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Ad Revenue Is Secondary: Roku Increased Their Market Cap $2.52B, by Spending Less Than $100M for Quibi’s Content

On Friday January 8th, Roku announced it had acquired Quibi Holdings LLC, the company that holds all of Quibi’s content distribution rights for their library of 75 original shows. All of Quibi’s content will be added to Roku’s free ad-supported channel and as part of the deal, Roku is not permitted to change the format of the shows and must keep all the episodes separate.

Normally for a deal like this we’d all be running calculations on how many ads Roku has to sell, at what CPMs, and with how many viewers, to see a positive return from the deal. But in this instance I would argue that we can value the deal for Quibi’s content with different metrics. The day Roku announced the deal their stock closed up $19.84 a share, adding $2.52B to Roku’s market cap – in one day. Roku’s stock might have gone up that day even without the news, so there is no way to know the exact impact, but Roku’s stock was clearly impacted in a positive way from the news.

The sale price for Quibi Holdings hasn’t been announced but I heard the deal size was “around” $50M, [not verified] while others are reporting the price was less than $100M. Even if Roku paid $100M for Quibi’s content, the return on their investment based on the increase in their market cap would be 25x what they spent. If Roku paid $50M for the content they got a 50x return for their investment, all for just making an announcement. Even if the rumors on wrong on what Roku paid for Quibi’s content and the price was higher, Roku still made back their investment many times over.

If you’ve followed Roku’s stock, you know just how much Wall Street is in love with it and how much it moves based on news. The stock saw positive benefits when they announced the deal with NBCU for support for PeacockTV and again with WarnerMedia for support of HBO Max. We don’t know exactly how much Roku’s stock may have already gone up without the news, but even if it simply doubled the raise that day, Roku sill got a 12x return on their investment. Whether they sell any ads across Quibi’s content and generate any ad revenue almost doesn’t even matter at this point.

News Roundup: Discovery+ Launches; Roku’s Market Cap Grows $2.5B on Qubi News; Comscore Gets Investment; Netflix Raises Pricing in UK; fuboTV Grows Subs; NFL Broadcasts on Nickelodeon

If you were still on vacation last week to start the New Year, here’s a rundown of some of the interesting news that took place you might have missed:

Job Opening, Disney Streaming Services: Sr. Software Engineer – Solutions Architect

If you’re interested in working at Disney Streaming Services, they have an immediate opening for a Sr. Software Engineer – Solutions Architect. I can make a direct introduction to who your boss will be, so if you are qualified, contact me (dan@danrayburn.com) if interested. Full job details: jobs.disneycareers.com/job/new-york/s

Hands On With Discovery+: Massive Content Library, Streamlined UI; Parental Controls and Downloads To Come

Today, Discovery+ launched in the U.S. for $5 a month with “light” commercials, or $7 commercial free, allowing up to 4 concurrent streams per account and a 7-day free trial. The company is showing “up to 5 minutes” of commercials per one hour of content, hence the “light” branding. This is similar to what NBCU is doing with Peacock TV, with a lower ad load on streaming services when compared to cable TV, which averages 20 minutes of ads per hour of content. As expected, the company is doing a huge marketing push across all social platforms and on TV, promoting the service with their “stream what you love” branding.

Discovery+ is available on platforms and devices including Apple TV, Fire TV, Chromecast, Roku, iOS, Android TV, Xbox consoles One/X/S and Samsung smart TVs from 2017 and newer. It is not yet available on smart TVs from Vizio, Sony, LG or PlayStation consoles but support for other brands of smart TVs is expected this year. The biggest strength of Discovery+ is their massive content library of over 55,000 episodes, with 2,500 series, across brands including A&E, HGTV, Food Network, TLC, Lifetime, OWN, Travel Channel, Discovery Channel and Animal Planet. They also plan to offer more than 1,000 hours of Discovery+ original content this year. Discovery also announced today a multi-year carriage deal with Vodafone in which Discovery content will be made available to Vodafone mobile customers in 12 European markets. Discovery+ was already live in the UK on Sky and previously announced a deal with Verizon in the U.S., where some Verizon customers can get Discovery+ at no cost.

I’ve been hands on with the service for a short time and so far, have found the UI intuitive and easy to navigate. It has content categories as the top nav, but also breaks out channels, which then features content only from that one brand. Functionality like continue watching has worked flawlessly for me, along with starting back up in the right place when moving to a different device. The left side nav is where you go home, manage your account and search for content, along with making a favorites list. Browsing allows you to search by brand and under each brand you can see what’s trending. Not all content is offered in 4K, which isn’t surprising being there are some old shows in the catalog, but I found plenty of other shows had 4K quality. Discovery didn’t say what percentage of the entire catalog has 4K support, but for the content that is in 4K, the max bitrate is 13.5Mbps. None of the content at launch is available for download and they don’t yet have any parental controls you can enable, but both of those options are coming to the service this year.

Of course with any new OTT launch in the market you have those in the media and on Wall Street that are going to base the success of Discovery+ on the wrong metrics. We are already seeing Discovery+ compared to HBO Max, Netflix and Disney+, which makes no sense. Some are asking if Discovery+ can show similar success to Disney+ when it comes to subscriber numbers, but that’s the wrong metric to be using. Disney+ is very niche content, targeting mostly kids and family friendly content and had about 8,000 episodes and movies at launch. Discovery+ has much more breath of catalog and is targeting adults across a wide range of content. 90 Day Fiancé is the number one show on TV with the 15-49 demographic and that’s not the type of content you will see on Disney+.

On CNBC today, Discovery’s CEO said he expects Discovery+ to “be very very big” and will have “big scale”, but didn’t define what that means. The company is not giving out any initial projections on the number of subscribers they are anticipating, but did say that “over the next couple of quarters”, they will give out subscriber numbers and growth. I see some making the ridiculous statement that Discovery will need to hire firms to help Discovery “understand” the streaming market and to be able to compete with Disney+ and others. Streaming is a technology, it’s not a “service”. The service is content, which Discovery knows very well. The medium that’s delivering the content is simply streaming technology.

Discovery knows all about operating channels, producing and distributing content, creating original shows, doing integrated marketing across multiple channels and tracking viewership. Discovery has a 20% share of cable viewership and the company says “nearly 250 millions hours of Discovery content is watched on TV every day.” TLC, beat every one of the cable news nets in the third quarter, based on time watched and their portfolio is #1 for average time spent across all TV entertainment in the US. That’s a lot of viewership they can build on. Discovery is not new to the content game and doesn’t lack any expertise or strategy, with the company having hired execs from places like Hulu, Amazon, Microsoft and others. For some to suggest that Discovery is “late to the game”, doesn’t understand the D2C market, or lacks any kind of streaming expertise – that’s simply not accurate. I won’t make exact projections on the number of subs Discovery will sign up, we need to give the platform time to grow. But Discovery+ is a global service, with a deep catalog of content, big marketing tie-ups and we should expect them to have tens of millions of subs by the end of this year.

My Video Presentation: CDN Trends – Latest Pricing, Customer Challenges and Growth Opportunities

Here’s my presentation entitled, “Video CDN Trends: Latest Pricing, Customer Challenges and Growth Opportunities” from the Mile High Video workshop event this month.  Happy to answer any questions in the comments section or you can email me directly at dan@danrayburn.com. Apologies for the rough voice, had a cold. #mhv2020

Detailing the Privacy and Performance Problems with Cloudflare’s Oblivious DNS Over HTTPS Announcement

Recently Cloudflare announced that their researchers have been working to improve internet privacy and security through a DNS protocol called Oblivious DNS over HTTPS, or ODoH. While the announcement suggests that it will improve internet privacy, their proposal can actually lead to significant privacy issues, if it’s adopted. In addition, as it is written today, ODoH is likely to seriously impact internet performance or force providers to invest in software and process changes because it strips information that ISPs and CDNs require to do effective and efficient mapping to ensure performance for their users.

The ​IETF​ is an internet standards body made up of ​an international community of network designers, operators, vendors, and researchers concerned with the evolution of the Internet architecture and the smooth operation of the internet.​ Community members bring proposals for internet standards to the IETF through published “drafts”, mailing lists, and typically through in-person meetings. Proposals are submitted, and require working groups to pick them up in order to progress them into standards.

At this point, ODoH is an early-stage draft proposal which has been discussed in the “dprive” (DNS Privacy) working group but not yet adopted there, meaning that it is in a formative stage. Common practices to encourage the IETF to adopt work in a working group include deploying production implementations of proposed technologies, and driving interest and support from vendors and businesses, which is what Cloudflare is doing with their announcement.

So why is there contention around the proposal? Cloudflare’s head of research Nick Sullivan has ​stated​ that ​”sweeping technical changes to the internet will inevitably also impact the technical community. Adopting these new protocols may have legal and policy implications.” Some of these legal and policy implications are detailed in a blog authored by Akamai Fellow Erik Nygren, back in 2018 on what​ ​encrypted DNS means for the Internet as a whole​.

ODoH is an extension of DoH, so let’s start with that. The protocol exists because DNS queries are sent in cleartext. This means anyone on the network path between a user’s device and the DNS resolver can see both the query that contains the website the user wants to visit, as well as the IP address that identifies their device. Both protocols are designed to increase user privacy by preventing queries from being intercepted, redirected, or modified between the client and resolver – something known as a middle (MiTM) attack. DoH encrypts communications from the client to its resolver, and ODoH takes this a step further to obscure the client from the resolver.

DoH itself is just a protocol for doing DNS lookups over HTTPS. Most of the contention comes from ways in which DoH resolvers might be discovered and configured. For example, when DoH is used at the application level, it can bypass name servers configured at the OS level. So a web browser can come with a list of DoH compatible resolvers already configured, and traffic from that client would then use those DNS settings.

In 2019 Mozilla ​turned on DoH by default for all Firefox users​, using Cloudflare as the server. This meant that the browser would prefer DoH via Cloudflare. This has been​ ​heavily criticized as an anti-privacy move,​ ​since Mozilla is essentially handing off all DNS resolutions to a single for-profit corporation. ISPs expressed concerns over their ability to perform lawful interception and content filtering (for example, legal requirements or parental controls), and many feel that since Cloudflare is an American company, this could not only be centralizing a large portion of the internet but also making it subject to law enforcement from a single government.

To explain this, switching from using an ISP’s local in-country DNS resolver to a DNS resolver that is out-of-country could make both privacy and performance worse rather than better, regardless of what communications transport is being used for the DNS. Consolidating DNS lookups to a few services also introduces new risks for enabling the correlation of user activity, and these services potentially become highly attractive targets for subpoenas and extra-legal attacks. This is all made substantially more challenging as many users lack a way to judge the level of trust they have with various DNS service providers, making it hard for them to make an informed choice.

So Cloudflare’s ODoH announcement is their way of asserting that they will provide users with an option not to send IP information to their DNS resolvers, which Cloudflare claims will ensure privacy​. ​But this introduces another challenge: that ​ODoH will impact performance because it introduces significant latency, and also strips information that is required to do effective and efficient CDN mapping. Cloudflare’s research​ paper about ODoH​ provides testing conditions that are not relevant to the real-world, and the performance impact numbers mask latency introduced by load times for real web applications.

There are a wide range of other options being explored by the IETF. Given the wide variety of use cases, there is not likely to be a single solution. Many of the leading proposals involve a mixture of sources for secure DNS resolver configuration, device policy, associated and designated resolvers, and user choice. Something like ODoH may fit into this for resolving names where performance may be traded off for possibly improving privacy, but at this point, the concerns and potential pitfalls seem to outweigh the benefits.

News Roundup: Updated HBO Max Subs; Disney and Paramount Investor Days, Nielsen TV Ratings; Streaming Fitness Apps; Roku Stock

Here’s a rundown of some interesting news over the past few days with links to the stories on LinkedIn where discussions are taking place:

List of The Best Black Friday Deals on Streaming Devices (Roku $17, Fire TV $18, Chromecast $40)

With Black Friday almost here, I’ve compiled a list of the best deals when it comes to streaming media devices. I’ve not included pricing for the new Xbox Series X/S and PS5 gaming consoles since inventory is extremely limited and pricing varies based on all the bundles offered.

– Roku SE for $17, Walmart exclusive
– Roku Streaming Stick+ for $30 ($20 discount), direct from Roku and other retailers
– Roku Ultra for $70 ($30 off), direct from Roku and other retailers
* Aside from the Walmart exclusive, all other deals start 11/20 and ends 11/30 or while supplies last

Amazon Fire TV Stick/Cube
– Fire TV Stick Lite for $18, ($12 discount), direct from Amazon (Nov 20-27)
– Fire TV Stick for $28, ($12 discount), direct from Amazon (Nov 20-27)
– Fire TV Stick 4K for $30, ($20 discount), direct from Amazon (Nov 20-27)
– Fire TV Cube for $80, ($33 discount), direct from Amazon (Nov 20-27)

Google Chromecast
– Chromecast (not 4K) for $19 at Walmart
– Chromecast with Google TV for $40, ($10 discount), Google Store, Best Buy, Walmart and others
– Chromecast with Google TV for $90 (comes with 6-months of Netflix), direct from Google Store
– YouTube TV is offering a free Chromecast with Google TV, once you make your first payment for YouTube TV of $65 (Note the offer is only good for first time subscribers and ends December 31st, 2020)

Apple TV
– Apple TV 4K 32GB for $169, ($10 discount), via Walmart
– Apple TV 32GB for $144, ($5 discount), via Walmart and B&H

TiVo Stream 4K
– Retails for $50, no details yet on any discount being offered by any retailer (Amazon reduced the price by $3 on Amazon Prime Day)

Why Akamai’s Elimination of Overage Fees Helps To Keep More Traffic On Their Network

During Akamai’s Q3 earnings call (transcript), the company referenced doing away with overage pricing and how that was allowing their customers to have a more predictable spend with Akamai. Due to the holidays and in particular with retail customers, it’s common for customers to see some big peaks in their business, with regards to traffic. While Akamai discussed how this helps better adjust traffic and spend for certain customers, the biggest advantage for Akamai in doing away with overage charges is really a competitive one.

Zero Overage Fixed Fee (ZOFF) pricing, as Akamai calls it, provides a construct where as long as their customer does not exceed their traffic commit by 2x or more for multiple consecutive months, they will not pay any overage charges. So, if there are marketing sites that don’t have massive bandwidth requirements, non-core apps that are not susceptible to bursting, or APIs that are being distributed and protected by Akamai, they can be included in a ZOFF contracting structure without their own separate traffic commits and bills. This effectively allows customers to add additional delivery services to their existing commits with Akamai, at no additional cost or commitment.

Akamai has been quietly changing their pricing strategies to be better aligned to the company’s customer base, with flat fee pricing for large media streaming customers based on subscriber/download volume, and increasingly a zero overage model for businesses that primarily monetize via websites, apps, and APIs. While Akamai says this strategy was designed to de-risk adding any internet-facing application to the platform for fear of incurring significant traffic overage charges, it actually serves an even more important benefit from a competitive standpoint.

Doing away with overage fees helps Akamai keep more traffic on their network from customers who are growing, which in many cases, may have previously been offloaded to a competitor. CDNs would specifically target Akamai customers and tell them to send traffic to their network instead of Akamai’s, the moment the customer hit their bandwidth cap with Akamai. The selling point being that the customer would not have to pay any overage fee to Akamai and would get a lower price point from the competitor as they grow their traffic. By Akamai doing away with overage pricing, that selling proposition by competitors disappears and makes it harder for them to get their foot in the door to get a slice of Akamai’s business.

With this year being marked by unpredictable traffic patterns and pressure for businesses to find savings with their IT vendors, Akamai says they have seen the strongest penetration in commerce, financial services and healthcare verticals, in adopting the no overage pricing strategy. Some may wonder why the media vertical is not called due to OTT video consumption and the reason is because most media contracts for the delivery of video and software downloads haven’t had an overage pricing component tied to them, across the industry, for many years now.

This isn’t to say that all overage type fees have disappeared completely from the CDN industry. There are cases where a customer can be hit with an additional fee if a certain percentage of their overall traffic volume, based on a specific country or region of the world, falls short of what they committed to. But that’s really a fee tied to a specific region, as opposed to overage fees that in the past were simply tied to the growth of a service. Akamai’s smart to have done away with overage pricing, more from a competitive standpoint than anything else. Some might argue Akamai is losing revenue from overages, but that’s short-sighted thinking since there is a greater opportunity to generate more revenue over time, from keeping new traffic on their network.

Recap: AT&T, Comcast, Microsoft, Akamai, Fastly, Limelight Q3 Earnings

Here’s a quick recap of what you need to know from Q3 earnings from AT&T, Comcast, Microsoft, Akamai, Fastly, and Limelight. I’ll post another roundup from Apple, Amazon, Facebook, Google and Twitter shortly.

AT&T Q3 Earnings: Lost 590,000 premium TV subs, (37,000 of which were AT&T TV NOW subs). Grew HBO Max to 8.6M subs. A record high 357,000 AT&T Fiber net adds and 158,000 total broadband net adds.

  • Total revenue of $34.3 billion, down 3.1% year over year
  • Video revenue: $7.0 billion, down 12.2% year over year due to declines in premium and OTT subscribers and the impact of COVID-19 on commercial revenues
  • WarnerMedia revenue: $7.5 billion, down 10.0% year over year driven by declines across Warner Bros. and Home Box Office, partially offset by an increase at Turner
  • AT&T TV NOW subscribers: 37,000 net loss due to less promotional activity
  • More than 90% of all broadband subscribers on AT&T’s fiber network subscribe to speeds of 100 megabits or more. More than 2.8 million fiber subscribers have taken 1 Gb speeds
  • Total domestic HBO and HBO Max subscribers top 38 million and 57 million worldwide

Comcast Q3 Earnings: Lost 273,000 pay TV subscribers (down from 477,000 in Q2); 22 million sign ups for Peacock TV (up from 10M in Q2); Revenue of $25.5B (up from $23.7B in Q2).

  • Total High-Speed Internet Customer Net Additions Were 633,000, the Best Quarterly Result on Record
  • Premier League Viewership Reached Record Levels on Sky Sports, Including the Highest Average Season Viewership on Record for the 2019/20 Season and the Highest Daily U.K. Viewership on Record for the 2020/21 Season to Date
  • Cable Networks revenue decreased 1.3% to $2.7 billion in the third quarter of 2020, due to lower distribution revenue and advertising revenue, partially offset by higher content licensing and other revenue
  • Broadcast Television revenue increased 8.3% to $2.4 billion in the third quarter of 2020, due to higher content licensing revenue and distribution and other revenue, partially offset by lower advertising revenue

Microsoft Q3 Earnings: Revenue of $37.2B, up 12% y/o/y; Intelligent Cloud revenue of $13B, up 20% y/o/y. Office Consumer products and cloud services revenue increased 13% and Microsoft 365 Consumer subscribers increased to 45.3M.

  • LinkedIn revenue increased 16%
  • Xbox content and services revenue increased 30%
  • Surface revenue increased 37%
  • Search advertising revenue excluding traffic acquisition costs decreased 10%
  • Revenue in More Personal Computing was $11.8 billion and increased 6%

Akamai Q3 Earnings: Total revenue $793 M, up 12% y/o/y; Web Division revenue $418 M, up 8% y/o/y; Media and Carrier Division revenue $375 M, up 16% y/o/y; Cloud Security Solutions revenue $266 M, up 23% y/o/y. Full year revenue guidance of $3.164B to $3.189B for 2020.

  • U.S. revenue was $437 million, up 6% year-over-year, International revenue was $355 million, up 20% year-over-year
  • Cash from operations for the third quarter of 2020 was $402 million, or 51% of revenue. Cash, cash equivalents and marketable securities was $2.6 billion as of September 30, 2020
  • Revenue from Internet Platform Customers was $51 million, same as in Q2

Fastly Q3 Earnings: Revenue of $71M, up 42% y/o/y; GAPP operating loss of $23M; Capital expenditures of $14M, or 20% of revenue; Adjusted full-year 2020 guidance to $288.2M-$292.2M ($8M from Signal Sciences acquisition).

  • As of Q3 2020, Fastly was in 55 markets, providing access to 106 Tb/sec. of global network capacity
  • Total customer count increased to 2,047 up from 1,951 in Q2 2020
  • Total enterprise customer count of 313, up from 304 in Q2 2020
  • Average enterprise customer spend of approximately $753,000, up from $716,000 in Q2 2020
  • ended Q3 2020 with $472 million in cash, restricted cash, and investments in marketable securities
  • Compute@Edge has moved out of beta and into limited availability

Limelight Q3 Earnings: Revenue of $59.2M, up 15% year-over-year and 1.1% quarter-over-quarter. Reported a GAAP net loss of $4.0M. Leaving full-year 2020 guidance unchanged at $230M-$240M. 20 customers accounted for approximately 79% of their revenue so far this year.

Trump’s Campaign Site Defaced While Being Protected by Cloudflare: Who’s to Blame?

I have been writing for some time on how the CDN industry has been evolving to focus more on value-add services, with security being a major focus area. As Q3 2020 earnings reporting is currently underway, we have begun to hear from the public CDN companies on just how important security has become to their businesses. Despite this growth, or maybe in part because of it, it remains incredibly challenging for businesses to parse through all of the vendor assertions when making decisions around cloud security solutions. When a high-profile site is compromised, IT leaders can be even more confused about what defenses are useful, and which vendors they should partner with.

For example, just yesterday, CNN reported that Donald Trump’s campaign website had been defaced. Cloudflare Radar highlights that election sites are being actively targeted by attackers, so it is clear that there has been an increase in attack activity that could result in a compromise. What is not immediately obvious is the source of the defacement. Specifically, it is possible that attackers circumvented a web application firewall (WAF), or it could be that either credentials were leaked or a phishing scheme allowed an attacker to access the content management system.

The DNS history for donaldjtrump.com shows that Cloudflare has been hosting the site for the past 5 years, and a domain lookup confirms that Cloudflare continues to be the host. Cloudflare did not immediately comment on the topic to the press, but this would not be the first time the company’s products were compromised (if that was the root cause in this case), or that they made mistakes that led to a customer being hacked. So in an election cycle as fraught as this one, it will be interesting to hear how the company speaks to this incident. It will be more interesting to then watch how the market reacts, especially if Cloudflare stays silent. Cloudflare reports Q3 earnings on Friday October 30th November 5th and I’ll update this post if they comment.

How Sony and Microsoft Will Use Third-Party CDNs for New Console Launches

There’s been a lot of speculation on just how much Microsoft and Sony are going to rely on third-party CDNs for video downloads when both companies launch their next generation consoles in November. Here’s what I know so far and some specific changes in how downloads will be handled this year.

Sony, which does not have an in-house CDN, plans to utilize third-party CDNs including at least Akamai, CenturyLink (now called Lumen) and Limelight Networks. Other CDNs are being used, especially regionally outside the U.S., but the three companies mentioned I know are involved. What percentage of Sony’s overall traffic each CDN will get is unknown since we don’t know how many PS5 consoles will be sold, in what regions, or even how many consoles Sony is producing. We also don’t know how many games a user will buy and what percentage will be on disc versus 100% digital. The PS5 will launch on November 12th, in both a $499.99 edition and a digital only edition for $399.99

A big change with the PS5 versus the PS4 is how it handles downloads. On the PS4 you have to download the entire game. On the PS5 players will be able to choose which parts of games they want to download, for instance just the single-player version without the multiplayer data. This option is going to make some of the downloads smaller with the customization offered. At the same time, Sony has released the size of a few games and they are still large. For instance “Marvel’s Spider-Man: Miles Morales” is a 50GB download, with the “Ultimate” version of the game being 105GB in size. Based on the initial information Sony has given out, the average file size for the games they have listed is 60GB. To put that in perspective, one game download is 27x larger, from a total GB delivered standpoint, than 60 minutes of video streamed at 5Mbps.

On the Microsoft side, the company uses primarily Azure Front Door a cloud CDN platform and some third-party CDNs for some static delivery of content i.e Xbox downloads, Windows Updates. Microsoft does not disclose what traffic volumes are sent via Microsoft CDN offerings (Azure Front Door etc.) versus 3rd party offerings (Azure CDN by Verizon, Azure CDN by Akamai, etc). The new Xbox will launch on November 10th, with the Xbox Series X costing $500 (or $35 a month for 24 months) and the Xbox Series S (digital only, no 4K gaming) for $300 (or $25 a month for 24 months).

Microsoft is providing a lot of tools to game developers to help them be more efficient with download sizes. Microsoft calls it “Intelligent Delivery” and it will only download the portions of the game needed for that user’s specific setup, for instance if you have no support for 4K. One game developer, Warframe, has said that using the new tech, they plan to knock 15GB off its install size for one of their games.

Even with the newer tech, the total number of bits delivered for the downloads will still be much bigger when compared to streaming video. There is a lot of uncertainty around the impact these new consoles will have on third-party CDNs since we don’t know how many will be sold, by when and in what regions of the world. We also don’t know how many games will be sold, what size they will be and how many games will be digital only with no disc. Some of the new consoles do not support 4K, so games downloaded to those versions will also be smaller.

New console launches are positive for the CDNs involved in doing software downloads, but it’s too early to know what the overall impact will be. We need to see how well the consoles are sold and shipped, the levels of traffic they produce and what regions of the world the traffic is coming from. We also can’t use any data from the last time new consoles were released into the market as it’s just too long ago. The last console launch for Microsoft was the Xbox One S in 2016 and Xbox One X in 2017 and far too much has changed since then with regards to the overall console tech and third-party CDNs. It will be interesting to see if any of the public CDNs talk about the impact of software downloads on their Q4 revenue, if they provide any guidance for the fourth quarter. (Note: Limelight did not during it’s Q3 earnings, Akamai’s are to come on October 27th)

I will start tracing content in November when the consoles come out and collect some data from ISPs as to where they see the downloads coming from, so I’ll have more data to share in December.

Continuous Innovation Is a Competitive Strategy: Why 870 Million Monthly Users in Asia Depend on HEVC and AV1 Codec Standards

I’ve spent more than two decades in the streaming industry and the progress that many of us have witnessed, as consumers and professionals, is truly remarkable. Today, Internet-delivered video is pushing traditional broadcasters to upgrade the user-experience as consumers have learned that sometimes, as is the case with 4K, the highest quality video is often available by streaming rather than pay TV. It’s a testament to the scores of committed engineers who’ve come together to develop the underlying standards, technologies, architectures, and codecs that make it all possible.

Not only did the standards bodies need to develop the technologies and apply them, but many individuals and companies had to take a risk and adopt them. Consider where we’d be if DirecTV and the DVD Forum had not chosen MPEG-2. And it was the AVC codec standard that enabled HD video with ATSC, Blu-ray, and streaming. In turn, for the streaming industry, HEVC enabled a step function to occur in home entertainment video and streaming with 4K, HDR, and real-life colors.

As far as we’ve come, codec innovation hasn’t stalled or stopped. VVC, the successor to HEVC, is now in the wild, and the Alliance for Open Media (AOM) AV1 codec, with its powerful group of supporters like YouTube, Netflix, Twitch, Amazon, Facebook, Apple, Microsoft and others, are streaming video at bitrates that are 30%-50% less than HEVC. But, for every ecosystem that has moved through the innovation curve to sustaining technology development, the pull from entrenched legacy architectures can overwhelm even the most progressive and forward-leaning technology organizations. In this reality, five nine’s uptime and net promoter scores (NPS) become the standard that governs technology choices as consumers move from, “I can’t believe I can get the game here, even with the glitches,” to “Why did my video service go out right in the middle of the game?”

In particular, we’ve seen some media and entertainment companies in the industry pushing the pedal down hard with innovation, betting on their success if they can provide the best QoE possible. Simultaneously, there is a consistent wish in preserving legacy technology deployments and architectures, hoping to stretch the previous technology investments for another few years. The trouble with this thinking is that we are in one of the fastest moving competitive cycles the industry has ever experienced. One has to look no further than Disney, who signed up 65 million paying subscribers for their Disney+ streaming service in under 12 months. As a whole, the industry needs to embrace a spirit of continuous innovation to remain competitive with fast-moving entrants that do not see technology risk as something to be avoided but rather a competitive advantage.

It’s not that the entire industry needs an innovation “wake up call.” In my conversations with operators, vendors, and streaming services worldwide, I’ve noticed a stark contrast between video teams’ attitudes working in Asia and India, compared to the U.S. For example, Asian operators are far more likely to take some operational risk in the short term to gain a competitive advantage in the medium term. One example of Asian video services taking short term risk for a tangible benefit is the overwhelming adoption of HEVC for all content, unlike in the U.S., where HEVC is used only for UHD content. In Asia, many video services have assumed an early technology adopter stance and use advanced codecs as a competitive advantage to reduce operational cost, improve quality, and increase streaming user experience. Contrast this with leading services in the U.S. who are still mainly using the tried and true 17-year-old AVC codec even when a sufficiently high number of user devices, or their owned and controlled set-top boxes, support HEVC natively.

In the streaming industry, innovation that fosters adoption, is the surest way to compete and win. In a recent enlightening video chat I had with Zoe Liu, the co-founder of Visionular, a video encoding company with more than twenty customers in Asia and India, Zoe confirmed that almost all UGC, RTC, and premium video streaming services in Asia use HEVC; and many are in evaluation or have begun the adoption of AV1. Zoe pointed out that, “they see the bitrate savings of HEVC and now AV1 as a huge competitive driver. A new codec standard like HEVC or AV1 allows them to increase resolution while upgrading their video quality, even while the bandwidth needed stays the same or goes down. The resulting consumer experience benefit is well understood, and services are willing to do a little extra work today because the user benefits far outweigh the risk. Asian video companies’ mindset is not to adopt the latest standard is to admit that a service is not trying to be the best.”

Consumer services in Asia that have embraced advanced codec technology standards include iQIYI, Bilibili, and Huya, all NASDAQ listed companies. Far from fledgling companies, Huya is the smallest with a $6 billion market cap, while both iQIYI and Bilibili are valued at $16 billion and $16.3 billion, respectively. The business models and consumer services that these three companies offer are varied, yet, they all heavily depend on being an early adopter of video technology as a differentiation advantage. For example, iQIYI is an innovative market-leading online entertainment service operating in China with 530 million monthly active users. They are one of the largest online video platforms globally and are a member of the Alliance for Open Media (AOM) and a current user of HEVC. As an early AOMedia member, iQIYI has developed QAV1, a proprietary AV1 standard-based encoder to help them meet consumer demand for advanced technology and entertainment experiences, including UHD 4K and 8K Ultra HD.

Bilibili is the Chinese equivalent of YouTube. In the first quarter of 2020, Bilibili reported 172 million monthly active users. On August 3, 2020, Bilibili announced a strategic partnership with Riot Games, granting the video service a three-year exclusive license for live broadcasting of the League of Legend Esports global events (in Mandarin only), including the world-renowned League of Legend World Championship, Mid-Season Invitational, and All-Star Event in China. These are presumably large high profile streaming productions. Thus it says a lot to know that they are using HEVC and purport to be actively looking at AV1 and VVC.

Huya is an ultra-low latency live streaming platform that serves 168.5 million users video game footage monthly. As more than one billion people worldwide watch streamed video gameplay every month, according to GlobalWebIndex, Huya is well-positioned for growth. And this makes their choice of HEVC and AV1 all the more relevant, given that nearly half of Huya Live users are accessing the service from a mobile device. Even with HEVC hardware decoders not fully deployed across the mobile landscape, and with AV1 decode limited to software, it says a lot that Huya is willing to risk some viewers not being able to access the technology. Because of the overwhelming benefits that HEVC and AV1 can deliver to most of their users, Huya sees that early adoption of these codec standards can help them stand out against their competitors.

With consumers globally having so many choices when it comes to live and on-demand video content, and the fierce competition amongst OTT services to grab market share, video services can differentiate by taking small operational risks. The question then is what to do when a codec swap, or new technology adoption, is not as simple as cutting over to the latest and greatest standard? The value promise for most streaming services is that viewers can watch content anytime, anyplace, and anywhere. When we consider the rapid advancements in the video codec space, and with a new and “better” standard always just a few years off, video engineers and technical leaders face pressure to default to the mean of AVC. After all, the royalty situation is understood, the playback ecosystem is ubiquitous, and finding video engineers knowledgeable about x264 is relatively easy.

There is never a significant gain in business, without some sacrifice and risk. Staying the course by sticking with a legacy tech stack, I believe, could cause a video service to be unable to compete with what viewers now demand from the user-experience. After all, what do you do when your competitor can deliver higher quality video with a better streaming UX because of the lower bitrates that their technology choice enables? The answer to this dilemma is continuous innovation as a competitive strategy. When you consider that even ten years ago, Asia was nowhere close to the U.S. in video streaming capability, but is now delivering the largest streaming events ever. With 870 million monthly users in Asia relying on video standards that U.S. companies are basically dismissing as not being needed, this is a strong statement to the power of innovation and the speed that it can propel a company from non-competitive to the leader.

In the global competitive environment that we are in, and with so many entertainment options competing for our attention and time, it’s not sufficient to merely keep pace with those services that we consider to be competitors. By adopting a spirit of continuous innovation and leveraging the best solutions and technologies available, companies will be in a prime position to improve how they encode video to deliver a better experience to their users. This will put distance between those who insist on doing what’s safe, and the companies willing to move fast, not to break things, but to learn quickly to have the best possible solution.

Fastly’s Acquisition of Signal Sciences Is All About Applying Application Level Security to Edge Computing Deployments

With Fastly’s announcement of their intent to acquire web application security company Signal Sciences [see my post on the details here], it’s created some confusion in the market of what the acquisition will mean for competitors and who exactly Fastly will be competing with. I see this recent activity impacting the CDN market in three very distinct ways; increasing the criticality of and focus on security versus just bit delivery; balancing scalability and management with developer tooling; understanding the importance of the relationship between the cloud and edge compute.

As I recently wrote in another blog post, a comprehensive security solution requires DDoS mitigation, web application and API protection, protection from form jacking and Magecart style attacks, bot management capabilities, malware and ransomware protection, and the ability to manage all of these based on risk profiles versus static rules. It is only this broad-based investment over a multi-year horizon that enabled Akamai to achieve the milestone of a $1 billion annual run rate in security revenue. 

With Signal Sciences, Fastly is banking on the impact that security can have on the growth of their edge compute business, given the similar approach that both they and Signal Sciences have taken in targeting developers. Fastly and Signal Sciences have each invested to ensure their solutions can be implemented effectively in a developer-centric model, with fast on-boarding of under 30 days. Tech-savvy teams appreciate how Signal Sciences supports multiple deployment models and have made their solution available on AWS, Azure and Google Cloud marketplaces, and can be deployed as a virtual image on other IaaS platforms as well. This bodes well for helping to drive awareness with developers and to facilitate integrating Fastly’s solutions into their cloud architectures.

One challenge that Fastly will need to overcome is that they are still a new entrant in the crowded cloud security industry and as of today, they get a very small percentage of their overall revenue from their cloud security portfolio. The Signal Sciences acquisition will do little to help change that as Signal Sciences only brings 60 enterprise companies with the acquisition and had annual recurring revenue of $28 million as of June of this year. Signal Sciences will definitely help Fastly build out their cloud security product portfolio, but it will take time to do the integration once the deal is completed.

The entire deal between the two companies comes down to the idea of how important it is to apply application level security to edge computing deployments. And this idea doesn’t just relate to Fastly, but also to Cloudflare, Akamai and Amazon. To explain the idea in more detail, if you’re just running application logic like VCL or Akamai’s config language at the edge, your IP is still is still stored in centralized resources – the cloud, or the core. But if you move the entire application out to the edge, you then have to secure it at the edge. So if Fastly’s Compute@Edge product is going to be successful, it needs to have all the same security features a business would typically deploy at the core, at the edge. CDN security vendors like Fastly, Akamai, Cloudflare and others want to secure every one of their customer’s apps with a cloud WAF, but to date, these companies haven’t had an on-prem install. Getting that functionality is the main reason why Fastly is acquiring Signal Sciences, since the agent that was typically installed on-prem, now gets to run on Fastly’s Compute@Edge.

When it comes to competitors, unlike Fastly which is a cloud platform that offers a subscription-based service, Signal Sciences is an on-prem solution that monetizes via a licensing model. So from this perspective, Signal Sciences was much more of an F5 competitor versus other cloud providers in the market. Beyond licensing models, Akamai and F5 focus on enterprise customers while Cloudflare focuses on the SMB market. So Akamai, F5 and Fastly rarely see Cloudflare competing for the same deals in the market. While relatively new, the Signal Sciences web application firewall (WAF) should improve Fastly’s WAF capabilities, but it will have to be integrated into the platform to benefit from its CDN to compete with offerings from other providers. Compared to Akamai, Signal Sciences has a very small threat research team, which means that the security signals intelligence that other security providers use to differentiate their WAF rules will still take time to develop at Fastly. 

Prior to the acquisition, Fastly offered security capabilities including DDoS mitigation and WAF, but relied on partnerships with Shape, DataDome and PerimeterX for bot management. From a product perspective, Signal Sciences’ bot management capabilities are very basic and do not compare to the more sophisticated offerings from Akamai, Imperva or F5. After the acquisition, Fastly still has some work to do to execute across both the sales and product fronts of the new combined offering. A key challenge to customers is that their security teams often aren’t able to keep up with the increasing number of complex applications they need to protect. This could present a challenge as the Signal Sciences solution requires developers to code rules to account for their business logic themselves. While the solution is easy to manage via self-service tuning, manually coding rules across potentially 100s of applications will prove challenging to scale and maintain. Also, unlike other security companies, Fastly does not currently offer a managed security service or managed SOC for businesses under frequent attack, so this is a gap they may have to close.

In the coming years, every cloud and CDN vendor will increasingly align themselves to the edge and edge computing, which is already confusing today as businesses struggle to understand how cloud, CDN and edge relate to one another and how security requirements fit into the equation. Not helping the process is the fact that vendors all use the terms “edge”, “edge compute”, and “programmable edge network” interchangeably, without much in the way of definitions, use cases, or verticals they are targeting. “Edge” is a location in a network; “edge compute” is a service. They are not the same thing. This will all become more complicated before it gets simpler and I plan to do a lot of blog posts over the next 12-months explaining how edge compute services work, what type of applications are taking advantage of them, and what benefits customers are seeing. But make no mistake, there is a lot hype around “edge compute” services and the market is still in the very, very early stages, with the overall industry still figuring it out.

Fastly’s intent to acquire Signal Sciences is a very logical and positive step for Fastly to take in order to improve their security offering and show that they are investing in more robust security technology. As with all cloud security acquisitions, the multiples are very high on these deals and Fastly valued Signal Sciences at $775 million, not far off from the $1 billion F5 paid for Shape. With their intent to spend that much money, Fastly has a lot of pressure now to grow their security revenue quickly in a market dominated by Akamai. How fast they can grow and whether or not they plan to break out their security revenue for Wall Street come next year, are unknown. One thing is certain; security will continue to be a major focus as attack events make headlines and businesses push additional infrastructure into the cloud. There is enough room for multiple vendors for varying cloud security solutions, but based on revenue, everyone is playing catchup to Akamai. 

Focused Conferences Will Come Back Stronger Than Ever, Because of What Makes Us Human

Since the impact of covid on the entire world, there has been a lot of discussion about the long-term impact on conferences and trade shows that take in place in-person. We know that short-term, these events have all been cancelled and many conference organizers are using online platforms to publish content in varying forms. While many seem to think that online events will now become the norm, spelling the death of in-person conferences, the fact is that for conferences with good content and focus, in-person events are going to come back stronger than ever.

Over the past 19 years, previously with StreamingMedia.com and now with the NAB Show, I’ve had the opportunity to be the conference chairman for over 50 in-person events, across two continents, in 11 venues, interacting with over 4,000 individual speakers. Every day I talk to vendors and content owners who are all looking for ways to showcase their expertise as thought leaders, demonstrate their capabilities, fill their pipeline with leads, generate content for social platforms and meet with their largest clients and partners. While some of this can be accomplished by online platforms, no digital platform can ever replace what can be accomplished in person (and previously with a handshake).

The majority of us want to be around others, we want to read body language during negotiations, listen to the tone of someone’s voice and network and interact with other people. In order words, conferences will come back because of what makes us all human. That’s not to suggest all conferences will survive post-covid and we’ve already seen a few conference organizers that have announced their plans to exit the conference business completely. But let’s be honest here. For more than a few conferences, covid wasn’t what caused their demise. It was the fact that even pre-covid their event simply stunk. Some may not like to hear it, but it needs to be said. With or without covid their conference business would not have survived.

How many events do we need that classify themselves as a “cloud” show and say they cover “blockchain, security, IoT, hyperscale, private/hybrid/public, across enterprise, publishing and broadcast.” Events like that, trying to be everything to every vertical are already on their way out. That’s not how we consume business related content online and it’s not how we consume content in-person. The best conferences are ones that focus on the content, the user-experience, their marketing message and are relentless in their attempt to ALWAYS put the attendee experience first – above all else. Conferences that sell keynotes to companies to do sales pitches, put seven speakers on a 30 minute round-table panel just to pad their speaker lineup and don’t have a “content is king” mentality simply won’t survive. I am amazed at just how many in-person conference websites I look at where they don’t even list by name, the chairperson of the show. The content of any show is only as good as the expertise of the person putting it on.

Everyone thinks they can be a show organizer and many don’t truly understand what it takes to provide speakers, attendees and sponsors with a good user-experience, start to finish. You have to pay attention to every little detail and many overlook the little things that really make the experience better. Something as simple as brining your own doorstops to the venue to make sure session room doors don’t close loudly while someone is speaking – that’s the level of detail required. Now multiply that times 100.

I can no longer count the number of vendors, OTT platforms, studios, broadcasters and those tied to the streaming media industry who have said to me that they can’t wait till conferences come back. They miss being able to generate the sales leads that they get from focused shows and many tell me that online events don’t bring the same level of qualified leads. This makes sense because when someone takes the time and spends the money to come to an in-person event, they are already well qualified. That’s not the case when events are online and anyone can stop by to kick the tires. Companies also want to give their executives a way to get in front of a live audience to showcase their thought-leadership, be engaging, take questions and interact with others. Being able to network and meet someone at a reception that you would never have met online. Once again, doing all the things that make us human. This becomes even more needed in a digitally overloaded world.

What covid is going to do for the events that do survive is make many organizers re-think what the end-user experience needs to be and how to improve on it. And that’s a good thing for everyone. Conferences need to be personalized, bespoke and custom for each attendee. It’s a lot of work, but it can be done. Online platforms should not be a replacement for a great show, but should enhance it, adding value and reducing complexity for the attendee. Far too many events are not frictionless from the start and only add complexity with their platforms and process, demanding that attendees do things the way they want them to do it, or simply because that’s how they have done it in the past. That approach and thought process simply isn’t going to work moving forward. Covid has shown everyone how easy it is to do things online and conference organizers will need to immediately adapt and change their mentality. The best companies in the world see their business excel in times of turmoil, as they spot the opportunity, pivot and are forged in fire.

And for those wondering, yes, my Streaming Summit event in collaboration with the NAB Show will be back and better than ever. For Vegas, whenever the next event takes place, it will move into the newly expanded convention center, in the West Hall. With new conference rooms, exhibition area, dining options and plenty of space to implement any social distancing requirements, the venue is the perfect fit. When you add in the new Streaming Experience, a free area where you can see live demos of every streaming media device in the market running over 100 OTT platforms, make no mistake – we will be back! [Updated Sept 10th: the NAB Show announced new dates for the 2021 Vegas show, now taking place October 9-13. My Streaming Summit event will take place during this time. Further details to come next year.] 

Focus is key. Content is king. Frictionless is essential. Messaging is crucial. Any event that can follow these principles is going to come back stronger than ever. Not overnight, maybe not for their first show, but in the long-run their business will be better as a result of the hiatus.

Fastly to Acquire Web Application Security Company Signal Sciences for $775 Million

This morning, Fastly announced an agreement to acquire web application security company Signal Sciences for approximately $775 million in cash and stock. Signal Sciences has raised about $62M to date and had $28 million in revenue in 2019. Based on their projected 2020 run rate, Fastly is paying in the range of 19x revenue with $200 million in cash and approximately $575 million worth of stock. The deal is expected to close sometime this year after all the required regulatory approvals.

While 19x revenue may seem like a high-multiple for Fastly to pay, this seems to be the norm of what cloud security companies are going for in today’s market. Shape was recently acquired by F5 for $1 billion, on approximately $70 million in annual recurring revenue. Other recent cloud security based acquisitions by FireEye and Palo Alto Networks also valued those deals with similar multiples.

Fastly already offers some cloud based security solutions, but adding Signal Sciences to the mix will help to expand their product feature set with additional products and functionality, especially around WAF, ATO and API protection and rate limiting. Fastly is also banking on the impact that security can have on the growth of their edge compute business and the similar approach to the market Signal Sciences has with Fastly in terms of targeting developers and the importance of APIs. Fastly disclosed that Signal Sciences has 60+ enterprise customers, defined as $100k in Trailing Twelve Months (TTM) revenue, of which 70% are new accounts for Fastly and that their product line has gross margins of 85%+. This is in line with the numbers I recently gave out on Akamai’s security product line, where I estimated they have 80-85% gross margins for their cloud security services.

With Akamai having just hit a major cloud security revenue milestone for the company, and for the industry, announcing they have achieved a $1 billion run rate on an annualized basis, it’s no surprise to see Fastly take steps to buildout their cloud security product line even further. Adding in all the different cloud security services available today and the total addressable market (TAM) is in the multi-billions, if not larger. And with high-margins for vendors and developers releasing more complex apps with lots of intelligence and logic, these cloud security solutions will become even more essential for customers doing business on the web, which is basically every company. The demand for these services is going to continue to grow at a very healthy rate overall, for many years to come, which means there is a lot of room for growth for vendors that specialize in this market.

Updated 1:17pm ET: TechCrunch is saying that this deal places Fastly as a, “new competitor in the cybersecurity market“, but that’s not accurate. Fastly has already been selling cybersecurity services in the market.

Note: I’m working on a more detailed article around how this news might impact some of the competitive landscape when it comes to these services.

Akamai Hits $1B Milestone in Security Revenue: A Major Value Driver for CDN Services

Recently I published data on CDN pricing for video delivery and software downloads that focused on the commodity elements of content delivery, versus premium services like security that represent a major value driver, and high-margins, for CDN vendors. With all CDNs having just reported Q2 earnings, Akamai hit a major revenue milestone for the company, and for the industry, announcing they have achieved a $1 billion run rate on an annualized basis, for their cloud security business.

Security threat vectors continue to expand in number and type. The scope of solutions to defend against the most common attacks now includes not only DDoS protection and web application firewall capabilities, but also API protection, bot management, third party formjacking protection, content piracy protection, customer identity and access management, secure application access, and secure web gateway. With attacks and data breaches dominating news stories, a comprehensive security strategy is no longer optional and customers continue to see new applications and use cases where they need to deploy a wide range of cloud security solutions.

Lately, several cloud providers and CDNs have mitigated record setting DDoS attacks, proving that big DDoS hits are still a significant threat. There are many ways customers are adding DDoS protection, both on-prem and cloud based, but looking at these large attacks and as ThousandEyes highlighted in a DDoS attack against GitHub, it’s important to understand the bandwidth limits of a DDoS mitigation solution to ensure they actually keep the site online if you’re targeted. With the massive surge in online traffic during the pandemic, looking into the capacity of a solution provider, the customers on their platform, and how they have architected their solution to avoid disruption if one of their customers is attacked, are critical to vendor selection in this area.

Verizon recently reported that web application attacks doubled since last year, and another growing security service for CDNs is offering web application firewall (WAF) products. Selecting a WAF vendor can be particularly challenging, as Jaspal Jandu, the group CISO at DAZN highlighted, “The challenge is finding skilled security professionals who understand the need to balance business opportunities against the risks of a rapidly changing world.” The issue with WAF solutions is that some providers offer a basic solution that requires customers to code rules themselves. This is challenging if the customer doesn’t have a group of security experts who also understand their business logic because a high degree of false positives disrupts business, whereas a high degree of false negatives can lead to compromises, fines, and brand damage. When it comes to web application and API protection, it pays for customers to ask their vendor about the availability of proprietary rulesets, curated rules, and the availability of services to tune rules to suit their business.

But there is an even more pervasive threat to digital businesses that stems from increasingly sophisticated bots. Researcher Troy Hunt recently loaded his 10 billionth stolen credential to haveibeenpwnd. His site and research point to the fact that credential abuse and account takeover are an increasingly lucrative criminal enterprise. During the launch of Disney+, I saw first-hand how you could easily buy stolen accounts from third-parties openly advertising them for sale on Twitter.

Experts highlight that bots, and especially low-cost, turnkey bots that come with out-of-the-box evasions to solve CAPTCHAs, or load large databases of proxy servers to stump basic WAF protections make this a very difficult problem to solve. Simple IP blocking or rate limiting cannot protect against purpose-built all-in-one bots like AIO bot that are designed to evade detections. This explains why CDN providers and others have been snapping up a lot of bot detection companies and building out their mitigation capabilities. Last year we saw Barracuda acquire bot mitigation technology from InfiSecure; Adjust acquired bot detection specialist Unbotify; Distil acquired bot detection company Are You A Human; Imperva Acquired Distil Networks; Radware Acquired ShieldSquare; and Goldman Sachs Merchant Banking Division invested in ClearSky Security.

I continue to see CDN companies compete for video and software download traffic share as customers add to and shift their multi-CDN architectures, especially as they expand video services internationally. But increasingly, the ability to deliver comprehensive and effective security solutions has long since become a key differentiator. Additionally, while the CDN market tends to be more fluid with regards to pricing changes, we can expect that pricing for security services will likely maintain a value-centric premium for some time to come. In a recent survey I conducted of 238 cloud security customers, asking about their deployment architecture, spend per year, preference for bundling security with other cloud/CDN services, pricing changes and transition from on-prem to cloud, the data showed almost no decline in pricing year-over-year. Overall, pricing for cloud security solutions is quite stable.

There are a lot of ways vendors can show differentiation amongst competitors in product functionality and customization and most importantly for vendors, the margins on cloud security solutions are very healthy. In the case of Akamai they don’t disclose margins for just their cloud security business, but I estimate it to be in the 80-85% range. At $1 billion in revenue, Akamai is well ahead of the pack by a big order of magnitude. While Cloudflare said they expect to do $404M-$408M in revenue this year, I estimate the percentage of their revenue that’s tied to cloud security solutions, to be in the $80M-$100M range. With Akamai being 10x that in security revenue, this milestone shows the magnitude of their continued dominance as the market leader for cloud security solutions among CDNs. The company has done an incredible job at growing their revenue over the past five years and the rest of the business continues to benefit from the high-margins their security product line produces.

Fastly Q2 Earnings: Revenue of $75M, up 62% y/o/y; Loss of $14M; Raises Full-Year 2020 Guidance to $290-$300M

Fastly announced their Q2 2020 financial results on Wednesday and here are the highlights:

  • First quarter of positive EBITDA
  • Revenue of $75M, up 62% y/o/y; Loss of $14M
  • Total customer count increased to 1,951 up from 1,837 in Q1 2020 — the largest quarterly growth since their IPO
  • Total enterprise customer count of 304, up from 297 in Q1 2020
  • Average enterprise customer spend of approximately $716,000, up from $642,000 in Q1 2020
  • Capital expenditures of $3.1 million, or 4% of revenue
  • As of Q2 2020, Fastly was in 55 markets, providing access to 100 Tb/sec. of global network capacity
  • Stock down -$15.85 (14.55%) after hours as of 5:15pm ET
  • Q2 shareholder letter here

Year To Date, U.S. Pay TV Companies Have Lost 3.4M Subs, With More Losses On The Way

Amongst some of the top pay TV providers, combined to date, they have now lost 3.4M pay TV subscribers in the U.S., since the beginning of the year. And that number is expected to go up as Dish has yet to report Q2 earnings when I expect they will announce additional pay TV losses. Some predicted that when the pandemic hit, the rate of pay TV losses would really jump in Q2 when compared to Q1, especially due to the lack of live sports, but that didn’t happen. The rate of decline quarter-over-quarter remained steady. Here’s a breakdown:

  • Comcast: 477,000 (Q2 lost) – Comcast: 409,000 (Q1 lost)
  • Verizon: 81,000 (Q2 lost) – Verizon: 84,000 (Q1 lost)
  • AT&T: 886,000 (Q2 lost) – AT&T: 897,000 (Q1 lost)
  • Charter: 102,000 (Q2 added) – Charter: 70,000 (Q1 lost)
  • Altice: 43,000 (Q2 lost) – Altice: 42,000 (Q1 lost)
  • WOW!: 14,000 (Q2 lost) – WOW!: 25,000 (Q1 added)
  • Dish: Waiting On Numbers (Q2) – Dish: 413,000 (Q1 lost)
  • Mediacom: Waiting On Numbers (Q2) – Mediacom: 54,000 (Q1 added)

When we see cord cutting taking place in the market most automatically assume that all of these subscribers are simply replacing their cable TV packages with streaming options, but that’s not the case for the majority of them when it comes to live streaming. Of the live streaming services in the market offered by Hulu, YouTube, AT&T, Sling TV, Fubo, ESPN+ and CBS All Access, all combined they probably have’t grown their subscriptions by 3.4M subs since the start of the year. I say probably as Google didn’t disclose YouTube TV subscription numbers on their last earnings call and  AT&T and Sling TV subs declined. We have earnings in the next few days from Disney, ViacomCBS and Fubo, but we don’t know if they will update us with subscriber numbers.

I think Q3 and Q4 of this year are going to be the most important quarters to look at for the pay TV market since we have so much uncertainty around live sports and original content coming back. And if consumers end up staying home more in the second half of the year than previous years, and the NFL or other content isn’t available, it will impact what we see in pay TV losses for the year.

Updated 5:43pm ET: Disney Q3 earnings are out and in the past 9 months, Hulu only added 200,000 subs to it’s Live TV offering. More details on Disney’s earnings here.

Recap: Google, Apple, Facebook, Amazon and Comcast Q2 Earnings

Alphabet Q2 Earnings: Google’s first ever revenue decline, ad revenue down 8%. Total revenue $38.6 billion, down 2%; YouTube ad revenue $3.8 billion, up 6%, but down from $4.04 billion in Q1; Cloud revenue $2.7 billion, up 43%.

  • Total revenue of $38.6 billion, down 2%, total profit overall of $6.4 billion
  • Ad revenue down 8%, a first for Google who’s previous advertising revenue had risen every quarter of its 22-year history
  • YouTube ad revenue of $3.8 billion, up 6%
  • Cloud revenue of $2.7 billion, up 43%
  • Google’s board of directors has authorized an additional stock buyback of $28 billion
  • No update on the number of YouTube TV subscribers
  • Stock is up $11.63 (+0.76%) after hours, as of 6:09pm ET

Apple Q2 Earnings: Announces 4-for-1 stock split. Revenue of $59.7 billion, up 11%, Services revenue of $13.1 billion, up 14.8%; iPhone revenue of $26.4 billion, up 1.6%. (all y/o/y) No guidance for Q3. More details:

  • Announces 4 for 1 stock split
  • Will release its fall update of iPhone models a few weeks later than usual, pushing the release into October
  • iPhone revenue of $26.4 billion, up 1.6%
  • Services revenue of $13.1 billion, up 14.8%
  • Mac revenue: $7.08 billion, up 21%
  • iPad revenue: $6.58 billion, up 31%
  • Other Products revenue: $6.45 billion, up 14.8%
  • Sales in China rose slightly to $9.33 billion
  • Stock is up $16.54 (+4.93%) after hours, as of 4:46pm ET

Amazon Q2 Earnings: $88.9 billion, up 41% y/o/y; AWS revenue of $10.8 billion, up 29% y/o/y. Invested $9 billion in capital projects. More details:

  • Revenue of $88.9 billion, up 41%
  • AWS revenue of $10.8 billion, up 29%
  • Amazon provided a one-time Thank You bonus totaling over $500 million to all front-line employees and partners who were with the company throughout the month of June
  • Invested over $9 billion in capital projects, including fulfillment, transportation, and AWS
  • Prime Video introduced Prime Video Profiles, allowing customers to create and manage up to six profiles within a single account
  • Announced new live content integrations on Fire TV from YouTube TV and Hulu, and expanded discovery options including the new Free tab which helps customers find free movies, TV shows, and more
  • Amazon expects to spend roughly $2 billion in coronavirus-related costs during Q3
  • Stock is up $186.12 (+6.10) after hours, as of 4:27pm ET

Facebook Q2 Earnings: $18.69 billion; Monthly active users of 2.7 billion, increase of 12%; Daily active users of 1.79 billion, increase of 12%. More details:

  • Facebook daily active users (DAUs) – DAUs were 1.79 billion on average for June 2020, an increase of 12% year-over-year
  • Facebook monthly active users (MAUs) – MAUs were 2.70 billion as of June 30, 2020, an increase of 12% year-over-year
  • Family daily active people (DAP) – DAP was 2.47 billion on average for June 2020, an increase of 15% year-over-year
  • Family monthly active people (MAP) – MAP was 3.14 billion as of June 30, 2020, an increase of 14% year-over-year
  • Expects quarter year-over-year ad revenue growth rate for the third quarter of 2020 to be roughly similar to this July performance
  • Stock is up $13.00 (+5.14%) after hours, as of 4:15pm ET

Comcast Q2 Earnings: Lost 477,000 pay TV subscribers; 10 million sign ups for Peacock TV; Revenue of $23.7 billion, a decrease of 11.7% year-over-year. More details:

  • Cable Communications Total Customer Relationships Increased by 217,000 in the Quarter, the Best Second Quarter Result on Record
  • Total High-Speed Internet Customer Net Additions Were 323,000, the Best Second Quarter Result in 13 Years
  • Broadcast Television revenue decreased 1.6% to $2.4 billion, reflecting lower advertising revenue, partially offset by higher content licensing revenue and distribution and other revenue
  • Filmed Entertainment revenue decreased 18.1% to $1.2 billion in the second quarter of 2020, primarily reflecting lower theatrical revenue
  • Cable capital expenditures represented 9.3% of Cable revenue compared to 10.3% in 2019
  • Launched Peacock, NBCUniversal’s New Highly Anticipated Streaming Service, Free to Xfinity X1 and Flex Customers on April 15, Ahead of National Debut on July 15, With 10 Million Sign-Ups to Date
  • Sky Successfully Retained 99% of Total Customers and 95% of Sports Subscribers
  • Stock is down $0.16 after hours, as of 10:26pm ET