Netflix raises prices (a lot) and what that means for SMB/ home server offerings


It is no secret that Netflix is a hugely popular streaming and DVD rental service. When it was announced that Netflix was decoupling the streaming and DVD-by-mail services and that one would pay more for the former level of service, both colleagues sitting next to me that just received raises cancelled their subscriptions to Netflix. I have a feeling that Netflix is going to see some significant subscriber loss because of this. What is more significant is what it means to the SMB and home server markets.

Taking a step back, raising overnight prices by 60% is something that most in North America are not used to which is probably why I have seen many colleagues and friends over the past few hours react so negatively. On the other hand, I feel a lot of people are overlooking what could be the double-whammy here: what happens when ISPs move to metered bandwidth in the United States, like many countries already have? Overnight the “streaming only” plan will jump for moderate to heavy users by quite a bit. For those that think this is not a possibility, the major mobile providers in the US have basically switched at this point to metered bandwidth allotments and every single major ISP that I am aware of has similar plans. Streaming HD content to the multitude of displays in a home will cost a lot more than today.

For cable companies especially a move to metered bandwidth makes sense as more and more people “cut the chord” and cancel cable/ satellite television in favor of content delivered from the web. As this transition happens, streaming will not be as competitive as it currently is over physical disk rental. Likewise, cloud storage begins to look less attractive.

Currently, most back-up providers use things like differential back-ups, compression, and deduplication to keep data transfer costs (and storage costs) down at the datacenter where bandwidth is not free. Cloud services providers vary in practices as Apple, Google, and do not charge for data transfer in their music/ media cloud offerings, but as many know Amazon S3 does charge for metered bandwidth.

The reaction of many of those that I talked to was that Redbox has become an even more attractive option along with pay-per-view and Blockbuster (which gets new releases four weeks earlier and has an in-store exchange feature.) If one takes a broader view of the reaction, people are returning from a cloud-centric streaming/ DVD delivery model to a more local distribution model. This is much like the storage industry where right now the focus is on cloud but in a world of metered bandwidth local media and primary backup storage becomes increasingly important.

Home and small business environments are especially prone to increased costs that can be imposed at the whim of ISPs and cloud providers. While Netflix provides a very popular service, it does not hold people’s data. As we saw with Iron Mountain‘s cloud storage closing, once the WAN connection and servers are not in direct control of the home or business, data can be effectively held hostage by the service providers that enable remote storage. Personally, I do use Amazon’s cloud regularly so I certainly see the value for backup and even media storage. With that being said, seeing a leading service provider like Netflix raise prices faster than an old Zimbabwe dollar saw inflation (I gave my team 100 trillion (Zimbabwe) dollar bills a few months ago) really highlights the importance of having a local contingency plan. While the buzz may be in the cloud, it will not be too long before localization again becomes a hot topic.


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