As far as I know, there has been no claim that Level3 pays Verizon for their peering. The Verizon-Level3 peering is settlement free as both are large Tier 1 net

As far as I know, there has been no claim that Level3 pays Verizon for their peering. The Verizon-Level3 peering is settlement free as both are large Tier 1 networks. What verizon is refusing to do is upgrade the size of the interconnections until Level3 either pays them for paid peering or gets their traffic ratios back to an equal ratio. Level3 as a Tier 1 who pays no one for peering or transit, and is of course not going to do that. That leaves their transit client Netflix with the choice to either use other providers, who will likely run into the same traffic ratio issue, or pay for peering directly with Verizon. When Netflix is pushing out 1/3rds of the internets whole traffic, and it's all going in one direction, there's practically no tier 1 network out there that can provide transit for that without breaking their peering agreements, except perhaps the same content providers (Verizon, ATT) offering paid peering to netflix. It's not unreasonable with their traffic levels to expect netflix to peer directly with the largest consumer networks.