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Netflix: Pay Per Byte 'Not Economically Necessary'
And Charging $1 Per Gigabyte 'Grossly Overpriced'
by Karl Bode 08:49AM Thursday Jan 27 2011
Last month we noted how Netflix CEO Reed Hastings was unconcerned by the looming threat of low broadband usage caps and high per gigabyte overages -- at least while playing the bubbly optimist in front of investors. We also noted how Hastings should be concerned, given how streaming just a few HD Netflix titles a month can quickly eat through the caps now sweeping across Canada.

Apparently Netflix's concern runs a little deeper than Hastings suggested, at least according to a financial report released this week in which Netflix questions the financials of some per-byte schemes, going so far as to call $1 per gigabyte "grossly overpriced":
quote:
Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary. Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.
With many ISP costs fixed and dropping, why precisely consumers should suddenly pay huge new levies for bandwidth (on top of some of the highest flat rate prices among all developed countries) isn't a question being asked enough. As we've noted repeatedly (and as many small Canadian ISPs confirm), the low cap, high overage pricing model isn't about congestion or economic necessity, it's about cashing in on Internet video, retaining power to prevent dumb-pipe status, and protecting TV revenues. It's a bean counter pipe dream propped up by distortion.

ISPs (and their armies of fauxcademics and think tanks) have worked very hard to convince some people that such punitive pricing is not only economically necessary for survival, but even an act of altruism. It's nice to see that even if it's buried under some bubbly rhetoric, that Internet video providers recognize what's going on. Still, they'll likely need to be more vocal if they want to prevent such pricing models from making their way to the States.


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So says company who's business plan depends on $0 bandwidth

I can't take at face value any claims by Netflix on what it costs ISPs to deliver Netflix videos. They have decided to get out of the mail-delivered rental DVD business and move to all streaming all the time. Their business plan is based on a close to zero cost to deliver their product. Any push back from ISPs that that cost is not zero will be met by a blizzard of PR from Netflix disputing ISP claims. And will also be met by cries of anguish about net neutrality violations. So any claims made by Netflix here should be shown a good deal of skepticism as those coming from a party with a big financial reason to distort the facts. In fact, they should be shown the same skepticism that is being shown here at BBR to the ISPs in any thing they say.