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Netflix is Good for Broadband Providers Under Free Market

June 23rd, 2011 by | 2 Comments »

The CEO of Comcast turned some heads today when he had some nice words to say about Netflix being good for his business.  Conventional wisdom seems to be that Netflix is not only a bandwidth hog that clogs the broadband provider’s infrastructure, but that it also competes with the broadband providers’ TV business.  The reality is a mixed bag, but so far Netflix is more helpful than harmful to broadband providers.

While it’s true that Netflix accounts for the largest source of traffic on broadband networks, the bandwidth is paid for through paid peering services.  Furthermore, my mother upgraded from 768 Kbps DSL to 6 Mbps AT&T U-verse broadband (which actually delivered 7 Mbps whenever I tested it) to be able to get a better Netflix experience. She never wanted higher bandwidth in the past but Netflix (and to a small extent YouTube) caused her to upgrade her broadband service at considerable upfront and increased monthly cost.  Another friend of mine also upgraded his broadband service to get a better Netflix experience.  So long as Netflix doesn’t get its government mandate forcing broadband consumers to subsidize Netflix, Netflix and other high bandwidth services will be a net positive.  There will be increased infrastructure costs for the broadband providers, but there will also be increased revenue from peering and better broadband subscriptions.

While it’s also true that Netflix video service competes on some level with cable (or MVPD) providers, it is more complementary than a substitute for MVPD services for the vast majority of customers.  There are “cord cutter” customers who don’t subscribe to paid TV services, but these people often weren’t TV subscribers before they became Netflix customers and I personally know of many people who fall into this category.

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Reader Comments

  1. Rumor has it that Netflix is upping the cost of it’s subscription rates. Personally I think this is probably the best example of the free market at work.