Despite Emmys, Road Ahead Is Bumpy for Streaming Services

Netflix had a very good showing on Monday, winning 23 Emmy Awards andtying 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 andfrom 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 byabout 100,000 consumers, to monitor speeds and determine if andwhen 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 tohave throttled the speeds of mobile video content. The companies havenot tried to hide this fact, however. The carriers have maintainedthat they the slowdowns were necessary for Internet traffic management to reducebottlenecks 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 theFCC’s decision to overturn Net neutrality was going to negativelyaffect them,” said Ray Walsh, a resident virtual privacy network expert at BestVPN.

“At any one time, it is not uncommon for Netflix and YouTube trafficto account for 70 percent of the bandwidth being consumed in NorthAmerica during peak hours,” he told the E-Commerce Times.

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

“The carriers are increasing pressure to cut costs while increasingprofits,” said Scott Steinberg, principal analyst at TechSavvy.

“These are their efforts to take preventative measures to improvereturns,” he told the E-Commerce Times.

Throttling connections is simply one of those measures.

“Broadband providers are more likely to manage traffic for the mostpopular video streaming sites, such as YouTube and Netflix, becausethose 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 performthese data-hungry tasks, ISPs are going to use their newfound powersto split consumers into various higher-cost tiers,” suggested BestVPN’s Walsh.

“This was anticipated, and the implementation of bandwidth throttlingwhen people use these services is just the beginning of the rockyroad,” he added. “In the future, consumers can expect to pay extrato guarantee that their Netflix gets all the bandwidth it needs. Newhigh-speed streaming plans are almost certainly on the horizon.”

Breaking the Net(flix)

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

“The fact that mobile carriers are throttling video means they are notfollowing 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 anadvantage, consumers will lose the ability to freely choose what andhow 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 lesschoice and higher prices for consumers,” he pointed out.

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

“Wireless networks regularly suffer from congestion, including whentoo many subscribers connected to the same cellular site try to watchhigh-definition video at the same time,” said Ryan Radia, researchfellow at the Competitive Enterprise Institute.

“Reducing the bandwidth usage of popular streaming video services isone way to manage this congestion to preserve the median user’s mobilebroadband experience,” he told the E-Commerce Times.

“Under the FCC’s 2015 Open Internet Order, which was largelyeliminated in early 2018, ISPs were not allowed to selectively degradeparticular applications or services — subject to ‘reasonable networkmanagement,'” Radia said.

“Whether mobile providers targeting popular video streaming servicesto deal with congestion would have been engaged in reasonable networkmanagement under the FCC’s old rules is up for debate,” he added, “butunder current FCC rules, wireless providers are permitted toselectively decrease the bandwidth available to these services, solong 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, itresults in a poor experience for consumers; and poor service willlikely result in more customer support calls from consumers, which istypically something that providers look to mitigate wheneverpossible,” Parks Associates’ Sappington told the E-Commerce Times.

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

“Today it is a heck of a lot easier to change mobile carriers than tobreak 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 longuse through Netflix and Amazon Video, so they are hooked more on theshows than they are the carriers,” he explained.

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

“Often, customers are not entirely sure who to blame when theyexperience difficulties with [an OTT] service,” said Sappington.

“By throttling speeds, broadband providers risk consumers putting theblame 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 broadbandconnection may not even notice if the quality is reduced from highdefinition to standard definition, because smartphones are the mostcommonly used device on mobile networks,” said CEI’s Radia.”Differentiating between the qualities of video streams can be toughon small screens, especially for users who aren’t holding their devicea 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 throttleat their pleasure, this likely means that people can expect throttlingnot to occur when they use specific services — but instead simply whenany 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 thethreat and power invested in ISPs as guardians of the digitalhighway,” said Scott Byrom, managing director of BestVPN.

“This level of control and power could easily be exploited to reducemarket share of key players and to fast-track new entrants that ISPshave a vested interest in seeing succeed,” he told the E-Commerce Times.

“Who gets traffic and therefore market dominance could become anauction stifling smaller businesses’ ability to compete, and ultimatelyleaving the market to larger players to further enhance their powerand influence over millions of global customers,” Byrom suggested.

“ISPs have been given a license to kill, and to be the gatekeepers of where onlinetraffic is directed,” he maintained. “They can now hold key players to ransom and shifttraffic 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 Netflixand Amazon is that the European Commission has been considering newregulations 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 monthsafter final approval, any OTT service operating within the EUwould need to maintain a “European” fraction of its catalog.

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

As the law stands, it might not be an issue for Netflix, which alreadyoffers 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 couldreduce 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, therewill be time for OTT services to find a way to satisfy the Europeans.

“Discussions on quotas for European content have been taking place formore than a year, and initial agreements to these quotas since April2018,” said Park Associates’ Sappington.

“Services that are interested in operating in the EU have had time todecide 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 andcountry-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 theway ‘local’ is defined — much, maybe most, existing content mightqualify as local,” explained Blum.

“Many of the larger OTT services are already making and licensingcontent from across the world and will continue to do so,” saidSappington. “Local-language content is valuable for OTT services, soservices interested in growing globally will be looking to produce oracquire localized content that will be popular in Europe regardless of thelaw.”

However, there are some services that may not be able to operate inEurope if 30 percent of their libraries need to have European contentand there isn’t a way to part with the Europeans.

“This would most likely impact small services that can’t afford toacquire new content and services from content producers thatspecialize in their own original content produced outside of Europe,”noted Sappington. “To get around this, OTT services may resort tolicensing low-cost, long tail content from Europe just to meet thequota, as this would be the cheapest and easiest way to comply withthe regulations.”

Peter Suciu

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.

1 Comment

  • The broadband providers aren’t just throttling consumer video downloads. Recently Verizon throttled communications AM ong California first responders at the height of the recent wildfires due to "excess data usage," putting those first responders and their constituents at considerable risk. That is not merely a violation of net neutrality principles, it is evil. Verizon has apologized and promised never to do it again, but that is small consolation to the firefighters who were at risk or the property owners who suffered monetary damages that could have possibly been prevented with faster response times.

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