The deal, whose terms weren't disclosed, is the second of its kind struck by Los Gatos, Calif.-based Netflix since February, when it signed a similar pact with Comcast (CMSCA). Netflix's eagerness to spend big money for preferential treatment has worried advocates of so-called network neutrality, the notion that Internet operators should treat all content the same regardless of its origin.
Netflix doesn't argue with that, but it also acknowledges that it has little choice but to pay these fees -- which are probably costing it millions -- in order to make sure that its users don't have to suffer from a service with poor quality. That's especially important for Netflix as it faces heightened competition from a host of rivals such as Amazon (AMZN).
Thanks to the Comcast deal, Netflix customers have seen a 50 percent increase in streaming speeds, but the company strongly opposes Comcast's planned acquisition of Time Warner Cable (TWC) because of fears the merged company would have too much power over the nation's broadband markets.
"We're very concerned that a combined Comcast-TWC will place toll taking above consumer interests and will use their combined market power to the detriment of a vibrant and efficient Internet," wrote Ken Florance, Netflix's vice president of content delivery, in an April 24 blog post.
Comcast disputes Netflix's claims and notes that Interent service providers have struck similar agreements for years. A report issued last year estimated that Netflix and Google's (GOOG) YouTube account for half of peak Internet traffic.
Deals like the kind Netlix has made with Comcast and Verizon may become more commonplace now that federal regulators are crafting rules that would create a "fast lane" for some services and websites. Broadband providers would be able to charge "commercially reasonable" fees under new rules being weighed by the Federal Communications Commission. Chances are, however, that consumers will likely wind up paying at least part of these fees through higher prices.
"For consumers, artists, activists, and creators, creating a premium internet should raise serious concerns," wrote Clarissa Ramon of Public Knowledge, which is critical of the FCC, in a blog post. "The digital divide in this country is real enough to too many people due to the lack of competition in the broadband market. We don't need to widen that gap by creating fast and slow lanes between those companies who can afford to negotiate and those who cannot."
Shares of Netflix, which have dropped 13 percent this year, rose about 2 percent to $320.42 in Tuesday afternoon trading. Verizon was up a few cents to $46.67 and Comcast was down slightly to $51.51.