Streaming services like Netflix and Hulu are attracting more eyeballs every month, stealing attention away from traditional TV. But cable providers could soon fight back, by basing their pricing on how much a given user streams every month.
comScore reported earlier this week that viewers watched a record-high 42.6 billion videos online in October, with YouTube leading the way. Viewers watched an average of 21 hours of online video a piece during the month, which is a far cry from the four or five hours a day that they watch of broadcast TV. But its a 50 percent increase from the 14.5 hours of video that online viewers averaged in December 2010.
Pay TV services finally on the decline?
As online viewership has increased, there’s evidence that it’s finally causing some viewers to avoid paying for cable. Credit Suisse analyst Stefan Anninger forecast in a research note this week that the multichannel video industry will lose 200,000 subscribers in 2012, which is a big about-face from the 250,000 new subscribers that he previously estimated cable, satellite and IPTV providers would gain next year. The reason? Economically driven “cord avoiders” who can’t afford cable or satellite TV, as well as “cord nevers” — young people who get their first homes but choose not to pay for TV, choosing to stream video over broadband instead.
That’s led to a new round of concerns about the future of the pay TV industry — and what cable companies might due to combat potential threats from streaming competitors. And it’s prompted more speculation that an increased focus on broadband could lead cable companies to institute usage-based pricing that links the amount of bandwidth users consume with the amount that they pay. The latest comes from Sanford Bernstein analyst Craig Moffett, who said in an interview with Bloomberg that at least one cable provider will institute that type of pricing model over the next year.
The specter of usage-based pricing
For years, usage-based pricing has loomed as a threat to the mostly unlimited broadband Internet plans that users subscribe to today. While cable companies like Comcast have long instituted caps to limit the amount of data some of its users consume, they’ve stopped short of charging more based upon customer usage. But now more than ever, it seems like operators are finally ready to pull the trigger on usage-based pricing.
One big reason is the ever-growing amount of video traffic popping up on their networks. Earlier this year, Sandvine reported that Netflix users, on average, stream about 40 GB a month, and that the streaming provider makes up about a third of all peak downstream Internet traffic.
Killing two birds with one pricing model
Not only do services like Netflix clog their pipes, but they’re also competing with traditional TV services. For that reason, usage-based pricing is being promoted as a way to kill two birds with one stone: By effectively raising rates that customers pay to access streaming services, the effect could be less competition with their video services, while also possibly decreasing the amount of traffic that goes over their pipes.
Services like Netflix and Hulu Plus are attractive in part because they’re cheap: At $7.99, both services are significantly less expensive than the $70 on average that cable subscribers pay. But if more streaming means higher broadband prices, those services don’t look as cheap.
There are other reasons for cable companies to pitch broadband services, of course. They have better margins than traditional video services, and that profitability isn’t threatened by content costs that continue to rise. It’s also a key differentiator from satellite competitors who can’t bundle their own Internet services with TV packages. But as streaming video continues to gain consumer adoption, carriers will be looking to slow that growth and make competing online options less attractive.
Image courtesy of Flickr user LWY.
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Cable providers could change their pricing methods to battle online streaming sites like #Netflix http://t.co/kVMFRFm6
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@gigaom Will usage-based pricing kill the streaming video star? http://t.co/Pb67OjzU >>surprised it hasn’t happened yet. Cloud services too
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Time for a new approach to streaming video? http://t.co/QzdMqKT5
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#converg asked ? re. download caps & vid streaming.Note effect of poss move away frm unlimitd plans to usage basd in US http://t.co/uI4fstlE
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With the margins local cable monopolies are reporting on their broadband business versus scheduled TV channels, the main challenge for world consumers is holding corrupt politicians’ feet to the fire to allow, mandate, or incentivize competition in each market. We don’t need DVR’s; we need a cheap pipe to the recordings on content providers’ and licensees’ servers available 24/7/365, so that the consumer can take full advantage of the competition between content providers, as the backlog of often excellent vintage content versus overpriced, often inferior new content, not to mention public domain content that will continue to build even in this era of absurd, Congressional whore-extended copyright terms.
add “, continues to grow.” to the end.
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Is there good evidence that Netflix is “clogging the pipes”? There is data that says video traffic is increasing dramatically, but this doesn’t necessarily mean “clogged pipes”.
Will usage-based pricing kill the streaming video star?: 30, 2011, 4:42pm PT No Comments Streaming services like… http://t.co/ZZvSt09X
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This will backfire. The cable operators will lose TV subscribers to the cheaper satellite operators. As wireless access speeds increase, more folks will be cutting the cord. To foster ever more competition, regulators need to come up with simple rules that allow the market to work. The relationship between regulators and the major players in the telecom industry is much too cozy now.
The danger of cable and broadband provider as one: http://t.co/8R9OSAu3
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For what it is worth, we think that the future of OTT video streaming will see companies “pre-budling” free bandwidth into their own apps so that any rental/purchase download will be “toll-free” to the end user. This allows a free market mechanism to come into the picture and provides value and price transparency to end users. It will obviously eat into the streaming margins a bit for companies like Netflix (their revenues will be shared with carriers in exchange for the free byte delivery), but it’s a small price to pay really. Funny enough, free byte delivery is how Netflix got started (and succeeded wildly) — the bytes were snail mailed to you for free via the post office. In the future the bytes will likely be mailed to you digitally for free via AT&T, Sprint, and Verizon. Pre-bundling bytes into apps (we call it “FreeBand”) is also the best way for the carriers to introduce dynamic pricing of bytes (the apps turn red, yellow or green throughout the day depending on how much bandwidth is being subsidized by the app provider at that particular time) and manage their load using free market principles. If anyone wants more info on the subject, feel free to review our FreeBand platform online at http://www.boxtop.tv Thanks!
Thomas, I like your (boxtop’s) business model. Heck, I just looked at my ATT Uverse bill. FreeBand looks like a great alternative. I hope the carriers “get it” – the service and the concept.
Thanks for the kind words Fred.
The mobile (and some wireline) carriers definitely get it — but it is very different thinking to what their management grew up with (centralized data management / one size fits all). But with app / cloud / edge trends storming the market, even the most conservative carriers are now investigating dynamic pricing (just like the electric companies already do for grid load management). As such, we think 2012 will be the year we’ll see dynamically priced bandwidth and content merging once and for all (actual bytes + byte delivery = the “all in” product), so watch this space.
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Will usage-based pricing kill the streaming video star? — GigaOm http://t.co/w73u8KpS
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“Now more than ever, it seems like [cable] operators are finally ready to pull the trigger on usage-based pricing.” http://t.co/nIENbvWn
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New pricing models could be on the horizon for cable TV with more declines in subscribers hitting the bottom line: http://t.co/fCiEtSk2
#Cable provider will institute usage-based pricing over the next year http://t.co/POL4izFX Will this kill streaming video? #PayTV #OTT…
This is easy. It’ll never happen. The technology never goes backwards. If anything, there will be more. You can’t give something to customers then take it away. Ask Netflix.
Sure they can. Look at tiered data pricing for cell phones. For years we had “unlimited” data and now it’s all but gone. They offered it because the usage wouldn’t ever hit their limits. Now with new technologies and people wanting to stream everything to their phones, we’re seeing carriers panic because we’re actually taxing their networks.
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A lot of people are quoting Craig Moffett, but I’m wondering if anyone checked with the DOJ for an opinion. The telcos and cablecos would need to be prepared to prove that this isn’t a “restraint of trade” scenario.
My point: surely Netflix and other video streamers would claim a conflict of interest — that broadband service providers who also offer pay-TV services could use price-tiers as an anti-competitive business practice.
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http://t.co/47kMvwwD Important for operators
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This looks like the best way to kill innovation & alienate your customer: http://t.co/Ou0MQjTb. Usage-based broadband raises your video cost
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Will usage-based pricing kill the streaming video star? http://t.co/9JgB3xvh by @ryanlawler
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