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Netflix Cuts Movie Streaming Costs in Half

17 Mar, 2011 By: Erik Gruenwedel

Netflix’s cost to stream video into subscribers’ homes has dropped 50% since 2009, as bandwidth pricing continues to fall through market competition.

Two years ago the Los Gatos, Calif.-based online disc rental pioneer spent about 5 cents to stream two hours of video in standard-definition. Today, that costs is about 2.5 cents, according to Frost & Sullivan analyst Dan Rayburn. By comparison, Netflix spent 78 cents shipping rental discs round trip to subscribers — a postage fee that has, and will continue to increase.

Netflix delivers electronic streams via third-party content delivery networks, or CDNs, such as Limelight, Level 3 and Akamai across broadband connections into homes. A CDN allows for easier distribution of data files (movies and TV shows) to multiple users along a network instead from one central location.

Rayburn estimates Netflix will spend about $50 million (versus $100 million) this year with CDNs. He added that speculation regarding Netflix being hit with data cap limits now being imposed by telecommunications and select cable operators is overblown.

The analyst said that instead of being charged per gigabyte (size) of data sent, CDNs charge Netflix for megabits-per-second, or the amount of bandwidth required delivering a file. Indeed, Netflix actually is charged when bandwidths exceed maximum capacity more than 5% of the time (typically a month).

With ISP providers such as AT&T, Comcast and Verizon implementing monthly bandwidth caps on consumers, scuttlebutt suggested active Netflix streaming subscribers could be in for a shock on their monthly bills.

Rayburn disagrees, citing Netflix data that says average subscriber streams of 2 Mbps haven’t changed during the past two years. Delivering Netflix streams the so-called “last mile” to users’ TVs and PCs is a different story, as cable operators and others increasingly view the “over-the-top” service as a threat to competing entertainment businesses.

“[Bandwidth] caps from Comcast or AT&T won't have any material impact on Netflix now or anytime in the near future,” Rayburn wrote in a post. “Years from now they could, if the ISPs don't raise their cap levels, but right now caps are not a big deal to Netflix.”

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