Tag Archives: NetFlix

OTT Latest – August 2016

tubitv_squareThe only way for cord cutting to become a true problem for the cable companies is for there to be so much content online that people feel comfortable walking away from the cable packages. If the last few months are any indication of where the OTT industry is heading, we soon ought to be seeing more people cut the cord. So far this year there has been an average of almost one new OTT roll-out every week and there are now over 130 subscription video services on the web. Here are just a few of the more interesting recent announcements in what is becoming a busy new industry:

Acorn TV. Priced at $4.99 per month (first month free) this service bundles the best shows from the UK, Ireland, Canada, Australia and New Zealand. The service is starting with 60 exclusive titles that include a lot of drama, police who-dunnits and dry British comedy.

Sling TV. The service has grown from very simple to having a wide range of options. They have added a ton of new programming such as Fox Sports and other Fox Shows, They brought in the NBC suite including the live NBC feed, USA, Bravo, SyFy and BBC America. They beefed up the sports offering with some regional sports networks. The NBC live feed will be the first place that local NFL games will be broadcast on the web. They have added E! and Oxygen to their Lifestyle package. And they’ve added BBC World News, CNBC and MSNBC to their World News Package. Overall this is starting to become as large and confusing as looking at cable packages!

Hulu. The company has confirmed it will soon be launching a skinny bundle. Much of the content is going to come from the owners of Hulu including a suite of packages from ABC / Disney including ESPN, a package from NBC Universal, and a package from 21st Century Fox. Plus Hulu is making a deal with CBS. This would make Hulu the first to offer all of the major networks’ feeds live online, with ABC, NBC, CBS, and Fox. The company has said that their base package will be around $35, and this makes it a true skinny bundle since it includes the networks plus other most-watched channels. As I was writing this blog Hulu announced they are ceasing all free / ad-based program and are now all-subscription.

Tubi TV. Tubi TV is taking a different approach from the other services and is free to customers and is ad-supported. The service carries a lot of content aimed at millennials, who supposedly are most interested in free content. The service includes Japanese anime 2-days after being aired in Japan as well as a lot of movies and various series of interest to millennials. The service has made deals with over 200 content provides including MGM, Lionsgate, Paramount Pictures and Starz!

Comcast brings in Netflix. In an attempt to keep viewers on their platform and under their channel guide Comcast has made a deal to bring Netflix into the fold. Netflix will appear in the lineup like any other network and customers can navigate using their remote control.

Speaking of remote controls, Comcast distributed a lot of new voice-controlled remotes in time for the Olympics in the hopes of keeping customers from cutting the cord. We’ll have to watch to see how customers like the new devices.

Networks go Directly Online. All of the major (and many not-so-major) networks are taking their content online, but with different business models. It will be interesting to see which of these approaches is the most popular.

Fox has announced that it is now online for customers using the Fox.com website or the Fox Now app. This is an authenticated service and customers have to be verified as a customer of a cable provider and already paying for the Fox programming.

ABC is re-launching its unauthenticated streaming service (free for anybody) and showing older series for free, supported with ads.

CBS has taken the premium subscription approach and is a monthly subscriptions for $5.99 it’s calling CBS All Access. The company is producing original content just for this platform including the next Star Trek Series.

NBC has chosen to produce OTT content through its Seeso platform. This is going to consist of a number of different types of programming, with the comedy platform launched late last year. The comedy channel costs $3.99 per month. It includes older NBC comedy series as well as twenty new comedy series produced only for the Seeso platform.

Even smaller networks like CW now have an unauthenticated ad-supported platform called CW Seed that is showing older shows such as MadTV, Constantine and the O.C.

Industry Shorts – July 2016

unflagHere are a few topics I’ve been following but which don’t merit a full blog.

Mediacom Announces Upgrade Plans. Mediacom has announced plans to invest over $1 billion to upgrade its networks. The main thrust of the upgrades would be to increase speeds up to a gigabit in the 1,500 communities it serves in 22 states.

It will be interesting to see how they do this. There are many markets where they don’t have to do a lot more than upgrade to DOCSIS 3.1 and introduce new cable modems for high-bandwidth customers. But a lot of their rural markets will require forklift upgrades involving headend upgrades as well as revamping the coaxial cable plant. In the worst cases they’d have to replace coaxial cables, but in others would have to replace power taps and line amplifiers.

The company also announced it would open public WiFi hotspots in many of its markets. However, their current WiFi program is pretty weak by industry standards and only gives existing broadband subscribers access to 30 free WiFi minutes per month.

Dish Cuts Back on Ad-Skipping. Dish Networks has agreed to largely disable the feature in their new VCRs that let customers skip ads automatically. This has become such a sticky point in negotiations for content that Dish finally agreed to cut back on the very popular feature. Dish reached agreements with Disney and CBS to disable the feature in order to get new programming for Dish’s Sling TV OTT offering.

Google Launches Undersea Cable. Google and Japanese telecoms have built a new undersea cable joining Portland, Seattle, Los Angeles and San Francisco to two POPs in Japan. The cable can carry 60 terabits of data per second and is now the fastest undersea fiber. Google is also planning to complete a fiber between Florida and Brazil by the end of the year. Facebook and Microsoft are working together on an undersea connection between Virginia Beach and Bilboa Spain. With the explosive growth of Internet traffic worldwide this is probably just the beginning of the effort to create the needed connectivity between continents.

It’s interesting to see that some of the big traffic generators on the web are willing to spend money on fiber, and one has to suppose this will save them money in the long term by avoiding transport charges on other fiber routes. It’s probably also not a bad time to own a fiber-laying ship.

UN Declares Broadband Access a Universal Human Right. The United Nations recently passed a series of resolutions that makes online access to the Internet a basic human right. Among the key extracts in the resolutions are:

  • That people have the same rights online as offline, “in particular, freedom of expression, which is applicable regardless of frontiers and through any media of one’s choice.”
  • That human rights violations enacted against people due to making their views known online are “condemned unequivocally,” and states are held accountable for any such violations.
  • Any measures to “intentionally prevent or disrupt access” to the internet are also “condemned unequivocally,” and all states should “refrain from and cease such measures.”

While it’s easy to argue that much of what the UN does has no teeth, it has been the forum since its creation for recognizing human rights.

Netflix Users Would Hate Ads. In a survey with mixed results it’s clear that Netflix users have strong feelings about introducing advertising into the popular ad-free service. In a survey given by All Flicks, 75% of Netflix users said they would dump the service if it started carrying ads.

In a somewhat contradictory finding, the pole indicated that most Netflix users would pay a premium price to avoid ads if there were options. Nearly 60% of Netflix users said they would pay $1 per month to avoid ads with many others saying they would pay even more.

Cord Cutting is Getting Harder

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One thing that cable operators might have going for them is that the OTT market is changing in ways that make it a little less attractive to cord cutters. It turns out that it’s getting harder to be a cord cutter, and certainly more expensive.

For a while it looked like Netflix and Hulu would offer a real alternative to cable TV, and for many people they still do. But the things we used to like about those two services are changing rapidly. Hulu is a great example. Around 2011 they made a deal with over 20 sources of content like NBC, ABC, USA, Syfy, Fox, and many others. But those were 5-year deals that are now coming to an end and Hulu is about to lose a lot of the content that attracted people.

Hulu is being hit from all sides. NBC is pulling most of its content and has launched its own OTT product that is hinging on the popularity of the new Star Trek to draw customers. BBC has pulled the very popular Doctor Who and other programming in favor of its own OTT product. Even CW is pulling shows like the Flash, Arrow, Vampire Diaries, and Jane the Virgin and has launched its own OTT service.

The same has happened to Netflix. Long-time subscribers complain that there is half the content on Netflix as there was years ago, and it’s true. Content providers have slowly been withdrawing content and making it harder for Netflix to obtain both TV shows and movies. Netflix makes up for this with original content, but that content isn’t for everybody.

With the plethora of OTT options, it’s getting expensive to be a cord cutter. A cord cutter probably can’t pick only Netflix and/or Hulu and be happy – or at least not as happy as they were a few years ago. To get a wide variety of OTT programming, a cord cutter is going to have to subscribe to multiple OTT products, and at the end of that process might easily be spending as much for programming as they did with the cable company.

Consider Sling TV as an example. Sling launched with a very simple set of options. They launched with a basic package of 15 channels for $20 per month – these were channels that people miss when they cut the cord – ESPN, the Travel Channel, the Food Network, TBS, and the Disney Channel. They had an add-on package for $5 to add more sports channels.

But Sling TV has morphed to become a lot more complicated and a lot more expensive. They now have two basic packages each priced at $25 per month. One called Sling Blue is sports-oriented including Fox Sports and NBC (for the Olympics). The original package has been renamed Sling Orange and has also been bumped to $25. Both together are $40, and there are now several $5 add-on packages such as news and sports. Sling is looking at adding more content, but in doing so, they are now at or above the price that this same content can be received on satellite. But with satellite cable you get a lot more channels than Sling. The new Sling TV prices are starting to feel like a programming alternative, not a cord cutting savings option.

Hulu also has more expensive options now. They will soon be offering a package that includes live network programming starting at $35 per month. For $50 per month customers can store up to 20 hours of Hulu content in cloud DVRs.

Cord cutters now have much harder choices than even just six months ago. If they cobble together a half dozen OTT sources they can easily be paying more than they were with cable. If they limit themselves to one or two sources of content like Netflix or Hulu they will see their content choices shrinking and their monthly fees increasing.  This all has to be good news to the cable companies – a lot of homes are going to like the OTT options less than they did a year ago.

Speed Tests

cheetah-993774Netflix just came out with a new speed test at fast.com which is intended to measure the download speed of Internet connections to determine if they are good enough to stream Netflix. The test only measures the speeds between a user and the Netflix servers. This is different than most other speed tests on the web that also look at upload speeds and latency.

This raises the question of how good speed tests are in general. How accurate are they and what do they really tell a user? There are a number of different speed tests to be found on the web. Over the years I have used the ones at speedtest.net (Ookla), dslreports.com, speed.io, the BandWidthPlace and TestMySpeed.

Probably the first thing to understand about speed tests is that they are only testing the speed of a ping between the user and the test site routers and are not necessarily indicative of the speeds for other web activities like downloading files, making a VoIP phone call or streaming Netflix. Each of those activities involves a different type of streaming and the speed test might not accurately report what a user most wants to know.

Every speed test uses a different algorithm to measure speed. For example, the algorithm for speedtest.net operated by Ookla discards the fastest 10% and the slowest 30% of the results obtained. In doing so they might be masking exactly what drove someone to take the speed test, such as not being able to hold a connection to a VoIP call. Ookla also multithreads, meaning that they open multiple paths between a user and the test site and then average the results together. This could easily mask congestion problems a user might be having with the local network.

Another big problem with any speed test is that it measures the connection between a customer device and the speed test site. This means that the customer parts of the network like the home WiFi network are included in the results. A lot of ISPs I know now claim that poor in-home WiFi accounts for the majority of the speed issue problems reported by customers. So a slow speed test doesn’t always mean that the ISP has a slow connection.

The speed of an Internet connection for any prolonged task changes from second to second. Some of the speed tests like Netflix Ookla show these fluctuations during the test. There are numerous issues for changing speeds largely having to do with network congestion at various points in the network. If one of your neighbors makes a big download demand during your speed test you are likely to see a dip in bandwidth. And this same network contention can happen at any one of numerous different parts of the network.

The bottom line is that speed tests are not much more than an indicator of how your network is performing. If you test your speed regularly then a slow speed test result can be an indicator that something is wrong. But if you only check it once in a while, then any one speed test only tells you about the minute that you took the test and not a whole lot more. It’s not yet time to call your ISP after a single speed test.

There have been rumors around the industry that the big ISPs fudge on the common speed tests. It would be relatively easy for them to do this by giving priority routing to anybody using one of the speed test web sites. I have no idea if they do this, but it would help to explain those times when a speed test tells me I have a fast connection and low latency and yet can’t seem to get things to work.

I think the whole purpose of the Netflix speed test is to put pressure on ISPs that can’t deliver a Netflix-capable connection. I don’t know how much good that will do because such connections are likely going to be on old DSL and other technologies where the ISP already knows the speeds are slow.

OTT Update May 2016

TelevisionThere is so much activity in the OTT space that I might need one of these updates every few months. It seems as soon as I publish one a new set of changes gets announced in the industry.

Hulu Announcement. The biggest OTT news is that Hulu just announced that they are putting together an OTT skinny bundle package. It’s not expected to launch until next year, but Hulu has already struck deals with Disney and Fox, which happen to be two of its corporate parents. The Hulu package is interesting because this really represents the major programmers taking a shot at stealing customers away from their cable company customers.

Hulu’s history is pretty interesting in that their owners – Disney, Fox and NBC Universal (Comcast) – were very careful in the early days to not give Hulu great content that would upset the cable companies. But that seems to have changed. Hulu is now getting access to many more movies and other content and is making a major run at Netflix. Since it’s owned by programmers who themselves have a lot of content, Hulu certainly has a chance to eventually become the dominant OTT player. I’m seeing a lot of web articles talking about how Netflix is losing their sheen as their content choices dwindle.

YouTube Unplugged. After having this on the shelf for the last four years it looks like Google and YouTube are finally getting serious about launching a skinny bundle of their own. They are in talks with the major programmers and are talking about launching early next year.

YouTube already launched the YouTube Red subscription service last fall that bundles together the premium content found only on YouTube. It’s aimed at younger viewers who seem to prefer YouTube as a source of video content. The cable companies are going to have to start sweating with Hulu and YouTube both making a major play to attract people away from traditional cable packages.

CBS and Star Trek. CBS has announced that after it airs the first episode of its new Star Trek series on TV that all future episodes will be available only on the online CBS All Access Platform. This is a major play to sell more subscriptions to that service. Considering the strong draw of Star Trek it might work. But CBS is not going to dump the whole series on line at once for binge viewing but will feed a new episode each week.

FilmStruck. Criterion and Turner have announced the creation of a new online movie service they are calling FilmStruck. The service will have the largest catalog of older movies online and includes the whole MGM and RKO movie catalogs which Ted Turner bought in the 80s. This gives the service a significant share of the movies on most of the lists of all-time greatest movies. The catalogs also contain mountains of movies that have not been available for years. As part of this deal Criterion will be pulling about 500 old movies from Hulu.

Netflix Survey. A survey of Netflix customers showed that 76% of them believe that Netflix and other online content is going to eventually completely displace traditional cable TV. Of the 24% who didn’t think this was so, the primary reason they thought cable would survive is news programming. Interestingly, 68% of those surveyed did not think that Netflix would replace movie theaters.

The Growth of 4K Video

4K CameraIt looks like 4K video is making it into the mainstream and is going to put a big strain on broadband networks serving residential customers. 4K video resolution is 3840 x 2160 pixels, or about 8 million pixels on a screen, which is about four times more resolution than an HD display. It takes a lot of bandwidth to stream that many pixels and with current compression technologies 4K video requires 15 – 20 Mbps download speeds. Google and others are working on better compression techniques that might cut that in half, but even so that would mean videos streams at 7 – 10 Mbps. That’s a whole new level of broadband demand that will increase the household need for faster data speeds.

Just a year ago it wasn’t easy to find 4K video on the web, but this year there is a lot of content being shot in the format. This includes:

  • Netflix is currently shooting most of its original content like House of Cards, Breaking Bad, Jessica Jones, Daredevil in 4K. It also has a big array of documentaries in the format as well as a number of classic movies being reformatted to 4K.
  • Amazon Prime is also filming new content like Alpha House, Transparent, Mozart in the Jungle and Man in the High Castle in 4K. They have a small library of movies in the format.
  • Sony probably has more mainstream movies in the 4K format than anybody. Rather than streaming you download Sony movies and a typical movie can take 40 GB of storage space. It doesn’t take too many movie downloads to blow the data caps of AT&T or Comcast.
  • M-Go has developed a small but growing 4K library in conjunction with Samsung. They also will be adding title from Fox.
  • Comcast offers a few movies in 4K online for customers in partnership with NBC Universal.
  • YouTube has a huge amount of user-generated 4K video of all different types. YouTube is also now producing original content sold under YouTube Red and which contains 4K content.
  • Ultraflix has a big library of 4K nature documentaries including some originally produced for IMAX. They are also carrying lot of Hollywood movies.
  • Vudu, which is owned by Walmart has a small, but high quality 4K set of content. They are the first to marry 4K video to Dolby surround sound.

If 4K follows the same migration path of standard definition video to HD video, then within a few years 4K content is going to be everywhere. Where just a few years ago there was little video on the web, video now seems to be everywhere. There are video ads on all sorts of websites and social media services like Facebook and Twitter spit out piles of video at a user these days.

One of the biggest problems with broadband regulation in this country is that it fails to recognize the ever-growing nature of broadband demand. Once households start using 4K video then the FCC’s newly minted definition of broadband at 25 Mbps download will already be getting stressed. The fact is that the household needs for broadband are just going to keep growing year after year and any regulatory definition of demand will be obsolete almost as soon as it is established.

Broadband demand has been growing steadily and doubling about every three years and there is no reason to think that we are anywhere close to the time when that growth curve is going to slow. 4K video is not the last new technology that will stretch our needs for broadband. When I read about where virtual and augmented reality are headed over the next five years it’s not to hard to see where the next big push for more broadband will come from.

Our Degrading Networks

cheetah-993774Lately I’ve been hearing a lot of stories about rural broadband with a common theme. People say that their broadband has been okay for years and is now suddenly terrible. This seems to be happening more on DSL networks than with other technologies, but you hear this about rural cable networks as well.

There are several issues which contribute to the problem – more customers sharing a local network, increasing data usage for the average customer, and a data backbone feeding the neighborhood that is has grown too small for the current usage.

Broadband adoption rates have continued to grow as more and more households find it mandatory to use broadband. And so neighborhoods that once had 50% of homes using a local network will have grown to more than 70%. That alone can stress a local network.

Household broadband usage has also been increasing. A lot of the new usage is streaming video. This video doesn’t just come from Netflix but there is now video all over the web and social media. It’s hard to go to the web today and not encounter video. As more and more customers are using video at the same time they can quickly be asking for more aggregate data in a network than the network can supply. Where the demand has outstripped network capability there is a remedy available for most situations and increasing the size of the bandwidth pipe feeding a neighborhood will typically fix the problem.

Let’s look at an example. Consider a neighborhood that has 100 DSL customers and that is fed by a DS3 (45 Mbps). In the days before a lot of streaming video such a neighborhood probably felt like it had good broadband. The odds against more than a few customers trying to download something really large at exactly the same time meant that there was almost always enough bandwidth for everybody.

But today people want to watch streaming video. Netflix recommends that there be at least a 1.5 Mbps continuous stream available to watch a video. So up to about 30 households in this theoretical neighborhood could watch Netflix at the same time. That math is not quite that linear as I will explain below, but you can see how the math works. The problem is that it’s not hard to imagine that with 100 homes that there would be demand for more than 30 video streams at the same time, particularly when considering that some households want to watch more than one Netflix stream at the same time.

The problems in this theoretical neighborhood are made worse by what is called packet loss. Packet loss occurs when a network tries to download multiple signals at the same time. When that happens some packets are accepted, but some are just lost. Our current web protocols correct this problem by sending out a message from the receiving router asking for the retransmission of missing packets, and they are sent again. As networks get busy the amount of contention and packet loss increases and the percentage of the packets that are sent multiple times increases. And so as networks get busy they grow increasingly less efficient. Where this theoretical neighborhood network can theoretically accommodate 30 Netflix streams, in real life it might actually only handle 20 due to the extra traffic caused by resending lost packets.

This theoretical network has grown over time from being efficient to now being totally inadequate. Customers who were once happy with speeds are now unable to watch Netflix on an average evening. The network will still function great at 4:00 AM when nobody is trying to use it, but during the times when people want use it, it will fail more often than not. The only way to fix this theoretical neighborhood is increase the backbone from 45 Mbps to something much larger. And that requires capital – and we all know that the large telcos are not putting capital into copper neighborhoods.

Cellular companies have been dealing with these growth issues for a number of years now. Cellular networks are seeing annual growth between 60% and 120% per year, meaning that any improvement in the network is quickly eaten up by increased demand. But t’s a much bigger issue to keep upgrading all landline networks. While there are just over 200,000 cell towers in the US there must be several million local broadband backbone connections into neighborhoods. These range from tiny backbones with a few T1s feeding a few homes up to networks with a few hundred people sharing a larger backbone. Upgrading that many networks backbone connection means a huge capital outlay is needed to maintain acceptable levels of service.

Unfortunately my theoretical neighborhood is not really all that theoretical. The big increase in landline broadband demand is now starting to max out the bandwidth utilization in many neighborhoods. The FCC says that there are 34 million people in the country that don’t have adequate broadband today. But with the rate that neighborhood networks are degrading, that number of households with inadequate broadband is growing rapidly – and not get smaller as the FCC is hoping.

How Much Bandwidth Does a Home Need?

cheetah-993774If there is any one question that I am asked the most it is this: how much bandwidth do customers really need? Of course, what most carriers are really asking me is how fast they should make their data products. It’s a very good question.

The glib answer is that every family is different. But it is possible to talk about the kind of bandwidth that various common activities require and to make some generalizations about the average home. You might recall this is what the FCC did back when they reset the definition of broadband at 25 Mbps download. They looked at expected broadband usage for homes of two, three and four people and used that as a way to justify increasing the definition of broadband.

Since video is now the largest use of data for most home that’s the natural place to start any calculation of needed bandwidth. The problem is that there is no standard size of a transmitted video and the size of a video stream is going to depend upon the compression techniques used by the company sending the signal. Rather than a standard size of a video stream there is instead a pretty wide range.

The speed at which an ISP might see video just got a lot more complicated to predict by Netflix. They have always tried to send an HD video at 5.6 Mbps. If the customer’s broadband connection was not good enough to support that speed, then Netflix cut the quality of the video stream and sent it at a much lower rate. Netflix announced that they are now going to be more dynamic in the way they size and send video. They will send high action HD video, for example, at a higher data rate than a low-action movie. They will also have more than one option for downsizing the video so that it doesn’t have to drop all the way to SD. This means a whole array of different speeds of video from Netflix.

While video is the primary way that households currently use bandwidth, you can’t ignore all of the other uses, most of which are growing quickly. For example, there is now a significant amount of data used automatically in the background without direction from the user. Programs update automatically or constantly communicate in both directions with the cloud. One big and growing use of household data is cellphone data offloading. People tend to forget that their cellphone on WiFi is busily using their home bandwidth. There is a lot of talk in the industry of migrating away from cellphone apps and running more cellphone programs directly in the cloud, and that will mean a significant increase in cellphone data usage.

It’s also important to recognize that the Internet is not perfect and that every bit that is sent to us doesn’t arrive perfectly the first time. Depending upon the quality of the connection with the ISPs at both end of a transmission, there can be anywhere from a few to a relatively large number of bits that must be sent multiple times to complete a file download. For example, it might really require 1.2 gigabits of bandwidth to download a gigabit file. One measure of this is latency, and while not a perfect predictor of the amount of re-sent bit packets, we know that the higher the latency the more packets that must be sent multiple times.

Another thing to consider is that you can’t use every bit of your Internet connection at one time. For example, if you have a 10 Mbps connection you can’t view two 5 Mbps video streams at the same time. This is due to what the industry calls overhead, which is the background processes that enable your device to communicate with the Internet. The amounts of overhead can vary, but it’s not usual to see 10% to 20% overheads in a home network – bandwidth that is used by your router and the ISP to communicate in the background or to provide buffers between different data streams. The more things you do at the same time, the greater the overhead becomes, which to engineers is called contention.

I’ve used my own home as an example before. We are two adults and a teen who don’t have traditional cable TV. We all have cellphones and we work and play using bandwidth a lot. There have been a few times when our Internet connection from Comcast slows down. We see that anytime that it hits about 25 Mbps that we start having trouble doing things if we are all trying to use the Internet. So for our household, for right now, 25 Mbps  seems to be our magic number. But that number constantly grows and I would expect our threshold to get higher month after month as more and more parts of our lives use the web.

Video and Broadband Speeds

slow-downAkamai has released their latest quarterly report on the state of broadband around the world. Akamai runs network monitoring software for large ISPs and the Internet backbone providers and they get a peek inside actual broadband speeds achieved by end users.

Overall the worldwide Internet keeps getting faster each year. The average speeds achieved by end users was 5.1 Mbps download in the third quarter of 2015, up 14% from the year before. Topping that list was South Korea at 20.5 Mbps followed by Sweden at 17.4 Mbps and Norway at 16.4 Mbps. The US placed 16th globally with an average speed of 12.6 Mbps, up 9.4% from a year ago.

Akamai says that only about 15% of the connection in the world are ready for 4K video which they estimate will require about a 15 Mbps connection. That’s not a totally accurate figure, but rather an average speed for a 4K video connection. Like with all video, the speeds required for any given video clip varies by how much the picture changes, with high action video requiring more bandwidth than low-action scenes.

And so a house that had exactly a 15 Mbps connection could watch some 4K video, but they might not be able to watch a very high-action film. Further, this measurement ignores the fact that these days homes have an additional need for bandwidth for a host of other uses that range from emails, programs and apps that talk to the cloud and a host of other things that happen in the background. It’s more realistic to think that a home is going to need something closer to 20 Mbps if they are going to want to reliably watch 4K video while accommodating other normal uses of bandwidth.

One of the most interesting statistics of the survey is that the number of homes that get at least 15 Mbps rose to 15% from only 5.2% a year earlier. It’s obvious that ISPs are selling more higher bandwidth connections.

There was a recent announcement that is going to have a big impact on the ability of people to watch quality video. Netflix announced that it is rolling out a new technology that is going to maximize the quality of video to each user experience. It is going to offer what it thinks is the best bit rate based upon the content being viewed and the viewer’s video stream. Again, this goes back to the fact that there is a significant difference between a high-action movie and one that just has people sitting and talking.

In the past Netflix only had a few standard speeds that they tried. If they were unable to get a stream through at the speed that people requested they would step the speed down to a fairly low level and hoped it worked. But for people on slow connections, this often has meant lower quality movies, but also transmission problems such pauses in the movie stream when viewing outpaced download.

The new technology is supposedly going to be a lot more dynamic. Before, if somebody asked for an HD stream then Netflix tried to send it out at 5.8 Mbps. If a customer’s ISP couldn’t handle this they were automatically downloaded to something much slower.

But now, Netflix will first set the download speed according to the content. There are low-action HD videos that might only need 4 or 4 Mbps. And so Netflix will figure out the optimum target speeds for each type of content. Further, they will use a wide range of possible step-downs in speeds rather than going directly from HD to a very slow speed.

I’ve seen this being touted in a number of articles as something that will save a lot of bandwidth for Netflix since they will not force all HD content into 5.8 Mbps streams. But those articles also see this as a savings for ISPs and I think they are wrong. I think this means that ISPs with very fast speeds will also see a bandwidth savings, but interestingly, ISPs with slow network speeds will probably see an overall increase in bandwidth demand from Netflix.

Today if an ISP offers 3 Mbps, then Netflix might send them an HD video at a third of that speed. But with this new technology Netflix is going to try to maximize the customer experience and will use up more of the available bandwidth. This technology will also make it easier for households with somewhat slow bandwidth to watch more than one video at a time and the Netflix algorithms will try to fit the content into the available data path.

For now Netflix is the only company doing this, but like with all breakthroughs you can expect the rest of the industry to catch up in a year or so. One thing is certain, and that is that web video is here to stay and ISPs are going to be under tremendous pressure to provide enough bandwidth to allow people to watch what they want online. There doesn’t seem to be any end in sight for the demand of household bandwidth.

 

Programmers Have the Power

huluIt was announced late last month that Time Warner is negotiating to buy a 25% share in Hulu. This would make them equal partners with Comcast, Disney, and Fox in ownership of the OTT service. I think this potential transaction highlights the very complicated dynamics in the industry between programmers and OTT companies.

It’s obvious that the programmers love Netflix, the largest OTT provider, but they also fear them to some extent. On the plus side, from the programmers’ perspective, the four companies (include Time Warner) currently get about $650 million per year just from Netflix to pay for selling rights to various programming, mostly older TV series, to Netflix. This is obviously a significant source of revenue.

But there is also a lot of unease in the industry since OTT providers, and Netflix in particular, are influencing people to demand alternate programming. And while the programmers have lost some money from cord cutters, the real threat to them is skinny bundles. While the revenue the programmers get from Netflix is good money, it is dwarfed by the revenues that come from traditional cable packages. I have never seen that exact number, but by looking at my clients I am going to guess that the average paid by cable companies per customer for programming is probably around $45 per month, not including premium movie channels. That would equate to more than $50 billion per year paid for programming.

The big threat from skinny bundles is that the cable companies will sell small packages of only the most popular programming. The owners of the most popular channels will do okay, but today the real money for a programmer comes from forcing cable companies to carry their entire large suite of channels. If skinny bundles get popular enough they are going to whack the revenue streams from the less popular channels in each programmer’s portfolio. And that means huge potential losses in revenue, far greater than what they will collect from OTT and skinny bundle providers.

There is talk in the industry that the major programmers might start withholding their best content from Netflix. Reed Hamilton from Netflix has voiced this concern many times and this is probably the reason that Netflix is spending so much money to create its own content.

The four programmers could instead funnel all of their own content to Hulu, and in effect pay themselves by hopefully drawing more paying customers to Hulu. The surveys I have seen have shown that a large percentage of viewers are becoming loyal to shows and not to networks, and so giving Hulu exclusive rights to content certainly sounds like a plausible strategy.

The above discussion makes me realize how much power the programmers still have in the industry. While these four programmers couldn’t destroy Netflix, they could probably hobble them. As Bill Gates said, content is king, and that certainly applies in this arm-wrestling match between programmers and service providers. Since there are only a handful of programmers, they collectively have the ability to pick winners and losers in the industry.

Since content is king one has to wonder how long a small group of programmers can keep their current power? Not only is Netflix creating popular content, but there other new content creators like YouTube and Amazon entering the fray and joining companies like HBO and AMC that are becoming mini-powerhouses on their own.

I find it unlikely that the programmers would just cut Netflix or anybody else dead from all of the content, which would seem to be an open invitation to an antitrust investigation. But they can withhold some content, raise the rates on other content and make it harder for companies like Netflix to continue to eat away at their revenue streams.

I have no idea where any of this is going to go. But my guess is that if we could look forward a decade from now that there will be major shifts in the industry. There are going to be some current programmers that wane and other new ones who will enter the market. But as a whole, no matter who the programmers are, they are still going to be in the driver’s seat.