The rentiers

I’m perfectly happy to switch back to DVDs if they really want to push the issue. (Until they make it illegal to sell them used, of course.):

Long-running disputes involving Verizon, Netflix, and Internet bandwidth providers are flaring up, causing recent slowdowns in Netflix speed.

According to a Wall Street Journal report tonight, “[t]he online-video service has been at odds with Verizon Communications Inc. and other broadband providers for months over how much Netflix streaming content they will carry without being paid additional fees. Now the long simmering conflict has heated up and is slowing Netflix, in particular, on Verizon’s fiber-optic FiOS service, where Netflix says its average prime-time speeds dropped by 14 percent last month.”

One possible interpretation of the above statement is that Verizon has been demanding direct payments from Netflix in exchange for carrying any video traffic beyond some numerical limit. That’s probably not precisely what’s happening, however, because the report says this particular dispute has been simmering for months—meaning it started before the court decision last month that overturnedthe Federal Communications Commission’s net neutrality rules. Prior to that court decision, it would not have been legal for Verizon to refuse to carry Netflix traffic when its payment demands weren’t met.

However, there are other ways Verizon can play hardball and affect Netflix performance. Netflix has been pushing ISPs to host its caching equipment within their data centers and to peer directly with the video provider—that is, exchange traffic without a third-party intermediary.

“Netflix wants broadband companies to hook up to its new video-distribution network without paying them fees for carrying its traffic,” the Journal noted. “But the biggest US providers—Verizon, Comcast, Time Warner Cable, and AT&T Inc.—have resisted, insisting on compensation.”

ISPs are under no obligation to accept Netflix’s peering and caching offers. Teaming up with Netflix might improve performance for consumers, but not doing so isn’t the same as refusing to carry traffic. If Verizon’s network and its interconnections with third-party networks are strong, Netflix quality should be reasonably good.

The biggest problem is probably the same one we’ve seen in previous disputes: the connections between ISPs and the Internet bandwidth providers that Netflix pays to distribute its traffic to the rest of the Internet.

As we’ve reported before, those bandwidth providers, such as Cogent Communications, have traditionally exchanged traffic with consumer ISPs without money changing hands. But ISPs are using increases in Netflix traffic as justification to demand payment.