Clarification: at this point I'm not talking about a VPN bypass, only about using a bytecounter / trafficgen plugin to balance the traffic from Netflix through Level3
So no VPN fees for either Netflix or their Verizon customers & no peering payments by Level3 to Verizon.

steaming, sauteing, or even poaching will keep them plump & juicy

"That would solve the peering problem but it would double Netflix's data usage. It would be far cheaper to pay for peering."

Double it's data usage where? On Level3? It's traffic to be discarded and this would prevent them from having to pay Verizon.

" Verizon sells a cloud solution that is excellent. Netflix could just host out of the Verizon cloud to serve Verizon customers"
That's fine - if Verizon is & remains excellent. But they're essentially in a monopoly position in many markets and what recourse does Netflix have if Verizon decides to amp up the charges or their cloud service start sucking donkey balls?

"Our road system is maintained by the government to serve the common good. The internet is much more of a free market"

Not close enough to being free. Far too many people simply don't have the choice to change to providers when dissatisfied.
I would like to see the last mile become a common good but other changes would be needed to ensure fairness.

"How would that help? If a packet is going to get from Level3 Oregon to say a Verizon home in Philadelphia it at some point is going to have to hit a peering location between Level3 and Verizon. Unless you add a bunch of other 3rd parties in there. In which case it is still going to have to happen indirectly. What is a VPN going to do to fix that?"

Colin Nederkoom used a VPN link to show that he could access Netflix at almost 10x the paltry 375 kbps he was getting on his Verizon 75 Mbps symmetric service.
The underlying issue is that Verizon is muddying the waters by being both a residential ISP AND a Tier 1 provider.
I don't know how it would EVER be possible to have nearly symmetric traffic with them when their small-customer base is in the millions as end-user traffic is HIGHLY asymmetric.
There's a reason why i mentioned VyprVPN apart from them being the service used by Nederkoom to bypass Verizon's throttling - they have an online storage service as well so if customer's take advantage of this, it might help balance the traffic if Netflix acquires them.

But there's a much simpler solution that Netflix could implement - a bytecounter & traffic gen plugin that would send random data back when the user is connected to the streaming service and if they implement it unencrypted, they could have Level3 discard it silently as soon as it hits their network from the Verizon side.

Deal 3 - pay the Comcast / Verizon extortion for as short a time as possible while working on an alternate solution.
For example, buy up or cut deals with as many top-tier, distributed VPN providers as possible; VyprVPN would be a good start.
Cut deals with Google & Microsoft to deliver Netflix content on their infrastructure and distribute through as many peers as possible.
Work with Google Fiber & municipalities to build hi-speed & wireless that bypasses the monopolies while media-blasting the customers of said monopolies about greater choice, performance & security and truly-free markets.

It's well within Level3's capability to spread the load among all the peers. Netflix is not a ISP, they're a content provider so it's wrong to strongarm them.
Do owners of popular venues pay to upgrade the interstate 50 miles out of town?

By the way, Netflix HAS ALREADY PAID both Comcast & Verizon - http://www.theverge.com/2014/4...
That was months ago. So the issue now is between Verizon & Level3.

Is Netflix going to have to pay extortion money to EVERY major provider in the world if their traffic causes asymmetric bandwidth between peers?

If it were up to me, I would tell Comcast & Verizon to go fuck themselves and start buying up every multihomed / distributed VPN service I could find and sell that as a premium service with some goodies to sweeten the pot for my customers.
I'd start with VyprVPN, which is the one that was used by Colin Nederkoom to figure out that Verizon was throttling his Netflix traffic
http://www.goldenfrog.com/vypr...

They very much are - as with Comcast, Netflix was forced to cut a deal with Verizon, which was done back in April or May.
So requiring Level3 to pay as well is double-dipping

Looks like VPN services like VyprVPN will see some significant growth from Verizon's customers in the short term.
While Verizon may want to strongarm Netflix into paying them directly, Level3 could reroute the traffic through other networks that also peer with Verizon since Netflix's traffic isn't at all latency sensitive

And yet they're still throttling Netflix?

That makes a stronger business case for China and it looks like they want Teslas much, much more than Texas.

If no one provides a link to a story about the Big Bang, does that mean the Universe doesn't exist?
In this universe, we have search engines. Perhaps you might have inadvertently used one but I see you've recovered nicely from that misstep.

Thanks to Castle Doctrine & Stand Your Ground laws, that's not true in a lot of places in America.

So do car drivers as I've noticed over the past 40 years. Take away the insurance requirements & penalties and North American drivers will behave just as badly, probably worse and definitely far more lethally.
Auto drivers aren't better people than cyclists; they're merely under greater external control. Period.

Since that announcement, more than a few car forums have taken to calling it the Gen 3 or Gen III.