With the launch of the Disney+ streaming service taking place November 12th, there has been a lot of speculation on Wall Street on what the value of that video traffic might be to Akamai and other CDNs. Two weeks ago, PiperJaffray put out a report saying that by 2024, the Disney+ traffic business “could result in $68M in revenue for Akamai.” And when combined with traffic from Hulu and ESPN+, Disney could be a “>$100M Media customer by 2024.” I’ve been getting so many questions about these numbers that I thought a blog post that details some of the costs and deployment details would be helpful. There are also some statements made in the Piper report that are inaccurate and need correction.

No one, including Disney, knows what the company will spend to deliver Disney+ video traffic five years from now. It’s high-level speculation since we don’t how many subscribers they will have, how many hours each subscriber will watch, what the average bitrate will be across all devices, and what percentage of Disney’s traffic will be served by third-party CDNs. Disney could build their own CDN long before 2024 if they wanted to and they could also work directly with ISPs to cache Disney+ content inside last-mile networks, like many of the large OTT platforms do today.

It is inevitable that at some point Disney will do it themselves, especially since they have the in-house expertise to go DIY and Disney+ content is all on-demand. With the expectations for the success of the Disney+ service, scale and economics will dictate they go DIY. Some OTT providers have suggested that when a service gets to 20M subscribers, that’s the threshold from a size and scale standpoint of when it makes sense to consider building your own CDN. Piper’s report says the probability of Disney building their own CDN is “low” suggesting “it would take >5 yrs for Disney to get full distribution.” Of course, that’s not the case at all and Piper doesn’t understand the costs or time involved in deploying a purpose-built CDN.

One of Piper’s arguments in their note against Disney going DIY is the argument that, “Akamai has been transparent that it would take a new “do-it-yourself” (DIY) service at least five years and over $2B in capex to come close to being able to deliver static content,” but they are taking what Akamai has said out of context. At no time has Akamai suggested it would take Disney $2B to build out their own CDN. That reference Akamai has made in the past is their belief on what it would cost a company to do a DIY offering that would compete with Akamai from a services standpoint, with Akamai’s scale, which of course isn’t what Disney would be building. Disney could build out a CDN for the delivery of Disney+ content for under $100M in initial CAPEX costs. It’s not costly or difficult for Disney to do, especially for VOD content, hence why companies like Blizzard, Apple, Netflix and others have done it.

Disney Streaming Services are like the Special Forces of the video industry and are the best at what they do. They built the first OTT video service in the market 17 years ago with MLB.TV and if they wanted to build their own CDN, they could do it quickly and cost-effectively with a great quality of service. Piper also suggests that [third-party] “CDNs now provide a lower-cost option compared to the pre-DIY wave“, but that’s not what Disney cares about. Cost isn’t their focus, quality is. Disney isn’t looking for “lower cost options”, they want the best user experience they can provide.

Disney will go DIY with their video delivery, the question is when. For Piper to suggest the probability is “low”, that’s a bad bet to take. What Disney’s DIY deployment will look like from an architecture standpoint is unknown, but come 2024, third-party CDNs will not be delivering the majority of Disney+ traffic. It should also be noted that the senior technical team at Disney Streaming Services are behind an open caching initiative via the Streaming Video Alliance and not only helped write the technical spec, but Disney’s CTO for their Streaming Services group sits on the board of the SVA and is the President. There is a reason why Disney Streaming Services are helping to design and push an open caching initiative, because it would help themselves and others in the industry.

When Disney+ launches multiple CDNs will be used to stream and download the on-demand videos. Of all the CDNs, I’m told CenturyLink (formerly Level 3), has the largest percentage of Disney’s traffic as it stands today, based on volume. It’s widely known that Disney Streaming Services and CenturyLink have had a great working relationship for a very long time. Akamai is also one of Disney Streaming Services primary CDNs and I expect when Disney+ launches internationally, Disney will use at least four CDNs including CenturyLink, Akamai, Limelight Networks, and Fastly, with the latter two being critical for Disney’s international launch. I would not be surprised if Disney also uses Fastly’s Media Shield product, which would allow Disney to optimize their multi-CDN deployment across all providers.

What percentage of traffic each CDN will get for Disney+ traffic is unknown, because for Disney, service quality is paramount and they will shape traffic across a multi-CDN strategy based on how CDNs perform, just like they have always done. So traffic share will shift amongst CDNs based on performance, potentially as often as each day. The PiperJaffray report says that Akamai’s management team expects to receive the “lion’s share” of Disney+ traffic, however their report doesn’t quote an Akamai person by name and it contradicts what I’ve been told directly. I have personally heard Akamai say they will work hard to try and get as much of Disney’s traffic as possible, but at no time have they implied or suggested that they “expect” to get the “lion’s share”. If Piper is going to quote Akamai on that, I suggest they give attribution, otherwise it’s hearsay.

With all that said, let’s look at the numbers in the PiperJaffray report and break those down based on the estimates they used. Disney has said they expect between 60M-90M subscribers for Disney+ in five years. The report also suggests users will watch two hours of video per day and that by 2024, 9% of the traffic will be in SD, 61% in HD, and 30% UHD. Based on that blend and hours of viewing, PiperJaffray expects each user to consume 2.4Tbps per year, or 200GB per month. But nowhere in the report does it say what bitrates they used to come up with the total bits delivered number or what percentage will be on a smaller screen. The bitrate for HD on an iPad versus a TV is very different in size so just saying 61% of viewing in HD isn’t detailed enough. They do say that “HD and UHD generate ~3.6x and ~8.4x more bytes compared to SD”, but they don’t break out what bitrates they are comparing that to. 3.6x more than what?

But using their numbers and the average bitrate per SD, HD and UHD, that most would default to in the market today, (SD 800Kbps, HD 4Mbps, UHD 12Mbps) the total number of bits delivered would equal 158GB per month, or 1.9TB per user, per year. That’s 20% fewer less bits than they suggest. And on top of the lower number, videos delivered to mobile typically take up 70-75% fewer bits than to a TV screen. So you have to factor in the percentage of hours each month that a user will watch on a mobile device, something the Piper reports doesn’t include.

Even if you estimate that only 10% of total viewing time per user, per month, is on mobile, that drops the total number of GBs delivered per month to 120GB, per user. That’s 40% fewer bits than the Piper report suggests. And that’s without factoring in the possibility that five years from now, Disney+ content could be encoded using Av1, which could reduce the current number of bits delivered by at least 30% or more.

On the pricing front, the Piper report is way off on what Disney would pay on per GB delivered model. The report says, “we believe in today’s pricing world, Akamai would be charging ~$0.006 globally per GB per month to deliver this volume of traffic.” That number is too high. The report goes on to say that, “Given typical annual pricing contraction in the space is 20-30%, our base case assumes Akamai would be charging $0.0011 globally on average per GB per month in 2024. Our downside and upside cases imply 30% and 20% annual pricing declines, resulting in $0.0007 and $0.0016 per GB per month, respectively.” This is way off. Piper is using incorrect numbers to make their estimates both on total GB delivered per month, per user, and the cost per GB Disney would pay today, and five years from now.

Based on Piper’s numbers, they say Disney would spend $196M in total in 2024, to deliver Disney+ traffic to 75M subscribers and that Akamai would get 35% of that traffic, making the business worth $68M in revenue to Akamai in 2024. There’s also an odd reference in the report to Akamai’s pricing saying that Akamai is “charging ~$0.006 globally per GB per month to deliver this volume of traffic“, saying that pricing “would represent an over 80% discount to what lower-quality competitors are offering at scale today.” Akamai isn’t at an 80% discount on any of their services and Piper doesn’t define what they mean when they say “lower-quality competitor“? There is also another instance where Piper says, “with Akamai expected to receive the “lion’s share” [of Disney+ traffic] (not necessarily the majority share.)” Lion’s share means, the largest part of something and majority share means, the greater part, or more than half, of the total. So how is the lion’s share not the majority share?

The Piper report also makes multiple references to Netflix trying to compare pricing to their delivery before they went DIY, which is simply incorrect. In one instance they say, “When Netflix chose Akamai to deliver its streaming traffic in 2010, IHS reported that for the first few months, Akamai would charge Netflix $0.015 per GB per month. After the promotional period, the price would increase to $0.06 per GB per month.” In 2009 I wrote a detailed blog post on Netflix’s cost to stream their videos and the average price point from third-party CDNs was $0.03, or half of what Piper suggests. [Detailing Netflix’s Streaming Costs: Average Movie Costs Five Cents To Deliver] The average bitrate in 2010 wasn’t anything near what it is today, nine years later. Piper is using data that can’t be correlated or compared to today’s market conditions in any capacity.

The report also brings Disney property Hulu into the mix saying, Hulu could be a ~$33M customer for Akamai by 2024. All-in, Disney’s properties of Disney+, Hulu, and ESPN+ could result in Disney being a well-over $100M Media customer by 2024.” But nowhere do they break out how they come up with the $33M revenue figure, especially considering some of Hulu’s traffic is live, which has very different pricing methodology behind it and very different data consumption.

Piper also suggests that, “one trend we could see over the next few years is the shift of Akamai’s Media business for OTT and online gaming specifically shift towards subscriber-based pricing.” Their rational for that is that cloud and email security companies have historically been successful with this pricing model. What does email security have to do with OTT video delivery? Beats me, but OTT providers are not going to move to a per-user pricing model for purchasing video delivery from third-party CDNs as they won’t want to pay for something a user might not use. It’s not an efficient model at all for SVOD OTT providers.

So what is the value of Disney+ video delivery to third-party CDNs in 2024? No one knows since we don’t have enough details on the service. But looking at real numbers like average viewing hours per month, a realistic split of viewing on mobile versus large screens and the fact that the traffic will be split out amongst multiple providers, in different regions of the world, we can take a more realistic guess at the numbers for next year. Based on 15M subscribers, with 30% of viewing on mobile, and 60 hours of viewing a month, with 10% of usage being in UHD (all of which are high estimates for viewing and UHD split) the total spend for Disney in 2020, to deliver just the video bits to 15M Disney+ subs, would be about $4M in total. [90GB per month, per user, at $0.0025 per GB delivered] This is per month, so $24M for the year.

Added July 7th: It will take Disney time to ramp to 15M subs by the end of 2020. Since they won’t have that, I don’t think, by January 2020, their monthly spend would not be $4M a month right off the bat, hence why it’s not $4M x 12 months. So you have to take into account the scaling to 15M subs, which is what the $4M a month number is based off of.

Note that the $4M per month figure would be just for pure bit delivery and Disney could have some additional charges on top of that for other functionality or services tied to the delivery of video.

If you have further questions on this topic, feel free to reach out to me at any time. mail@danrayburn.com or 917-523-4562.

Disclaimer: Outside of Netflix, Apple and Facebook, I have never bought, sold or traded any shares in any other public company and have never owned shares in any CDN.

I am pleased to announce that I will once again chair the Streaming Summit, a two-day event that focuses on the business and technology of OTT video, in conjunction with the NAB Show New York conference, taking place October 16-17 in NYC. The call for speakers is now open along with discounted registration and sponsorship opportunities.

The Streaming Summit will feature 100 speakers, across two-tracks and will be a combination of fireside chats, best practices technical presentations, case studies and round-table sessions. Unlike other events, the Streaming Summit’s content will be extremely focused on the real-world challenges and opportunities in today’s OTT market. No sales pitches and no sessions with seven speakers crammed onto one panel. We’ll also have some great networking opportunities around the event and expect more than 500 attendees, out of the 10,000+ attendees to the NAB Show in NY.

Attend the event and learn how to capitalize on direct-to-consumer (DTC) offerings and hear how some of the largest companies in the world are monetizing their video library and building a brand relationship with their customers. In addition to the Streaming Summit’s focus on business models, on the tech side, consumers expect the best video quality on their devices and TVs anywhere, anytime. Hear how video providers are continuously improving their video workflows to give their audience the best possible viewing experience across packaging content, transcoding, media management, playback, and analytics.

Those interested in moderating should reach out to me with their ideas now! and anyone looking to get involved, speak, sponsor, or attend can reach out to me directly at 917-523-4562 or mail@danrayburn.com. I will begin placing speakers immediately and we’ll also have some great industry partners involved in the event this year, helping to produce content around topics pertaining to AVOD, SOVD, advertising metrics and bringing in brands and agencies to share their expertise.

And of course, we’ll still have many of the best OTT platform, broadcast, publishing and live linear companies represented as speakers, with last year’s lineup including: Hulu, Amazon Prime Video, NBC Sports, Disney, CBS Interactive, Discovery, AT&T, Google, Facebook, LinkedIn, Roku, NBA, FOX Sports, Sling TV, Comcast, Fubo TV, Viacom, Washington Post and many others. 

Thursday night, CDN provider Fastly will price their shares and go public Friday morning under the ticker FSLY, looking to raise around $170M, with shares expected to price between $14-$16 a share. At the higher end of the price range, it would value Fastly at around $1.4B. The company has raised $219M to date and ended 2018 with 449 employees.

Fastly had $144.6M in revenue in calendar 2018, up 37.8% from its $105M in revenue in 2017. The company lost $30.9M in the 2018 calendar year, down 4.7% from $32.5M in losses in 2017. As of December 2018, 84% of Fastly’s revenue is derived from 227 enterprise-sized customers with each of those customers accounting for $530,000 in yearly revenue. [S-1 Filing]

On Wall Street, the biggest question I’m being asked is whether or not Fastly can become a $500M company in 3 years and hit $1.5B in revenue within 10 years, while also increasing margins in the 70% range. While it’s too early to be able to answer the question, based on what I see in the market I think the 3-year target for Fastly is doable. I closely track the size and growth rate of the markets Fastly is in, talk to and survey over 1,000 customers a year who use these services and I see the use cases that are coming with compute at the edge. 

All of this data adds up to a much bigger growth opportunity for these services over the next few years as more customers demand greater flexibility and better performance across their entire IT business stack. I’ve also known Fastly as a company for a long time, and am impressed by how disciplined they have been over the last few years from an operational level, across product, sales and marketing. The company has done an amazing job over the last 2-3 years disrupting on performance, ease of use, flexibility, and price. But make no mistake, Fastly isn’t selling on price. The company is winning on performance, the functionality of their services, being extremely quick and nimble, and simply doing it all at a lower price than competitors. 

Fastly is very good at passing on business that isn’t strategic and/or is priced too low and they don’t sign contracts simple to “fill the pipes”. Fastly isn’t trying to have a product portfolio for every sized customer, in every vertical and for every use case. They are very strategic on how they roll out services into new markets and target certain sized customers with use cases that solve specific problems. As a result of Fastly’s success to date, most are naturally wondering what impact Fastly is having on Akamai as Fastly raises more money, and what that competitive threat looks like going forward as Fastly continues to grow. 

While Fastly is pressuring Akamai in many segments of their business, winning deals on performance, price, and ease of use, there is only so much business Fastly can take from Akamai each year, simply based on their size. By my estimates, Fastly gets exposed to about 10% more of Akamai based contracts each year. So Fastly isn’t going to take a huge percentage of Akamai’s business overnight. But that doesn’t mean they can’t disrupt the entire market by forcing other CDNs to do a better job competing on price and performance, which they are doing.

Fastly has done a great job growing their business past the $100M revenue mark, which is where most CDNs in the past have stumbled. But from day-one, Fastly’s been a different CDN, targeting and specializing in the web performance market, not video streaming. From a network standpoint, Fastly has built a very different underlying network architecture, and as a result, is adding capacity without anything close to the CAPEX costs others CDNs are spending. Fastly has no routers or switches and its strength is the fact that they operate a software defined network with a footprint of 1,596 servers (as of March 31, 2019) across 60 POPs. If you want to geek out on how Fastly deploys their infrastructure, check out this video presentation by them from last year.

A big difference between Fastly and Akamai is the fact that Fastly is one network, for all of their services. A single network. Akamai has many networks, all built for a specific use case, for instance video, TLS, etc. which makes it hard to achieve efficiency at scale when you are buying and operating so many networks for each purpose. But one of the most important aspects of Fastly’s network deployment is the fact that they are a programmable edge. And while everyone uses the term “edge” without ever defining it, here’s how to think of the uniqueness of Fastly. 

If a customer builds their own DDoS, paywall, or image optimization service, they can run it from the edge on Fastly’s network. Nearly every other CDN requires the customer to have to use their DDoS, or image optimization service and doesn’t support the running of third-party applications on their infrastructure. Running applications and compute at the edge, that’s where this market is headed, which is why Fastly calls themselves an “edge cloud”. And CDNs that don’t have that functionality at scale, with flexibility and performance, are going to struggle to grow their business as more customers in the market require the functionality. This is exactly why it’s an area Akamai has said they are “increasing their investment” in that functionality.

Fastly is on a great path to continued growth but we need to watch how they scale their business over the next few years. As they begin to enter new verticals like banking and finance, a vertical that Akamai downright owns, how quickly can Fastly grow their revenue in new markets? How much can they grow their wallet share with current customers and increase their margins? Fastly rightly deserves credit for what they have already done and the expertise they have proven in the market. But now their work really begins to take their business to a whole new level and scale their network, revenue and customer base, with the target of being profitable. They will be a fun one to watch.

Note: I have never bought, sold or traded a single share of stock in any public CDN company ever. I am not receiving nor buying any shares in Fastly. My stock purchases have been restricted to Apple, Netflix, Facebook and NVIDIA.

I’ve recently completed my bi-annual survey of customers taking media delivery services from third-party CDNs and the data shows pricing on very large deals is now down to an all-time low of $0.001 per GB delivered. That’s one tenth of one penny and is the lowest pricing I have ever seen in the market. [If you are interested in purchasing all of the raw data including pricing, traffic growth, contract terms, CDN(s) used etc. – minus customer names, please contact me.]

That’s not to suggest that all customers for media delivery services involving video streaming and software downloads are paying one tenth of a penny per GB delivered, some are still in the $0.003-$0.005 price range per GB delivered. But for the largest customers, $0.001 per GB delivered is now the lowest price in contracts. With customers having so many different CDNs to choose from, both regionally and globally, and the ease of use of switching between multi-CDN vendors, media delivery simply isn’t a sticky product. Customers have a lot of choice and flexibility when it comes to video streaming and other media services and all of the mid-tier and larger customers have been using multiple CDNs for some time, with that trend growing.

Amongst all the major CDN providers, pricing for media delivery services is pretty on-par with one another, especially on new deals, and some CDNs, in particular Fastly, are passing on deals where the price is too low. Amazon Web Services is still very aggressive on price and loves to keep pushing pricing down, but customers need to be wary of Amazon’s egress charges which sometimes, can be larger than the CDN bill itself. [See my post here on that topic]

At the $0.001 per GB delivered price point it leaves almost no room for any CDNs to be profitable purely based on that traffic alone, so CDNs are finding other ways to squeeze out some profits. For example additional fees around low-latency, HTTPS, and live events. In most cases, for large one-off live events, customers also have to pay an RSVP fee for capacity, even if they don’t use it and they are charged based on a per Tbps sustained model. That’s not to say live events are a big revenue driver for CDNs, they aren’t, not even the Olympics or the Super Bowl.

Most large scale one-day live events are worth at most, a low six figures to any one CDN for the video delivery and don’t really move the needle from a revenue growth standpoint. But the point is that CDNs bundle media delivery in with other services and in some cases can charge certain customers for other pro-services help. The largest CDN customers don’t buy based on per GB delivered but rather on a per Mbps sustained model and many times, that is bundled in with other non-media services all wrapped up into one price per Mbps, across all of the vendor’s services.

Of course at the $0.001 per GB delivered price, many are going to suggest doom and gloom for the CDN vendors in the market, since pricing is still falling and Amazon Web Services continues to be so aggressive overall. While CDN vendors are still needed in the market and will continue to grow, it will be slow when it comes to OTT video delivery in particular. The largest growth of video on the Internet is being done by companies like Netflix, Facebook, Google, Microsoft and others who do all or most of the delivery themselves. Yes, we do have quarters where someone like Apple or Microsoft will give third-party CDNs more traffic, but it’s short lived. 

And even with new services coming out from Disney, Apple, AT&T and others, much of that will be delivered from the customer themselves. And the portion of traffic for new OTT services that does go to third-party CDNs will be split amongst multiple vendors. So if you think new OTT traffic is going to drive a big upswing in revenue to any CDN vendor quickly, you’ll be disappointed. Video traffic on CDNs is growing, but organically and it’s the product with the least amount of margin and the highest portion of CAPEX.

You also have some OTT services LOSING subscribers, as is the case with AT&T’s DIRECT NOW service, which lost 350,000 streaming subscribers in the last six months, which means less traffic to multiple CDNs, for that specific customer. AT&T is also currently in the stages of building out their own CDN for their WarnerMedia OTT product for those on AT&T’s network and I would expect that over time, some other new big OTT players might go the DIY route as well.

It’s also important to note that when CDN vendors say the gaming vertical is one showing good growth, it’s simply downloads of gaming content. No traditional CDN is doing the actual live streaming of multi-player gaming. That’s not something the CDNs offer and if you want to know all the details on how multi-player gaming video streaming is done, game companies like Riot and others have tons of technical details on their blog.  CDNs do help the gaming companies primarily with large software downloads and that’s still a great segment of the market for all CDN vendors, but third-party CDNs will not be “streaming” any video for Google’s Stadia cloud gaming service or the like.

Adobe Media Server (AMS), formerly Flash Media Server (FMS), and RTMP were always a bit ahead of their time.  Initially designed as a development platform for interactive, real-time communication (think Zoom or Webex circa 2003), the product ended up taking hold in low latency video streaming and helped birth the web video streaming industry. Today with interactive video and communication the core part of services such as Twitch, eSports and online betting, Adobe Media Server and RTMP may be headed for another day in the sun.

Under agreement with Adobe, a company called Veriskope plans to sell, support, upgrade, and enhance the Adobe Media Server (AMS), the RTMP SDK and several related video products worldwide. The company has entered into a global licensing agreement with Adobe to manage all aspects of Adobe Media Server business including global distribution, support, product development and operations. Veriskope is made of former Adobe and Macromedia alumni including Sarah Allen, Craig Barberich and Robert Pierce, whom worked on or led the development of Adobe Shockwave Multiuser Server, Adobe Flash Media Server, Flash video and Adobe Media Player.  

Thousands of education, government, enterprise and media companies continue to use the Adobe Media Server and the RTMP SDK for online learning, real-time communication, live sports content ingest, live event streaming and online corporate training. The partnership between Adobe and Veriskope will provide these customers assurance they can continue to use Adobe Media Server and RTMP into the future. Veriskope will also provide services to help existing customers modernize and migrate from legacy Flash experiences to new web native HTML experiences.  

Veriskope ‘s service offering for AMS customers includes software licenses, upgrades, support plans, and product enhancements for Adobe Media Server, RTMP SDK, Flash Media Live Encoder and the Adobe Media Gateway.  In addition, the company is offering professional services support including migration services to help customers quickly move from Flash UI experiences to native web HTML, engineering services to design and architect new solutions, and training to help companies more effectively utilize the products.

Veriskope says their immediate plan is to focus on supporting existing AMS and RTMP SDK customers with the short term goal of providing a low risk, cost effective solution that allows thousands of AMS customers to transition from a Flash user experience to web native HTML experience.  

So does this mean that Adobe Flash will continue? The exciting part about AMS and the RTMP SDK is that it does not require Flash. RTMP was designed to be open and support different types of client software. Today AMS supports HLS and in the near future, Veriskope hopes to make announcements about supporting other web native formats.  The company will continue to support customers who use Flash and AIR for on-device experiences in cars, on boats, on industrial devices and more. AMS is not Flash. RTMP is not Flash. AMS and the RTMP SDK provide scalable, interactive video infrastructure that works across the web, the cloud, the edge and more.

As you look a few years into the future there are many standard features of the AMS and the RTMP SDK products that are more relevant today than when they were introduced — time synchronizing video, messaging and data for gaming, eSports and betting; proven low-latency ingest and contribution for live events, elearning and user-generated content; video and AI merged on the smart edge in IOT, manufacturing and retail and last but not least, the future of interactive communications.