Tech Capital Partners Blog

Yesterday I read Fred Wilson’s post titled “Streaming Kills Piracy” and I completely agree with the point he makes. However, there is one thing (at least here in Ontario) that seems to be at odds with streaming high quality video at a level of consumption that approaches normal TV viewing habits…it’s called “the monthly usage allowance.” The “allowance” is the silent partner for many companies that can throw a major wrench into your product/service. I’ll get to this later but first some obvious observations:

• The number of people viewing video online is rapidly increasing
• The amount of online video content that can be streamed is increasing (Hulu, Youtube HD, Netflix, Zip, etc.)
• Video quality has increased alongside increases in bandwidth
• There are a host of set top boxes (“internet enabled devices”) able to deliver online video to your television set

The promise of being able to watch any TV show, movie, etc. whenever you want, by streaming video over the internet is here. It sounds great but ISPs have implemented what they call the “Monthly Usage Allowance.” At first glance, these allowances seem perfectly reasonable because they are designed for most people who only check emails, browse the web and download the occasional video. However, if you decide to subscribe to a video streaming service like Netflix (in Canada Zip.ca will be offering a similar service) then the story could change.

How does the “Monthly Usage Allowance” affect someone who wants to start streaming most of their video consumption over the internet? Well, first consider that according to Nielsen media, the average American watches 153 hours of television a month. For the purposes of this post I’ll use Bell and Rogers as example ISPs since they own the majority of the market where I live. Assume that as a Rogers or Bell internet subscriber you’ve decided to watch all of your TV shows, movies, etc. by streaming online video. Based on the video quality (i.e. bitrate) you choose and the internet package you’re subscribed to, the following tables show how many hours of video you could watch until you reach the monthly usage allowance. (By the way, a higher bitrate means higher quality video. i.e. 3800kbps is better than 500kbps):

# of online video hours (per month) – Various Video bitrates

# of online video hours (per day) – Various Video bitrates

What these tables both illustrate is that unless you’re watching low quality video you’re going to reach the monthly data usage allowance before you can reach the 153 hours the average American watches each month. For example, if you have the Bell Performance package and only stream SD Video @ 500kbps, in a month you’ll be able to watch 111.1 hours of video (or 72.6% of the monthly American average) or approximately 3.6 hours of video a day. That’s not too bad but we’re talking about low quality video that is a bit better than Youtube. If you bump up the quality to 1000kbps then you’re getting half the hours/month. Even worse, let’s say you’re paying for premium HD content, with the Bell Performance package you’ll be able to watch about 15 hours a month or roughly half an hour a day (9.6% of the monthly average). Remember, I’m talking about just using your internet connection to watch video only, the number of hours would actually be lower since you have to expect some usage for other online activities.

Some context on video quality:

• Normal Youtube video is around 250kbps; high quality is around 900kbps
• SDTV (normal TV) is anywhere from 1500kbps to 5000kbps (or higher).
• Netflix encodes SD video at 500, 1000, 1600, 2200, and 3400kbps depending on the speed of your connection. HD video is encoded at 2600kbps and 3800kbps.

One other point of view I thought I’d share with you is the length of time in hours you could use your internet connection at full speed potential before reaching the usage allowance.  

The Point
I think there is something important to recognize here. Many companies, startups included, make an assumption that data usage for the traditional consumer (at home) isn’t something to worry about. A video streaming service like Netflix or Zip.ca is based on the premise that bandwidth is available and cheap for the end user but the effect of the amount of data used and how this usage will affect the end customer is often not considered. Sure, your company isn’t restricting the data, but the experience you’re providing could indirectly cost the consumer more money. Is your business relying heavily on an upstream partner? What is your relationship with this partner? Maybe ISPs will increase the caps over time but if they don’t it will be interesting to see how things play out as more data intensive services inevitably become available and the average consumer begins taking advantage of these services.

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