Comcast (NASDAQ:CMCSA) just made its Internet service far more friendly to cord-cutters.
The Internet provider raised its data cap to 1 TB (1,000 GB) late last month, up from 300 GB. Comcast doesn't enforce its data caps in every market it serves, but where it does, subscribers must pay additional fees if they use more than their allotted data. In the past, Comcast has defended its caps as being reasonable, arguing that the overwhelming majority of its subscribers use far less than 300 GB. Still, it represented a challenge for streaming video providers like Netflix (NASDAQ:NFLX), as heavy use of Internet video could easily eat up a 300 GB cap.
Its new threshold isn't perfect, but is considerably more generous, and ample enough to allow for almost continuous Netflix viewing.
More than 300 hours of video
Streaming an hour of high-definition video content can consume as much as 3 GB of data. Under Comcast's old cap, that amounts to roughly 100 hours, or about 3 hours' worth of streaming each day over the course of a month. That may seem like a lot, but the typical American watches almost 5 hours of television every day, and households often have several screens going simultaneously. Add in web browsing, streaming music, gaming, and software downloads, and a household with a penchant for Netflix can easily blow through a 300 GB cap. Comcast had 23.8 million Internet customers at the end of last quarter, of which, according to the Wall Street Journal, about 2 million regularly consumed more than 300 GB of data each month.
But few, less than 1%, consume more than 1 TB, Comcast's new threshold. Comcast customers can now stream more than 330 hours of Netflix high-definition content without using their full data allowance -- more than 10 hours a day, every day. Previously, Comcast had given heavy data users the option of purchasing unlimited data for around $35 per month. The new cost is $50 -- harsher, but far fewer Comcast subscribers are likely to need it. Those that do are probably using their Internet connections for much more than streaming video.
Removing a tax on cord-cutters
For some, Comcast's bandwidth policy amounted to an effective tax on streaming video. Customers that regularly watched 5 hours of cable content each day, and wanted to replace it with 5 hours of streaming video, would've needed to pay Comcast for unlimited data. Streaming services can be considerably cheaper than the traditional cable bundle, but adding penalty data consumption charges of about $35 can easily shift the balance back in cable's favor.
Netflix CEO Reed Hastings reacted to Comcast's announcement favorably on Twitter, writing that it was "huge for [him] as a Comcast customer." In general, Netflix is well aware of how its service is affected by its customers' data allowances. Earlier this month, it updated its mobile app to give its subscribers the ability to adjust the quality of Netflix video manually, so as to limit their data consumption.
For Comcast, the change should result in better customer satisfaction. "We have learned that our customers want the peace of mind to stream, surf, game, download or do whatever they want online," Comcast wrote. That goodwill could result in more Internet subscribers. Of course, it could also weigh on the company's traditional cable business, as the prospect of cord-cutting becomes more attractive with a larger data allowance.
Comcast isn't the nation's only high-speed Internet provider, but it is the largest. Comcast's new policy isn't likely to affect Netflix's domestic subscriber growth significantly, but it does help reduce a risk factor, and gets rid of an obvious pain point for the consumer. It should be applauded by Netflix shareholders.
Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.