Netflix has agreed to pay Comcast for a direct connection to the cable and Internet service provider's network, a move that will improve streaming video quality for Comcast customers, the Wall Street Journal reported today.

The deal was subsequently confirmed by the companies, but financial details were not disclosed.

News of a paid peering deal comes two days after a traceroute showed that the two companies were exchanging traffic with each other directly. Netflix performance on Comcast had been getting worse for months, suggesting a feud between Comcast and Netflix or between Comcast and Cogent, one of Netflix's Internet transit providers.

Netflix has tried to convince ISPs to join its Open Connect program, which involves either peering, caching, or both. Video caches inside an ISP's network bring content closer to customers, while peering involves a direct connection between Netflix and an ISP, potentially improving quality by eliminating middlemen traffic providers.

Numerous ISPs have turned down this offer, saying Netflix should pay for direct connections, and it appears Comcast has had its way.

A source close to Netflix told Ars that the company will not confirm whether there is any payment changing hands, but that a compromise was reached. Comcast and Netflix are interconnecting at Internet exchanges, the source said, suggesting a peering agreement.

"In exchange for payment, Netflix will get direct access to Comcast's broadband network," the Journal wrote today, quoting sources. "The multiyear deal comes just 10 days after Comcast agreed to buy Time Warner Cable Inc., which if approved would establish Comcast as by far the dominant provider of broadband in the US, serving 30 million households."

"Under the deal, Netflix won't be able to place its servers inside Comcast's data centers, which Netflix had wanted," the Journal wrote. "Instead, Comcast will connect to Netflix's servers at data centers operated by other companies."

The story noted that Netflix had been sending traffic primarily through Cogent, and then said that "Comcast presented Netflix with more attractive deal terms than the operator had been offering," suggesting that Comcast either bettered Cogent's pricing or lowered its previous demands. (Cogent says Comcast is charging more than it does.)

Netflix's business relationship with Cogent will continue, since Netflix doesn't have direct agreements with Verizon and other ISPs.

Update: After this story published, the companies released a joint statement that said, "Comcast Corporation and Netflix, Inc. today announced a mutually beneficial interconnection agreement that will provide Comcast’s US broadband customers with a high-quality Netflix video experience for years to come. Working collaboratively over many months, 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. Netflix receives no preferential network treatment under the multi-year agreement, terms of which are not being disclosed."

The companies' plan is for all traffic to eventually pass through the direct Netflix/Comcast connection. Until that happens, Netflix could still send some of the traffic through intermediaries like Cogent or Level 3. Still, redirecting even some traffic should at least reduce the stress on the congested Cogent/Comcast connections, potentially benefiting all Netflix users who are also Comcast subscribers.

Netflix/Verizon battle continues

Netflix and Cogent are still at odds with Verizon, apparently resulting in deteriorating quality of streams on Verizon's network.

The Netflix source told Ars that the sheer amount of customers hooked up to Comcast's network played a role in Netflix's willingness to make a compromise. Negotiations with other ISPs were not confirmed, but the source said it wouldn't be surprising to see Netflix seek compromises with other major ISPs.

Today's agreement comes after a court decision that gutted US network neutrality rules, allowing ISPs to block or degrade third-party traffic such as Netflix's. Comcast is still bound by those net neutrality rules until 2018 because of a condition on its 2011 purchase of NBCUniversal. However, the net neutrality rules only governed the path from consumer ISP networks to home customers.

The peering and transit agreements that cover interconnections further away from consumer homes weren't covered by the net neutrality rules or the Comcast/NBCUniversal merger agreement. Thus, Netflix traffic could still be degraded when ISPs like Comcast and Verizon don't invest properly in upgrading connections with network operators like Cogent that serve a lot of Netflix traffic.

The Federal Communications Commission hasn't given any sign it plans to regulate peering and transit, but could examine the issue as part of its investigation into the Comcast/Time Warner Cable merger.

The Journal called the Netflix/Comcast deal "the latest sign that broadband providers are gaining leverage in their dealings with content companies. Over the past several years, technology companies like Microsoft Corp., Facebook Inc. and Google Inc. have also started paying major broadband providers for direct connections to their networks that would provide faster and smoother access."