Comcast is using it’s monopoly in a futile attempt to kill Netflix

June 29th, 2012 § 1 comment

Back in May Comcast announced that it would radically change how it charged customers for broadband service. Up until now they have charged different rates for different speeds. To use a car analogy they put a speed governor on your car so you could only go say 50 mph for $50/month. Now they want to start charging based on total usage. Returning to the car analogy this is like saying they have taken the governors off and will now charge based on how many miles you drive. Of course there is still a speed limit because your 86 Toyota can only do 90 mph. Down hill. With a tail wind. Cable internet also suffers from traffic jams. The more people in your neighborhood online the slower it gets for everyone.

You might be wondering why you should give two shits about such a seemingly esoteric policy change. As Chris Dixon pointed out look to the Wall Street analysts if you want to determine true motives behind corporate marketing jargon. Here is the quote he pulled from a Goldman Sachs report in May talking about tiered data plans.

Most cable companies we met with have embraced tiered data plans, with tiering starting to move to total monthly usage rather than tiered speeds. The minimum tiers are set higher enough at this point that they impact only 1%-2% of users. However, we believe the concept is to establish an early precedent of usage tiers and then let the average consumer usage patterns move in their direction over time, as usage is growing 60% per year. This puts in place an effective long-term hedge against internet video. [emphasis added]

– Goldman Sachs research. “Americas: Communication Services”, May 23, 2012

Of course it doesn’t take a seven figure income to realize that Comcast is pulling a bait and switch. Comcast claims that the 300GB limit only affects 1-2% of users but anyone that bought a 20GB hard drive 2001 knows that won’t last long. It took a mere 4 years for the average hard drive capacity in a PC to reach 100GB while today getting 1TB in a desktop is not unreasonable. 2012’s 1-2% is 2015’s 20-30%.

Comcast has nothing to fear from Netflix today, but if that 1-2% grows it will be because people are consuming more video content online which is a direct threat to their cable TV business. They are doing their best to maintain the status quo. If they can use their broadband monopoly to make Netflix’s $8/month service work out to a more hefty $20 or $30/month then they will be able to stave off the inevitable mass exodus of cable subscribers.

I know Marco Arment is skeptical that we will see such an exodus anytime soon but I’m sure the RIAA thought the same thing in 1999. Granted the US cable industry dwarfs the Music industry weighing in at nearly $100 billion in revenue but the disruption of an industry generally causes it to implode much faster than it grew.

Tivo has spoiled people. They are gradually less and less willing to sit through commercials and watch shows in the order broadcasters want them to. Anyone that has managed to the cut the cord and move to digital distribution will tell you that having your show interrupted by ads is very jarring. While watching TV at a friend’s house I had to explain to my 3 year old son that the TV was not in fact broken and that the show would come back on it’s own accord soon(ish). Even when it came back he was certain that I had done something.

It’s not going to happen in 5 years but I think that in 10-15 years cable TV will seem as antiquated as the CD is today. In 20 years it will seem like bunny ears. Yes, some people still swear by it but a whole new generation of consumers will shake their head in dismay.

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§ One Response to Comcast is using it’s monopoly in a futile attempt to kill Netflix

  • Jesse says:

    Hellelujah. It’s just a shame that we always have to suffer the drag of the big status-quo entities. Why can’t i pay $.20/episode for the Daily Show ad-free?

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