Netflix Inc. (NASDAQ:NFLX) has rewritten much of how media is consumed around the world. From the humble start of video rentals in 1997, Netflix is the leading video streaming service in the United States. The firm is not resting on its laurels, as it is moving along with plans to expand globally. Netflix is now in the UK and Australia and the firm is working towards breaking out into Spanish speaking countries, Japan and China.
In fact, Netflix is already taking the lead in among content streaming services in the U.S. The same is also true in Australia where Netflix is the winning local companies in the streaming wars.
However, the quality of Netflix’s service and the strength of its high-speed growth might turn out to be a major issue going forward. The situation is already starting to play out in Australia where the popularity of Netflix might be forcing its users to pay huge broadband fees.
Australian ISPs are Feeling the Strains
Netflix consumes a huge amount of data because it provides SD, HD and 4K video streaming content across millions of devices at the same time. Netflix has a full house of cards with top content that people want to watch and nobody enjoys watching a video that buffers every 10 seconds. Hence, Netflix users are using huge amount of data to watch content in a continuous stream. Now, ISPs in Australia are starting to complain about data consumption rates coming from Netflix.
David Buckingham, CEO of iiNet, one of the ISPs in Australia revealed this in an article written by the Financial Review. He said, “The whole industry is running around trying to deal with [Netflix]… We got 6-to-12 months’ worth of [data] growth in six weeks. Nobody can forecast that. This is an unprecedented shift in the market that no one anticipated.”
The increase in data usage from Netflix users is already causing some of the ISPs to consider sending users a separate broadband bill for their Netflix consumption. Before now, ISPs in Australia did not charge an extra for data usage via Netflix. However, the ISPs are starting to feel the strain on their network capacity and operating margins and they might soon start slamming Netflix users with additional broadband bills.
US court taxes Netflix
Just four days ago it was revealed that the City of Chicago would begin to put a 9 percent tax on Netflix as part of an expansion of old taxes to cover new industries. A tax on “electronically delivered amusements” was expanded to cover streaming services like Netflix, and will see the company have to reconcile a 9 percent cost increase for its service with a simple pricing scheme.
Netflix is finding out that the kind of practices that have slowed its income growth in the US are being though of in the new areas it’s moving to. With examples already there and the danger Netflix presents clearly established, new markets are responding more quickly.
Questions to be Answered
The problems arising is Australia is the same kind of problem that the firm is likely to encounter in other countries as its service brings massive increase in data usage.
Will Netflix users like to pay the subscription fees and additional broadband fees? Will Netflix bear the broadband costs of its users by reimbursing ISPs for the rising costs? Will it reduce its subscriptions fees in order to make room for those additional broadband costs? Will it start its own ISP service?
These and many more are questions that Netflix will need to address as it continues to expand across the world, and on its bottom line. The firm faced similar problems in the US, but managed to get around them with the help of the courts. The firm is now finding that the rest of the world is a little more like its home market than it hoped.