Netflix Streaming May be Putting a Hurt on File Sharing

Netflix started life by putting the squeeze on Blockbuster with DVD rentals and soared to unparalleled success with its Watch Instantly platform. Since 2008, Netflix’s library has swelled as the company signed multi-million dollars deals with content providers including Starz and CBS (yeah, we’re still excited about all of Star Trek coming to Netflix, too). With all that content, Netflix has obviously changed the way we watch movies and TV on a daily basis--but just how much has it revolutionized the online landscape?

Two web analytics organizations have weighed in on Watch Instantly’s popularity and its impact on peer-to-peer file sharing. According to one study, bittorrent has taken a big hit since 2007, with Netflix stepping up to fill in the gap.

Wired polled Arbor Network and Sandvine to rustle up any evidence suggesting Netflix’s streaming service has eaten into peer-to-peer movie sharing. With more than 23 million subscribers, Netflix is poised to become the largest subscription-based entertainment service in the US. That popularity has driven Netflix traffic into the stratosphere--it represents something like 20% of US downstream bandwidth during peak hours. According to Arbor Network, bittorent traffic fell from a high of more than 30% of US traffic in 2007 to a mere 8% of 2011’s measured bandwidth.

That 30% included all types of peer-to-peer filesharing, and some of that traffic has doubtless carried over to direct download sites like Rapidshare. Still, that drop in traffic leads us to two possible situations: Netflix’s growth (Arbor measures it at 20% of current US traffic) has actually impacted P2P traffic over the past four years, or non-P2P services have grown so significantly that P2P simply represents less bandwidth by comparison. The real answer probably falls somewhere in between.

The second traffic measurement from Sandvine tells a different story. It shows dramatic growth in Netflix streaming--from 29.5% of North American traffic to 42.7% between 2009 and 2010--but also depicts a rise in P2P filesharing over that same period. Sandvine’s traffic readings indicated peer-to-peer sharing jumped from 15.1% to 19.2% of bandwidth between 2009 and 2010. Obviously there’s no real consensus on Netflix’s mighty influence, but there are two major factors that still make piracy an attractive alternative to Netflix.

Watch Instantly’s library must continue to expand to win out against piracy--even if pirates are willing to pay $8 per month for their video content, they’ll go right back to torrenting if something isn’t available for instant streaming. The second problem, of course, is quality. So far Netflix’s HD support remains limited, and only the PlayStation 3 offers streaming of 1080p video. As long as streaming remains sub-1080p and Blu-ray rips are easy to come by, piracy will own a nice little chunk of bandwidth usage.

Streaming quality will only get better as average broadband speeds continue to improve, but we wonder how much Netflix can offer on Watch Instantly while remaining profitable. The service already contains an obscene amount of content, and Netflix will have to pay hundreds of millions in the coming years to secure new deals with providers like Starz. But if it can conquer that hurdle and by gaining even more subscribers, P2P numbers may look pretty meager within the next half decade.

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