Like any congested highway, bottlenecks were slowing traffic down as all those trucks carrying digital content tried to get into the entry gates of Internet providers.
Now that it's getting paid extra money, Comcast is going to create special roads for Netflix's video. By bypassing the bottlenecks, Netflix video should stream more smoothly for Comcast subscribers.
IS NETFLIX THE ONLY SERVICE WITH EXPRESS LANES FOR DEDICATED CONTENT?
No. Google Inc., which owns the YouTube video site, and social networking service Facebook Inc., among others, had already reached similar deals with Comcast and other Internet providers. Netflix is falling in line with other services that generate a lot of traffic.
WHAT PROMPTED NETFLIX TO ANTE UP?
No one knows for certain, but Comcast's clout probably had a lot to do with it. Comcast already has nearly 21 million broadband subscribers and that number will swell to about 30 million by the end of the year if the Philadelphia company wins regulatory approval to buy rival Time Warner Cable Inc. for $45 billion.
If Netflix's video streaming quality continued to deteriorate on Comcast, Netflix risked alienating its own subscribers. The discontent would have undercut Netflix's subscriber growth and ultimately hurt its stock.
Comcast also may have been more willing to reach a compromise to reduce the chances of Netflix amplifying its complaints about the deteriorating performance of its video service while government regulators scrutinize the Time Warner Cable deal.
COMCAST SAYS IT ISN'T GIVING NETFLIX PREFERENTIAL TREATMENT. IS THIS REALLY TRUE?
Sort of, but it's a fine and highly technical distinction.
Comcast is referring to the ongoing debate over "Net neutrality." This term refers to the idea that Internet providers should treat all digital content equally, regardless of the originating website. The issue has become especially sensitive since last month when a federal appeals court overturned the Federal Communications Commission's regulations enforcing Net neutrality. That decision raised fears that Internet providers would impose tolls to guarantee websites run at optimal speeds.
But Net neutrality governs the performance of bits and bytes once the digital packages are inside the gates of Internet providers. The Comcast-Netflix alliance is limited to how quickly content gets to those gates.
WILL NETFLIX RAISE ITS PRICES TO HELP OFFSET THE EXTRA MONEY THAT IT'S PAYING COMCAST?
The $8 monthly price for a Netflix subscription in the U.S. may eventually rise, but the increase probably won't be tied to the Comcast deal.
Although the precise terms aren't being spelled out, it appears Netflix may just be reshuffling its expenses for video delivery. The company already had been paying other contractors to handle those deliveries. Now, some of the money is going to be paid to Comcast instead.
In a telling sign that Netflix isn't anticipating dramatically higher expenses, the company didn't revise its profit projections for the first three months of this year when it announced the Comcast deal. Investors interpreted that as a sign that Netflix's expenses aren't going to rise above the levels that management already budgeted. Netflix's stock climbed by about 4 percent to a new all-time high of $449.69 Monday before falling back slightly. The shares closed at $447, a gain of $14.77.
Meanwhile, Netflix is still experimenting with new prices for subscribers who want to be able to simultaneously stream video on more than the current limit of two devices. A plan allowing four simultaneous video streams is being tested at $12 per month. Netflix has emphasized any potential price increases are still many months away.