Netflix – meditations on a video streaming giant

Netflix, during June, reached the record level of 1 Billion hours streamed in a month. It is an incredibly huge level of bandwidth, an impetuous and growing stream of bits that makes Netflix one of the TOP10 Internet bandwidth “consumer”. But how much does it cost to Netflix this huge stream ?

I remember an article of a couple years ago by Dan Rayburn in which he estimated an average cost of 3c$ per GByte, a low rate usually applied by CDNs to very large clients. In an article of 2011, Dan corrected the estimation discussing a more complex pricing model for such big players (a mix of per GB and per Gbit/s). The new estimation can, however, be approximated to 1.5c$/GB.

This level of pricing may seem very low and negligible in the overall Netflix’s business, but I think that the growing consumption due to the relatively high average of content streamed per user per month may be a problem for Netflix if not brought under control.

Let’s dig deeper in the numbers.

Let’s suppose that the average bitrate streamed to users is 2.4 Mbit/s (see this post in the netflix blog), this means that every hour of content requires in average 1080 MB (1GB).

If you multiply this for 1Billion hours you have 1 Billion GBs * 1.5c$ = 10M$ / month, 120 M$ per year.

Compared to the cost of CDNs of 2011, 2012 is around the double. This is caused by an increase in the number of clients but most of all by an increase in the average amount of data streamed per client. A wopping 90 minutes per day per user. I think that this may be considered near the maximum possible but a further increase to 120 minutes may be realistic in a worst case simulation. This would mean 160M$ per year.

With these premises it is not a surprise that Netflix is searching to control delivery costs creating their own, single purpose, CDN and optimizing encoding.

You know that I’m very sensible to encoding optimization. I have always stated that for this kind of business encoding optimization is of fundamental importance. I have already demostrated in the past that H.264 can be optimized much more then what players like Youtube, Netflix, Hulu, BBC  are doing today. Here I specifically addressed Youtube and Netflix.

Netflix could benefits of a 30% to 50% reduction in average bitrate consumption with a strong optimization of the entire encoding pipeline (plus eventually of the Silverlight player). This could mean savings for 60-80M$ per year and at the same time an improvement in the average quality delivered to client, a key feature in the increasingly competitive market of OTT video.