Felix Salmon smackdown watch, Netflix edition

By Felix Salmon
September 20, 2011
Christopher Mims makes a really good point:

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Christopher Mims makes a really good point:

It makes no sense that writers like Felix Salmon, who is generally excellent on just about everything, describe Netfilx, even pre-split Netflix, as an inexpensive alternative to cable. It’s not. It’s only inexpensive if you take fast broadband at home for granted — you know, like every tech pundit and journalist on the planet.

To be fair, it’s a mistake all of those pundits makes regularly — the conflation of their own situation with that of the wider public. But only one in three Americans pays for broadband, which means that something like two-thirds of the population has access to it. That’s not bad (it’s not great either – it puts us something like 27th in world broadband penetration) and it leaves out precisely the people who are being left behind by both our economy and the digital divide.

I moved to the US before the rollout of the cable modem, and for me it was a game-changer: within a few months of its arrival, sometime in the late 90s, I switched from cable-and-no-broadband to broadband-and-no-cable. I was one of the earliest cord-cutters, long before YouTube or Netflix or any real video content on the web which I had any desire to watch. I didn’t want to watch TV on my computer: I just preferred content online to the content on the TV.

Now, over a decade later, it’s possible to look at the population more broadly, and see how their preferences have revealed themselves. And Mims is right: if you have a cable line coming into your home, you’re much more likely to have cable-and-no-broadband than you are to have broadband-and-no-cable. Cord-cutting was a privileged, yuppie behavior when I did it in the 90s, and it remains a privileged yuppie behavior today.* Sure, I like having an extra $100 in my wallet every month due to the fact that I don’t have cable. But I could easily afford it if I wanted it — the fact is that I stopped watching cable long before I cut that cord.

For the time being, the price of broadband — largely set by cable companies — is being set high enough that cable-but-no-broadband subscribers are not switching to broadband-but-no-cable. In order to cut the cord, it seems, you need broadband first: you need cable and broadband, and then you need to come to the decision that you can do without the cable bit.

So, yes, let’s slow down on visions of free or cheap online services supplanting cable for America’s poor. Because Mims is right: broadband is not free. And the cost of Netflix is therefore comparable to the cost of cable — with no live-TV services at all, and in general a much narrower selection of things to watch. At some point, I’m convinced that IP-based video will indeed replace cable. But in order for it to do so, the cost of broadband is going to have to come down. And that doesn’t look as though it’s going to happen any time soon.

*Update: What I mean here is that the behavior is displayed by privileged yuppies, not that it’s inherently yuppie. The kind of people I’m talking about are people who, given the choice between a lean-forward activity and a lean-back activity, tend to choose the former. Either because they prefer surfing the internet to channel surfing, or else because they have work to do online. Those people tend to be part of the employed-and-educated middle classes.

Comments
21 comments so far

this is the key, felix:
“For the time being, the price of broadband — largely set by cable companies — is being set high enough that cable-but-no-broadband subscribers are not switching to broadband-but-no-cable.”

even moreso, if I drop all of the movie channels that I currently get, I only save a little bit (more than the cost of NFLX, but still not worth it, in my opinion). Ie, if you get even BASIC cable, it’s extremely expensive, and the marginal add-ons are not the killer

Posted by KidDynamite | Report as abusive

Data caps.

Posted by GRRR | Report as abusive

And throttling.

Posted by GRRR | Report as abusive

“At some point, I’m convinced that IP-based video will indeed replace cable. But in order for it to do so, the cost of broadband is going to have to come down.”

Is DSL sufficient for streaming? (Never certain whether the limitations are in the sources I’ve tried or in my link.) The cost for that is $30-$40 a month.

Posted by TFF | Report as abusive

It’s the same argument as “is there life after the NYT paywall” – depends on your priorities ..

Posted by Woltmann | Report as abusive

OK. So I am not the most well-read on NFLX and doubtless my family isn’t the typical consumer. Why Felix thinks he has his finger on the pulse I don’t know, perhaps he does. But we can’t be the only ones…

In my home, cable is for my husband and brings in sports. Golf Channel, WGN and ESPN in that order. Other sports also show up, mostly having to do with college and Fox.

Netflix can’t do this.

Netflix provides occasional movies. We have good access to late first-run movies in local pub and pizza places, so we tend to get old stuff over Netflix. Once upon a time I went to see first-run movies.

The main point of Netflix is to maintain our movie “wish list” and whatever old TV series we are currently watching. For the last some years it has been Star Trek DS9 and we have to scramble our queue periodically to make sure we get it on time.

Cable just isn’t a competitor to Netflix or Tivo as far as I can see. Please elaborate.

Posted by SelenesMom | Report as abusive

@TFF, generally speaking, yes, DSL usually has a fast enough downstream to use Netflix. But Netflix has scalable quality so depending on how fast your connection is, you may or may not get the clearest possible picture. In fact, if I’m heavily using my cable connection and trying to watch a Netflix movie at the same time, the picture can be downright unwatchable.

Posted by spectre855 | Report as abusive

TFF: No, DSL is not sufficient for streaming, or at least not for anything at higher quality than a low-quality YouTube video. My experience with NetFlix streaming, even over a 6MB DSL line, was that the A/V sync had issues, and it was not uncommon for the playback to catch up with the buffer, and then the program would just stop for five minutes while it re-buffered. And of course they stupidly won’t let you buffer the whole program, the way Amazon UnBox does. (You can rent a show, which then downloads, but self-deletes a couple days after the first time you start it playing; or you can buy digitally, and then download a copy whenever you want to watch it. I’ve used UnBox on my TiVo quite happily, to rent movies, and to buy a couple of seasons of TV shows.)

Posted by Auros | Report as abusive

The bad experience was 6MB DSL in Mountain View, living a mile or so from an AT&T hub. Now I’m in an outlying part of San Mateo, where I get 1MB. I feel like I’m being exiled back to the ’90s.

Posted by Auros | Report as abusive

@Auros, Part of your problem may have been the hardware you were using. I have a 2MB RoadRunner connection and I watch Netflix via a PlayStation 3. If I’m not taxing my connection with other devices, I almost always get near flawless 720p picture (providing the movie or show I’m watching is available in HD). If, however, I watch via my Xbox 360, I’ve found that the picture as well as audio synching is a little bit worse. So I believe that even similar hardware can have an effect on picture performance.

Posted by spectre855 | Report as abusive

I don’t think the socio-economic issues for low-income Americans are as clear (or dire) as Mims is claiming. In San Francisco, for instance, all low income housing projects are given free broadband (with city-run fiber optics to the sites). It’s been around awhile here, though here’s a recent ‘announcement’ by the former mayor:

http://www5.sfgov.org/sf_news/2011/01/ma yor-announces-broadband-access-in-all-ci tys-public-housing-facilities.html

Recent announcements such as Comcast’s $9.99 cable broadband for low-income families also should factor into the assessment:

http://arstechnica.com/tech-policy/news/ 2011/09/comcasts-launches-999-internet-f or-low-income-families.ars

My point: don’t make quick or too-easy assessments about broadband access. Whatever the 2011 statistics are regarding socioeconomic class and Net access, things are changing, changing quickly, and have always varied a great deal by locality.

Posted by Raxely | Report as abusive

Auros, spectre855, and others, you do realize that bandwidth is usually quoted in megaBITS, right? Not megabytes. Divide by 8. I get 10 Mbits over the Comcast cable (1.25 megabytes), but cable segments tend to get saturated with packet collisions during the evening hours when everyone in the neighborhood. DSL, while usually slower, has fewer saturation issues.

Cable has been subsidized since the analog spectrum has gone away circa 2009, but broadband subsidies are still quite rare. I pay $45/month with Comcast.

Posted by Curmudgeon | Report as abusive

Confused – what is Broadband no cable?

In Switzerland I can have cable TV, cable TV with cable broadband, cable TV with broadband via ADSL phone line, or TV via ADSL with broadband via ADSL.

Surely that’s possible in the US? If so it might be helpful if it were explained better in the article – this blog has a worldwide audience, we don’t all live in Manhattan.

Posted by FifthDecade | Report as abusive

“if you have a cable line coming into your home, you’re much more likely to have cable-and-no-broadband than you are to have broadband-and-no-cable. Cord-cutting was a privileged, yuppie behavior when I did it in the 90s, and it remains a privileged yuppie behavior today.”

While this is correct, I think the implication is wrong. As far as I can tell, broadband at an acceptable tier (6Mbps say) is the same price or cheaper than very basic cable, certainly cheaper than what most people seem to subscribe to. In other words, the choice to pay for cable rather than broadband is not driven by economics, it is driven by lifestyle and worldview.
This fact may have implications for Netflix and similar companies, but using terms like yuppie, which suggest that the choice to subscribe to broadband rather than cable is the domain of snobs with more money than sense is not helpful.

As for FifthDecade, when Felix says Cable he means CableTV.
(a) In most of America you have both a phone line and a cable TV line coming into your house.
(b) In most of America you can subscribe to one or more of cable TV programming, internet, and VoIP phone services over that cable line.
(c) In most of America you can subscribe to internet over the phone line (ADSL). In much of America you can also subscribe to cable TV programming and VoIP over that line.
(d) Prices seem to be around $35 for 6Mbps internet, and $50 for 12Mbps internet per month.
(e) Digital TV is broadcast in America and, at least where I live (Los Angeles) it provides an astonishingly good signal — far better quality than cable TV. Why do so many people continue to subscribe to cableTV? I haven’t a clue. Blame the same careless attitude to money that has most people in America with negligible long-term savings and obsessed with hundred thousand dollar weddings?

Posted by handleym | Report as abusive

My boss pays $200/month to get CableTV/Broadband/HomePhone/and HBO. She always complains that the only reason she pays for cable tv at all is to get access to 2 or 3 shows which are only on HBO.

I pay $49.99 for broadband $49.99 for ESPN/NESN/CNBC/45worthless channels and $9.99 for NetFlix. I don’t see how anyone with a job or a family could possibly run out of things to instantly watch on NFLX but I guess if you are retired or unemployed and watch 4+ hours of tv a day you might run out of content.

I think WiMax and LTE are going to be extreemly disruptive to both Cable and the phone companies. Remember back in 2000 when the market gave any company that wanted to build out a nation wide fiber network the capital to do it? What screwed those dozen companies was not competing with each other… it was the equipment makers who figured out how to split one fiber optic cable 1000 ways. I think the same thing is comming with cellular broadband.

Posted by y2kurtus | Report as abusive

@Curmudgeon, I’m well aware of the difference between bits and bytes. Why do you think that would change anything I said?

Posted by spectre855 | Report as abusive

Thanks for the explanation handleym. I take it you don’t get TV over the internet then? That’s something our ISP offers, although we stick with cable for TV and ADSL for broadband. In the UK they’ve recently gone all digital for broadcast TV, as well as offering a free to air satellite T service with HDTV channels included. But the BBC raises its funding from annual licence fees, not subs or ads.

Sadly, services like Netflix are difficult to find over here because of copyright restrictions enforced by the studios who are well behind the curve in this area.

Posted by FifthDecade | Report as abusive

FifthDecade, perhaps I was not clear.
(I do not understand large parts of your comment, but I will explain what is happening in the US).

TV programming in the US comes from a variety of sources, and is distributed in a variety of ways. The system had a certain historical structure which is now in a state of flux.

One type of distribution is over the air broadcast, which takes the form of the largest commercial channels (NBC, CBS, ABC, Fox and a few others) which are nationwide. There are also local channels specific to a town or city, and which mostly show reruns and old movies, though they may do their own news or talk shows.

Second their are “premium” channels like HBO which, like NBC et al have their own programs. One could add here some 24-hr news channels, or some 24-hr sports channels. These “premium” channels, in the past, were only available through a cable TV subscription. As much as anything, this simply reflected technology — the broadcast bandwidth dedicated to TV was already full in much of the country, but there were still slots available on cableTV systems, and so if one had an idea for a new channel that might make money, one went to the cableTV systems and tried to persuade them to carry your channel.

Most US dwellings have a cableTV wire coming into them. You can then subscribe to as much or as little over that wire as you want. I subscribe to nothing over my wire. Some people subscribe to purely internet. Some subscribe to basic cable, which is essentially the over the air channels (NBC, CBS etc that I mentioned earlier), along with a basket of a few cableTV channels like a news channel or two, and a shopping channel or two, maybe a religious channel. Beyond that people buy packages of the premium cable channels — some buying a collection of movie channels, some buying sports channels. Which channels are available, and how they are bundled, are fractious issues that those who pay for cableTV have strong opinions about.
Note that if you buy basic cable, what you are mainly paying for is over the air broadcasting. In the past this made sense because the quality of the cable analog signal was better than that of the over the air analog signal. With digital over the air broadcast, for many people, IMHO, this no longer makes sense — but through inertia large swathes of America seem to believe that TV only comes through a cable.

Remember also, through all of this, that the entity broadcasting a show, whether NBC or HBO, may be very different from the entity that creates that show — hires the actors and writers, makes sure episodes are put together in time, etc etc.

Now comes the internet, and what are the consequences? At the TECHNICAL level, one could imagine having everything that was previously available — all the over the air channels, all the cable only channels. Set aside the question of whether the internet infrastructure could handle that load; the more immediate question is who wants what? Obviously the public want all they can watch, for free. Of more interest is the agendas of the non-public.
Cable TV companies, for example, charge more for cable subscriptions than internet — they don’t want that revenue going away. On the other hand some of the programming providers (the people who create the show) want as many people as seeing it as possible — they’re happy to get more dollars from internet viewers. A third element is that many old contracts for how various participants in a show — actors, writers, rights-holders for background music, etc etc — have nothing clear to say about how THOSE participants are compensated when shows are broadcast over the internet.

The bottom line, then, is that you cannot talk of getting “TV” over the internet. You can get some shows over the internet, and not others. Those shows you can get appear in a variety of locations, with more or less advertising, may or may not be free, and may or may not always be available. For example
- the creators of South Park appear to have a deal whereby they get to show South Park episodes through their own web site, run by them (and presumably they get most or all of the revenue this generates)
- the big over the air networks (NBC, CBS et al) have their own web sites which make most of their programming available — but frequently delayed by a week after broadcast, and available for a limited time. I assume this is because they would prefer you watch the over the air broadcast, which costs them no internet bandwidth fees and probably generates higher advertising revenue.
- Hulu is an aggregation site that provides a variety of content (some over the air stuff, some cableTV stuff, some new, some old) for free, with ads.
It has a companion service, Hulu+ that (for a subscription fee) provides more content. Likewise for NetFlix.

Note that NONE of this has ANYTHING to do with your ISP. There are two orthogonal concepts:
- you get internet (maybe through phone lines, maybe through a cableTV line, maybe through some other means)
- regardless of how you get your internet, you visit web sites that offer movies, TV programming etc.

Posted by handleym | Report as abusive

though i appreciate breaking the cable habit, but soon they will consider paying to watch their content…otherwise i’m with felix
until then rediscover the locals with an antenna and receiver.

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