Steve Funk

Detailing Netflix's Streaming Costs

I don't think that your cost numbers are correct. You can't just divide the movie size into the carriers data rate. The true throughput will be a combination of many factors but that gross throughput will determine the top line revenue that Netflix will be able to generate from this. There will be a lot of capital investment in distributed data centers that probably is on-going and will continue to change the bottom line. Just when you think Netflix is making a killing they will have to put retained earnings back into data center buildup to support this. It is non-trivial to move this much data and history shows that almost everyone underestimates these data center costs.

The other key bottleneck controlling overall throughput is likely to be the ISP program that you choose. Many people have only 256k download capability. A dirty secret of the cable providers is that neighborhoods share bandwith with their technology. How many movies will Netflix be able to push into a neighborhood when 15 households all decide to watch a movie on Saturday night? The overall throughput could easily drop below 100kbps. Your fast Xbox 360 will be starved.