As popular as Netflix (NASDAQ:NFLX), Hulu, iTunes, and other video streaming services are, there’s a technical problem they all face. Delivering video over the Internet is a balancing act between quality and bandwidth use. Most consumers have download caps on their home Internet service and going over the cap costs them more money.
This has proven to be a real thorn in the side of Netflix and its $7.99 all-you-can-view streaming video service —which isn’t really unlimited if customers get charged extra for excessive bandwidth use by their ISP (Internet service Provider). StreamingMedia.com estimates that a standard-definition, two-hour Netflix movie would require streaming roughly 1.8GB of data, with a 720p high-definition version clocking in at 3.2GB.
How much bandwidth is enough?
In the U.S., ISPs such as Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T) offer 150GB and 250GB monthly download plans, which sounds like plenty. But consider a Nielsen study that shows the average American watches 28 hours of TV per week, with the typical house having two or more TVs, and it becomes apparent that Netflix can quickly eat away at that cap. Add Web browsing on computers and tablets, online gaming, music downloads, e-mail, checking Facebook, and the multitude of other data downloads happening in most homes, and even 250GB download caps can become limiting.
In Canada, which is currently the second biggest market for Netflix, many homes have caps significantly lower, with midrange plans in the 20GB to 30GB area —that’s only a week’s worth of standard definition Netflix TV, assuming the Web isn’t used for anything else that month.
Customers have been complaining about bumping up against download caps. This led Netflix to introduce a lower-quality streaming option (which reduces the data requirement but offers a decidedly lower grade experience) while publicly fighting against ISPs and their download caps.
Based in Palo Alto, Calif., startup EyeIO launched at the end of December 2010. The privately held company boasts an impressive founder’s list: Rodolfo Vargas, a former Senior Program Manager of video at Microsoft (NASDAQ:MSFT); Robert C. Hagarty, the former CEO and Chairman of Polycom (NASDAQ:PLCM); and Charles Steinberg, a former Sony (NYSE:SNE) senior executive and recipient of three HDTV technology-related Emmy awards. EyeIO’s mission is to develop superior algorithms for compressing video content. Its first customer is Netflix.
No new video standard required
Using EyeIO technology, Netflix expects to gain the capability to stream video at lower bandwidth, without sacrificing quality and without requiring plug-ins or hardware upgrades. A key selling point of EyeIO is that it is fully standard-compliant and is not a proprietary video codec, meaning it’s fully backward-compatible with existing hardware and software. No one in the industry wants to try to sell consumers on a new video standard —no matter how superior it might prove to be — so playing nice with what’s already out there is critical for widespread adoption.
EyeIO claims that its encoding produces superior video with a 20% reduction in file size, and video that matches the quality of typical video streams at a 50% reduction. EyeIO also claims its videos are able to start playing after 2 to 3 seconds, compared to the 20 to 30 second lag that’s more the norm for high-quality streaming content.
Needless to say, this capability is extremely valuable to a company like Netflix that has no control over ISP bandwidth limitations.
If its compression algorithm is a success for Netflix, EyeIO will find its solution in high demand. Television networks are increasingly offering streaming clips and shows online, sporting events—including Sunday’s Super Bowl—are often streamed, as are trade-show events. The International Consumer Electronics Show streams keynote speeches, popular companies like Apple (NASDAQ:AAPL) stream key product announcements, and of course there’s Google’s (NASDAQ:GOOG) YouTube, which serves up 3 billion streaming videos every day.
Cutting bandwidth not only makes it more likely that customers will watch a streaming video, it cuts costs for the provider as well. Mobile is the next frontier, and with much stricter bandwidth caps on smartphones and tablets, even while consumers demand video on the go, look for EyeIO to have potential customers lined up out the door.