Netflix Inc. has agreed to pay Comcast Corp. to ensure Netflix movies and TV shows stream smoothly to Comcast customers, a landmark agreement that could set a precedent for Netflix’s dealings with other broadband providers, people familiar with the situation said.
In exchange for payment, Netflix will get direct access to Comcast’s broadband network, the people said. 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 U.S., serving 30 million households.
For months Netflix and Comcast have been in a standoff over Netflix’s request that Comcast connect to Netflix’s video distribution network free of charge. But Comcast wanted to be paid for connecting to Netflix’s specialized servers due to the heavy load of traffic Netflix would send into the cable operator’s network. Under the deal, Netflix won’t be able to place its servers inside Comcast’s data centers, which Netflix had wanted. Instead, Comcast will connect to Netflix’s servers at data centers operated by other companies.
Netflix Chief Executive Reed Hastings decided to strike the deal after Netflix saw a deterioration in streaming speeds for Comcast subscribers. According to Netflix data published in January, the average speeds of Netflix’s prime-time streams to Comcast subscribers had dropped 27% since October. Mr. Hastings didn’t want streaming speeds to deteriorate further and become a bigger issue for customers, the people said.
The deal is 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. FB and Google Inc.have also started paying major broadband providers for direct connections to their networks that would provide faster and smoother access.