to deliver Netflix's bits to them. Why does Comcast need to be paid for those bits twice? If we're going to throw out some numbers, Netflix's net income was just $112M on $4.3B in revenue last year (2.6%). Comcast's net income was $6.82B on $64.66B in revenue (10.5%). Netflix's spend on content acquisition and production is increasing, which means that 2.6% is shrinking; they're already cash flow negative IIRC. Not much room to start doubling up on bandwidth fees they already pay.

exelius 13y ago
Because Comcast does not incur cost per-bit, they incur cost based on the maximum required capacity of their network. Netflix significantly increases those costs on a per-customer basis.
- pdonis 13y ago
  No, customers who want to watch Netflix increase those costs. Which really means, customers who want HD video streaming bandwidth increase those costs. To which the right answer is, build more bandwidth and charge the customers for it. Customers who want to watch Netflix, or any other HD video streaming service, can pay Comcast for "HD streaming" bandwidth; customers who don't can pay for the bandwidth they need. None of this should have anything to do with Netflix. I understand that Comcast doesn't like this because it makes them a simple seller of bandwidth instead of a "provider of premium services", or whatever marketing mantra they're using this week. But if customers do not want their "premium services", but just want bandwidth, the solution to that is to build better premium services, not to try to get paid twice for one stream of bits.
- nitrogen 13y ago
  Customers already pay Comcast to deal with that problem.
- mikeash 13y ago
  No, Comcast customers who use Netflix significantly increase those costs. It's not Netflix's doing. If the usage pattern of Comcast's users is changing such that Comcast's internet offerings are no longer bringing in enough revenue to support usage, that's a problem with the offerings. They need to charge more, or charge differently. However they change it (if indeed they need to change it, and it's not just a money grab, which seems more likely) then they need to charge based on how their users use the service, not what specifically they're using it for. If peak usage is a problem then charge more for peak usage, but there's no reason that A should pay more for the same peak usage as B just because A's peak usage involves Netflix.

aroch 13y ago

That's nice and all but the fact of the matter is Comcast doesn't give a crap about its own network or its customers. In the last 6-8months their PNW, SoCal, Colorado, and NY/NJ routing centers have sat, 24/7, at significantly higher than 50% util (Think closer to 70% at "lows" and 90+% at peaks). As far as I can tell, they have no real plans to fix that. Comcast's CEO is a smug bastard who doesn't think his customers want faster speeds, or cheaper internet, or higher level of service than Comcast currently provides. The CEO doesn't care that his customer satisfaction and service ranks dead last -- he things that's just dandy. Comcast's CEO thinks they were ranked the "Worst Company In America" not because they might be the least liked in general but because a few, vocal, not-representative people on the internet were mean.

exelius 13y ago
I guarantee you they do give a crap. But there's only so much money available from subscription fees to provide network upgrades, and Comcast spends ~$6-8 billion a year doing so. I've seen nothing of this low level of service or high cost; I can get a 150mbit connection for $89/mo. It's not Google Fiber, but it's really not bad at all (especially compared to FiOS, which I have and hate with a passion). I mean yeah, their customer service is shit, but the Internet service itself is good.
- nitrogen 13y ago
  That's a "150mbit" connection that still stutters when watching YouTube and Netflix.
- deleted 13y ago
  [deleted]
- opendais 13y ago
  Odd, it would be $120 for 100mbit for me. The joys of regional pricing?
- wmf 13y ago
  As long as Comcast is profitable that means there is more money that could have been used to upgrade their network but wasn't.

irishjohnnie 13y ago

Their gross margins are the result of their positions in the value chain which, in turn, determine their cost structure. What Comcast is trying to do is to extract more rent out of its position. As others have commented, consumers already pay for both services. If it's infrastructure cost that you're concerned about I've read somewhere (Bloomberg?) that Netflix offered to co-locate its equipment in Comcast's data centers but the latter refused.

maxhou 13y ago
Generating traffic is easy. Routing each bit to customer houses is the difficult part. The offer to put Netflix's servers in a Comcast data center does not help.
- irishjohnnie 13y ago
  I agree with you, but I'm betting that's not where the actual congestion is occurring (although there may be artificial rate limiting)
- pdonis 13y ago
  > Routing each bit to customer houses is the difficult part. That's what CDNs are for. Which, as the article shows, is how Netflix delivers video to subscribers of every other major ISP. Why is it they can somehow route all that traffic to customer houses but Comcast can't?
  - maxhou 13y ago
    To customer houses ? How many CDNs do they have ? Take "last mile" literally and divide the US in a big grid of 1x1 mile squares. If Netflix was able to dispatch its traffic up to each of these squares, there wouldn't be any problem. but there wouldn't be any Netflix either :)
    - pdonis 13y ago
      > If Netflix was able to dispatch its traffic up to each of these squares That's not how a CDN works. Look at the diagram in the article, between the fourth and fifth paragraphs. Every other ISP uses transit networks to distribute Netflix traffic (like all other traffic) to its subscribers. Netflix puts its content on CDNs that are conveniently located to make the transit networks' job easier, by making "netflix.com" endpoints closer to large populations of subscribers. Somehow all the other ISPs manage to "route traffic to customer houses" using that arrangement. Why does Comcast have to be different?

c0ur7n3y 13y ago

Looks like you hit all the ISP talking points there. Well done. /s

jwatte 13y ago

Comcast charges me, the customer, for Internet access. This means access to any network that's present in a meet-me room. That's how the Internet works - each participant pays their share for getting to the exchange. Comcast knew this when they got into the ISP business. Then, suddenly, they are complaining that the customers that already bought their service, want to use the service they paid for. The only reason they can get away with this is that they have an effective monopoly. Rent seeking monopoly middle men will squeeze both ends of the connection until the monopoly is busted.

forgottenpass 13y ago

In my mind, Netflix charges money for their service and is not entitled to a free ride. The fact remains that running an ISP is not free, and you can't scale out a network faster than the cash flows (of which, yes, profits are a part) allow. But think about this: Netflix has a 36% gross profit margin, and Comcast's cable/Internet business has an 11% gross profit margin. Netflix's cost structure is lower in large part because Comcast does a lot of the expensive work for them (i.e. last-mile network maintenance and distribution.) When you start looking at the question like this, you're abandoning any technical argument and instead move the conversation into "well, look at all this money moving near my proximity, I should be getting my beak wet." This is a pretty good warning sign someone is/has started framing the conversation on something other than the issues at hand. Fairness in profit margins is a red herring at best. I like the idea of network neutrality, but I have a much much much stronger fundamental belief: nobody is entitled to a business model. That kind of thing shouldn't even be given the slightest bit of consideration when setting policy. Unless the explicit purpose of a policy is to create a business model, as is the case in Intellectual Property. Creation, improvement, destroying, or diminishing of business models is a lever that is rushed to way too quickly in some nonsense idea of "fairness" for people that are too used to cooperate welfare and don't believe in anything but entrenchment of middle of the road "compromises" that just serve as regulatory entrenchment of the status quo.

deleted 13y ago

[deleted]