Updated @ 6pm, February 23: Right on schedule, it seems Netflix and Comcast have come to an agreement. Netflix now has a direct connection to Comcast’s network (peering), and Comcast users should see much improved service as a result. Money changed hands, but no exact figures were made public.
Over the last few months, many Netflix users in the US and around the world have noticed a steady decline in streaming video quality. For some subscribers, it’s got to the point where the video is constantly buffering and heavily pixelated. This is particularly irksome, because a high-quality video feed should be possible with just 1 or 2 megabits per second of sustained bandwidth — and almost every Netflix subscriber now has a connection that’s theoretically capable of 10Mbps or more. What’s going on? Why is your Netflix slow and low quality?
The short answer is that Netflix is a victim of its own success. The long answer is that Netflix has outgrown its allotted bandwidth, and thus Netflix traffic is now being throttled by ISPs and core network operators. To explain why Netflix is being throttled, we need to discuss a topic called peering.
Peering: The lifeblood of the internet
The internet, as you probably know, is a series of tubes. These tubes, connected together by routers, span most of the world, creating a network that interconnects billions of homes and businesses around the world. Now, you’ve probably never thought about it, but every last inch of the internet is owned by someone — usually a company that has invested a large amount of money (billions) on network infrastructure. When you visit Facebook, stream a video on Netflix, or otherwise do anything on the internet, your packets potentially traverse dozens of different networks, all owned by different companies. These companies, obviously, want payment.
The second thing to know about the internet is that there are two (primary) kinds of traffic: upstream and downstream. You, as a voracious watcher of House of Cards and funny cat videos, are predominantly downstream traffic. Netflix, Google, YouTube, etc., generally produce upstream traffic — i.e. they upload data to the internet, that then traverses the series of tubes to your house. In each case, the upstream and downstream users need to pay the gatekeepers in the middle — the core network operators; the telecommunications companies that own the backbone network of pipes that interconnect cities and countries.
As you can imagine, it’s awfully hard to make sure that everyone gets fairly paid for the traffic that crosses their network, which is why the internet is based on peering agreements. Basically, Netflix builds its network of routers and data centers, and then pays a core network to carry its traffic. Likewise, your ISP builds its network, and then uses your monthly subscription to arrange its own peering agreement with the core networks. Between core networks, as long as the traffic is fairly symmetrical, peering is usually free (they’re all in the boat together). Likewise, between various local ISPs, as long as traffic is fairly equal, peering is usually free. It’s also possible for local ISPs and upstream services (Netflix, Google) to have a free peering agreement, if Google installs a server in the ISP’s data center. As long as no one gets screwed, peering works really well. (Read: The secret world of submarine cables.)
Where net neutrality falls down
The problem with peering, though, is that it doesn’t cope very well with heavily asymmetrical connections. Netflix, which continues to grow at a very fast pace, accounted for around 30% of the United States’ peak bandwidth consumption at the end of 2013. In recent months, as Netflix rolled out 1080p streaming to all subscribers, its bandwidth usage has continued to climb. Someone (not Netflix!) has to carry all of that traffic to the end user. Exact details aren’t available, but the basic gist of it is this: Netflix has exceeded its peering agreements with America’s ISPs, and so now Netflix’s traffic is being throttled. (Read: 4K Netflix launches: Is 2014 the year that 4K finally reaches mass market?)
One such example is Verizon’s FiOS service, where Netflix says its prime-time speeds dropped by a massive 14% last month. Verizon could negotiate a bigger peering arrangement with Netflix’s upstream provider (Cogent in this case) to reduce the congestion — but in exchange it wants something from Netflix (money, most likely). Netflix, for its part, wants to put its own streaming video servers within the ISP’s own data centers, cutting out the core network — but again, while Netflix wants ISPs to peer with these servers for free, the ISPs (Verizon, Time Warner Cable, Comcast, AT&T) want money.
Until an agreement can be reached, Netflix’s video quality will decrease as the service gains more users. At the rate at which the quality of service is declining, Netflix will probably have to cough up some money sooner rather than later. After all, its subscribers don’t know (or even care) what’s going on behind the scenes — they just know that they don’t want to pay for a crappy service.
At stake, of course, is net neutrality. Netflix argues that, if ISPs become the bullying gatekeepers, it’s the beginning of the end for internet freedom. The ISPs claim that they’re just negotiating as normal. Cynics (realists?) claim that ISPs have their own vested interests in services that compete with Netflix. In reality, following last month’s court decision that ruled in favor of Verizon against the FCC’s net neutrality rules, this will probably only end one way: Netflix will have to cough up some money.