Skytide's 7 Online Video Trends to Watch in 2012

In a recent white paper, 7 Online Video Trends to Watch in 2012, online video management analytics company Skytide outlined the emerging trends in the online video industry and the content delivery supply chain that serves it. If the last few years were any indicator of the hockey stick affect of rapid change within the video sector, 2012 promises to be full of twists and turns and major and disruptions. While predictions are a dime a dozen, they have much more relevance when coming from an industry expert and authority on the subject. I caught up with Patrick Hurley, VP of Marketing of the Oakland, California-based Skytide, and author of the white paper, to get an insider perspective on their online traffic projections, federated CDNs and why Telco CDNs will dramatically change the content delivery market. The white paper has been very well received, as Hurley noted, since it was first posted on Slideshare late last year where it's currently accumulated over 8,000 views to date and was featured among their 12 best presentations with predictions for 2012. It is also the number one search result on Google for video trends.



1. Online video traffic will continue to soar

Skytide says the first trend to watch in 2012 is that online via traffic will continue to soar. Hurley admits that while this is no big surprise, they have data to back that up, including Cisco's Visual Networking Index (VNI) that forecasts online video will account for 90% of all consumer IP traffic by 2013 and a compound annual growth of 32% from 2010-2015. Skytide's own large Tier 1 customers are very bullish on this and have seen growth rates exceed all industry expectations. Skytide is even more bullish and believes that it's possible for the coming years that online video traffic will grow 50% or more annually.

"The implications for that are really significant, for the Telcos and Communications Service Providers (CSPs)," explains Hurley. "Because that could compound an already serious problem that they have. They're caught in a vicious cycle."

The cycle starts with the fact that their legacy businesses (landline, telephony, etc.) which used to be their cash cows are really declining quickly and they can't count on them anymore. At the same time, consumers continue to have this insatiable appetite for online video, but that demand requires that the big Telcos, ISPs and CDNs invest heavily in capital expenditures to support their infrastructure. That would be great, if they could recoup those costs, but the problem is, the only thing their getting from online video consumers is a very modest monthly fee, which is your ISP bill, so they aren't able to monetize their capital expenditures.

Hurley says that CSPs need to extricate themselves from this vicious cycle and pursue new strategies. One of the trends we saw in 2011 will continue into 2012, says Hurley, and that is that the Telcos and cable companies are going to get into the content delivery business, which is an inherent strengths they can leverage as owners of the network infrastructure with direct relationships with end users and content owners. That helps them on both sides of the ledger and create new revenue streams.

2. Telco CDNs will make big waves

Owning the network is the biggest advantage that the Telcos have because they control the Quality of Service (QoS) over the last mile, and more importantly, there's a cost savings component there as well. In particular, CDNs like Akamai and Limelight have to lease the bandwidth from the network operator, and network operators don't have that issue.

Based on those advantages, we'll be seeing more of that in the next year, which leads to Skytide's next prediction, that Telco CDNs will make big waves in 2012. Over the last several years the Telcos have waded in the CDN waters slowly, but now they're diving in head first. Some of the world’s largest telcos have now deployed their own CDNs, which is diminishing the dominance of pure-play CDNs. Companies from outside the space (Amazon, Google) are getting into the CDN business and the trend by major content providers (Yahoo, Microsoft, Google) to operate their own in-house CDNs. Dan Rayburn lists many of them on his blog here: Updated List Of Carriers, Telcos and Pure-Play Companies In The CDN Business | StreamingMediaBlog.com.

3. Federated CDNs will finally shift from  
    concept to reality

The third prediction is that Federated CDNs will finally shift from concept to reality in 2012. This has been a hot topic of discussion at content delivery conferences over the last year, and Hurley says that's for good reason. As Federated CDNs move from concept to reality, it will cause a seismic shift in the CDN market.

"CDN Federation stands to be very disruptive, giving service providers an unprecedented opportunity to compete directly with market leaders like Akamai and Limelight in the global CDN arena."

In June of 2011, Dan Rayburn announced on his blog that a group of telcos had founded an Operator Carrier Exchange (OCX) to formalize the process and standards of interconnecting their content delivery networks. Just a few months later, Cisco announced at the CDN World Summit that it had completed a CDN interconnection pilot with several tier 1 telco providers (BT, KDDI, Orange, SFR and Telecom Italia).

In my conversation with Hurley, he skipped over the following three trends, but encouraged people to download the white paper to read more about how they'll be taking greater shape in 2012:

4. Adoption of Adaptive Bitrate protocols will grow 
5. IPTV providers & MSOs will extend reach into OTT models 
6. Multi-screen viewing will become the norm 


7. Online video advertising budgets will soar

And, finally the last trend is that online video advertising budgets will soar. Hurley says that it's created a virtuous cycle based on a confluence of factors that plays in its favor. First, technology is finally at a point where online video resolution and reliability is to the advertisers liking.

"Advertisers buy an audience," says Hurley. "They also buy adjacency to content and they have to have that in a quality experience, and that's what they're able to get now."

They're also able to to tap into new technologies like adaptive bitrate streaming which holds the promise of ad insertion into a live stream, and that mirrors the model of traditional TV advertising. But most importantly, advertisers go where the audience and the audience is increasingly going to tablets, mobile phones and laptops to watch online video. So that confluence of virtuous events is really poised make online video advertising budgets grow 27% in 2012.

To download the white paper, go to: Skytide website
Slideshare: 7 Online Video Trends to Watch in 2012

About Skytide
Skytide, the leader in Online Video Management Analytics, provides content delivery providers and digital media companies with the most complete operational view of their streaming video businesses, delivering the information necessary to make better-informed business decisions. Only Skytide's out-of-the-box analytics and reporting solutions can process massive amounts of disparate data sources and turn it into detailed reports in near real-time. Skytide is venture-backed and works with leading digital media and technology companies including: British Telecom, Broadpeak, Cisco, Clear Channel Communications, HP, Juniper Networks, Telecom Argentina, Telecom Italia, Telefonica and Telstra.

Update  2/21/2012: Revised copy, added numbers 1-7.

Cord Cutting Explained: Telcos, MSOs and the Existential Crisis - A Conversation with Roy Peterkofsky, Skytide

What is cord cutting? The term cord cutting is commonly used to describe the trend of consumers who cancel their cable and satellite television subscriptions and "cut the cord" in favor of receiving their television programming from Over-the-Top Television (OTT) solutions available through the Internet. While this is a growing trend fueled in part from the wide availability of content from Netflix, Hulu, YouTube and millions of other video sites, there is an existential crisis facing the telcos (telephone companies) and cable companies, also known as MSOs (Multiple System Operators), that could threaten the continued growth of the next generation television industry.

I spoke with my friends at Skytide, an Oakland, California-based company specializing in performance analytics for large scale content delivery and digital media providers, to get an inside perspective on the current situation. According to Roy Peterkofsky, Skytide's VP of Product Management, this issue came bubbling to the headlines in the mainstream press with the news that Netflix accounts for 20 percent of network traffic at peak times in the U.S. along with the feud between Comcast and Level 3, which is all about the impact of that amount of traffic on the ISPs (Internet Service Providers).

Peterkofsky pointed out that in the Comcast vs. Level 3 feud, Comcast is wearing its ISP hat and not its hat as a cable paid TV operator. Comcast claims that it's being swamped by all the traffic coming from Level 3, the ISP that serves as the backbone of Netfix's content delivery. Level 3 says that Comcast is charging unfair fees for the right to send data to its subscribers. As video consumption continues to grow at astonishing rates that could occupy 90 percent of all Internet traffic by 2014 – that's a lot of traffic getting dumped on the ISPs of the world and is generally uncompensated traffic.

More evidence of this issue was seen even today, as AT&T announced a broadband cap of 150 GB per month for its DSL subscribers and 250 for U-Verse subscribers, which are similar caps made by Comcast and Charter back in 2009.



Telcos, MSOs and the Existential Crisis

Peterkofsky noted that if you look at the historical context of the companies that are ISPs, which tend to be the telephone company and the cable company, you really start to see what a huge existential crisis this may turn out to be. He explained that once upon a time you had only one line that came to the house and that was your telephone line. Back then the telcos once held a monopoly because the telephone was a necessity. Consumers were locked in either through a governmental or regulatory monopoly and the telcos could upsell them on other services like long distance plans, voice mail, call waiting and Internet access.

At some point this other line got hooked up to your house, which was the cable line, but it was no big deal to the telcos because cable was only for video entertainment and never in a million years did the telcos think they would ever have anything to do with video entertainment. Peterkofsky said, that was before deregulation, competitive access, cable companies offering the triple-play which included the Internet and VoIP (Voice over Internet Protocol) telephone services and before mobile phones and people thinking they didn't need a landline anymore. It was obvious that the the core revenue source of telcos was under attack.

Peterkofsky clarified:

"You hear the term cord cutting thrown around a lot lately, but it's generally used in relation to cable companies, and it cant be taken literally. Because it usually talks about people who are going to stop paying the pay TV subscription but they would still keep the cable line typically as their ISP in order to bring in the OTT video services that allow them to no longer want their pay TV service. So it's not literally cutting the cord. But if you look at the situations that the telcos are facing, you could take the term cord cutting quite literally. Because a lot of people just have no need for the telephone company anymore and they could completely sever that relationship; and once the telco loses that customer relationship they lose that ability to upsell you on more and more services – that's their whole growth model completely out the window."

Peterkofsky said that some telcos have started to offer IPTV services over their networks to regain some of that revenue turning the tables on the cable industry that was once the nemesis of the telcos, and now finds itself under fire from two directions – the IPTV services and the OTT video services that lead to what is typically referred to as cord cutting. So, in many ways the telcos and MSOs are in the same boat dealing with loss of revenues from subscribers canceling their services and the uncompensated cost of delivering OTT video content which continues to rise.

"What you have there is a cost-revenue squeeze, and that is why I call it an existential crisis."

A disruptive solution

So, what can they do about it?



Peterkofsky pointed out two options:

1. find a way to make it compensated 
2. reduce the impact of it as a cost driver. 

He described that the second option is one that many network operators have figured out that they could through something called, transparent proxy or reverse caching, where an ISP will use caching on its servers to de-duplicate traffic traversing their network.

One example of this could be any popular movie available from Netflix's Instant streaming catalog that may have originally come from a CDN can be stored locally on the near end of the ISP network closer to the end user, and all other requests are served from that same cached file, rather than making another file request or thousands of requests to the CDN serving up the original content.

So buying a few servers to cached with is a great way for ISPs to reduce their network costs and much more cost effective then building out their networks by laying more fiber lines. But if this approach becomes more widespread and on a greater scale, Peterkofsky said, "you might start to see some interesting second order effects."

Effects which Peterkofsky said, can become highly disruptive for the CDN industry. Since the ISPs can use local caching to reduce the amount of traffic traversing over the Akamai, Limelight or other CDN's network, they can disrupt the revenue models between the content owners and CDNs, which are structured primarily on the amount of content delivered over the network. So if you're a content owner, Peterkofsky said, "you're either paying a whole lot of money for a whole lot of nothing, or you may just not be paying."

A classic case of disintermediation

Peterkofsky maintained that the ISPs decide to get into the CDN business they offer a couple of key advantages over the incumbents in the space. One is a cost advantage because they own the underlying network, not the Akamai and Limelights of the world that lease their bandwidth from network owners and tack on their own margin.

According to Peterkofsky:

"This is classic disintermediation. This is cutting out the middle man. Network owner providing the CDN services themselves."

ISPs also have a serious quality advantage over CDNs because ISPs own the connection or "last mile" all the way to your house and can provide better Quality of Service (QoS) through deeper caching. This becomes more important when you're talking about online video taking the place of conventional cable and satellite TV because QoS directly affects viewer engagement.

Overall, Peterkofsky thinks that the cost and quality advantages that ISPs have over CDNs will drive a lot of these network services providers to running their own CDNs through an invisible CDN through transparent caching, a commercial CDN or internal CDN to support their own IPTV services or if they're a MSO, their own TV Everywhere services.

On the consumer side, Peterkofsky doesn't believe that getting consumers to pay for the added content delivery costs will work either. Comcast is trying to push the cost back in the other direction toward the content owners but at some point it will circle back to consumers, but it won't fly. However, as Peterkofsky pointed out, with the music and video industry consumers will pay for content if it's convenient and inexpensive. But if it becomes too inconvenient or expensive for consumers they will either find ways to get content for free, or cancel their subscription.

Peterkofsky concluded that:

"The real solution is things that take cost out of the system by clever applications of technology."

As cord cutting continues to be a growing trend among consumers, it's likely that more ISPs move into the CDN business in 2011 and big changes in the space are expected in 2012.

Read Skytide's new white paper: The Four Keys to Telco CDN Success


Related posts:

• Skytide Sees Big Changes Within the CDN Market, Releases Insight 2.0 Reporting & Analytics Solution for CDN Providers and Resellers
• Skytide Shares Insight for Online Video Publishers, Identify the “Sweet Spot" and What is "Good Enough"

About Skytide
Skytide is a privately held, venture-backed company founded in 2004 and headquartered in Oakland, California. Customers include Accenture subsidiary, Origin Digital; British Telecom; Cisco; Clear Channel Communications; Comcast subsidary, thePlaform; MTV Networks and Qwest. Skytide enables leading content delivery and digital media providers, like British Telecom and MTV Networks, to precisely measure and optimize the performance of their streaming video businesses. Its out-of-the-box reporting & analytics applications are built on top of Skytide's patented platform architecture, which devours massive amounts of highly diverse data and quickly turns it into actionable insights.

• Skytide Insight for Content Delivery Networks uses server-side log data to provide CDNs and IP video networks — and their customers and business partners — with deep insight into streaming media performance.
• Skytide Insight for Video Players uses client-side log data captured directly from the video player, enabling a detailed understanding of quality of service (QoS) and viewer engagement metrics.