The take-up of video on demand streaming services such as Stan and Netflix has impacted on internet use. Consumers are upping their data packages to binge on shows such as Better Call Saul. Photo: SuppliedAustralia’s relationship with the internet is entering new territory. Things are getting serious, and it all hinges on a bold new love affair with video streaming.
2015 has brought an explosion of subscription video on demand services. Presto and Stan* arrived in January, followed by global leader Netflix in March.
Just six month ago, there were 315,000 subscribers in Australia, watching Quickflix – an elder in the space and a homegrown brand, but one which has struggled to make the most of the video streaming boom – plus a long tail of specialist providers, mostly offering sports.
Now, according to technology analyst firm Telsyte, there are more than 2 million subscribers, with more than 1 million signed on to Netflix, which is trailed by Stan, Presto, and Quickflix.
The rapid uptake has stunned even Netflix, which more than beat its KPIs for new overseas subscribers in the three months to June 30. (Australia and New Zealand were the only new markets it added in the quarter.)
But video streaming requires our internet service providers to have robust infrastructure, and to use it in more sophisticated ways, and that largely caught Australia off guard, says telecommunications analyst Paul Budde.
“I think it’s fair to say everybody underestimated the effect of Netflix,” he says.
Streaming one minute of video generates more than 200 times more web traffic than sending an email, and four times more than streaming one minute of music, according to the Internet Society. That figure is even higher for high-definition video.
ISPs pre-empted the spike in demand for data by upping their data caps and offering unmetered deals on partner streaming services, so consumers could binge on Orange Is The New Black or Better Call Saul without busting their entire data allowance in a night.
But while customers lapped it up, it backfired for some.
Less than a month after its Australian launch, Netflix, which is unmetered for iiNet customers, was hogging up to a quarter of iiNet’s broadband traffic, causing major congestion problems on the network during peak viewing periods.
Chief executive David Buckingham says iiNet has since accelerated network upgrades originally planned for six months from now in order to fix the problem.
Other ISPs have seen the dramatic effects of streaming in different ways.
Optus said the period of peak user demand on its network has grown by about 1.5 hours, thanks to its customers increasingly switching to streaming rather than watching free-to-air TV in the evenings.
Telstra says all forms of video content, including subscription video streaming and videos viewed through apps such as YouTube and Facebook, now account for “well over half” the traffic on its fixed broadband network – up from 30 per cent before Netflix’s arrival.
All of this bandwidth costs money, and while generous data deals have helped stymie a bill shocks for customers, the result has been smaller margins for telcos.
Budde says video streaming is a milestone event similar to the arrival of the smartphone, which has a sudden, unpredictable and irreversible effect on our data consumption.
Cisco predicts global consumer video-on-demand traffic will double in the next four years alone. Experts are calling the coming explosion in internet traffic an “exaflood” (an exabyte is 1 quintillion bytes).
To say that Australia has a bit of catching up to do is an understatement.
According to Netflix’s own ISP speed index, which ranks providers on the quality of streaming Netflix on their networks, Australia lags well behind the top speeds of dozens of other developed nations, and even a few surprising outliers such as Mexico and Argentina.
Telsyte research shows more than half of fixed broadband users in Australia don’t think their internet connection is fast enough for streaming video, with one in five planning to upgrade within a year.
That means having a better, faster connection, and that’s where Australia’s high-speed fibre National Broadband Network (NBN) comes into play.
“We think people who spend, say, a month testing out Stan would happily consider spending another $10 a month to upgrade to a 100MB fibre connection for a better experience,” Telsyte managing director Foad Fadaghi says.
“This one application [streaming] will be the main driver that will push people to shift to this faster NBN connection.”
*Stan is joint-owned by Nine Entertainment Co and Fairfax Media, publisher of this website.
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