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Netflix to pay Comcast for faster speeds

A screen grab shows the access to Netflix online, as displayed on a television screen, in Encinitas, California July 25, 2011. REUTERS/Mike
A screen grab shows the access to Netflix online, as displayed on a television screen, in Encinitas, California July 25, 2011. REUTERS/Mike

(Reuters) - Netflix has agreed to pay one of the largest broadband providers in the United States Comcast Corp for faster speeds, throwing open the possibility that more content companies will have to shell out for better service.

Comcast and Netflix made the joint announcement on Sunday, marking the first time that Netflix is paying for faster speeds in the U.S. after customers complained about slow service. Terms of the deal were not disclosed.

The arrangement comes as federal regulators are wrestling with an issue known as "Net neutrality" concerning broadband providers and whether they can slow down traffic to particular websites, potentially forcing content companies to pay for faster Web service.

The Federal Communications Commission said last week it plans to rewrite the rules after a U.S. court struck down the commission's previous version.

The issue is being closely watched as millions of people view movies and TV shows through streaming services offered by such companies like Netflix and Amazon.

Netflix, which got its start as a DVD-by-mail service, has 44 million subscribers worldwide and 34 million in the U.S. alone. About 7 million subscribers pay for mail delivery services.

The companies said in a statement that they have been "working collaboratively over many months" to strike a multi-year agreement. Netflix will not receive preferential network treatment, the companies said.

As part of the deal, Netflix will deliver its movies and TV programs to Comcast's broadband network directly as opposed through third party providers, giving viewers faster streaming speeds for watching movies and TV programs.

It also could force Netflix to strike similar arrangements, known in the industry as interconnect agreements, with other major broadband providers like Verizon and AT&T.

With more than 44 million subscribers throughout the world, Netflix has been making an effort to connect directly with broadband Internet providers. It has struck similar deals with Cablevision and Cox, though Netflix did not pay for these connections.

The arrangement with Netflix comes on the heels of Comcast's agreement to buy Time Warner Cable for $45 billion, a deal that will draw the scrutiny of U.S. antitrust enforcers.

The combined company would have a near 30 percent share of the U.S. pay television market, as well as be the major provider of broadband Internet access.

(Reporting by Jennifer Saba in New York; Editing by Meredith Mazzilli)

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