Free VPN providers are almost definitely absorbing the cost as part of a freemium pricing model, and cheap VPN providers are probably overselling their bandwidth under the assumption that most of their customers won't use much.
The reason why routing Netflix via VPNs currently works so well is because not many people are doing it. If more people did, then 1.) VPN providers would start to charge more, and 2.) the peering points between Verizon and the VPN services' transit providers would become more congested.
rnovak's "proof" of deliberate discrimination against Netflix was that encrypting Netflix traffic caused Netflix to perform better. That's simply not the reason - the reason is that the VPN traffic avoids the congested Level 3/Verizion peering points. Netflix traffic is not the only traffic that's suffering - any traffic coming from Level 3 is. (In fact, this issue has affected me, even though I'm not a Netflix customer, because I regularly access servers which get their transit from Level 3.) It might be that Verizon is playing extra-hard ball in the negotiations because Netflix traffic is involved, but any discrimination is not exclusively against Netflix and it's not because of deliberate packet inspection. Not even Netflix claims it is.
The reason why routing Netflix via VPNs currently works so well is because not many people are doing it. If more people did, then 1.) VPN providers would start to charge more, and 2.) the peering points between Verizon and the VPN services' transit providers would become more congested.
rnovak's "proof" of deliberate discrimination against Netflix was that encrypting Netflix traffic caused Netflix to perform better. That's simply not the reason - the reason is that the VPN traffic avoids the congested Level 3/Verizion peering points. Netflix traffic is not the only traffic that's suffering - any traffic coming from Level 3 is. (In fact, this issue has affected me, even though I'm not a Netflix customer, because I regularly access servers which get their transit from Level 3.) It might be that Verizon is playing extra-hard ball in the negotiations because Netflix traffic is involved, but any discrimination is not exclusively against Netflix and it's not because of deliberate packet inspection. Not even Netflix claims it is.