Netflix to pay Comcast for direct connection

Netflix has reached a deal with Comcast to ensure that its TV shows and movies are streamed smoothly to households, the first deal the online video streaming service has reached with an Internet provider.

The deal could lead to Netflix's making similar pacts, known in the industry as interconnect agreements, with other major broadband providers like Verizon and AT&T.

The announcement comes as federal regulators wrestle with an issue known as Net neutrality, concerning broadband providers and whether they may slow down traffic to some particular websites or applications, potentially forcing content providers to pay for faster Web service.

A federal appeals court in January tossed out newly penned Federal Communications Commission laws saying Internet providers needed to treat all websites equally — potentially opening the door to more Web giants paying providers for faster access to their services. The FCC said last week it plans to rewrite the rules.

The deal comes after months of negotiations with Comcast, though Netflix will receive no preferential network treatment under the multiyear deal, the two companies said in a joint statement Sunday.

They're establishing a more direct connection to provide a better service to customers that will also allow for growth in Netflix traffic. The companies say the arrangement is already giving customers a better experience.

Netflix had 33 million U.S. streaming subscribers at the start of the year and accounts for about one third of all traffic at peak times on the Internet, according to research firm Sandvine. As Netflix's video streaming has grown, Internet service providers like Comcast have pushed the company for more structured deals to enable its content to be transmitted smoothly and reduce the strain on their networks.

While the companies did not disclose the terms of the deal, Netflix investors will want to know how much this deal will affect the company's bottom line and whether the costs will be passed on customers. Netflix has been resisting paying fees to Internet companies, and this deal could open the door to similar agreements with other providers.

Netflix is already experimenting with different rate plans that charge slightly more for households that want to stream its shows and movies on four screens simultaneously.

Comcast was ranked as the 14th-fastest Internet service provider in January, according to a table on Netflix's website. By connecting directly to Comcast's network, Netflix should be able to boost the quality and speed of its video streaming as it adds more customers and prepares to start streaming its content in the ultra-high-definition format this spring.

Other large Internet companies like Google already pay broadband providers a fee to enable more direct connections.

Comcast is the nation's No. 1 pay TV and Internet provider, under its Xfinity brand. The company said earlier this month that it agreed to acquire Time Warner Cable for $42.5 billion in stock.

Al Jazeera and wire services