Is Netflix Strangling the Internet?

For those keeping score on the battles, both civilian and government, over bandwidth usage on the web, the latest report from Sandvine will grab some attention. They examine who is responsible for hogging all the data flow rate in the series of tubes and quickly determine the culprit… Netflix.

Sandvine, (TSX:SVC; AIM:SAND) a leading provider of intelligent broadband network solutions for fixed and mobile operators, today announced the release of their Global Internet Phenomena Report: Spring 2011, including Internet trends from North America, Latin America and Europe, with specific spotlights on events such as Netflix adoption and March Madness® On Demand. Overall insights since the last report in the fall of 2010, reveal a growing appetite for on-demand applications that will continue to drive data consumption and network quality requirements.

Major findings from the report include:

In North America, Netflix is now 29.7% of peak downstream traffic and has become the largest source of Internet traffic overall. Currently, Real-Time Entertainment applications consume 49.2% of peak aggregate traffic, up from 29.5% in 2009 – a 60% increase [see figure 3]. Sandvine forecasts that the Real-Time Entertainment category will represent 55-60% of peak aggregate traffic by the end of 2011.

If you didn’t bother to check any further it might be reasonable to assume that the online movie streaming provider was eating up the web, given the popularity of the service and the amount of data being transferred when shipping an entire movie across the web. But is this really accurate? According to IT World… not so much.

A report issued Tuesday showing Netflix makes up a third of total Internet traffic is inaccurate enough – or at least the reports about it are inaccurate enough – to show not very many people in either the press or vendor marketing understand the network they base their business on.

First, the report didn’t say Netflix eats a third of the whole Internet; that assumption was off base enough to prompt Forbes to run a piece trying to correct it, but not quite succeeding.

Sandvine – an Ontario-based networking vendor – issued a report Tuesday estimating that streaming media from Netflix make up 30 percent of downstream traffic during peak times.

What Sandvine meant was that Netflix traffic spiked heavily during prime time – when most people are home and watching something other than what’s on TV – but only across the last mile.

The report goes into considerable detail which is well worth the time to pore over, but it boils down to a few verbal gymnastics being performed by providers to lay the blame on popular streaming services. First, the “last mile” reference is shorthand for describing the fact that Netflix distributes their digital content to a vast number of local delivery hubs. When a request for a film is made, it doesn’t stream across the entire spine server conglomeration, but only between the user’s home and the local server.

Further, there are times when Netflix is the peak user of bandwidth, but it’s only for a brief window in the evenings when business traffic slows and subscribers are at home watching something other than network or cable TV.

So who are truly the major data hogs? It’s the service providers themselves who have to justify every upgrade and make their own streaming offerings appear cost competitive.

It’s the effort to upgrade the nets to support their own streaming-media services, which not only compete with Netflix, but also come supported by internal business cases that have to show how quickly each new major upgrade will pay for itself through new services or the ability to support more subscribers.

Upgrades justified to regulators by saying Netflix is about to bring down the Internet go into the books under the category Gravy, and slide straight down to Net Profit at the bottom of the page.

Gamers and streaming movie fans should educate themselves on these costs when dealing with providers who want to throttle them back or push their own services as “more affordable options” which may well provide less content.

EDIT: I’ll be sure to pore over the text more carefully next time I’m writing after pouring a martini that early in the day.