said by Skippy25:
Netflix is doing the nice thing by offering, for even free, to put content delivery servers deeper into the ISP's network so that 1.) It cost Netflix less to send the data but more importanly 2.) It saves the ISP's money and 3.) It puts less strain on the ISP's network in general.
It's mainly item #1. With few exceptions, transit capacity is not the issue for a residential ISP. The last mile is where the true bottleneck exists, and short of deploying the caching server on your LAN, there's nothing Netflix can do that's going to change this.
Transit costs are nothing compared to the last mile. Transit connections provide economy of scale, are comparatively easy to upgrade as new technology becomes available, and with relatively balanced traffic ratios can be had for next to nothing.