Bandwidth Caps Force Netflix to Cut Video Quality in Canada

Netflix (s NFLX) is lowering the quality of its streaming movie service in Canada by default to deal with bandwidth caps introduced by ISPs there. the comapny said in a blog post Monday night. Ironically, this came just hours after Netflix gave Canadians more reasons to sign up, with the addition of new movie titles from Paramount Pictures. (s VIA)

Now customers who want to watch those films in HD quality might be disappointed, given that Netflix Chief Product Officer Neil Hunt said the company would lower the default bit rate of video delivered to Canadian subscribers in an effort to reduce bandwidth. With the new settings, Netflix is moving from a max bit rate of 5 Mbps HD video to a 700 kbps standard-definition stream. According to Hunt, the decision would reduce bandwidth by up to two-thirds, and enable viewers in Canada that watch 30 hours of streaming while using only 9 GB of data.

Canadian subscribers will still be able to adjust their settings to improve the quality of video delivered, but they’ll have to opt in to do so. On their Manage Video Quality page, Canadian subscribers can choose between Netflix’s “good” stream, which eats up about 0.3 GB per hour of video delivered; its “better” stream, which uses up about 0.7 GB per hour; and its “best” stream, which typically uses 1 GB of data per hour, or up to 2.3 GB if the video is delivered in HD.

Of course, some video quality will get sacrificed in the process; Netflix is basically asking Canadians to accept the level of streaming quality that was more or less standard on the streaming service in the U.S. two years ago. That could impede its ability to attract or retain new viewers in Canada, where the company launched a streaming-only offering last September.

Netflix’s decision to limit streaming quality comes not long after Canada’s Radio-television and Telecommunications Commission (CRTC) ruled ISPs could cap bandwidth access to charge wholesale customers after as little as 25 GB per month. Canada has had usage-based pricing for years, but the CRTC’s ruling caused outrage nonetheless, with the government eventually deciding to overturn the decision. It’s also likely some new Canadian subscribers had their first case of broadband bill shock after streaming several hours of Netflix movies.

Netflix will need to strike a balance between bandwidth delivered and stream quality if it hopes to capture more users in Canada, of course. But the decision to reduce streaming rates also serves to underline the growing tension in its relationship with broadband and pay TV providers in Canada and at home in the U.S. Here, that tension has escalated in a dispute between Netflix’s CDN provider, Level 3, (s LVLT) and cable TV provider Comcast (s CMCSA) over interconnection fees for bandwidth delivered between their networks.

As it adds more content and becomes more like a cable network itself, it’s becoming increasingly clear that Netflix is beginning to compete with the big pay TV providers. But it also relies on those same companies for broadband delivery of its streaming videos.

Image courtesy of Flickr user LWY.