By Drew FitzGerald
Netflix Inc.'s (NFLX) latest network dispute shows the extent of
Internet providers' growing irritation with bandwidth-hogging video
content--and the unanswered question of who's responsible for its
growing cost.
The argument spilled into the open this week after the website
Multichannel News reported Time Warner Cable Inc.'s (TWC) refusal
to join Open Connect, Netflix's name for the customized network it
built to stream video content more quickly.
Time Warner Cable said it took issue with Netflix's decision to
withhold its enhanced high-definition video, branded "Super HD,"
from customers unless it agreed to join Open Connect. That amounts
to "unprecedented preferential treatment" for Internet providers
that cooperate, the cable company said, and disadvantages to those
that don't.
"Time Warner Cable's network is more than capable of delivering
this content to Netflix subscribers today," the company said in a
statement, adding it's still discussing "acceptable commercial
terms" for its participation.
Netflix said it pays to run Open Connect and links the service
"at no cost" to Internet service providers to make customers'
experiences smoother. The Los Gatos, Calif., company already uses
Open Connect to stream video to subscribers abroad but hasn't won
over many U.S. Internet companies, which have grown accustomed to a
traditional network model.
Netflix, like most data-intensive Web companies, started
streaming video content through third-party content delivery
networks such as Akamai Technologies Inc. (AKAM) and Limelight
Networks Inc. (LLNW). Those companies also use specialized hardware
to help data avoid network bottlenecks, charging Web companies for
the privilege.
In June, Netflix said it was cutting out the middle man by
moving most of its traffic to a company-owned content delivery
network, following in the footsteps of other big Web companies like
Google Inc. (GOOG) and Amazon.com Inc. (AMZN). It's a heavy
investment that most Web services choose to outsource.
"A lot of companies have been trying to do what Akamai's been
doing for a long time, and not too many have been successful," said
Timothy Horan, an analyst for research firm Oppenheimer &
Co.
Netflix has said it accounts for about 30% of peak Internet
traffic in the U.S., making efficient use of bandwidth a top
priority.
Open Connect has won support in the U.S. from Cablevision
Systems Corp. (CVC) and Clearwire Corp. (CLWR), but most Internet
service providers haven't yet agreed to participate.
Netflix is unique for its hybrid business model--it licenses
media companies video content, owns its own content delivery
network and famously outsources the engine for its library browser
to Amazon Web Services. That makes Netflix an Amazon customer even
as it competes with the Web giant's Instant Video service for
consumers.
Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com
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