Netflix and the Internet bandwidth dilemma

Summary:Netflix's latest price changes is only the tip of the ice-berg of problems that Internet video watchers face.

I get it. You're ticked off at Netflix for raising its prices for online video streaming. I understand perfectly. I recently dropped my cable TV service for a combination of Internet TV services-Netflix, Hulu Plus, and Amazon Instant Video--my own iTunes-based video server, and over-the-air (OTA) TV. Of all of them, I watch Netflix the most. I'm not happy about paying more. I also don't think I have much of a choice in the matter.

You see, Netflix didn't have much of a choice in raising its prices. Just like the recording industry before it, video content owners are having a heck of a time shifting over from their old selling and broadcast models to Internet savvy business models. So Netflix knowing darn well that the price it was paying for the right to stream videos made a per-emptive move to raise its rates. Yes, they'll lose some customers, but they're betting they'll still have a good revenue stream. They're going to need that revenue just to keep their video streams flowing.

Here's why. Many of the major Internet Service Providers (ISP)s, such as Comcast, which now owns NBC/Universal, also control video content providers. They are not enthusiastic about encouraging any of the Internet video-on-demand businesses. They're much rather have you use their video services over their connections.

So, Would it surprise you to know that no sooner than Netflix raised itsrates than NBC/Universal announced that they'd signed a new deal with Netflix to supply them with content. It didn't me.

We don't know how much Netflix paid, but Michael Pachter, an analyst at Wedbush Securities, said he expected Netflix's content costs to balloon from $180 million in 2010 to $1.98 billion in 2012. With Netflix having to spend more than ten times the amount it's been paying for content, we should be rejoicing that we're only paying 60% more instead of 1,000% more for our Netflix Internet video watching habit.

You can expect that all the online video services will face similar price jumps. Ideally, the ISP/media companies would like you to use their in-house Internet video services such as Comcast's XFINITY service. Unfortunately these ISP-based Video on Demand (VoD) services tend to be, well, dismal.

But, as annoying as these price increases will be, that's only the tip of the ice-berg. The real problem is that video is already eating up the Internet's bandwidth. I can see Internet 'brownouts' in our future.

But, it might not come to that because the ISPs are all putting bandwidth caps on our connections. You may think that you could never use 250GB in a month. You could be wrong. Video streaming and cloud services take up a lot of bandwidth.

Just ask Andre Vrignaud. Mr. Vrignaud, a Comcast customer with a 15Mbps down/3Mbps up cable connection, just had Comcast cut his Internet off for a year because he broke their data cap. According to Vrignaud, "Comcast has cut my broadband with no appeal."

Now, Vrignaud is a heavy Internet user. He's a photographer who saves files in the highly accurate, but also huge RAW format, uses Carbonite for Internet back-ups, and he's recently started using the new Amazon Cloud Drive to store his large music collection. You can see where this is going can't you? Huge files, uploads costing against his cap as well as downloads, etc. etc, It turns out that, with today's cloud services, it didn't take him long at all to use up his 250GB a month allowance.

If you use those services, and/or your family watches a lot of Internet video, you too are going to crash right into those data caps too. And, it's the shortage of bandwidth and data caps that are going to be the real handicaps for making the most of Netflix and other Internet video services, not what these services will be charging. Indeed, if your ISP turns your connection off, online video charges will be the least of your worries.

Related Stories:

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Netflix's pricing backlash: Follow the money, churn rates

Netflix: Bigger than cable. Too big for the Internet?

Dear Netflix': Price hike ignites social-media fire

Negative on Netflix? 5 alternatives

Topics: Telcos, Browser

About

Steven J. Vaughan-Nichols, aka sjvn, has been writing about technology and the business of technology since CP/M-80 was the cutting edge, PC operating system; 300bps was a fast Internet connection; WordStar was the state of the art word processor; and we liked it.His work has been published in everything from highly technical publications... Full Bio

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