Netflix CEO says no data crunch for U.S. service, calls Canadian caps 'unfortunate for citizens'

Jim O'Neil

Netflix (NASDAQ:NFLX) this week began offering Canadian subscribers a reduced-quality default streaming option in an effort to slip under what in the U.S. would be seen as draconian bandwidth caps set by ISPs operating north of the border.

The new default stream-at 625kbps-slashes by two-thirds the amount of data that had been used to watch a movie and, despite Netflix labeling the selection as "good," really downgrades the viewing experience. But the new setting gives Canadian subscribers about 30 hours of Netflix content for 9GB, which, Netflix CEO Reed Hastings told, gets almost everybody under the lowest ISP Canadian providers set; the average user has a 50 to 60 gigabyte limit on monthly data usage, although Telus and Shaw are essentially unlimited.

But, he said, the limits imposed by ISPs, like those by MSO Rogers Communications, which began right after Netflix began its streaming service September in Canada are "unfortunate for citizens" who end up paying more for their Internet and, he said, force Netflix to innovate, "but mostly it's not innovation in the right direction."

Capping data usage isn't in anyone's interest but the providers, who use the caps to quickly increase revenues, Hastings said.

"Caps are an inefficient way to influence congestion because congestion only really happens around peak times, like Friday and Saturday evenings. Outside of that, the residential pipes are relatively empty and it costs the ISPs zero to have people using the Internet," he said. "If you want to focus on congestion, you could look at peak pricing and things like that, not caps. Caps are a great way to raise revenue because they can charge people more."

Hastings said Bell Canada is charging competing ISPs 20 cents per gigabyte when, he said, Netflix thinks the actual cost per gig is about a penny.

"It's a shame really... if you look at the U.S., for about $40 a month you get 20-megabit [speed] service with a cap of 250 gigabytes," he said. "That's where, say, Australia is going. It started out with caps and they keep rising and rising. You don't see caps through much of Europe on the wired side."

He told the Hollywood Reporter that the U.S. caps are generous enough that Netflix won't be taking the same tack in here.

Hastings said he's not using the change to Canadian subscribers as a bully pulpit for Netflix's fight with ISPs there, or in the U.S., where he's facing pressure from U.S. Internet service providers. But, the reality may be that Netflix is using their "innovation" in Canada to help ... maybe just a little. -Jim