AT&T’s New Bandwidth Cap Is Bad News for Netflix

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AT&T will soon cap its DSL bandwidth at 150 GB per month, the company confirmed yesterday. Customers who use more data during at least three months will have to pay $10 for each additional 50 GB bucket of data. That’s bad news for Netflix and its users, who could get dangerously close to the cap.

How much Netflix video does 150 GB get you? Not that much, actually: If you watch a movie like Moulin Rouge in HD, you’re going to use around 3.5 GB of data. A single episode of Weeds equals about 800 MB when watched in HD. If you were going to use all your 150 GB of AT&T bandwidth to watch HD video from Netflix, you’d only be able to watch about three hours per day — and that’s without doing anything else.

Nielsen recently estimated the typical customer is streaming around 11 hours of video from Netflix’s website per month. However, Nielsen’s data is based on PC and laptop usage only and doesn’t include any streams accessed via iPads, Roku set-top boxes, Blu-ray players or any of the other 250 devices Netflix’s streaming service is now available on. These devices have arguably been the biggest driver for the company’s online video growth, and they’re likely to also have a significant impact on many people’s bandwidth consumption.

Granted, all of this is pure back-of-the-envelope math. Real-life usage involves data transfer overhead, which eats up additional bandwidth. Then again, only a portion of the Netflix catalog is actually available in HD. Many TV shows are, but a good number of movies can only be watched in SD, which doesn’t eat up quite as much bandwidth.

Still, AT&T’s bandwidth cap could have a significant impact on the future of the service. Netflix currently only offers 720p HD. An update to 1080p would close to double its bandwidth impact, meaning that you’d suddenly only have 90 minutes per day to watch before you’d be billed extra by AT&T. Competitor VUDU is already offering 1080p streams, and YouTube has been offering 1080p for over a year. It’s technically possible; there’s demand for it; but bandwidth caps could prevent Netflix from upping the ante in terms of HD quality.

Bandwidth caps could also spoil Netflix’s attempts to position itself as an alternative to traditional pay TV. U.S. households watch more than five hours of TV per day. The average American would burn through his monthly AT&T bandwidth allotment in just 18 days if he’d cut the cord and replace all of his TV viewing with HD streams from Netflix.

The biggest issue for Netflix, however, could be the psychological effect. People will think twice about using Netflix if they think it will lead to extra ISP charges. The company is well aware of these issues; Canadian users, who often have to deal with much lower bandwidth caps, have the option to disable HD streaming entirely as part of their account settings. That’s right; Netflix offers the option to make your video streams look worse so you won’t give up on streaming entirely. There’s no word yet on whether a similar option will be introduced in the U.S. as well.

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