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NetFlix Explains ISP Economics
by Andrew McCaskey
And a Lot More
Netflix CEO Reed Hastings shed a little light on the actual costs of streaming at the NewTeeVee Live conference today in San Francisco and had some words on the idea that ISPs are suffering from higher costs to deliver video to end users. He pointed out that the cost of bandwidth and capacity is falling rapidly due to Moore’s Law. He pointed out that Amazon charges about 5 cents a gigabyte for bandwidth — or about a nickel a movie — as proof of the low costs. and that few users are able to use enough bandwidth to pick up the $60-80 a month they are paying for a 20Mb/sec connection.
Hastings also pointed out that Netflix may compete with cable and IPTV video providers on the video side, but that services like his streaming video offering are driving demand for cable’s high-speed Internet products. Calling it a halo effect, and comparing it to Apple’s ability to sell more Macs after folks snapped up iPods, Hastings said the primary reason for anyone to subscribe to 20Mbps service is to watch video, not send emails faster.
Fair enough. I have to wonder where the middle ground lies, between the claims of Verizon and Comcast that the few bandwidth hogs are making their investor’s lives miserable, and the Netflix perspective. I pay around $80 a month (being forced to buy a basic Cable TV subscription that is not even connected) but get , on a good day, 20Mb/sec down and 5Mb/sec up. I have it mostly for the convenience, and for those times when I need to run simultaneous video, Skype, Voip sessions – maybe once every six weeks.
I know that Comcast is making some serious money off of me – since I am buying the peak speeds, not the heavy throughput. If I had kids in the house watching movies, it might be a different story.
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