By metering broadband usage, ISPs connected to big cable companies may have found a way to do what Hollywood can't: slow down Netflix
Netflix is officially the web’s biggest bandwidth hog, a report issued in mid-May showed, gobbling up about 30 percent of peak internet traffic each day.
Usage of Netflix and other streaming-video suppliers is growing fast — Netflix, for example, consumed only just 20 percent of peak bandwidth six months ago.
But just as more and more American consumers are joining the streaming-video party, and using more bandwidth because of that, their internet service providers – many of which, by no coincidence, also run large cable TV operations — are getting set to cap the fun.
With companies like Netflix and Hulu threatening their subscription-cable business, companies including AT&T, Comcast and Charter no longer want to aid the competition by offering consumers all-you-can-eat broadband.
The message: Think twice before you cut that cord, America.
This month, AT&T joined competing ISPs Comcast and Charter in putting a limit on the amount of data its customers can use each month. After its customers pipe 150 gigabytes of data through their modems — 250 gigabytes for subscribers to its UVerse cable service — AT&T will start charging them for each extra byte.
Comcast is a little more harsh. Instead of charging a fee for exceeding limits, the company — which now owns NBC Universal, in addition to its own cable system — kicks off from its network customers who go over the 250 gigabyte limit more than twice in six months.
The real point of the caps, analysts say, is to prevent people from ditching expensive cable service the way many have gotten rid of their wired telephone lines.
"Given the way in which internet service providers across the country have tried to structure their data caps, they've done so in a way that threatens not just Netflix, but all types of independent online video distribution," Joel Kelsey, a political adviser to Free Press, a national nonprofit that works exclusively with media and technology policy, told TheWrap.
Last year, Kelsey noted, the cable industry saw a net decline in the number of subscribers.
“That could be prophetic for things to come because more and more consumers are starting to cut the cord and rely on video delivered online, DVD delivery systems like Netflix and other types of devices like Roku and other kinds of set top boxes that use the internet to deliver video, and cable companies — who are also broadband companies — are very threatened by that,” Kelsey said.
The ISPs are billing the new usage tolls as no big deal.
An AT&T executive said that only 2 percent of its customers will exceed its limits. To use up 150GB, a user would have to stream 20 standard-definition movies a month, the company claims.
That's not an insurmountable tally for a really heavy Netflix user, but few subscribers are likely to stream that many films in a month.
However, the cap only allows for the streaming of about 10 high-definition movies, which will have a greater impact on video operators like Netflix as their product offerings evolve.
For a cutting-edge Netflix subscriber, throw in a few game downloads on the Xbox 360 network, maybe a few funny-cat videos on YouTube, some online porn, and some sitcoms on Hulu, and all of the sudden, you're over the cap.
Certainly, data usage is only going to increase over time. A report from research company Sandvine claims that in North America, the average monthly data use jumped from 15GB gagabytes six months ago to 23GB this spring.
With that in mind, companies like AT&T and Comcast are looking not only to disincentive their cable subscribers from cutting their cords. They're also hoping to capitalize on the added usage of their networks. Why should Netflix be the only one to benefit from the streaming revolution?
“People who use a great deal of data would pay accordingly,” AT&T spokesman Mark Seigel told TheWrap. “This is a step we think makes sense today."
"A big factor is overall revenue," added Edward Woo, a research analyst with Wedbush Securities. "So if the revenue for cable product is decreasing, obviously they want to make it up."
Not surprisingly, Steve Swasey, VP for corporate communications at Netflix, told TheWrap that his company opposes data caps.
In fact, on May 10, Netflix petitioned the the Committe on Energy and Commerce, asking it to review ISP caps. In the letter to chairman Fred Upton and Henry A. Waxman, Netflix also indicated that it was concerned about ISPs including Comast attempting to indirectly charge it fees for using their networks.
“They’re a big issue,” Swasey said of the caps, explaining that the company has dialed back the size of movies it streams in Canada in order to better maximize the tight usage caps.
Candian Netflix streamers have had their data rate reduced to 625Kbps, which works out to about 0.3GB per hour (see letter, left). That means a subscriber can stream 30 hours of Netflix a month on about 9GB, although the picture quality isn't as good as what's delivered Stateside anymore.
And HD? Forget about it.
In the end, the networks belong to the ISPs. And beyond petitioning Congress and reducing transfer rates, operators like Netflix and their subscribers might have little choice but to pay the usage tolls if they want to stream movies.
ISPs “are for-profit businesses," noted Tom Adams, an analyst for Screen Digest. "If it turns out that consumers, as they up their consumption, decide that they are amenable to pay more for heavy usage, prices will go up.”