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Is Netflix's Streaming Data Seriously Flawed?

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We're starting to hear the death rattle of physical media. Floppy disks are dead, CD-ROMs are being phased out, and focus is being shifted from DVD sales to monetizing video streaming. The evolution has certainly been good for Netflix which finished out yesterday's trading at $210.87 -- an increase of 335% from a year ago. The online retailer has become the go-to name in video streaming and now comes standard in almost every piece of home media equipment. With the service available on Apple mobile devices, the wait is on for Android to implement it as well.

But streaming Netflix title doesn't mean a thing unless your bandwidth can adequately sustain it. For a decent picture, a download speed of 1.5 to 3.0 Mbps is required. That might not sound like a problem to most web users, but ISPs are fickle mistresses -- able to throttle and crash without a moment's notice. And the best part? Most people have no choice as to which ISP they use.

Adding insult to injury, Netflix released a graph this week which details the average bandwidth of all the popular ISPs in America. Since the shades blend into one another, you'll probably want to click on the image to enlarge it.

In the company's blog, Director of Content Delivery Ken Florance writes:

"As we use a number of [Content Delivery Networks], and our clients can adapt to changing network conditions by selecting the network path that’s currently giving them the best throughput, Netflix streaming performance ends up being an interesting way to measure sustained throughput available from a given ISP over time, and therefore the quality of Netflix streaming that ISP is providing to our subscribers. Obviously, this can vary by network technology (e.g. DSL, Cable), region, etc., but it's a great high-level view of Netflix performance across a large number of individual streaming sessions."

It's certainly an interesting mock up, but ZDNet's Larry Dignan was quick to point out the flaws in the data. Dignan writes, "Now looking at this chart, you'd conclude that we should all be running to Charter for cable service right. Not quite. The big takeaway here is that cable companies do fairly well with Netflix and telecom carriers don't. That conclusion is a bit misleading."

Dignan elaborates that the telecom bandwidth results -- like those of AT&T, Verizon, and Qwest -- also include sluggish DSL connections which will drag a telecom's average down. "Cable providers," he writes, "all rate high on the Netflix scale because they don't have the DSL shackles."

Dignan also singles out Charter and Clearwire, which rank at the top and bottom of the graph. Charter has earned some scathing reviews from numerous customers and was rated the worst ISP by Consumer Reports. Meanwhile, Clearwire is the only wireless carrier on the Netflix chart, which indicates that its 4G service is fast enough to sustain Netflix's streaming video.

Dignan concludes the chart and its figures should be used for "entertainment purposes only."
POSITION:  No positions in stocks mentioned.