I wasn’t planning to write anything about the WSJ’s news story about Apple and Comcast being in discussions to work together, but since I have gotten so many inquiries from others asking me to comment on the post and seeing that Netflix’s stock is now down $30 a share as of 2pm ET, I felt compelled to get something up.
From sources I have spoken to, no such deal between Apple and Comcast is being considered today, the way the WSJ describes it. Apple routinely has discussions with all the major content owners but Apple is not working on any special streaming service that will be delivered via Comcast. While one could always speculate that such a service might, could or should come to the market in the future, anything is possible, but not the way the WSJ details it.
For starters, the WSJ post says that Apple would get “special treatment on Comcast’s cables to ensure it bypasses congestion on the Web”. Not only would Comcast not offer that, legally they aren’t allowed to. The post goes on to say that Apple “wants the new TV service’s traffic to be separated from public Internet traffic over the last mile”. This makes no sense. Once the content is already inside the last mile, it’s no longer “public Internet traffic”, so the WSJ authors simply doesn’t understand, from a basic technical level, how content is delivered.
The post also says that the last mile “tends to get clogged when too many users in a region try to access too much bandwidth at the same time.” As we know from the Netflix and Comcast story, the congestion takes place at interconnect points and generally not inside the “last mile”. Does the WSJ have any data to show us that congestion is taking place inside the last mile at Comcast? Also, users aren’t accessing too much “bandwidth”. I get what they are saying, but they are using the wrong term. Bandwidth is simply the amount of data that can be carried from one point to another in a given time period. Users don’t access “bandwidth”, they are accessing content.
How anyone can take the WSJ’s post seriously is beyond me when they use so many vague terms, and it’s clear that the authors don’t understand this subject from a basic technical level. They say Apple wants a separate “flow” for its video traffic. What does that mean? Define “flow”. Earlier in the post they said that Apple would “get special treatment on Comcast’s cables”, but later on say “it isn’t asking for its traffic to be prioritized over other Internet-based services.” Well, which one is it? It can’t be both.
Their “technical” description of how this would work makes no sense at all. They say “Apple’s video streams would be treated as a “managed service” traveling in Internet protocol format—similar to cable video-on-demand or phone service. Those services travel on a special portion of the cable pipe that is separate from the more congested portion reserved for public Internet access.” That’s a lot of vague, generic words thrown together that mean nothing without defining them. “Special portion”? “Managed service”? Are they suggesting a private peering connection? Maybe, but then that’s not inside the last mile. And why do they say it will be delivered using the “Internet protocol format”? Is there any other format to use? Of course it’s in IP format, it’s going over IP-based networks!
I was just going to leave this article alone and not say anything as I’m not trying to police the web. But Wall Street thinks this is big news and has sent Netflix’s stock down $30 a share as of 2pm ET, which is crazy. The WSJ’s post does not have enough facts in it, and far too many errors, to use it as the reason to justify a sell off in Netflix. Just because something is published in the WSJ or any other major publication does not guarantee they have the story right. It does not take much to see that the way the story is written, the authors don’t understand the basics of how content gets delivered on the Internet. They don’t use the right terminology, and the post is filled with so many vague and nondescript terms that no one should be making any decisions on buying or selling stocks based on what this WSJ post says.
Added 4:02pm – While Netflix’s stock could be down for reasons other than the WSJ’s post, nearly all Internet stocks are down today including Google, Akamai, Facebook, Twitter, Yahoo and others. The two stocks that are up are Apple and Comcast. So you can draw your own conclusions if you think the WSJ article had any impact on Netflix’s stock today.
Disclaimer: I have never bought, sold or traded a single share of stock in any public company ever. I have no vested interested in Netflix, Apple, Comcast or any other company mentioned in this post.