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ECommerceTimes.com

Despite Emmys, Road Ahead Is Bumpy for Streaming Services

By Peter Suciu
Sep 18, 2018 10:35 AM PT
internet speed throttling and european content quota requirements could hamper streaming video services

Netflix had a very good showing on Monday, winning 23 Emmy Awards and tying longtime Emmy-winning powerhouse HBO.

Netflix, an over-the-top streaming service, claimed 112 nominations this year, four more than its premium pay-TV channel rival HBO, which had dominated the Emmys for nearly two decades.

Although the Emmy wins were good news for Netflix, other recent news has been far less rosy.

The largest U.S. telecom companies have been slowing mobile Internet traffic to and from Netflix and other services, including YouTube, based on research Northeastern University and the University of Massachusetts, Amherst, released earlier this month.

The researchers utilized the smartphone app Wehe, which was downloaded by about 100,000 consumers, to monitor speeds and determine if and when throttling of services was occurring.

YouTube was the service most-targeted for throttling, the app revealed, but speeds for Netflix, Amazon Video and NBC's Sports app also were degraded.

Closing the Net Neutrality

Verizon Communications, AT&T, T-Mobile and Sprint all were found to have throttled the speeds of mobile video content. The companies have not tried to hide this fact, however. The carriers have maintained that they the slowdowns were necessary for Internet traffic management to reduce bottlenecks and network congestion.

However, critics have connected the throttling to the overturn of Net neutrality rules. They have shone a spotlight on this issue as an example of all traffic not being treated equally. Equal treatment of Internet traffic was a prime tenet of the Net Neutrality rules that went into place in 2015.

"Streaming services like Netflix and YouTube have long known that the FCC's decision to overturn Net neutrality was going to negatively affect them," said Ray Walsh, a resident virtual privacy network expert at BestVPN.

"At any one time, it is not uncommon for Netflix and YouTube traffic to account for 70 percent of the bandwidth being consumed in North America during peak hours," he told the E-Commerce Times.

From the carriers' point of view, they could be doing a lot of heavy lifting in this case and not getting anything in return.

"The carriers are increasing pressure to cut costs while increasing profits," said Scott Steinberg, principal analyst at TechSavvy.

"These are their efforts to take preventative measures to improve returns," he told the E-Commerce Times.

Throttling connections is simply one of those measures.

"Broadband providers are more likely to manage traffic for the most popular video streaming sites, such as YouTube and Netflix, because those services account for much of the traffic across their networks," noted Brett Sappington, senior director of research at Parks Associates.

"While it is the consumers' desire to use the Internet to perform these data-hungry tasks, ISPs are going to use their newfound powers to split consumers into various higher-cost tiers," suggested BestVPN's Walsh.

"This was anticipated, and the implementation of bandwidth throttling when people use these services is just the beginning of the rocky road," he added. "In the future, consumers can expect to pay extra to guarantee that their Netflix gets all the bandwidth it needs. New high-speed streaming plans are almost certainly on the horizon."

Breaking the Net(flix)

On one level, it is surprising that the carriers have taken this approach, while also trying to put that spin on it.

"The fact that mobile carriers are throttling video means they are not following strict Net neutrality principles, despite their claims," said Steve Blum, principal analyst at Tellus Venture Associates.

"They apparently have the capability to selectively throttle traffic, and if they use it to give their in-house video platforms an advantage, consumers will lose the ability to freely choose what and how they watch," he told the E-Commerce Times

Selective throttling could become a barrier to new market entrants in the OTT space.

"YouTube and Netflix may have enough money and influence to cut deals -- with, say, AT&T -- that keep them on a level playing field with DirecTV, but small companies won't," said Blum.

"That means greater market concentration, which in turn leads to less choice and higher prices for consumers," he pointed out.

Yet, the consumption of so much data could be an issue for others besides Netflix. Today's wireless networks already are being pushed to the extremes.

"Wireless networks regularly suffer from congestion, including when too many subscribers connected to the same cellular site try to watch high-definition video at the same time," said Ryan Radia, research fellow at the Competitive Enterprise Institute.

"Reducing the bandwidth usage of popular streaming video services is one way to manage this congestion to preserve the median user's mobile broadband experience," he told the E-Commerce Times.

"Under the FCC's 2015 Open Internet Order, which was largely eliminated in early 2018, ISPs were not allowed to selectively degrade particular applications or services -- subject to 'reasonable network management,'" Radia said.

"Whether mobile providers targeting popular video streaming services to deal with congestion would have been engaged in reasonable network management under the FCC's old rules is up for debate," he added, "but under current FCC rules, wireless providers are permitted to selectively decrease the bandwidth available to these services, so long as the providers are transparent about it."

Customer Pushback

At the present time, the mobile carriers seem to have the power -- but if they push too far, consumers may push back.

"If operators are slowing traffic to major streaming services, it results in a poor experience for consumers; and poor service will likely result in more customer support calls from consumers, which is typically something that providers look to mitigate whenever possible," Parks Associates' Sappington told the E-Commerce Times.

Even worse, consumers may be more loyal to their TV shows than to their mobile phone carrier.

"Today it is a heck of a lot easier to change mobile carriers than to break the personal commitment you might have to multiple, if not dozens, of shows," TechSavvy's Steinberg pointed out.

"What the carriers are missing is that consumers have bought into long use through Netflix and Amazon Video, so they are hooked more on the shows than they are the carriers," he explained.

However, Netflix could still come out the short-term loser if the quality of video suffers.

"Often, customers are not entirely sure who to blame when they experience difficulties with [an OTT] service," said Sappington.

"By throttling speeds, broadband providers risk consumers putting the blame on them for poor experiences," he noted. "If consumers cannot access the services they want, they may look to switch Internet providers, meaning that providers may be putting their own businesses on the line when throttling Internet speeds for certain services."

Then again, the issue could be viewed as business as usual. The slowdowns the research uncovered apparently haven't been noticed by consumers yet.

"Many users who watch Netflix or YouTube over a mobile broadband connection may not even notice if the quality is reduced from high definition to standard definition, because smartphones are the most commonly used device on mobile networks," said CEI's Radia. "Differentiating between the qualities of video streams can be tough on small screens, especially for users who aren't holding their device a few inches from their eyes."

Throttling Increase

Wireless carriers may not be the only service providers that will start to throttle video content however. Mobile video still trails consumption on other devices, including smart TVs, so other Internet service providers could follow suit.

"Due to the fact that ISPs have now been given the freedom to throttle at their pleasure, this likely means that people can expect throttling not to occur when they use specific services -- but instead simply when any data-intensive task occurs," said BestVPN's Walsh.

The question will be how Netflix, Amazon and other services react -- especially if consumers do maintain loyalty to carriers or ISPs, and blame the video provider for the issue of poor quality.

"It ultimately means streaming services need to be vigilant to the threat and power invested in ISPs as guardians of the digital highway," said Scott Byrom, managing director of BestVPN.

"This level of control and power could easily be exploited to reduce market share of key players and to fast-track new entrants that ISPs have a vested interest in seeing succeed," he told the E-Commerce Times.

"Who gets traffic and therefore market dominance could become an auction stifling smaller businesses' ability to compete, and ultimately leaving the market to larger players to further enhance their power and influence over millions of global customers," Byrom suggested.

"ISPs have been given a license to kill, and to be the gatekeepers of where online traffic is directed," he maintained. "They can now hold key players to ransom and shift traffic to their own services, which is a very concerning thought. Ultimately, Netflix without any traffic going to its website quickly becomes 'Notflix.'"

New Content Rules for Europe

Another major potential headache for OTT services such as Netflix and Amazon is that the European Commission has been considering new regulations that would require providers to dedicate at least 30 percent of their respective catalogs to "locally produced" content.

A final vote isn't expected until December, but it is likely to pass. To comply with the new rules, which could come into effect 20 months after final approval, any OTT service operating within the EU would need to maintain a "European" fraction of its catalog.

Each of the 28 EU member states also could have the option to raise the European quota from 30 to 40 percent, and to set an additional country-specific sub-quota. Individual countries also could be given the authority to require a surcharge that would support national production funds for content makers.

As the law stands, it might not be an issue for Netflix, which already offers nearly 30 percent of locally produced content, but it could mean that Netflix and rival services might have to remove some American TV shows and movies in order to meet the quotas.

"Imposing artificial quotas for locally produced video content could reduce consumer choice as well," said Tellus' Blum. "The easiest way to meet a 30 percent quota is to cut the number of non-local programs in the catalog."

Screen Time

The vote is still nearly three months away, and even if the measure should pass, there will be time for OTT services to find a way to satisfy the Europeans.

"Discussions on quotas for European content have been taking place for more than a year, and initial agreements to these quotas since April 2018," said Park Associates' Sappington.

"Services that are interested in operating in the EU have had time to decide how they will approach these quotas," he added.

"It is unlikely that any video platforms will exit markets because of [the quotas]," suggested Blum.

"They already have to manage availability on a region-by-region and country-by-country basis because of the way content rights are sold," he noted.

"That said, it might have less of a practical impact on their business. Video production is a transnational business and -- depending on the way 'local' is defined -- much, maybe most, existing content might qualify as local," explained Blum.

"Many of the larger OTT services are already making and licensing content from across the world and will continue to do so," said Sappington. "Local-language content is valuable for OTT services, so services interested in growing globally will be looking to produce or acquire localized content that will be popular in Europe regardless of the law."

However, there are some services that may not be able to operate in Europe if 30 percent of their libraries need to have European content and there isn't a way to part with the Europeans.

"This would most likely impact small services that can't afford to acquire new content and services from content producers that specialize in their own original content produced outside of Europe," noted Sappington. "To get around this, OTT services may resort to licensing low-cost, long tail content from Europe just to meet the quota, as this would be the cheapest and easiest way to comply with the regulations."


Peter Suciu has been an ECT News Network reporter since 2012. His areas of focus include cybersecurity, mobile phones, displays, streaming media, pay TV and autonomous vehicles. He has written and edited for numerous publications and websites, including Newsweek, Wired and FoxNews.com. Email Peter.


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