Netflix Is Winning the Internet

A third of all bandwidth in North America and growing is now devoted to the site

Have you noticed lately how many hours you've been spending ogling at the endless catalog of movie choices on Netflix Instant View? Did you smile a little yesterday at the news that Miramax movies will soon be available to subscribers--and maybe you even started planning your streaming Pulp Fiction party complete with Photoshopped boxes of Frute Brute cereal to munch? You're not the only one. According to a new report by Sandvine, Netflix now accounts for one third of all internet bandwidth in North America during primetime hours.

Three quick conclusions can be drawn by the breakdown of internet usage below, says Sandvine. One, Netflix is king. Two, as real-time entertainment--streaming video as well as interactive chat, voice and video communications--made up for nearly half of the data consumed by internet users in the United States, Canada and Mexico, we can expect a shakeup in the telecom world. Finally, person-to-person file sharing isn't going anywhere and the industry will have to deal with it.

Placing the report in context with recent events in internet current events raises a few questions.

How will this affect YouTube? According to ZDNet's Christopher Dawson, last week's announcement that YouTube would offer movie rentals not only clearly pits parent company Google against Netflix; it also makes apparent how YouTube might offer the social features that Netflix always lacked. "YouTube’s built-in commenting, subscriptions, and video response mechanisms make the site a robust and extremely modern social network," says Dawson. YouTube seems to be further differentiating itself from Netflix by opening up the potential of producing original content, a move Netflix says they're not interested in making.

Will this affect the cost of broadband? Only if cable companies know what they're doing--and they defintely do--argues the Washington Post's Cecillia King. Certainly anticipating how the increasingly popular bandwidth-heavy video would strain their networks, companies like AT&T and Cable One have already introduced tiered data packages. Charging heavy users more for downloading more should offset some of the cost of growing the network capabilities, but some critics worry that it will becoming a "way to stifle Internet use and keep low-income users off the Web."

Does this mean online video will replace television? It's complicated, says Fast Company's Kit Eaton. The inevitable conclusion that hours-spent watching Netflix equals hours-not-spent watching the teevee certainly holds some merit, but let's remember that watching video on the internet is a fundamentally different experience. "Netflix, by its very nature, is not a network-driven service, it's a user-driven one with content streamed on demand when users prefer to consume it," says Eaton. However, it's possible that one family member could be watching Netflix on an iPad in one room and another could be watching NBC on a set-top box in another. Either way, network giants are scared.

If paid video content surpassed P2P downloads, did Hollywood win? Perhaps, suggests GigaOM's Ryan Lawler. Even though Netflix users are munching up more bandwidth that folks sharing files over P2P networks like BitTorrent, the number of people downloading illegally remained fairly constant. "One could argue that’s good news for Hollywood studios, which have spent the last several years trying to combat the spread of their movies on peer-to-peer networks like BitTorrent" says Lawler. As more Hollywood studios get on board, though, the ever expanding library of content available on Netflix might skew the breakdown in their favor next year.

Since they just entered the space, what should Amazon do? Buy Netflix, says Peter Gallagher in the Wall Street Journal. Legal worries aside, Amazon is moving more into the digital content space, and as a nearly a trillion dollar company, they can afford to buy a smaller company to help better penetrate digital media and cloud computing. "Netflix would bring Amazon 20 million customers and more than 20,000 movies for streaming, giving Amazon a leadership position in digital movie distribution--up from its 5,000 movies and TV shows," argues Gallagher. And if they're really feeling ambitious, they'll buy Sony too.

All things considered, according to fourth quarter reports from 2010, Netflix is now bigger than Comcast.