Will Netflix Destroy the Internet?

December 13, 2010 | By | 7 Replies More

I lifted this question from John Carroll at ZDNet: Net Neutrality: Will Netflix destroy the Internet? But the basic discussion is, how can internet carriers afford to pipe unlimited video at the same price that they charge to support slow and relatively sparse packet data like email and pictures?

Back around Y2K I was a doubter about the ability of a packet network to supply everybody with video. Crappy video needs a couple of megabytes a minute. Good, full screen video needs a megabyte a second or more. Also, the broadcast principle was that there was one transmitter for every million viewers. With the web, every viewer essentially needs a separate transmitter, and a separate wire or wavelength to run the route. Some networks can set up proxies so that (for example) all the Florida viewers of a live webcast might actually be seeing a retransmission from Florida, rather than requiring all those millions of channels to pipe through from L.A. or Prague, or wherever.

NetFlix delivers high definition video on demand. Every viewer commands their own transmitter from the nearest NetFlix server farm. The network (AT&T, Verizon, Sprint, etc) simply has to pass it through. But bandwidth does cost money. Less every year. But with the rising popularity of online video, the demand is rising exponentially faster than Telco’s can afford to enlarge.

How could a provider get away with charging people proportionally? A typical household might now be using a few dozen megabytes a day, excluding video. A two hour DVD movie is over 4,000 megabytes. It can be streamed with some compression. But that is still a lot of data. Now try Hi-Def.People want to keep paying the old text-web-with-some-pictures rates for full video.

Net Neutrality is important. But in the short run, it may take a hit as powerful companies try to stay afloat while giving people what they want.

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Category: Civil Rights, Communication, computers, Economy, Internet, Net neutrality

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A convoluted mind behind a curly face. A regular traveler, a science buff, and first generation American. Graying of hair, yet still verdant of mind. Lives in South St. Louis City. See his personal website for (too much) more.

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  1. Erich Vieth says:

    It is my opinion that the telecoms should only concern themselves with moving data. They should blind themselves to the content or the way the data could be used.

    If a customer wants more data moved per second or per month, they could be charged more by the carrier. I believe that this cares of your concern. Absolutely, the person downloading huge amounts of data fast could be charged more per month than a person who sporadically downloads text-only email. But it's not because of the type of use. Rather, it's because the first person wants to more more data faster.

  2. Tony Coyle says:

    Dan, and Erich — you have hit on the pros and cons of 'all you can eat' versus 'metered' internet…

    If you recall, the internet used to be very much a metered experience – especially in Europe, where every phone call was charged per minute. You usually paid a additional fee (per minute) to your ISP (this was often the only extra charge in the US).

    Thus arose usenet & BBS's – where you got on, uploaded, downloaded as quickly as you could, and then perused the material offline.

    Over time, some corporates saw a business advantage in offering effectively unlimited plans – one fee regardless of usage. For those who wanted access to email, or who spent time actively using usenet or BBS's, such plans were almost essential. For everyone else they initiated the massive growth of the internet (along with Mosaic and home website providers) since you could now reasonably assume people were 'online'.

    Fast forward to today.

    Our problem is that the telcos & other last-mile providers, who were more than willing to take our money to fuel their profits, failed to account for the huge growth in demand spurred by ubiquitous content generation & use (aka MySpace & YouTube). They decided that immediate profit was more important than infrastructure investment.

    This is nowhere more visible that the debacle of ATT & Apple: successfully ensuring the iPhone is a single-carrier device, then failing to invest sufficiently in network infrastructure to cope with the demand. They are still playing catch-up.

    There is more than sufficient capacity, overall, in the backbones. That the various providers don't always play ball is an issue (seen most recently in the spat between Comcast & Level 3). It is not insurmountable — the cost of turning on more fiber in the backbone is not a blocking issue.

    The problem is, as always, the last mile, and the interconnects.

    Most ISPs do not want to build up their infrastructure to deliver the high speed , high bandwidth data transport that they advertise. They can, at best, deliver those rates as a peak throughput. But (and always caveated in the small print) the average throughput will be significantly below that peak.

    For those who merely do email – that's not generally an issue (it is for me – I regularly have humongous attachments, but that's another story)

    For those who want to stream a movie, it is a big deal.

    I pay for a 25Mb/s data stream downstream (peak). That is more than sufficient (in theory) to deliver five or more HD quality streams. I'm lucky if I can get two. And that only during non-peak times.

    SD quality, I can get more streams (but the quality suffers).

    Should I pay more because I happen to want to use my paid-for-peak-bandwidth for four hours in the evening? My wife and I want to watch a movie in the family room, while my son & his friends watch something different in his room. As my daughter grows, she also wants to watch a different choice, and so on.

    I do not mind paying for bandwidth. I do not mind paying for real, unfettered bandwidth.

    I do mind paying for bandwidth that is not as advertised.

    That's the real problem.

    Metered would simply allow the last-mile providers a lock on your wallet.

    Bandwidth pricing allows amortization across large populations Once I've paid for the bandwidth, population amortization takes care of capacity (assuming I invest, as an ISP, in the rightsizing of my infrastructure to suit what I've sold!).

    Pricing for the amount of data transferred is how mobile data is managed right now — do you really want your internet to be based on that model?

    • Erich Vieth says:

      Tony: You remind me that pay-for-data approach is too simplistic. It needs to be a specific promise about how much (really) and when. What I was focusing on is that telecoms should absolutely positively blind themselves to type of use. It should be totally up to me how I want to stream my data into and out of my computer. It's only a matter of time before AT&T works really hard to ban Skype, for instance. And note that the battle between Netflix and Comcast is not an "innocent" battle involving the cost of moving data:

      Level 3 sees a conflict of interest on the part of Comcast, which in addition to being a broadband carrier controls vast amounts of video content. Comcast charges its customers as much as $9.99 to rent select movies from its On Demand menu for 24 hours, whereas Netflix said last month that it would charge its customers just $7.99 a month to stream an unlimited number of movies from its online library. Netflix's business model also competes directly with Comcast's cable television offerings.

      http://moneymorning.com/2010/12/01/net-neutrality

  3. Dave Jenkins says:

    I've been on both sides of the fence on this one: the Internet-addict in me says that all content should be freely exchanged and the Net should be kept neutral. The free-market capitalist in me says that companies should be allowed to make any contract they want for services and content, and let the market decide.

    The problem with the first part is that it's unrealistic and unbalanced: I view small videos on youtube and check my email, while my neighbor streams 720p videos and plays Halo against Koreans all night– if we pay the same, I'm subsidizing him pretty heavily. The problem with the second part is that companies are generally sleazy (especially media companies, it seems), and no one really trusts them to build an open market– they have a reputation for inhibiting markets wherever possible.

    It might make sense to view this in the classic supply-chain paradigm: there are OEMs, wholesalers, distributors, retailers, and customers. Think about how many people are in between Steven Spielberg and your couch: the film company, the studio that produced it, the distributor who sells the rights, the digital packager, and then company A that owns those servers, company B that owns the content distribution network, and company C that owns the last mile to your house.

    Each of these organizations/companies in that chain are trying to crowd out each other, as well as lock in their contracts. Some of these points are easily monopolized: the content rights, the last mile to your house.

    In the end, it may be a moot argument: WiMax is coming, and could blow the doors off the whole 'bandwidth constriction' problem that we're currently seeing. The trick will be that the early players here will want to charge by the Mb, but you'll likely have your choice of vendor.

  4. Tony Coyle says:

    Dave:

    WiMax may be coming, but all it will do is replace one set of 'last mile' providers with another. Unless and until last mile provision is ubiquitous and socialized (such as in France) the last-mile will always be a monopoly situation.

    The UK addresses it's last-mile monopoly (by BT) by mandating 'free access' to competitors – so just because BT 'owns' the wires, it can't charge more for 'wire access' to competitors that it does to its own internal groups.

    France (mostly) through the state controlled company which owns the last mile (Minitel?), so content delivery is always via that conduit. I don't know of many people who would complain about their (now) gigabit to the home service… (at least in major metros).

    The US is highly fragmented, and has a very challenging landscape (literally & figuratively). Metros are often infra-structurally challenged – with lots of competing cable in the streets and sometimes in the buildings! But they are a dense market that affords (better than) reasonable returns for infrastructure investment. Rural, not so much. Some rural locales can't even get reliable power, never mind broadband! Satellite was a possible way to provide access, but upload is always a challenge (limited to sometimes appalling phone lines). Wimax may be the saviour, here, but again cost per head will be prohibitive.

    I expect that Wimax will follow cellphone growth – urban, then 'urban canyons' (main highways between urban conurbations) then sparse rural (minor urbanizations). The majority of the country (landmass) still have no cellphone access. There is an opportunity there, but it is expensive and needs a huge shift in cost and reliability (capital cost, installation, and maintenance).

    I expect that the next real paradigm shift will come in usable and ubiquitous mesh network topologies built atop wimax hardware (some of that is already being developed and used in Africa & India – and China will be major driver of those technologies)

    High capacity, shared bandwidth, and no need for physical cells (per se) — every device is simultaneously an endpoint and a router (the routing algorithms would be scary, though, which is why it needs to be mesh-based!).

    I guess that's a little more than $0.02 worth!

  5. Dave Jenkins says:

    Tony,

    Actually, the specs around WiMax surpass the range and bandwidth constrictions of current cell technology quite significantly. I agree that the overall rollout progression will likely follow the same pattern as cell towers, but the economics are fundamentally different:

    1. The WiMax coverage is much larger, therefore fewer 'towers' are required for coverage, which greatly lowers the installation capital required.

    2. Many cell network providers have existing physical infrastructure in place (think how much infra installation cost is the placement of the actual towers and wires– the repeaters and antennae on top of those towers is really only a small portion).

    3. Many cell providers will want in this game– it won't be a 'monopoly' any more than we have a monopoly on cell phone coverage now (we don't in the US).

    4. Current wifi hotspots are often rigged to be part-owned, part-open. I would think that any WiMax provider would similarly rig their networks to be "mesh-centric" in a similar fashion.

    The coming WiMax frequencies are a major reason the govt. required the television broadcasters to surrender their spectrum– think how terrestrial TV had great, wide coverage as well as great bandwidth. This is where you'll get your bandwidth in about 2 years from now.

  6. niklaus Pfirsig says:

    I got my start before the widespread availability of the world wide web, (which I might add is only a very small part of the Internet.

    Back when I went online, it was through a 300 bps connection on POTS (Plain Old Telephone System) lines. From the late 1970 into the early eighties, the advent of "Home" computers like the Commodore 64, the Atari 800 and dozens of competitors brought with it an explosion in the creation of Computer BBS system.

    BBS systems were simply a computer with a modem configured to automatically answer the phone and access a browesable database of messages and files uploaded by other users. These systems were simple, and the vast majority of them only allowed one user connection. It was often difficult to connect, as the more popular boards required repeated attempts by redialing the number. In spite of the difficulties, BBSes flour shied, and as they did, the demand for faster modems pushed the modem technology to advance. Soon 300 bops gave way to 1200 bps, which soon fell the 2400 bps then 9600 and so on. The last dial up modem I used was a 56k model, which at 57600bps represented a bandwidth increase of nearly 20000 percent.

    Many BBS systems used a second phone line, and several of the local phone companies insisted on billing the second line as a business phone at a higher rate. Eventually complaints were made to public service commissions who ruled that, since the local telcos were not providing additional services, the addition charges were not legal.

    This did not stop the rumors of an FCC "modem tax" or "modem surcharge".

    Tony, the Internet is not metered, however, access to the Internet is.

    In the case of the BBS systems, the computers were privately owned, some by business and some by hobbyists. The phone lines only provided the access to the boards,

    The Internet has no bandwidth limits. The ISPs have bandwidth limits. Many of the ISPs hold regional monopolies, and offer different technological means of accessing the Internet. In Nashville we have DSL, Cable, Satellite, Wimax and 4g. DSL is provided only by ATT, Cable is provided only by Comcast, Satellite Internet is only available through Hughes. There are actually several providers of Wimax and 4g ISPs. Point is, that most of these providers have regional monopolies and as monopolies, they have no incentive to provide better service by making more bandwidth available. They have every incentive for jacking up the rates at any excuse.

    In the US, back during the Clinton administration, the federal government subsidized the installation of millions of mile of fiber optic `cables, which included fiber installed in residential and rural areas to be used as the infrastructure for connecting residential homes with fiber optic communications services, including Internet, phone, and TV. After 9-11, this was forgotten by the media and the current owners of the cable, mostly phone companies have no intention of activating high speed Internet to the homes as this would be less profitable in the short term and their stock holders are more important than their customers.

    On the other hand, Google has been buying up a lot of this "dark fiber" with the intention of competing against ATT.

    Currently, I've been using Wimax and have been for a couple of years. I am quite pleased with it,

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