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.