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Streaming Wars: Netflix Traffic Gets Throttled By Broadband Companies, Leading To "Unwatchable" Results

Tyler Durden's picture




 

For years, the Netflix streaming business has been growing like a parasite, happy to piggyback on established broadband infrastructures, where the broadband companies themselves have becomes competitors to Netflix for both distribution and content. Until now. Emboldened by the recent Net Neutrality ruling, which has put bandwidth hogs like Netflix which at last check was responsible for over 30% of all downstream US internet traffic...

... broadband providers are finally making their move, and in a preliminary salvo whose ultimate compromise will be NFLX paying lots of money, have started to throttle Netflix traffic. The WSJ reports that the war between the broadband-ers and the video streaming company has finally emerged from the "cold" phase and is fully hot.

Netflix Inc. subscribers have seen a lot more spinning wheels lately as they wait for videos to load, thanks to a standoff deep in the Internet.

 

The online-video service has been at odds with Verizon Communications Inc. VZ and other broadband providers for months over how much Netflix streaming content they will carry without being paid additional fees.

 

Now the long simmering conflict has heated up and is slowing Netflix, in particular, on Verizon's fiber-optic FiOS service, where Netflix says its average prime-time speeds dropped by 14% last month. The slowdown comes as Netflix is rolling out the new season of its Emmy-winning series "House of Cards."

Not surprisingly, Netflix wants broadband companies to hook up to its new video-distribution network without paying them fees for carrying its traffic. But the biggest U.S. providers—Verizon, Comcast, Time Warner Cable and AT&T Inc. —have resisted, insisting on compensation.

And while there is no legal basis with which Netflix can be pushed to pay for traffic, backbone companies are quietly putting the squeeze on the House of Cards maker where it hurts most: watching enjoyment.

Until the standoff gets resolved, the bulk of Netflix's traffic continues to flow across Internet intermediaries, including low-cost carrier Cogent Communications Group Inc. People familiar with Cogent's and Netflix's thinking say the cable and telephone companies are delaying upgrading existing connections. Executives at major broadband providers, meanwhile, privately blame the traffic jam on Netflix's refusal to distribute its traffic more efficiently.

 

Netflix said it carefully plans its routing to make sure customers have the best experience possible. Verizon said it treats all Internet traffic equally. Neither side is budging, people familiar with the matter said, leading to growing congestion.

The result is that the speed of NFLX traffic is crashing, something which will make watching its High Definition content increasingly more unpleasant as buffering times mean more time sitting watching spinning circle, and less time watching content.

The end result: "unwatchable programming":

The bottleneck has made Netflix unwatchable for Jen Zellinger, an information-technology manager from Carney, Md., who signed up for the service last month. She couldn't play an episode of "Breaking Bad" without it stopping, she said, even after her family upgraded their FiOS Internet service to a faster, more expensive package.

 

"We tried a couple other shows, and it didn't seem to make any difference," she said. Mrs. Zellinger said she plans to drop her Netflix service soon if the picture doesn't improve, though she will likely hold on to her upgraded FiOS subscription.

 

She and her husband thought about watching "House of Cards," but she said they probably will skip it. "We'd be interested in getting to that if we could actually pull up the show," she said.

 

Netflix acknowledges the sluggish performance, though spokesman Joris Evers said that "generally our members are able to watch Netflix, albeit perhaps at a lower quality and with potentially some startup delays at the busiest times of day."

 

Verizon has a policy of requiring payments from networks that dump more data into its pipes than they carry in return. "When one party's getting all the benefit and the other's carrying all the cost, issues will arise," said Craig Silliman, Verizon's head of public policy and government affairs.

Ironically, as described above, it is the broadband companies that end up the winners from the NFLX throttling, even as subscribers give the streaming company a chance, then promptly cast it away after a month or so of unwatchable results.

What happens next is that subscribers, unhappy with the throttled distribution whose download speeds will keep declining over time, switch over to competing services - there certainly is an overabundance of those. And in a world in which Amazon can burn through endless cash and be rewarded by the idiot market, it is only a matter of time before broadband companies preferentially reward Jeff Bezos at the expense of putting Netflix ultimately out of business. At which point they can redirect their attention to Amazon Prime of course, and repeat the entire process once more, unless of course Amazon itself hasn't become the dominant (and money-losing of course) broadband provider by then.

As for Netflix' relentless parabolic stock price action: good luck with that particular house of cards.

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Wed, 02/19/2014 - 09:31 | 4452019 skwid vacuous
skwid vacuous's picture

NFLX = $25 billion house of cards

Wed, 02/19/2014 - 09:36 | 4452039 DeadFred
DeadFred's picture

Netflix is a buy at $30 (P/E 16), at $436 not so much.

Wed, 02/19/2014 - 09:52 | 4452100 Stackers
Stackers's picture

And what about the fees us users are paying ? Sounds like they are double dipping to me. I dont remember " you can use our network, as long as you don't use it too much " being anywhere in my service contract

Wed, 02/19/2014 - 10:10 | 4452175 MillionDollarBogus_
MillionDollarBogus_'s picture

This is good news.

If folks turn away from their mindless TV content and head toward their local library, there could be a real benefit from this...

Wed, 02/19/2014 - 10:15 | 4452201 Flakmeister
Flakmeister's picture

How are they going to find it without google maps?

Wed, 02/19/2014 - 14:54 | 4453510 James_Cole
James_Cole's picture

Cable companies gotta be making those some seriously slow ass internet connections if they can't handle NFLX. Fiber-optic?? 

The good news is if you don't like your scamming cable provider you can cancel and go with someone else. Oh wait, this is in America, opps

Wed, 02/19/2014 - 11:17 | 4452494 GubbermintWorker
GubbermintWorker's picture

Isn't that what my Kindle is for?

Wed, 02/19/2014 - 13:15 | 4453055 Silver Sativa
Silver Sativa's picture

That will never happen.

 

People go to libraries for the cheaper version of the coffee house experience. Yes, you get coffee and croisants, but you also get belligerent homeless people with no social graces, whatsoever.

Wed, 02/19/2014 - 10:11 | 4452177 Pool Shark
Pool Shark's picture

 

 

Tragedy of the commons Stackers,

They sell service based on what the "average" residential user will utilize. Before Netflix, that could be done cost effectively, and end users could get relatively cheap internet for their 'modest' demands.

Netflix screwed up the equation, puting stress on the providers' services. Somebody has to pay for that extra capacity. Until now, Netflix was getting a free ride. Looks like the day of judgment has arrived.

Wed, 02/19/2014 - 10:23 | 4452232 EscapeKey
EscapeKey's picture

They provide a service, and end customers use it.

This is sort of the equivalent of electricity companies demanding extra payment if you use your electricity to power, say, a vacuum cleaner. Or the water company hiking rates when you use the water for flushing the toilet.

It's pure greed by blatantly anti-competitive cable companies, nothing else.

Wed, 02/19/2014 - 10:28 | 4452258 Pool Shark
Pool Shark's picture

 

 

Escape Key,

So, are you saying that your electrical bill should be the same as your neighbors, even if you use twice the electricity?

 

Wed, 02/19/2014 - 10:30 | 4452262 EscapeKey
EscapeKey's picture

If we both buy a package which allows unlimited use, then yes, I do.

It's not my fault the cable companies promise shit they refuse to deliver.

Wed, 02/19/2014 - 10:38 | 4452300 SWRichmond
SWRichmond's picture

Television sucks.  Reality shows suck, cop shows suck, reality cop shows suck X 10; cable programming packages suck.  People dare to watch what they choose using bandwidth they are paying for (while avoiding our advertisers) = "we have to throttle that shit".

Wed, 02/19/2014 - 11:32 | 4452552 XenoFrog
XenoFrog's picture

If Comcast, Verizon, and the few other mega corporations had upgraded their networks instead of pocketing taxpayer money to boost quarterly profits, netflix traffic wouldn't be an issue. They're claiming poverty, after fleecing us.

Wed, 02/19/2014 - 11:39 | 4452575 Waterfallsparkles
Waterfallsparkles's picture

Comercial Customers pay a lot more because it is assumed they will use a lot more Bandwith.  Netflix ups the anti on the Residential Customers.  Eventually with "some" using most of the broadband will eventually cost everyone more.

Wed, 02/19/2014 - 12:43 | 4452921 massornament
massornament's picture

A better analogy would be if a large home appliance maker comes out with a 'must-have' appliance that raises the average electircity bill by 30% and the appliance maker lobbies the government to force the utility companies to eat the costs of the increased electricity usage instead of having the users pay for the electricity they use.

Wed, 02/19/2014 - 13:00 | 4452975 Flakmeister
Flakmeister's picture

No, that is a bad analogy...

The total network bandwidth is fixed. whereas in your case the power cos. have to increase supply to meet increased electricity demand. The broadband network costs the same upkeep whether it is used or not once it is in place..

Wed, 02/19/2014 - 17:49 | 4454418 FrankDrakman
FrankDrakman's picture

Yes, but the broadband capacity ALREADY EXISTS. Otherwise, how did millions of people enjoy Netflix without the hiccups until recently? If the cable cos are selling you 30 Mbps LAST MILE streams (not internet backbone), and, as another poster pointed out, you're not using all 30 Mbps, how can that cause congestion? Is it perhaps a case of the cable companies OVERSELLING their products and promising you 30 Mbps (so they can get an extra $15/month from you), but they can't actually deliver it? How is that Netflixes's (sic) fault? Sounds more to me like a case of fraud by the cable cos, and they are trying to punish Netflix since it's the prime application that's demonstrating their fraud.

Wed, 02/19/2014 - 13:08 | 4453022 InflammatoryResponse
InflammatoryResponse's picture

Wow EscapeKey,

 

that word "equivalent" doesn't mean what you think it means. 

 

The power company maintains the power lines that bring the JUICE to your house.  or didn't you already know that?  so they sell you the power you use over THEIR powerlines.  IOW, they absord all the cost associated with delivering your "service" in this case power.  Netflix does NOT incur the overhead costs of maintaining the network they pump shows out over. 

 

do you live in a house?  if not pretend you do. 

 

you pay taxes that support your road maintainance.  so you don't have potholes in your street(s).  Now let's pretend that Billy Joe Jack Bob lives at the end of your street.  he owns a big bit of property and figures out he has a gold deposit.  well golly that requires MASSIVE truck to drive up your street 24hours a day 7days a week, and your road is turning into mush.  your little smart car can barely navigate the ruts left by those trucks from BJJB's mining operation.

 

you go down to his house and say dude, you need to fix the street.  he replies with take hike "key" I don't give a crap if your smart car is road kill for my dump trucks. you decide to take matters into your little puny smart car driving hands.  you get a horde of smart cars to populate the street to slow the evil BJJB's trucks down  lessening the wear and tear on your street.

 

in the above story  BJJB is netflix, and YOU are the backbone companies.

 

in a nutshell NFLX is NOT incurring the full cost of delivering their service.  if they tried to throw DVD's into mail boxes without postage they'd get locked up.

 

and lastly,  you just have no idea what you're talking about :)

 

 

 

 

Wed, 02/19/2014 - 13:29 | 4453086 pan-the-ist
pan-the-ist's picture

Horrible analagy.  Network bandwidth is not power.  The infrastructure is there already, and is able to meet demand.  There is no further expense from the cable company.  Futher- I pre pay for a 30 megabit download stream, and never use all of it, even though half of it is taken by netflix.  I am not pro-rated like power use, there is no meter.  They provide me a 30 megabit service I pay for.

I purchase an entire road, and it is not up to them to decide what gets driven on it.  Further, I already pay for the maintenance of MY road.

You're the idiot that doesn't understand.  Now go back to sleep, tool.

Wed, 02/19/2014 - 17:43 | 4454396 FrankDrakman
FrankDrakman's picture

Oh, man, are you idiotic. The whole point of deregulation was to bust up the 'natural monopoly' of last mile carriers - whether it's telephone, cable, internet, electricty, or natural gas - and allow the end-user to choose who he buys the content from, while the last mile carrier just charges for transport. So, you can, in some places, elect to buy your electricity from a completely green solar/wind/unicorn fart company, and still have it delivered by your local utility. That's a separation of power generation and power transport. You can get long distance service from AT&T or MCI or whoever, and pay your local telco for last mile transport. That's a separation of long distance and local transmission. You pay your cable tv provider to deliver the signal, but you pay HBO/Showtime/porn company for the content. That's a separation of transmission and program generation. You pay the pipeline company to bring the natural gas to your house, but you can buy gas from a reseller (which made sense about 15 years ago - I locked in at $10/mcf for five years, while gas prices skyrocketed to $35; today, I'm on the 'standard supply' because the resellers still want $35 when gas is going for $6). Do you see a pattern here?

And your road case is BS. Residential roads are not designed for massive earth moving and rock crushing vehicles, and they'd doubtless exceed the posted weight limit for the road, resulting in huge fines for BJBB.

in a nutshell NFLX is NOT incurring the full cost of delivering their service Er, I don't think 'incur' means what you think it does. If Netflix is not incurring the full cost of delivering their service, shouldn't the carriers be happy?

But, Netflix negotiates with the studios for the content, and then provides it. Surely they pay the studios for their product; that's a cost, AND NETFLIX PAYS IT. Surely they must have servers galore to store and supply the feeds; that's a cost AND NETFLIX PAYS IT. Surely they must have bandwidth to the internet backbone from their offices to carry ALL their traffic; that's a cost, AND NETFLIX PAYS IT.

What, pray tell, are these costs that Netflix is getting a free ride on?

Wed, 02/19/2014 - 16:35 | 4454080 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Can't we have ANYTHING? I mean is EVERYTHING just completely and utterly corrupt?

Wed, 02/19/2014 - 10:24 | 4452240 pan-the-ist
pan-the-ist's picture

We've been paying premium for a long time for better capasity. They need to invest our money back into the network instead of their pockets.

Wed, 02/19/2014 - 10:59 | 4452404 n.d.v.
n.d.v.'s picture

Actually, pretty much exactly that is in every single internet contract. Officially it's to prevent "network abuse".

Wed, 02/19/2014 - 12:42 | 4452916 Parabox
Parabox's picture

You keep saying "Net Nuetrality"; I dont think it means what you think it means...

Wed, 02/19/2014 - 14:02 | 4453299 monkeyshine
monkeyshine's picture

Thank you! The issue isn't NFLX market cap or market share, the issue is consumers pay for access. If carriers can give preferential treatment to content that makes them more money then that belies the ironic and Orwellian "net neutrality".

We need congress to break up the carriers, not allow them to merge and conglomerate and then dictate which content we can view without being interrupted. imagine if Comcast forced pop-up ads on every google search. This is not acceptable. We need 10 choices not 1 (Comcast) or if we're lucky 2 (Comcast and Vios).

Thu, 02/20/2014 - 06:49 | 4456522 dreadnaught
dreadnaught's picture

Comcast and Time Warner are about to merge if all goes well $$$$$$$$$$$$

Wed, 02/19/2014 - 17:18 | 4454284 FrankDrakman
FrankDrakman's picture

you can use our network, as long as you don't use it too much "

Actually, that sort of phrase is in just about every cable or phone contract with "unlimited" downloads and/or long distance. Under what they call "fair use" doctrine, they can slow down or suspend your service if, in their judgement, you're using it too much. e.g:

 

 

  1. You may not use the Services for anything other than your own personal use. You may not resell the Services, receive any charge or benefit for the use of the Services or provide Internet access or any other feature of the Services to any third party. You may not share or transfer your Services without our express

05/07

    consent.

    15. From time to time, we may establish policies, rules and limits (together, the "Policies") concerning use of the Services, Equipment and any products, content, applications or services used in conjunction with the Services or Equipment. Your use of the Services is subject to these Policies. We will provide you with notice of the Policies and of changes to the Policies. Our Acceptable Use Policy, available at rogers.com/terms, is incorporated into these Terms by reference. In addition, when using certain Yahoo! services, you may be subject to additional terms (which may be posted from time to time) applicable to such Services and which are incorporated by reference into these Terms.

    16. When using the Services, the Equipment or any products, content, applications or services used in conjunction with the Services or Equipment, you must comply with all applicable laws and our Policies.

    We may suspend or terminate your Services, the Service Agreement and any other agreement for services you may have with any related Rogers entity, without notice to you, if you engage in one or more of the activities prohibited by our Policies. In addition, you may be charged for any costs incurred by us or any related Rogers entity in connection with your breach of the terms of this Section, including costs incurred to enforce your compliance.

    17. We reserve the right to restrict, change, suspend or terminate your Service by any means if your access, use or connection to the Services, Equipment or our facilities is impairing or adversely affecting our operation or the use of our Services or facilities by others.

Wed, 02/19/2014 - 19:15 | 4454758 macbone
macbone's picture

The asshole who wrote the article doubles as a press agent for cable cartel I guess. The bandwidth is suddenly reduced at all four carriers in the exact same time frame. No collusion there, I am sure. Nothing to see here, proles, just move along and pay higher prices as we consolidate into a monopoly and provide you inferior content for higher prices.

Oh, and your elected representatives??? Don' t bother complaining to them. We bought them up a long time ago. Eat shit peasants, it's Obamatime.

Wed, 02/19/2014 - 09:54 | 4452107 SafelyGraze
SafelyGraze's picture

give me control of a network's bandwidth, and I care not who provides its content.

http://en.wikiquote.org/wiki/Andrew_Fletcher

 

Wed, 02/19/2014 - 10:39 | 4452302 Ignatius
Ignatius's picture

I'm sure all the money Comcast gets will go to infrastructure improvements to the data backbone.

/sarc

Wed, 02/19/2014 - 09:55 | 4452111 johnQpublic
johnQpublic's picture

netflix is unwatchable where i live

like trying to watch youtube videos over an antique phone line...what was that called again?

seriously, stop start chatter

i have used blockbuster for years to rent movies by mail, which is super convenient, and gone

they want to stream now also, and that is unwatchable

google chrome contraption works if you let it buffer for an hour

redbox doesnt carry what i would rent

what someone needs to come up with is a storefront , with a selection of ......oh nevermind

Wed, 02/19/2014 - 10:05 | 4452161 Stuck on Zero
Stuck on Zero's picture

We have ATT Uverse and over the last two months Netflix has become completely unviewable.

 

Wed, 02/19/2014 - 09:55 | 4452113 eclectic syncretist
eclectic syncretist's picture

To be fair Karl Denninger has been predicting this situation would arise for over three years now.  Without control over their costs or service quality, Netflix is toast.

http://market-ticker.org/akcs-www?singlepost=2387367

Wed, 02/19/2014 - 10:10 | 4452174 duo
duo's picture

I want my, I want my, I want my DVD.....

Wed, 02/19/2014 - 10:14 | 4452192 Pool Shark
Pool Shark's picture

 

 

Karl was right.

It's time that those who utilize the bandwidth pay for it.

So long Netflix...

 

Wed, 02/19/2014 - 10:28 | 4452249 EscapeKey
EscapeKey's picture

They do pay for it.

End consumers buy a package to reflect their data usage, and Netflix spends money on back end infrastructure (well, actually Amazon do) to handle the traffic at their end.

The only reason they can get away with this is because the US broadband market exists in a state of monopoly. And with the recent "totally not anti-competitive" merger between TW and Comcast, the American consumer can fully expect higher rates for worse levels of service.

Meanwhile, the Comcast executives all upgrade their Porsches to Ferraris.

ALSO keep in mind Denninger's background. You most certainly can't expect him to be objective on the issue.

Wed, 02/19/2014 - 13:06 | 4453011 superflex
superflex's picture

The merger will never happen.  FCC wont allow it.

Dont get your panties in a wad, Anna.

Wed, 02/19/2014 - 18:10 | 4454506 malek
malek's picture

Good luck with that opinion.

I believe that (i.e. the FCC effectively blocking the merger), if it doesn't happen within a year.

Wed, 02/19/2014 - 22:41 | 4455557 Johnny Cocknballs
Johnny Cocknballs's picture

Krugman came out with an article yesterday against it.  The thing is, he was and is largely silent about various bank mergers, and past media consolidation.

Let me rip this bandaid off quickly, I believe certain people are ethnocentric enough to view it as a "monopoly" only when it's not members of your own group doing it.

Thu, 02/20/2014 - 06:46 | 4456519 dreadnaught
dreadnaught's picture

the mans a psychotic monkey jerker-who has temper tantrums and will ban you if he doesnt like what you say.....a crybaby-sometimes he will close his site for a whole day if he is having his period...

Wed, 02/19/2014 - 11:35 | 4452562 XenoFrog
XenoFrog's picture

Comcast and Verizon are using this wedge issue to chop up the Internet and sell it back to you in pieces. All while arguing that they're doing you a favor. They're going to end the Internet.

Wed, 02/19/2014 - 22:45 | 4455582 Johnny Cocknballs
Johnny Cocknballs's picture

sort of, but their agenda isn't as bad as the agenda of the Thought Police who are rearing to do what they've done in the UK.  I sort of agree with your above posts but think you are over-simplifying a bit  -no offense, just my opinion, but in any event the censorship aspect worries me a lot more.  It is easier to censor when there are fewer providers.

 

As it is, the MSM being owned by, apparently, about 6 mega corps gives us incredibly similar news channel to channel.  Even if you only speak English, there is certainly enough foreign press in English to certify that American MSM certainly seems to largely regurgitate the narrative they are spoon fed by the govs.  Syria coverage was a frightening example.

 

In a nutshell:  They're coming after internet freedom. Consolidation facilitates it.

Wed, 02/19/2014 - 12:11 | 4452697 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

What do you think the monthly fee I pay for internet service is you fucking retard?

Wed, 02/19/2014 - 18:00 | 4454460 malek
malek's picture

A one-sided view again from KD.

Look at the traffic chart:
Youtube causes 16% of downstream traffic (if that statistic is to be believed).
Where are the providers which throttle Youtube?

Wed, 02/19/2014 - 09:36 | 4452041 Jannn
Jannn's picture

World Gold Council Clueless on Chinese Gold Demand?

 

http://www.ingoldwetrust.ch/world-gold-council-clueless-on-chinese-gold-...

Wed, 02/19/2014 - 11:27 | 4452528 StandardDeviant
StandardDeviant's picture

At least try to stay somewhere in the general vicinity of the topic, would you?

It's not like ZH is lacking in threads about Chinese gold demand.

Wed, 02/19/2014 - 11:46 | 4452607 superflex
superflex's picture

He's a shill paid to promote a blog.

Just not the brightest shill in the toolshed.

Wed, 02/19/2014 - 09:36 | 4452043 90's Child
90's Child's picture

Netflix needs to become 'Pornflix' seems like a much more profitable industry.

Wed, 02/19/2014 - 15:07 | 4453586 vulcanraven
vulcanraven's picture

Nutflix™

Do NOT follow this link or you will be banned from the site!