Will Netflix Destroy the Internet?

Netflix began offering its streaming movie service in Canada. This was Netflix's first venture outside of the United States, and because the company wasn't offering its traditional DVD-by-mail plan to Canadians, its prospects seemed questionable. How many people would pay $7.99 per month (Canadian) for the chance to watch Superbad whenever they wanted?
A lot, it turns out. According to Sandvine, a network management company that studies Internet traffic patterns, 10 percent of Canadian Internet users visited Netflix.com in the week after the service launched. And they weren't just visiting—they were signing up and watching a lot of movies. Netflix videos quickly came to dominate broadband lines across Canada, with Netflix subscribers' bandwidth usage doubling that of YouTube users.*
It's not just Canada. Netflix is swallowing America's bandwidth, too, and it probably won't be long before it comes for the rest of the world. That's one of the headlines from Sandvine's Fall 2010 Global Internet Phenomena Report, an exhaustive look at what people around the world are doing with their Internet lines. According to Sandvine, Netflix accounts for 20 percent of downstream Internet traffic during peak home Internet usage hours in North America. That's an amazing share—it beats that of YouTube, iTunes, Hulu, and, perhaps most tellingly, the peer-to-peer file-sharing protocol BitTorrent, which accounts for a mere 8 percent of bandwidth during peak hours. It wasn't long ago that pundits wondered if the movie industry would be sunk by the same problems that submarined the music industry a decade ago—would we all turn away from legal content in favor of downloading pirated movies and TV shows? Three or four years ago, as BitTorrent traffic surged, that seemed likely. Today, though, Netflix is far bigger than BitTorrent, and it seems sure to keep growing.
Sandvine has been publishing annual reports on broadband usage since 2002. When you study previous editions, you notice that Netflix's dominance over BitTorrent fits into a larger story about how our Internet use is changing. Over time, we've shifted away from "asynchronous" applications toward "real-time" apps. Every year, that is, we're using more of our bandwidth to download stuff we need right now, and less for stuff we need later. Sandvine's 2008 report (PDF) showed that all the applications that saw big increases in traffic were dependent on real-time access: online gaming, Internet telephone programs like Skype, instant messaging, Web video, and "placeshifting" devices like Slingbox that let you watch TV shows you record on the Internet. Peer-to-peer file-sharing is asynchronous; you spend hours downloading a movie or game that you'll watch or play later. In Sandvine's 2008 report, peer-to-peer use was essentially unchanged from the previous year. By 2009, peer-to-peer traffic had declined by 25 percent (PDF).
That makes sense—once we come to expect immediate access to videos, BitTorrent's download-now, watch-later model seems outdated. That's what happened for me. In a column last spring, I admitted my affection for illegally downloading movies and TV using BitTorrent. I had what I thought was a good excuse for going over to the dark side—there wasn't a good way to get movies and TV shows legally online. Yes, Netflix offered a streaming service called Watch Instantly, but I wrote that the company's streaming service "often feels like Settle-For Instantly, since many of the titles are of the airline-movie variety."
In the last 18 months, though, Netflix has gotten much better in two main ways. First, it signed deals with TV networks and movie distributors that let it add a lot more movies and shows. It certainly doesn't have everything—or even most things—that I want, but I rarely feel like I'm wasting my time watching garbage. Second, Netflix's streaming service is now available on a wide range of devices—you can watch with your computer, iPhone, iPad, Apple TV, Blu-ray and DVD players, Wii, PlayStation 3, Xbox, and a range of Web-connected TVs. This is one of my favorite things about Netflix: I can start a movie on my TV, watch a bit of it later on my PC, and then finish it on my iPad before bed. Every time I switch to a new device, the video starts right where I left off. No other movie-delivery system—not DVDs, not BitTorrent, not iTunes, not Hulu—allow for this kind of flexibility. And as long as Netflix keeps expanding its library and the number of devices you can get it on, I don't see how it can lose.
Well, maybe there is one dark cloud: Will there be enough available bandwidth for Netflix to keep growing? Wired.com's Ryan Singel points out that in the hours when Netflix hits 20 percent of broadband use, it's being used by just under 2 percent of Netflix subscribers. That stat has huge implications for how ISPs manage their lines. If 2 percent of Netflix customers account for one-fifth of the traffic on North American broadband lines, what will happen when more and more Netflixers begin to watch movies during peak times?*
The outcome might actually not be that dire. Theoretically, broadband capacity isn't fixed—as people begin using bandwidth-hogging services like Netflix more often, they'll subscribe to faster Internet lines, and that will push ISPs to build out their capacity. Still, as I've pointed out in the past, American broadband is pretty crummy. Unlike in other countries, our Internet plans haven't been getting faster, cheaper, and more widespread. In a presentation that it published online earlier this year, Netflix predicted that its shipments of DVDs would peak in 2013—after that, the number of discs it sends out will begin to decline. The future of Netflix, then, is the Internet. It's an open question whether the Internet can keep up.