WASHINGTON - Netflix has entered into a multi-year deal with Comcast, the biggest internet service provider in the US, that will help the giant television and movie streaming service stream its videos faster and more smoothly.
The deal, for an undisclosed sum, will see Netflix servers connected directly to Comcast's network, removing third parties that slow down streaming speeds.
"Comcast Corporation and Netflix, Inc. announced a mutually beneficial interconnection agreement that will provide Comcast's U.S. broadband customers with a high-quality Netflix video experience for years to come," Comcast said in a statement.
"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."
Comcast clarified that Netflix, which has 44 million subscribers, mostly in the US, receives no preferential network treatment under the multi-year agreement.
The move comes just days after Comcast confirmed a deal to acquire Time Warner Cable, the country's second largest cable provider, for about $45billion
According to some estimates, the combined company would control more than one-third of the US high-speed internet market.
Michael Pachter, managing director equity research at Wedbush Securities, in a note stated: "The agreement reinforces the leverage that broadband providers have over Netflix, leaving the latter no recourse other than to open its checkbook (albeit for an undisclosed amount), as service degradation is a real threat now that the net neutrality rules have been eliminated."
In January, Netflix published a report showing that the performance for its streaming video service was declining on Comcast as well as Verizon, another major internet service provider. Much like Comcast, Verizon also competes with Netflix through its digital television service and Redbox streaming video service.
Netflix's problems were widely blamed on the connections between the two big ISPs and Cogent, a middleman network.
Pachter forecast agreements with other ISPs in coming months, also at undisclosed terms, "although Verizon appears to be the most likely to seek very high fees from Netflix, given that it was the lead plaintiff in the net neutrality challenge."
In the case of Comcast, Pachter estimates that Netflix will pay $25 million to $50 million annually for the next three to five years and is likely to pay similar amounts to other large ISPs.
In an interview on CNBC on Monday, Verizon Communications CEO Lowell McAdam confirmed that the companies have been discussing a deal for the past year and expect to come to a final agreement soon.
"I think there's a good opportunity here," McAdam said, adding, "Both (Netflix CEO) Reed (Hastings) and I have talked about it and we think it's in both of our interests."