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If you are scoring at home (which would be weird), Netflix has put a dagger in Blockbuster and Movie Gallery, implemented a business practice that severely wounded a major competitor in Redbox (the 28 day wait policy discussed in an previous 2010 Film Industry Story), and now surpassed Time Warner Cable, Showtime and Starz in terms of subscribers.

What a 2010 Netflix had.

Of course, there is another shoe waiting to be dropped due to the miraculous rise of Netflix. If this many new customers are streaming this many new movies, someone has to foot the bill for this emerging consumer behavior. As all of us run headfirst into the movie streaming process, our ISPs are suddenly getting hammered with unprecedented bandwidth charges. A mid-November report from Sandvine, a net monitoring business, indicated that roughly 20% of American Internet traffic during peak hours is Netflix streaming. By the end of December, estimates had moved up to 25%. Just spin that over in your head for a moment. One out of every four data packets during the average evening is routed to Netflix. If you are the person footing the bill for said data packets, what would your inclination be? If you say, “I would try to send Netflix the bill”, your synapses are firing the correct way.

This is the war Netflix started in 2010. Major internet providers such as Comcast and Time Warner also happen to be the competition mentioned above. Right as Netflix has identified itself as a major threat in the constant corporate battle for the family living room, they have also caused extreme rate increases for all ISPs. If you evaluate any business in the world, you would be hard pressed to find a scenario wherein a major competitor effectively arrives out of nowhere and finds a way to bill you for their growing popularity. The victims thus far have been smaller ISPs who are crying foul over the fact that previous usage agreements between them and larger internet backbones are being discarded. Pay per bandwidth service, a dinosaur notion in the age of readily available Internet access, is suddenly being considered once more.

The reason why is perfectly understandable. There were 12.3 million Netflix subscribers at the start of 2010. There are over 20 million today. That’s a 63% increase in potential bandwidth users all grabbing their eating utensils and lining up at the buffet. Who pays for that? Right now, Netflix’s newly declared mortal enemies are. Does that seem likely to hold true indefinitely? Hell no.

Netflix is growing at a rate previously reserved for 1950s science fiction movie radiation monsters. As their business continues to expand at a historic rate, the bandwidth their subscribers devour becomes a bigger issue for service providers. A war with the major ISPs is in the offing, but Comcast and et al should take note of what happened to Blockbuster. They never took Netflix seriously enough right up until the moment they were devoured by the beast.

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