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EyeIO has been operating stealthily since the end of 2010, and it was able to win Netflix as a customer last summer. Netflix hasn’t said where and in which capacity it is exactly using the technology it has been licensing from eyeIO, but the company’s VP of Product Development, Greg Peters, said in a press release that eyeIO is “an important part of the technology [Netflix uses] to improve video quality and overcome bandwidth challenges presented by Internet infrastructure.”

Standard-definition Netflix streams can consume up to 2.2 Mbps of bandwidth. Netflix’s 720p HD videos come in at roughly 3.8 Mbps, and 1080p videos go up to 4.8 Mbps. EyeIO CEO Rodolfo Vargas told me during a phone conversation on Tuesday that his company’s encoding technology can achieve better-looking results than most established encoders with 20 percent bandwidth savings and that eyeIO can still deliver similar quality to other encoders with up to 50 percent bandwidth savings. Content in 720p could be streamed using 1.8 Mbps, he explained. The company does this by optimizing the encoding process, which means that the results are regular, albeit smaller, H.264 files that can be played by end users without any need for additional plug-ins.

Bandwidth savings like these could be crucial to a company like Netflix both in wired as well as wireless networks. Netflix has been struggling with ISPs’ imposing bandwidth caps, and it is allowing its subscribers to voluntarily degrade their streaming quality to avoid hitting those caps. The company also started an aggressive international expansion last year, rolling out its service throughout Latin America, where average network speeds are often lower than in the U.S.. And finally, Netflix has also seen significant traction on mobile devices, where bandwidth caps are often much lower than on fixed networks.

EyeIO was founded by online video technology veterans; Vargas used to be the senior program manager for video at Microsoft, and one of his co-founders, Robert Hagerty, used to be the chairman and CEO of teleconferencing provider Polycom. The company is privately funded and currently has fewer than 10 full-time employees but is looking to expand over the coming months.

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1. 10 tools to get the most out of Netflix. Netflix may have stumbled a bit this summer, but make no mistake; it’s still very, very popular.
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Klinker’s optimism isn’t just based on wishful thinking. BitTorrent file sharing is still responsible for 16.5 percent of all residential fixed-line data traffic in the U.S., according to recent Sandvine data. That makes the P2P protocol the second largest data service after Netflix, and twice as big as YouTube. But no one is really talking about BitTorrent clogging up the pipes anymore, and Klinker believes that has a lot to do with some tweaks the company made to its file transfer algorithms.

The history of µTP

BitTorrent Inc. started its work on traffic optimization back in 2006, when it acquired a small company called Plicto. The startup that had been founded by engineers who had previously worked on the Internet2 infrastructure, which is the next-generation, high-speed data network that connects universities and other research facilities. Plicto had figured out a way to optimize file transfers in a way that wouldn’t negatively impact the overall performance of the network, and BitTorrent thought this was a great asset to sell P2P to corporate clients.

BitTorrent’s business plan at the time was to help media companies with the distribution of large video files, and the thought was that a TV network would never buy into a solution that would impact people’s VoIP calls, or bring their web browsing down to a crawl. BitTorrent rebranded the technology as µTP to match the branding of its flagship µTorrent client and began to deploy it as part of its P2P-CDN to enterprise clients.

However, it quickly became apparent there was little money to be made with undercutting CDNs. The company scaled back its B2B offerings and instead began to incorporate µTP into its consumer file-sharing software, where it is now used by more than 100 million clients in the market.

At the same time, it began to pitch the solution to potential partners and standards bodies, and in 2010, BitTorrent finally open-sourced µTP. The technology has since been adopted by all the major vendors of BitTorrent-based file sharing software, including Vuze and Transmission. Klinker estimates that today, 80 to 90 percent of all torrent traffic is µTP-based. This would mean up to 15 percent of all residential U.S. traffic is now congestion-aware: an astonishing number.

Why BitTorrent loves declining numbers

Sandvine's most recent numbers show BitTorrent declining during peak hours. The company believes that's a good sign.

So what kind of practical impact has µTP had on ISPs and their network congestion issues? Klinker believes the proof is in the numbers. Sandvine’s data has widely been seen as proof that file sharing overall is receding. However, the folks at BitTorrent were ready to open the champagne when the network management company released its most report. The reason: Sandvine concentrates on peak bandwidth, and BitTorrent is now only responsible for 7.62 percent of all residential peak download bandwidth. “That’s a good indicator that it’s working,” Klinker told me, explaining that µTPs biggest goal was to steer clear of times when bandwidth usage peaks.

BitTorrent Inc. is now looking to make µTP more popular, both with ISPs and other companies that could use congestion-aware data transfers. There’s some interest in the IT world, and the company is working together with heavyweights like Microsoft to turn µTP into an officially recognized standard through the IETF. Klinker believes cloud backup services, companies that have to distribute big software updates and possibly even VOD vendors that don’t depend on real-time data transfers could all benefit from µTP.

How about congestion-based billing?

But on the ISP front, Klinker still has to fight some misconceptions. “It’s astounding how few of them understand how their business works,” he told me. The latest example is the recent debate around usage-based billing. Klinker doesn’t believe it would do anything to alleviate network congestion, and he wishes ISPs would be a little more innovative. One idea he floated to me was to make apps aware of caps. If BitTorrent could query a user’s data quota, then it could help users to avoid going over their caps, and eventually, ISPs could reward users for utilizing apps that are aware of network congestion and help to avoid bandwidth spikes. “You should really do congestion-based billing,” he suggested.

Image courtesy of Flickr user kevinspencer.

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Bambuser calls this “complement data” technology, and company CEO Jonas Vig told me that it was developed in-house. “Our proprietary streaming protocol adapts the frame rate in order to keep the video at a minimal latency,” Vig said, adding: “In order to not compromise the on-demand frame rate of the video, we developed the complement data technology to re-insert any frames that (weren’t) transmitted in real-time.”

Vig went on to explain that Bambuser doesn’t have a set minimim frame rate. Instead, when the frame rate drops too much compared to the original video, it simply suggests to shoot with a lower resolution. The apps also always prioritize audio. “A good flow and consistency in the audio is what the users often perceive as most important,” said Vig.

Optimizing the archived stream frames after a live stream has ended makes sense, considering that in many cases, the majority of users actually watch broadcasts after they’re over – something that Justin.tv recently paid tribute to with the launch and eventual spin-off of its Socialcam platform.

But restricting the upload to the dropped frames as opposed to re-uploading the entire file also is something that should make both mobile operators as well as end users who increasingly face bandwidth caps happy. Said Vig: “It’s significantly more efficient if you only have to patch, say, 15 to 25 percent of the frames to get a vastly improved viewing experience on demand, compared to having to upload a new version of the full video.”

He added that this approach will also take much less time, meaning that the full-quality version will be available sooner. (To learn more about challenges and opportunities of mobile bandwidth constraints, check out our Mobilize conference, happening next week in San Francisco.)

The new Bambuser apps will also offer a Google Maps mashup that will show where live streams are happening as well as an interesting take on live chat: Bambuser will replay past live chats synchronized with archived videos to give users a sense of what people were talking about when a live event unfolded.

Check out our previous interview with Bambuser CEO Jonas Vig and Chairman Hans Eriksson:

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The concept of Orb Live is simple, but controversial: The app doesn’t get its content straight from Hulu and other distributors but from a user’s home computer, where software transcodes streams, pretending that a user accesses the site with a regular desktop browser. That’s particularly dicey in the case of Hulu, which makes users pay for its Hulu Plus subscription service if they want to watch videos on anything but a laptop or desktop computer. Orb Live users don’t need to pay anything to access Hulu’s content, save for a one-time $10 fee for the app.

Of course, there’s also a content disparity: Hulu Plus offers access to full seasons of a number of shows, whereas the free Hulu service generally only lets viewers catch up on the last three episodes. And Hulu Plus subscribers can access Fox content the day after it airs, but Hulu makes non-paying users wait an additional seven days. Orb Live takes this into account by offering users a chance to sign in to their Hulu Plus accounts, thereby giving them access to the best of both worlds.

So how well does it work? I’ve had a chance to play a little bit with Orb Live and tried it with both a HTC MyTouch Slide 3G as well as a HTV EVO 4G. The MyTouch had some notable playback issues, with videos looking pretty jerky even when streamed via WiFi. The EVO 4G, on the other hand, showed fairly smooth streams, making for a much more pleasant experience. I asked Orb Networks about the hardware requirements on the handset side, but all the company could tell me was that anything above Android 1.6 should work. Judging from my experience, a faster handset processor doesn’t exactly hurt either.

Orb has been around for some time, offering transcoding and media center solutions for game consoles and other living room devices. The company has stepped up its game in recent months and not only released its own line of Orb video player hardware, but also a $20 Blu-ray disc that brings Hulu, Netflix and ESPN3 content to any Internet-connected Blu-ray player.

Its foray into the mobile space puts more pressure on premium content providers to extend their support for Android handsets. Hulu Plus is currently only available on about a dozen devices, and Netflix only last week opened the floodgates to support all devices with Android 2.2 and higher.

The one thing consumers should keep in mind when using an app like this one is that video can consume quite a bit of bandwidth. And in the age of metered mobile bandwidth, watching all those streams while on the go can quickly get very expensive. (For more on the future of mobile video, make sure to check our Mobilize Conference on 09/26 and 09/27 in San Francisco).

Check out the images below for a first look at the Orb Live UI:

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From the blog post:

Netflix streaming customers who happen to share their account with other family members are having a frustrated Labor Day weekend as Netflix completes implementation of strict new limits on the number of concurrent video streams available for viewing.

Netflix has in the past told its subscribers that the number of possible simultaneous streams depends on the subscription tier. Subscribers with a one DVD plan could access a single stream at any given time, subscribers of the two DVDs plan could access two streams, and so forth. However, these limits were never really enforced, and they made even less sense after the company separated its DVD and online subscriptions this summer.

Stop the Cap! has now reported that a number of users were getting error messages, telling them to “stop playing at least one movie” in order to access a new stream. However, this was a glitch and not a policy change, according to Netflix VP of Corporate Communications Steve Swasey, who told us via email:

No Netflix member is limited to less than two concurrent streams. A few Netflix members have heard differently from us, which is an error that we are correcting.

Netflix has been facing a substantial backlash over its decision to split up its subscription plans and in effect raise prices for some of its members by up to 60 percent. It’s understandable that the company would want to avoid any other action that could further enrage its customer base.

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Not convinced yet? Then consider this evidence:

Consumers are ready to jump ship. Netflix users that stream the company’s videos to connected devices are twice as likely to at least downgrade, if not outright cancel their cable TV subscription than they were just a year ago, according to a new study from The Diffusion Group (TDG). Thirty-two percent of these Netflix users are thinking about calling their cable company. “Despite its rhetorical positioning, both Netflix and Pay TV operators have long been aware that there will come a point at which its services are not only dilutive to regular TV viewing, but antithetical to Pay TV subscription levels,” said TDG’s Michael Greeson. In other words: In the long run, Netflix will inevitably lead to cord cutting.

Content licensing is getting more competitive. Netflix Chief Content Officer Ted Sarandos revealed recently that Netflix is now at the table for pretty much any TV licensing deal. So why aren’t Netflix customers buying more content? Because some of the networks simply don’t like to share. Netflix would prefer cheaper, non-exclusive licensing deals, which would make it possible to get more bang for its buck. However, HBO and increasingly Showtime are insisting on exclusive content to prevent subscribers from jumping ship.

Many observers thought Netflix wanted in on this game when the company bought the rights to its first-ever exclusive show House of Cards this spring. Sarandos, however, said that it was exactly the other way around: Netflix was getting concerned that it would get shut out of too many deals for attractive serialized content, which is increasingly going exclusively to programmers like HBO, so it saw itself forced to act.

Cable companies castrate their TiVos. A number of cable companies now offer their customers TiVo-branded DVRs that offer access to all kinds of additional online content. But TiVo users who buy their devices at retail will be able to watch videos from Netflix and Hulu Plus with these machines, while customers who rent the same DVR from their cable company won’t have access to these two services. The logic? Netflix could get people to ditch their premium channels and ignore cable VOD.

Netflix is dominating every screen. Network operators are trying to bring TV everywhere, but they often must feel like the hare racing the porcupine: Wherever they look, Netflix is already there. The company’s service is now available on more than 250 devices, and Netflix is getting more aggressive about dominating every single screen. The latest ploy is a dedicated Netflix button on your remote control, which puts it in direct competition with your cable guide. That raises the question: Do you want to browse through thousands of channels, or simply access Netflix?

Incumbents are putting a cap on it. If you’re a network operator, how do you keep your customers from canceling premium pay TV services to watch everything online? Canadian ISPs seem to think that bandwidth caps are the answer, and they’ve been enforcing strict data diets for years. ISPs that charge consumers up to $2.50 per GB once they exceed caps as little as 2 GB per month have been a real problem for Netflix north of the border, forcing the company to default to SD-quality streaming for all Canadian customers.

There’s been some movement with regards to bandwidth pricing in Canada in recent months, but the conditions are telling: Shaw recently introduced generous 1TB caps and even unlimited data plans, but those are reserved for customers who have a pay TV subscription as well. Bandwidth caps in the U.S. are generally higher, but not really that generous either, especially if you’re a heavy Netflix user.

Image courtesy of Flickr user familymwr.

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Given his track record of being able to accurately predict the future of video — he called video the killer app of broadband at our NewTeeVee conference in 2009 – it’s easy to buy into what he has to say. He also predicted video would be available as streams on many devices and to many screens over the Internet.

It has been an amazing year for the company. Netflix has seen its subscriber base leap from 14 million to 22 million in the U.S. Its stock has been on a tear, and it has seen rivals such as Blockbuster fall by the wayside. It has been painted both as the savior of niche television shows and the destroyer of broadband.

When I think of Netflix, I think of a big data company with a special focus on user interaction and content. Of course, there’s nothing better than getting the lowdown from the man himself to find out what he’s thinking about next. Last week, in a short freewheeling conversation over Skype (Reed does love Skype), he shared his thoughts on the future of television, video and broadband. Here are some excerpts from my conversation.

By topic

• Why ISPs Have to Shape Up
• Impact of Bandwidth Caps
• Importance of Fiber broadband
• What TV Looks Like in 20 Years
• Sensors & User Experience
• House of Cards & Content Expansion Plans

On Internet Service Providers & Innovation

In a letter filed with the FCC, Hastings and Netflix were critical of Internet service providers. When I asked if they indeed were the enemies of innovation, he said his criticism isn’t “blanket” criticism, but he’s critical of certain ISP practices such as pay-per-gigabyte (particularly in Canada) and the practice of charging for sending bits into their network.

“Their consumers want Netflix bits and they charge the consumer,” says Hastings. “Comcast wants to charge our provider for providing those bits. What they want to do is make money on both ends: consumers and the content end.” He believes Comcast shouldn’t charge for the “entry of our bits into their network.”

Instead, Reed endorses settlement-free peering, but Comcast doesn’t agree. Comcast is currently locked in a bitter dispute with Level 3 Communications, Netflix’s service provider. Hastings points out that Charter Communications, a cable broadband provider, practices settlement-free peering. “So, no, we are not making a blanket statement that all ISPs are bad, just certain ISP practices are bad.”

(By the way he does think Comcast has done a great job on its Xfinity app for the web and for the iPad, so he’s not holding any grudges against them.)

Top

On Bandwidth Caps

Last week, Canadian broadband provider Shaw decided to increase its bandwidth caps. According to Reed, this is a step in the right direction because ultimately, it’s good for the Canadian consumer.

Canadian consumers want unlimited Internet, Reed added. (In the U.S., we’ve had unlimited Internet, though some ISP are beginning to impose caps.) He takes heart from the fact that Shaw increased the bandwidth caps and have said it’s going to increase them again.

“The marginal cost of delivering one more gigabyte is a penny,” Hastings added. “I think once you have the fiber installed, it almost doesn’t matter how much [bandwidth] you use.”

Top

On Fiber Broadband & the Future

Over the past twenty years, Internet bandwidth has expanded dramatically, and in the past decade or so, we’ve gone from dial-up to DSL and cable broadband. Now we’re going fiber-to-the-home.

Hastings was super-excited by Google’s 1 Gbps Google Access fiber project in Kansas City, Kan. because it would show us “what can be done” with so much low-cost bandwidth. Today, he pointed out that Netflix works just fine with DSL and cable, but “more fiber means there are going to be more high-definition streams” and more on-demand content. “It is much more than a Netflix story. It opens up possibilities for many interactive, immersive applications.”

“What we have got to do is get fiber to everybody’s home just like we got electricity and telephone lines,” said Hastings. “It will happen over a certain number of years.”

Hastings believes the future of broadband is already here, and pointed to countries like Australia, Brazil and Costa Rica, which made fiber broadband to their citizens a top priority. In the U.S., he’s excited by states like Vermont, which are laying fiber for fast connections for its citizens.

When I asked Reed if the fiber deployments were going to be key to Netflix’s future international expansions, he declined to comment and said the company would share its global expansion plans in the second half of 2011.

Top

It’s an All-NewTeeVee World

Fiber broadband is key to the future of companies like Netflix in a world where all video would become “click-and-watch,” and will always be on demand.  “In the next 10 to 20 years, almost all video will become click-and-watch Internet video and consumers will interact with it on a wider range of devices and it will able be on demand,” he predicted. “You will not tune into a certain channel this is broadcasting — and that is the radical change. It will be an on-demand world.”

“Today on the iPad, you install various apps and in two years Samsung televisions will be like that. You can already see bits of that future,” he added. In five years Hastings believes that all televisions sold globally will have a built-in Wi-Fi connection and the television will also be an Internet access device. In this brave new world, Hastings says Netflix is one of the subscription sources for television shows and movies.

Top

On Sensors & the User Experience

When I asked Reed if he thought the click-and-consume metaphor will apply to everything on the network, he said yes and pointed out that in such a world, the difference would be how consumers interact with services defined by the user experience.

He believes the future user interface of not only Netflix, but other applications, will have to become more interactive and will have to take into account inputs from various sensors. “Sensor web is growing, and Netflix will have to integrate it into our experience,” he added.

“Our user interface will be tremendously advanced from where it is today,” Hastings added. “It will talk; it will integrate with sensors; and when you shake your phone, it will give you various shows.”

Reed also said, “It is up to application developers to integrate those sources of data and figure out social video and what social video means.” When I asked him if re-imagining the user experience with various sensor inputs was par for the course going forward, he concurred. Over the next few years, he expects companies like Apple, Amazon, YouTube and Comcast to keep innovating and learning from each others’ experience.

Top

On House of Cards and Its Content Plans?

When I asked Reed if Netflix was getting into the content business, especially with them spending so much money on the House of Cards show, he said the company is in the business of licensing content. It’s not in the business of producing content and reading scripts. “We don’t produce content,” he said.

In the case of House of Cards, he noted they are still licensing the content in certain release windows and certain categories. “It is a riskier license than the ones we have done before, as we know less about the content than say Mad Men, where we can get a pretty tight prediction on how much people will view it,” Hastings added. “It is fair to say we are taking a lot more risk in our licensing but it is different from being a content developer.”

Top

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Starting in June, Shaw’s standard 7.5 Mbps plan will come with a 125 GB cap (up from 60 GB). Meanwhile, its low-speed 1Mbps “lite” offering will have a 30 GB cap (up from 15 GB), and premium customers with a 25Mbps plan will now have a 250GB cap (up from 100GB). Customers that exceed the cap will automatically be bumped into the next tier, but revert to their previous subscription package once the month is over.

Those caps mimic similar restrictions put in place by U.S. ISPs. Comcast is restricting its customers to 250 GB per month, and AT&T recently introduced a 125 150 GB cap. There’s been a debate on how generous 125 GB per month really is, especially when Netflix subscribers with connected devices use around 80 GB on average per month. However, raising the cap of the standard plan from 60 GB should go a long way toward easing concerns that even moderate Netflix usage could lead to customers being penalized by their ISP.

Fears like these have been a real concern for Netflix. The company went so far as to lower its default video quality in Canada, and it’s offering Canadian customers the option to disable HD streaming completely in order to avoid costly overage fees. Netflix has also told Canadian regulators that billing users that exceed their cap per gigabyte, as it’s being done by Shaw’s competitor Bell Canada, is essentially a money grab.

ISPs claim bandwidth caps are about dealing with network congestion, but critics have argued that it’s really about keeping potential competitors to pay TV services in check. Shaw’s most recent broadband plan changes seem to support this claim: The cable operator is also introducing a number of new plans with caps as high as 1 TB, and even two unlimited data plans. However, these new plans are only available to customers who also get their TV service through Shaw.

Image courtesy of Flickr user LWY.

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