The Free Ride Is Over For Streaming Video

Comcast's plans to do away with its 250 GB data cap and charge users based upon usage marks the end of an era for cable TV providers, and for the online video industry. No longer will users be able to endlessly stream all the content their hearts desire. Not just that, but the fact that usage-based pricing is arriving at the same time that more, higher-quality content is appearing online could have a dampening effect on demand for services like Netflix or Hulu Plus.

Comcast, of course, says that its new, usage-based pricing policy is pro-consumer, and to a certain extent it is. The average broadband subscriber — those who only use up about 8 GB or 10 GB of data a month — shouldn't necessarily pay the same as those whose usage goes above 300 GB in the same period of time.

But for those of us who are avid streaming video users, usage-based pricing models could change the overall value proposition of watching video on the Internet.

Can streaming video be a TV replacement?

I'm a subscriber to Netflix, Hulu Plus, and MLB.tv. I have a Roku box and an Apple TV, and I frequently purchase season passes to shows like Mad Men, Justified, and Sons of Anarchy. Even though I don't pay for cable, I take advantage of access to TV Everywhere applications from the likes of Showtime and HBO, from my family's Xfinity TV account, as well as test accounts that I occasionally get from some of the cable networks to check out their new services.

In other words, I watch streaming video in the same way a lot of other people watch regular TV. But instead of recording shows and watching them from a DVR, I watch them on-demand online.

I'm also a Comcast broadband subscriber, and I'm probably what the company would consider a heavy data user. While I've never bumped up against the 250GB cap, I've definitely started to come close over the last several months. In April I racked up 160 GB of data usage, and about halfway through May, I've already used 90 GB. That might be atypical for the average Comcast broadband subscriber, but I think that type of usage is becoming a lot more common, particularly for highly connected people like me.

More importantly, the amount of data I'm using has rapidly increased over the last year or so. It wasn't so long ago that I was typically using less than 100 GB a month. And I expect it to continue increasing, to the point where I wouldn't be surprised if I hit and surpass Comcast's new 300 GB data limit at some point over the next 12-18 months.

Part of that is due to me just watching more stuff — I've been re-watching old episodes from The Wire, for instance, in addition to a regular slate of weekly shows. And with baseball season up and running, I'm streaming a lot more MLB.tv as well. But part of it is also due to more bandwidth being used by higher bit rate streams, as services like Netflix improve the video quality of their products.

Putting things into perspective

But what about data usage for everyone else? The average video on Netflix uses up about 1 GB of data per hour, but most of those streams aren't in full HD. The highest quality setting for Netflix, which is what most viewers would like to stream to their TVs, uses more than twice as much data per hour.

According to Nielsen, the average TV viewer consumes about five hours of video a day, or about 150 hours of video per month. For those keeping track at home, that means that you'd have to watch even more video online than your typical TV watcher if you ever plan to max out Comcast's 300 GB allotment.

Of course, that's where things are now, but video quality continues to improve for all of these services, and that means higher bit rates and more data streamed per movie or TV show. What happens as these services improve, as more content and higher-quality content makes its way online? And what happens as more people tune into those services?

Today, about 30 percent of users have streamed a video to their TVs, either because they own a so-called "smart TV" that came with access to streaming video services, or because they've connected a game console or streaming box (and in some cases a PC) to a dumb TV. What happens when that hits 50 percent? Or 75 percent? Hell, what happens when Apple's mythical iTV gets released and users suddenly have access to a whole new set of streaming applications in 1080p?

That will change the value proposition of online video dramatically. For me, between all the different subscription VOD services and the cost of 8-10 season passes that I buy every year, I'm probably already paying more for streaming services than I would pay for TV if I just purchased a basic cable package.

But then, I wouldn't have the convenience of on-demand access to most of the content that I want from a number of different services and devices. And I also wouldn't have the pleasure of watching most of that content without ads. For now, it's a trade-off I'm willing to make. But in the future, if I have to pay an additional $10 for every 50 GB of video I consume over a 300 GB limit, though? Then I'm not so sure it's worth it. That's the world we're about to enter.

What Comcast's moves are really about

For me, the debate over Comcast's treatment of its streaming Xbox Live app isn't even about net neutrality or whether it treats the traffic of online competitors any differently than it treats its own. What it really comes down to is, do you want to pay for a TV and VOD service that you can stream to your Xbox or an iPad, computer, or connected TV… Or do you want to piece together an alternative solution from a variety of different streaming services?

It's a judgment between the current value of online video offerings versus what you can get from TV. Due to the relatively cheap nature of most online video services, that made the choice easy for people like me. You could pay $100 for an HD cable package and DVR, or you could pay a couple of different services less than $10 a month each for a lot of similar content on-demand. And you could get those streams on pretty much any device you wanted to access them on.

But things are changing rapidly. With the introduction of Comcast's Xbox app, as well as new applications coming on devices like Samsung Connected TVs and other devices, the cable company is making its service a lot more attractive to potential customers. At the same time, the implementation of usage-based pricing changes the potential cost of online video services and makes bundled pay TV and broadband services a lot more attractive as a result.

That's not to say that the recent moves by Comcast are going to kill the online video industry — I think that Netflix, YouTube and others are beginning to create enough value on their own through device access and new original programming to begin offering a real alternative to cable. But it could make people think twice about how they choose to access content and through what services, if it means additional broadband charges down the line.