Study: Netflix is biggest source of Internet traffic in US

As the popularity of Netflix' streaming video and TV show service grows, so does its share of the total amount of traffic on the Internet. At least that's what a new study on Internet traffic indicates. According to a study from Sandvine, the amount of net traffic devoted to streaming video from the Netflix service totals 29.7 percent of all the traffic here in North America.

Furthermore, "real time entertainment" which includes Netflix streaming, is now the source of 49.2 percent of all net traffic in North America. That's up from just 29.5 percent in 2009. File sharing/P2P services is now a distant second category with just 18.8 percent of net traffic in the US devoted to it. Basic web browsing "only" takes up 16.6 percent of net traffic here in the US at the moment. Real time Entertainment is also the largest part of net traffic in Latin America. According to the report it takes up 27.5 percent of peak net traffic. Over in Europe, real time entertainment takes up 33.2 percent of next traffic but file sharing is still a big source at the moment, taking up 30.1 percent of net traffic.

Sandvine bases its report "on voluntary and completely anonymous data, aggregated from fixed and mobile service provider networks spanning Europe, Latin America and North America." With Netflix taking up more and more of the Internet's traffic, you have to wonder if ISPs will use this study as a way to justify putting in more broadband caps for consumers.

Netflix subscribers won't get refund due to Playstation Network outage

If you subscribe monthly to Netflix's streaming movie and TV service you can watch all of the company's vast library of titles on a wide variety of machines, from the PC to various DVD and Blu-Ray players to a number of set top boxes connected to your TV. You can also check out Netflix's service on all three game consoles, including the Playstation 3. However the Netflix service was not accessible on the PS3 for over three weeks due to Sony's shut down of the Playstation Network from April 20 to this past Saturday night.

Even with that long downtime, it looks like folks who used the PS3 to access Netflix might be out of luck when it comes to compensation. According to a story at GigaOM, Netflix has no plans to offer PS3 Netflix users any refunds for the downtime. That's in stark contrast to the other streaming subscriber video service on the PS3, Hulu Plus. GigaOM reports that Hulu has confirmed that it will indeed offer its Plus monthly subscribers a credit for the Playstation Network's downtime.

Of course, being a third party application that's also available on a ton of other hardware platforms, it's perhaps easy to understand why Netflix would not offer a credit to its subscribers due to the PSN shut down. However, we do have to wonder if that's a good public relationship decision in the long run, especially since one of your biggest rivals, Hulu, is offering compensation for the PSN downtime.

Netflix isn't swamping the Internet; ISPs are overstating their congestion problems

A report issued Tuesday showing Netflix makes up a third of total Internet traffic is inaccurate enough – or at least the reports about it are inaccurate enough – to show not very many people in either the press or vendor marketing understand the network they base their business on.

There are two important points here, both relevant to people who do IT for a living, not just those who either dislike data caps or do like Netflix:

First, the report didn't say Netflix eats a third of the whole Internet; that assumption was off base enough to prompt Forbes to run a piece trying to correct it, but not quite succeeding.

Sandvine – an Ontario-based networking vendor – issued a report Tuesday estimating that streaming media from Netflix make up 30 percent of downstream traffic during peak times.

What Sandvine meant was that Netflix traffic spiked heavily during prime time – when most people are home and watching something other than what's on TV – but only across the last mile.

Netflix now allows users to change video quality

It's now a known fact that in the US, the single biggest source for broadband traffic comes from customers streaming videos of movies and TV shows from the Netflix service. It's also a known fact that more and more Internet providers are putting in place broadband caps, some of which will certainly be broken by customers who do a lot of Netflix streaming. Now Netflix has quetly put in a tool that should help customers with managing their data usage.

According to DSLReports.com Netflix customers can now change the video quality of the videos being streamed via the official Netflix web site. According to the site, "We offer 3 video quality settings to help you manage your data usage. No matter what level you choose, your Netflix membership price will remain the same."

The lowest setting offers up video at 625 kbps and audio at 64 kbps. Using this setting will allow a customer to stream 30 hours of video with a data download of 9 GB a month. The medium setting increases the video to 1300 kbps with audio raised to 192 kpbs. This level lets customers download about 20 GB of data for the same 30 hours of streaming video. The maximum quality setting will allow Netflix customers to have up to 4800 kbps for video (that's enough to support 1080p TV resolutions) and 384 kbps for audio, but the amount of data used at that setting jumps up drastically to 67 GB for 30 hours of video.

In the past Netflix has tried to prove that broadband caps imposed by some ISPs are just money grabs, claiming that the amount of data used by customers is far more affordable than what Internet service providers have claimed.

Netflix streaming video to expand to Latin America and more in 2011

Netflix has been gaining more and more subscribers to its streaming video business but so far that growth has mostly come from the US market where it launched in 2007. In 2010 it expanded into Canada. Today the company announced via a new press release that it will expand again to 43 more countries located in Latin America and the Caribbean. The locations include Mexico and countries in Central America and South America. The press release didn't get more specific on what other countries will have Netflix service but it did say it will begin before the end of 2011.

Once it does launch, Netflix says that those territories will be able to access local, US and global movies and TV shows via its Netflix streaming service on televisions, PCs. Macs and mobile devices. In addition the videos will come with options to view them in Spanish, Portuguese, or English. The press release didn't say if the different languages would be spoken or handled via sub-titles.

Netflix's popularity here in North American certainly cannot be denied. The service currently has over 23 million combined subscribers for its streaming video business as well as its mail based DVD/Blu-Ray rental business. However Netflix has stated that it sees itself mostly as a streaming video company. Indeed studies show that Netflix streaming video is the number one biggest source of Internet traffic in the US. The company has been trying to land the rights to show more and more movies and TV shows. Earlier this month, for example, Netflix began streaming four out of the five Star Trek televisions shows including Star Trek The Next Generation which has never been (legally) available for download or streaming from any other outlet until now.

Netflix slams ISPs again for broadband caps

The streaming video company Netflix has said more than once that the idea of ISP putting broadband data caps on their service is little more than a money grab on their part. Now the company is using the editorial pages of a major newspaper to get their point across. The Wall Street Journal has an opinion piece today written by Netflix's general counsel David Hyman where he writes, "Bandwidth caps with fees piled on top are a lousy way to manage traffic."

In his editorial Hyman targets AT&T in particular for its use of broadband caps. Earlier in May AT&T announced that users of its DSL service would only get a 100 GB broadband cap while uses of the company's U-verse service get a 250 GB. AT&T charges its customers for going over that cap. However Hyman states that AT&T and other ISPs who have such caps claim that " ... bandwidth is a scarce resource and that imposing caps and overage fees will relieve pressure on high-speed networks."

Hyman, however, says that claims is simply not true, stating, "Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture. Adding more capacity is easy. The marginal cost of providing an extra gigabyte of data—enough to deliver one episode of "30 Rock" from Netflix—is less than one cent, and falling." He adds, "All of the costs of supplying residential broadband are for supporting peak usage. Bandwidth consumed off-peak is completely free. If Internet service providers really wanted to manage traffic efficiently, they would limit speeds at peak times."

Netflix would obviously like to see ISPs do away with such data caps so its customers would not have to worry about overage fees or possibly being banned altogether while watch movies and TV shows from its service. A recent survey showed that Netflix is now the single biggest source of net traffic in the US.

Netflix's vanished Sony films are an ominous sign

NEW YORK (CNNMoney) -- In the not so distant past, Netflix was known mainly for its red envelopes. The DVD-rental-by-mail service was the company's core, and streaming video was a side perk for subscribers.

Fast forward to 2011, and online movies and TV couldn't be hotter. Google, Amazon, Hulu and others have jumped into the fray -- putting studios in the power position. They want to be paid more for the content they're providing.

That spells trouble for Netflix's streaming content costs.

"Netflix has another year or two on most of these contracts, and then the game completely changes," says Michael Pachter, analyst at Wedbush Securities.

Pachter predicts Netflix's streaming content licensing costs will rise from $180 million in 2010 to a whopping $1.98 billion in 2012.

When streaming video was new, Netflix was able to secure contracts with the likes of Warner Bros. Studios and MTV to license big TV and film catalogues for about $5 million to $10 million per year. This time around, Pachter says, those costs could increase more than tenfold.

"The content owners realize they can't give Netflix all the leverage," he says. "Netflix had the power when they were the only bidder. But you don't have as much leverage when you suddenly have competition."

Netflix subscribers got a taste of the studios' new hardball approach last month, when hundreds of Sony (SNE) movies -- including high-profile titles like "The Social Network" and "Salt" -- abruptly vanished from Netflix's "watch now" catalog.

In a blog post, Netflix pinned the blame on a "temporary contract issue" between Sony and Starz, a pay cable network that licenses Sony's movie catalog. Back in 2008, Netflix struck a four-year deal with Starz that gave it streaming access to Starz' offerings.

But Starz' deal with Sony included a cap on the number of subscribers who can watch Sony movies online, a source told the LA Times. Once Netflix' audience exceeded the cap, the contract was null. Starz' catalog of Disney movies available for online streaming is on the verge of triggering a similar contractual cap, the newspaper reported.

In a letter to shareholders earlier this year, Netflix called the Starz arrangement "one of our most important deals," because it's one of the few that gives Netflix access to relatively recent films. The deal runs through early 2012, but the Sony/Starz standoff could accelerate the renewal talks.

"Studios are starting to put their foot down," says ThinkEquity senior analyst Atul Bagga. "They weren't paying attention to streaming at all, but now they see an opportunity to monetize. And they're going to take it."

That's a big threat to Netflix. On the other hand, the company has the money and motivation to spend more to keep its rapidly growing subscriber base happy.

"The cost of content is going to go up, no doubt about it," Bagga says. "It's going to come down to who has the ability and the willingness to write big checks. Netflix is probably the one to do it."

Netflix (NFLX) had a $161 million profit last year on sales of $2.2 billion, and it ended last quarter with $342 million in cash on hand.

But Netflix's rivals have much bigger wallets. At the end of the first quarter, Amazon (AMZN, Fortune 500) had almost $7 billion in cash, and Google (GOOG, Fortune 500) had a whopping $37 billion.

In another bit of uncertainty, Netflix's most direct competitor, Hulu, is on the block. Walt Disney Co. (DIS, Fortune 500) Chief Executive Robert Iger said at a conference last week that Hulu's owners -- who include Disney -- are "committed to selling" it.

The list of interested potential Hulu buyers includes Google, Microsoft (MSFT, Fortune 500), Amazon, Yahoo (YHOO, Fortune 500) and nearly every other tech giant, plus telecoms like AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500). Landing Hulu would give any of them a strong beachhead for challenging Netflix.

Right now, no one else has cracked the code. Netflix's global subscriber base grew almost 70% over the past year, to 23.6 million users. In contrast, Google's movie offerings on YouTube and Amazon's streaming catalog are still new and fairly paltry compared with Netflix's arsenal.

"Netflix is the first and the biggest," Bagga says. "In a broad sense, the rivals aren't competing with each other. Everyone is competing with Netflix."

But if this turns into a clash of titans, Netflix is still a small player battling much larger and richer giants.

"Netflix is merely a conduit," Pachter says. "Of all the people who want to be in the business -- Google, Amazon -- they're smaller by far. The big boys will take share of subscribers, or bid up the cost of content. Either way, Netflix loses."