Netflix’s Streaming Cost Per Movie Drops 50% From 2009, Expected To Spend $50M In 2011

Netflix-logo In 2009 I wrote a post detailing what Netflix's direct costs were for streaming movies and TV shows over the Internet. Since then, Netflix's cost to stream two-hours of video has dropped by about half and I estimate the company will spend about $50M this year with third party CDNs for video delivery.

Two years ago, Netflix paid about five cents to stream a movie and today, pays about two and half cents. While most video contracts with third party CDNs are typically priced on per GB delivered model, Netflix and other large content distributors usually pay the CDNs on a per Mbps sustained model. They pay not for the total number of bits they transfer each month, but rather the total amount of bandwidth they peak at each month, a pricing model also referred to in the industry as 95/5. This means that a customer can burst above their committed rate of Mbps less than 5% of the time with no penalty, but once they go over that, they pay for overages.

Like most videos viewed on the web, Netflix's movies and TV shows are encoded at multiple bitrates to allow for the different broadband connection speeds and performance of today's ISPs. Netflix has given out some details that shows the average user streams Netflix at just over 2Mbps (2000Kbps) even though they encoded video for twice that speed. Most Netflix users watch content in 480p or 720p quality, but Netflix does offer a limited amount of content in 1080p, only available via playback on the PS3.

What's really interesting about the bitrate data that Netflix provides is that it shows just how bad most consumers ISPs really are at delivering video. In 2009, most users were getting about a one and half to two Mbps stream from Netflix. Two years later and Netflix's data shows most users are getting about 2Mpbs. That's almost no video quality improvements in the rate of Kbps being delivered in two years time. That's not to say that Netflix isn't improving their video quality because they are working to make their encoding more efficient as well as working with their partner CDNs to deliver the bits more efficiently. But even with those efforts, Netflix has no control over the last-mile providers, who still treat Netflix traffic as if it's a burden on their network.

While there has been a lot of talk lately about new bandwidth caps by AT&T, that really has no impact on Netflix because as we can see from Netflix's own data, bitrates and video quality aren't exactly growing very quickly, if at all. AT&T said that 2% of their users account for 20% of the traffic and the caps are a way for them to manage performance on their network. I think rather than going after the 98% of their customers with caps they should really go after the 2% causing the problem, but that aside, caps from Comcast or AT&T won't have any material impact on Netflix now or anytime in the near future. Years from now they could, if the ISPs don't raise their cap levels, but right now caps are not a big deal to Netflix.

Some might suggest that the Netflix pricing data shows that bandwidth pricing is falling fast, and while it is for a company like Netflix, most content owners aren't seeing this big of a decline in CDN pricing because they don't grow traffic as fast as Netflix. Overall, I expect the average CDN customer, which Netflix isn't, to see a pricing decline of about 20% this year. Of course the good news for Netflix in all of this is that their pricing to stream video continues to decline and it's cheaper to stream than mail DVDs through the mail. And with video bitrates not growing very fast, Netflix's cost to deliver video remains very stable and overall, is a very small percentage of their cost to run their streaming service.

  • mark cuban

    so you are saying you can control 21pct of primetime bandwidth across the USA for 50mm a year ?

  • Hey Mark, as you know Netflix does not own any infrastructure, so I don’t know if I would say they can “control” it. But the value of the contracts they have with third party CDNs, specific to video delivery, is in that $50M range for their current business in the U.S.
    The quality of the video that Netflix is delivering averages out to about 2Mbps, which is no where near what broadcast TV is delivering so I don’t think it would be a fair comparison to the traditional broadcast model since there is a huge gap in quality.
    Also, personally, I don’t know how much I believe that 20% number that everyone seems to quote. Seems a bit high to me when you cross reference it to what the CDNs see.

  • scJohn

    The latest recommendation(s) (via Netflixhelps on Twitter) for download speeds are:
    1.5 Mbps – minimum.
    3.0 Mpbs – for DVD quality.
    5.0+ Mbps for HD(720P).
    8.0+ Mbps for 1080P (limited to PS3 for now).
    I have no idea if they are still using just 4 video encode rates.
    Do you have any idea what NF is paying in 2011 per Gbit or the “95/5” method.

  • Rodolfo Vargas

    Der Mr. Dan,
    Have you take into account the latest online-use-trend they have? (in particular the exponential ramp that started on October 2010, when someone report that they were accountable for 20% of the USA Internet bandwidth during prime time)
    Also according to their Q4.2010 report: The number of subscribers growth from:
    9.39M in 2008 (+26%) to 12.27M in 2009 (+31%) to 20.01M in 2010 (+63%)
    (They also mentioned that in 2010 they have effectively more Online users than DVD rental users). Did you take those factors into account?

  • Bakir

    Hi Dan,
    Do you happen to know how much they pay for CDN origin storage?

  • Hi Bakir, I don’t know storage costs. Frankly, they are so low I have not really tracked them in awhile. Prices per GB can be down in the few pennies per GB level for large customers and cost for storage is such a small percentage of the overall contract for most content owners.

  • Kevin Rosenthal

    Most DSLReports/SpeedTest users report upwards of 10-15Mbps downstream bitrates.
    NetFlix claims only 2Mbps average.
    What gives?

  • Rob

    Any sense on what total direct costs are on a per GB basis for NFLX when including CDN, DRM, storage, and transcoding?