Roger Yu

USA TODAY

Netflix cuts deal with Comcast to remove a bottleneck for %22high quality%22 service%2C the companies say

Financial terms not disclosed

Underscores leverage broadband providers have over content suppliers

Corrections and clarifications: The accompanying video about the interconnect agreement between Netflix and Comcast could have been clearer in explaining that while Netflix downloads would result in a faster streaming experience for Comcast customers than before, Netflix receives no preferential network treatment under the agreement.

Netflix has agreed to pay Comcast to ensure that its movies and TV shows stream more quickly, the latest evidence of a shift in the balance of power in favor of Internet service providers and the likelihood of rising prices for consumers.

Emboldened by a mid-January federal appeals court ruling that eliminated "net neutrality" rules, which had prohibited Internet providers from prioritizing content, Comcast and others cable companies are showing signs they will take a more aggressive stance in how content streams through their "pipes."

Calling it "a mutually beneficial" agreement, Netflix, whose content accounts for nearly a third of evening Internet traffic, and Comcast, the nation's largest Internet provider and cable operator, said Sunday the deal will provide Comcast customers "a high-quality Netflix video experience for years to come." Terms of the deal were not disclosed.

Proponents of net neutrality have warned that broadband providers -- mostly cable and satellite companies -- will seek payment from content providers for quicker streaming without bottlenecks but still favor movies and TV shows made by their own subsidiaries or partner companies. Internet providers' changing priorities could result in higher fees for consumers as content providers -- having to pay to ensure smooth streaming -- pass on the cost to end-users.

Comcast's agreement with the most popular U.S. streaming service has been in the works for months but comes at a curiously opportune period. Earlier this month, the Philadelphia-based company agreed to buy Time Warner Cable for $45.2 billion to combine the nation's two largest cable operators -- a deal that will trigger heavy scrutiny from antitrust regulators. They don't compete in the same markets. But their marriage will create a video and Internet giant with a broad national footprint and heavy influence over content sent through its network.

"We now have an Internet service provider telling content providers that the only way its service can work is if you pay an extra fee," says Michael Weinberg, vice president of digital advocacy group Public Knowledge. "The Internet service provider is injecting itself into the relationship between Netflix and its customers."

Netflix eats up much of the Internet traffic, particularly in evenings, occupying about 32% of the downstream traffic in North America, according to network technology company Sandvine.

Aware that its shows are hogging the Internet, Netflix has been working with Internet service providers (ISP) -- in a program called Open Connect -- to install its own servers within the ISPs' networks. In Open Connect, ISPs can also opt to connect directly to Netflix's servers that are placed in data centers throughout the country rather than receiving content from third-party data distributors that have contracted with Netflix. Like other content providers in heavy demand, Netflix has hired several third-party distributors to store its movies and TV shows on their servers and transmit them to ISPs on its behalf.

Comcast and Verizon are among the major ISPs that have not participated in the Open Connect program.

Netflix is not calling its agreement with Comcast an Open Connect deal. But similar technology methods will be used, and Comcast will now bypass third-party distributors and connect directly to Netflix's own servers in its data centers.

"The companies have established a more direct connection between Netflix and Comcast, similar to other networks, that's already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic," the statement from Netflix and Comcast said. "Netflix receives no preferential network treatment under the multi-year agreement."

Netflix has been open about the fact that Open Connect is a free arrangement for ISPs. That the latest agreement didn't spell out the financial terms indicates that Netflix will pay Comcast for the direct-connect agreement, Weinberg says.

"It looks like Netflix is paying to make sure its subscribers can access what they're paying for," he says. "Open Connect has been transparent. It's been free."

Comcast customers have been vocal online and in social media channels about the slow streaming speeds for Netflix's content. Netflix also has gone public with its assessment of the transmission speeds of various ISPs.

In its "ISP speed index" released in January, Netflix said Comcast's speed – 1.51 megabits per second – ranked 14th out of 17 ISPs measured. Verizon's DSL service ranked last.

The bottleneck likely occurred at the point where Netflix's data enter Comcast's network, Weinberg explained. Like a drawbridge where goods enter a castle, the entry point to Comcast's network was heavily congested as Netflix customers individually ordered movies and shows.

"There were many copies that were entering Comcast's network," he said. "We're going to see a lot more of these problems in the next year or two … with the dispute turning on data entering and leaving the network. Comcast is in this gate-keeping position. They can tell Netflix if you want to work with us, you also pay. Netflix subscribers end up paying more so that Netflix can pay Comcast to access Comcast network."