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How Much Is Netflix's Traffic Worth?

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
9/9/2011
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A new dashboard app from Sandvine Inc. (London: SAND; Toronto: SVC) tells MSOs not just how much over-the-top (OTT) video traffic they are carrying but also spells out how much revenue they're losing to emerging video competitors like Netflix Inc. (Nasdaq: NFLX) and Apple Inc. (Nasdaq: AAPL)

Sandvine's Real-Time Entertainment Dashboard uses deep-packet inspection (DPI) to track streaming audio and video traffic from those OTT sources, going as far as quantifying the quality of the video experience and how long customers are viewing those streams.

Sandvine, says CTO Don Bowman, can also use this data to give its carrier customers a ballpark idea of the amount of revenue associated by the adoption of over-the-top services. For example, it can determine how many customers are using Netflix or Spotify streams and multiply that by the monthly subscription fees they're paying those companies, or calculate about how much iTunes is making with its online movie rentals.

"It gives [MSOs] an idea of the commercial value of their network," Bowman says. "Carriers are interested in how many dollars are being exchanged over their network, and how many are paying a premium for Hulu or paying Spotify."

While this could be filed in the good-to-know category if data suggests that Netflix is attributing to the decline of MSO basic cable or VoD revenues, Sandvine insists it goes deeper than that, able to judge streaming video quality that a given content delivery network (CDN) is achieving. It claims its system knows, for example, when a video is buffering, stalling or switching to a lower-resolution stream if adaptive bit-rate technologies are in play.



That sort of info comes in handy for carriers that are investing in CDNs or building their own – the sort of thing Alcatel-Lucent (NYSE: ALU) is pitching with its AppGlide Video Analytics system. Now they can point fingers if it appears that a CDN is under-investing or somehow cheating the routing rules. (See AlcaLu Gets Down With OTT.)

"That data becomes part of the negotiation when they try to get Netflix to host on their CDN," Bowman says, noting that Sandvine's system can apply a mean opinion score for the perceived video quality being provided by a given CDN.

Staying ahead of the bandwidth curve
Another benefit is it helps operators keep tabs on how much bandwidth OTT is devouring and give them a sense of future growth trends. Until 2009, operators could count on a 30 percent to 40 percent increase each year, but they've been facing annual increases of 60 percent and 80 percent over the past two years as Netflix traffic went gangbusters. (See Netflix: The Internet's US Traffic King .)

Operators "are also worried about the next phase: multiple [OTT] streams to the home," Bowman says. "They've been getting a handle on a single stream to the home, sometimes in HD. They're now facing multiple HD streams."

Among recent examples, Netflix tweaked its policy so all customers, no matter the subscription level, can stream to at least two devices at the same time.

That will not just get expensive but cause operators to dedicate more Docsis capacity per user, perhaps as much as 10 Mbit/s to 12 Mbit/s just for OTT video.

Sandvine hasn't named any commercial customers for the new dashboard, but it started beta testing this summer. Some notable Sandvine customers include Comcast Corp. (Nasdaq: CMCSA, CMCSK), which happens to be building a CDN, StarHub and Liberty Global Inc. (Nasdaq: LBTY). (See Comcast's 'Project Infinity' Takes Flight .)

— Jeff Baumgartner, Site Editor, Light Reading Cable



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sam masud
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sam masud,
User Rank: Light Sabre
12/5/2012 | 4:54:24 PM
re: How Much Is Netflix's Traffic Worth?


That's great--MSOs knowing how much OTT video is going through their networks. So the next question: What are they going to do about it?


 


My thought: Forget OTT video as competition, start thinking cooperation. There do not necessarily have to be losers in this game.

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 4:54:23 PM
re: How Much Is Netflix's Traffic Worth?


mendyk,


I actually disagree with your assertion as it would cause a huge net neutrality problem.  For example, if I were Netflix I would then demand that Xfinity TV (the streaming version) be unbundled and charged for use on Comcast.  There is precedent for that in the FCC (Project Pronto for example).  What I think will happen will be that bandwidth caps and overage charges will make it more of a choice.


I keep waiting for OTT replacement services - now that will be when the war starts.


seven


 


 


 

kaps
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kaps,
User Rank: Light Beer
12/5/2012 | 4:54:23 PM
re: How Much Is Netflix's Traffic Worth?


How about a console for end users to show them if their ISP is performing up to snuff? Or is that simply too revolutionary?

kaps
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kaps,
User Rank: Light Beer
12/5/2012 | 4:54:23 PM
re: How Much Is Netflix's Traffic Worth?


How about a console for end users to show them if their ISP is performing up to snuff? Or is that simply too revolutionary?

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:23 PM
re: How Much Is Netflix's Traffic Worth?


The OTT free ride will end at some point. If Netflix hasn't baked this into its long-term business plan, then it will be in for some interesting challenges.

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:21 PM
re: How Much Is Netflix's Traffic Worth?


We'll see. I'm trying to think of another large-scale business in which Company A makes its money by using Company B's resources at no cost. Any examples? 

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 4:54:21 PM
re: How Much Is Netflix's Traffic Worth?


 


That says that LR (which is an OTT provider of Flash video - stupid ads) will pay the destination ISP.


I absolutely disagree with your assertion on this.  I think that again, they will charge their users for usage not the senders.  OTT is not riding for free by the way.  They pay their ISP for their service.  The issue is that there is no reciprocal compensation like we had in the phone networks.  What is happening in all ISPs today (in the US) is that all delivery of all content is free.


Now, what CAN happen is that the peering points that the OTT video is being provided from in the terminating networks could have peering agreements which change the money somewhat.  This would then be pushed back to the video provider.


I think this was the whole Level 3 argument from earlier this year and makes sense to me.


seven

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:21 PM
re: How Much Is Netflix's Traffic Worth?


At some point, OTT providers will have to pay for the use of others' resources.


"After all, we are not communists."

Cooper10
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Cooper10,
User Rank: Light Beer
12/5/2012 | 4:54:20 PM
re: How Much Is Netflix's Traffic Worth?


If content is transported within the bandwidth allocated to the high speed data connection, then yes, absolutely that usage would "count" toward any usage under a metered usage model, whether the content was coming from Xfinity or Netflix.  However, the owner of the network has the perogative to use their bandwidth as they choose - and if they choose to use a portion of it (separate from the HSI data channel) to offer IP video, then it is, by definition, not an OTT service.  This is exactly what AT&T is already doing with U-Verse.  Netflix didn't build a network, therefore the only delivery method they have is OTT.  Providers who invested in building a network have more choices.

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:20 PM
re: How Much Is Netflix's Traffic Worth?


I'll guess that the sum total of LR traffic for one year doesn't equal the sum total of Netflix traffic for one day. And LR isn't providing a service that competes directly with anything in a network operator portfolio. And, as you've pointed out, the cost of connecting to the Internet isn't zero. So it's an issue of fair-price resource use vs. abuse. Net neutrality will provide cover for the immediate future. Long term, we'll see. Operators are now getting the tools to identify and isolate traffic; if they're going to cap and charge individual subscribers, there's at least some reason to believe they'll take the next step and focus on traffic originators. Especially if those originators are eating into other lines of business in which they've invested a lot of time and effort to develop.

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