The Streaming Media East show is only four months away, taking place May 13-14 in NYC and the call for speakers will close soon. If you want to be considered as a speaker, get your request in now! I already have hundreds of speaking proposals and am actively working on the advance program, which I will publish in about two weeks. I’ve already locked in topics in the program including webcast platforms, transcoding, business of 4K, video players, HEVC, monetizing premium content, viewing TV via apps, DASH, connected devices and a lot more to come. We’ll have more than 100 speakers and 30+ sessions and presentations over the course of two days.

So if you want to be involved, especially as a moderator – you need to contact me now with your ideas.

The call for speakers for the Content Delivery Summit, taking place the day before Streaming Media East, on Monday May 12th, will open shortly along with the launch of the new website.

When vendors and industry executives go to a show like CES, none of them seem to be satisfied to talk about what they are doing now. Almost always, they want to talk about the future and something more exciting and for this year, it’s all about 4K. All week we’ve seen companies talking about the role HEVC plays with 4K, improved compression, higher-quality video and hardware devices that will be able to decode and playback 4K content. While it all sounds exciting, the reality is, no one is discussing the business models around 4K streaming and the fact that for most, the economics of delivering 4K content don’t work.

This week we’ve heard a lot of technical talk about encoding, chips and devices, but no one is addressing the cost or QoS issues associated with 4K streaming. Lots of vendors are saying how HEVC “solves the 4K challenge”, but that’s just a technical challenge. What about the business challenge? I have yet to see a single vendor even mention it. No service like 4K streaming will ever come to the masses and survive if both the technical and business challenges aren’t worked out. I don’t doubt that the technical side of 4K streaming will be solid as there are a lot of vendors in the industry who excel in the encoding and compression segment of the market. But so far, vendors are not talking about how they are going to convince content owners to actually adopt 4K streaming and what the benefit is to them for doing so. How does streaming something in 4K instead of HD help the content owners business?

At CES, Netflix, Amazon and Comcast talked about their 4K content offerings and all of them disclosed that the bitrates they plan to use to deliver 4K content, using HEVC, will be between 12Mbps-20Mbps. That’s great for Netflix and Amazon, who have subscription based services and don’t rely on video advertising for revenue, but what about the vast majority of content owners who only make money from their content via advertising? The average broadcaster, news site and publisher, even the large ones, won’t be able to do 4K streaming as the cost for all the extra bits means they will have a content business they can’t monetize. Just think about how much content you view every day, from major content portals, where the max bitrate is 1Mbps. Why aren’t those websites delivering the video in 3Mbps? The answer you get when you ask them is that they can’t afford the extra bandwidth costs associated with it.

To put some real numbers behind it, for a content owner delivering video today at 3Mbps, one hour of video is going to consume about 1.4GB. If they are paying $0.02 (two cents) per GB, which is a low price, it’s currently costing them about $0.03 (three cents) to deliver one hour of video. If they then want to deliver that same content at 4K quality, it’s going to cost them between $0.11 (eleven cents) and $0.18 (eighteen cents), depending on the bitrate used, for one hour of video. Anyone see a problem with this? Content owners won’t be able to sell enough additional ad inventory to be able to justify the costs associated with moving to 4K and that’s just for the delivery part. That does not take into account all the extra costs they will have for encoding the content, storing it and additional costs associated with changes that will be required in their video workflow.

For all the talk of 4K streaming, there will be very little content available in that kind of quality for years to come. That’s the reality when it comes to 4K streaming. I know some will want to argue this point with me and will comment about how compression improves each year and how we’re producing better quality video at lower bitrates. But those are all technical arguments, not business ones. And CDN pricing is not declining enough each year to offset the costs of all the additional bits that are required due to 4K. I’ve spoken to multiple content owners about 4K and they all say that they can’t make the business rationale of offering content in 4K quality, unless it’s just a few pieces of their content to use as a test so they can get familiar with the technology.

Content owners and syndicators like Amazon, Netflix and a handful of others will make a very limited amount of their content available in 4K in the next eighteen months. But even they won’t foot the bill to make a large portion of their catalog available to stream at 4K quality, even years from now. We still don’t have 4K device penetration and that always takes 2-3x longer than the market predicts, to truly get to scale. Content owners aren’t going to spend a lot of money to reach such a small amount of 4K devices in the next 3 plus years. But even if that wasn’t the case, there are only a handful of companies like Amazon and Netflix where the additional costs associated with 4K streaming even makes sense, from a business point of view. They can afford to do it, they are big companies and can experiment. That’s all 4K streaming is going to be for years to come, an experiment. It won’t and can’t be adopted by the masses and content owners and consumers, unless there is a clear business value proposition for doing so.

Next week I’ll discuss how bandwidth costs and business models aren’t the only problem with 4K streaming, delivery and QoS is also something no one is talking about.

In December, Verizon announced their plans to acquire CDN provider EdgeCast in a deal valued at $400M. Less than a month later, Verizon get regulatory approval for the deal and the acquisition of EdgeCast is now complete. EdgeCast’s brand name is going to stick around, at least for the time being, and the official name for EdgeCast’s CDN service is very simply “Verizon EdgeCast”. I’ll have further details in the coming weeks on the Verizon/EdgeCast integration, Verizon’s go to market strategy and my thoughts after getting hands-on with Verizon’s video ecosystem platform for broadcasters.

On Monday, Brightcove announced they have entered into a definitive agreement to acquire privately held Unicorn Media at a deal valued around $49M. Unicorn will do between $8-$9M in revenue for 2014, so they are getting a valuation of about 6x 2014 revenue, on a business expected to lose $12M next year. The deal consists of approximately 2.9M shares of Brightcove stock and approximately $9M of cash and is expected to close sometime this quarter. Brightcove is also paying approximately $2M to certain Unicorn employees as part of a multi-year retention plan and has announced that as part of the acquisition, five Unicorn Media executives will have senior leadership positions at Brightcove.

While this deal makes sense from a technology integration point of view, Unicorn is losing a lot of money. The company did about $5M in revenue for 2013 and expects to grow that to between $8-$9M in 2014. The problem with the business is that Brightcove says that Unicorn will lose between $11M-$12M in 2014, which is a lot to lose on such small revenue. As part of this announcement, Brightcove has also announced preliminary fourth quarter and yearly revenue. Total revenue for the company in 2014 is expected to be $126M-$130M and they expect to lose $9M-$12M for the year.

Brightcove had been telling Wall Street they were going to end 2013 as a profitable company, but now they don’t even expect to be profitable in 2014. Wall Street was expecting Brightcove to be profitable this year, so naturally they aren’t liking this news and Brightcove’s stock closed down $2.98 a share, losing 20% of their value. Earlier in the day it was down 26% on the news. While Brightcove might have shown slight profitability for 2013 if they had not done the Unicorn acquisition, revenue growth would have been lower than expected. Brightcove’s rate of growth is slowing with their 2014 projected revenue putting the growth of their business at about 10% for 2014.

For those not familiar with Unicorn Media, the company sells a cloud based platform called Unicorn Once. It allows premium content owners to easily take one piece of video and deliver it to multiple screens and platforms and dynamically insert ads for VOD and live streams. The company’s CEO, founder and largest shareholder is Bill Rinehart, who formerly was the founding CEO at Limelight Networks and their CTO, AJ McGowan was also from Limelight Networks where he served as Director of Solutions Engineering. Customers I know who use Unicorn’s platform have spoken highly about it and Unicorn gets very high marks when it comes to support and service, but like all vendors in this particular segment of the market, Unicorn has had trouble scaling their business.

The company was founded in 2007 and six years later only grew revenue to $5M in 2013. For all the talk of online video advertising, companies offering ad insertion services and platforms for premium content owners haven’t had much success in becoming profitable and/or scaling their business. The market for these services, while very crucial to content owners, is too small and will stay so for a very long time. While Unicorn is tiny, even the two largest vendors in this market, Brightcove and Ooyala, have raised almost $275M to date but still aren’t profitable. It takes far too much money to scale an online video platform business, especially when these vendors still get a large percentage of their revenue from the re-sale of CDN bandwidth and not from cloud platform services. Once companies in this sector grow to around the $100M mark, it gets very hard for them to grow their business at the rate they are accustomed to.

It also doesn’t help that vendors continue to set expectations in this market that aren’t realistic, which Brightcove seems to have a habit of doing. I get that they are excited about the market they are in, I am too. Having passion is a good thing. But you have to temper that passion with setting the proper expectations in the market and being realistic. Brightcove made this mistake when in their S-1 filing before their IPO they said the, “total potential market opportunity was approximately $2.3 billion in 2011, growing to approximately $5.8 billion in 2015”. And I cringed when I read today’s press release that quoted a high-level, generic research report on the online video ad market saying, “the online video advertising market represented $10.4 billion U.S. dollars in worldwide spending in 2013, with spending expected to grow to $16.8 billion by 2015.” Using these numbers, the size of the market Brightcove is going after is more than $13B, which means for 2013, Brightcove would not have even captured one half of one percent of the market. Yet, they have the most revenue of any other vendor. So how can the market be as big as these numbers say? It can’t. Again, I get the excitement some vendors have for what they are doing, Brightcove included, but set the right expectations.

Unicorn Media does have some unique intellectual property as they have been issued 14 U.S. patents and  7 international ones with 20 additional patents pending. Maybe that would explain why Brightcove game them the high valuation they did, but patents are only worth something if you can enforce them. It takes a lot of effort and money to enforce patents and I don’t see that being a business Brightcove is looking to get into, patent enforcement and/or licensing. As part of the deal, Unicorn’s CTO will be become the new CTO of Brightcove and Unicorn’s CEO will become SVP, Market Development for Media, which is a new group Brightcove has created inside the company to, “define and bring to market focused solutions that help media companies increase their revenue and decrease costs.” How this goal is any different from what Brightcove is and has already been doing for years with media companies is not clear to me.

As with any deal like this where a lot of technical integration needs to be done between multiple platforms, the success of this deal is going to be judged on how well both companies combine what they have. Based on what needs to take place, the companies have a lot of work cut out for themselves. Rather than me try to explain it, here’s what the CEO of Brightcove said in a blog post, “We plan to integrate Once technologies with future versions of Brightcove Video Cloud and Brightcove Zencoder. Over time, Video.js and other Brightcove Web players and native player SDKs will integrate with OnceUX technologies to support instrumented playback of Once streams. In a similar fashion, Video Cloud will eventually integrate with Once for video on-demand streaming, and Video Cloud Live and Zencoder Live Cloud Transcoding will integrate with OnceLIVE for fully monetized live event streaming.” That’s a lot of integration. No date was given as to when they expect it all to be completed.

In 2012, Brightcove spent $30M to acquire Zencoder which was projected to do $2M in revenue for the year. Add in the Unicorn Media deal and Brightcove has now spent $79M in two deals for two companies that combined, will add $12M-$14M in revenue in 2014. I understand where the pieces that Zencoder and Unicorn bring fit into Brightcove’s ecosystem, which does make their platform stronger, but the valuation they gave both companies was way too high. Brightcove is making some huge bets as to the future of this market and while there is nothing wrong with that, you have to be realistic on what’s really transpiring in the market and how quickly it will grow. Saying in your press release that you “believe that online video has the potential to surpass traditional TV” is simply buying into the hype. If the market Brightcove is targeting is really more than $13B dollars this year, how are they only expecting to grow their business as a whole by 10%? These inflated market projections that many vendors all use are simply that, inflated and not realistic.

When it comes to doing ad insertion, in particular for live streaming, it’s hard to make it work right. Even if you can do it, the market is and will be small for many years to come as there is more VOD content available than live. Plus even when it comes to the smaller live ad insertion market, it’s a crowded arena. Vendors who have solutions, or are working on solutions for live ad insertion include mDialog, Yospace, Jivox, Ooyala, Blackarrow, Vubiquity, FreeWheel, Azuki Systems, Adobe, Volar Video and others. Some of these companies are still working on such solutions and others may not work as well as advertised, in fact some don’t, but the point is there are a lot of vendors in the market trying to solve the same problem, for a market that can realistically only support a few of them. Remember when there was 20 OVP vendors in the market? Or 25 CDN providers? There aren’t that many anymore because the market for these services is not as big as many vendors say it is.

Not to mention, the fragmentation in the online video advertising world is a nightmare as no standards exist, which keeps the market for online video advertising services from growing quickly. You have physical ad insertion vs. ad/campaign management and content ops vs. ad ops with no overlapping server-side insertion functionality between the two. Add in the fact that there is a lot of strategy involved with premium content owners trying to find the balance of  how much content is streamed on the Internet vs. protecting their legacy cable TV ratings, and stream stitching for ads is only one small part of the problem. A larger business problems exists in addition to the technical one.

I respect Brightcove for what they have done. They basically created the industry they are in. They are passionate, they love what they do and from everything I have seen and heard, they treat employees well and treat customers with respect. But they have to set realistic expectations not only for Wall Street, but also for the rest of the industry. I talk to a lot of Wall Street money managers about Brightcove’s business and many don’t find them a compelling story anymore. They always say to me, “I expected the market for these services to grow faster and be larger.” And it’s not just Wall Street Brightcove has to set the right expectations with.

As long as Brightcove is the leader in this market for these services, based on revenue, others look to them for the valuations they put on the acquisitions they make. Like it or not, Brightcove is the barometer for the online video platform industry and everyone notices what they do. Eighteen months after Brightcove’s acquisition of Zencoder, we have no data points from the company to show if it was a success. I hope after the Unicorn Media acquisition is closed and the platforms integrated, the company will provide the industry concrete evidence as to what’s really taking place in the online video ad market, with real numbers on how it is growing.

Over two years ago Limelight Networks acquired Clickability, a SaaS provider offering a web content management platform targeting media publishers. The purchase by Limelight was an effort to try to diversify their revenue away from pure CDN services and get more revenue from cloud based services. But the web content management business is a tough one, with long sales cycles and a huge amount of customization required. When Limelight bought the business it was on a run rate of $10M for 2010, but two and half years later, Limelight disclosed in yesterday’s 8-K filing that it is only “estimated to be approximately $12.7M” in revenue for this year.

Deciding it was no longer a business they wanted to be in, Limelight announced they have sold the business to Upland Software. Limelight says approximately 30 employees will transfer to Upland Software with the transaction, although financial terms of the deal were not announced. Limelight’s value-added services, which included the web content management business, were down sequentially in two of the last three quarters, so this lost revenue from selling the business, while small, is still more revenue Limelight is going to need to make up. The company wants to re-focus their efforts on the CDN business, but so far, hasn’t laid out any kind of strategy of how they plan to do that. Focusing primarily on CDN services is a tough one as the margins on delivering content is slim, especially when it comes to video and software downloads. Limelight is currently re-investing and spending money to improve the performance and scale of their network, but others like Level 3 have already surpassed them in total CDN revenue for the year.

Limelight has always had a large base of CDN customers and revenue, but it’s never been able to grow it by much over the past two years. In Q1 and Q2 of this year, revenue from their CDN business had about a 10% quarter-over-quarter decline as they have continued to fall behind their peers in growing their CDN business. Last quarter, their CDN revenue did grow by 5% quarter over quarter, but we need to see if Limelight can grow that business steadily, over multiple quarters in a row. The company also needs to re-enter the market with some kind of message to CDN customers as to why they still matter in the market and why customers should think of them for CDN services. The more RFPs I see in the market for large-scale CDN services, the more I see Limelight being excluded or simply written off by customers who know they offer CDN services, but don’t really think of them anymore as one of the top two vendors in the market to go to. If Limelight wants to change that, they need to re-enter the market with a new message and updated story and it can’t be just another re-branding of their services, like they seem to do every year.

The company really needs to stop spending so much time and effort focusing on their “digital presence” messaging and coming up with really long names for products and instead, focus on messaging directly to customers looking for large-scale delivery of video, small objects and software downloads. If they want to re-focus their business on CDN services, like they have talked to Wall Street about, they have to start bringing that message and awareness directly to customers. The company needs to deliver a simple and effective message as to why customers (especially new ones) should think of them for CDN services, how they stand out amongst the competition and what it means for customers when Limelight says they want to “refocus” their efforts on CDN services.

When Verizon announced the news of their intent to acquire EdgeCast, naturally a lot of outlets picked up on the story and published their thoughts on the proposed deal. While some will have different options on what they think it means for the companies involved, the competition and the industry, there were too many pieces published that got many of the basic facts wrong. Some might chalk that up to the fact that many who covered the news simply don’t know the CDN space well enough, but that’s no excuse.

Multiple media outlets got revenue numbers wrong and even some research analysts and money managers who cover the CDN space, did a poor job in their coverage of the news. I don’t know how some analysts can try to get CDN vendors to use their services when they don’t truly understand the market and can’t get many of the basics right. My goal of this post isn’t to point out who did a bad job, but rather make sure the industry is working off of the facts and making decisions based on real-world intelligence. I read about three dozen posts and multiple analyst reports on the news, and here’s what I found that was inaccurate.

When it came to reporting on EdgeCast’s revenue, many got it wrong saying:

• “$135m annual revenue that it expects to have by year-end”
• “has estimated 2012 gross sales of $103 million”
• “last year reached more than $100m in revenue”
• “has made most its money off of lucrative telecom partnerships”

In July of 2013, EdgeCast confirmed for me, on-the-record, that they will end 2013 with about $100M in revenue and estimated they would do $140M in revenue for 2014. They reconfirmed these numbers again the day of the Verizon announcement. They also stated that less than 25% of their revenue comes from telco based CDN services. So many analysts simply did a lazy job of reporting on the numbers and didn’t check with EdgeCast or even talk to them about the deal. One person got the numbers wrong, and many seemed to follow suit.

When it came to reporting on the size of the valuation that Verizon gave EdgeCast, many referenced the size of the deal wrong:

• “three of the four largest acquisitions in the CDN market have come during the past two years”
• “the enterprise value of the deal at $395m, making it the largest acquisition of a CDN vendor”
• “it’s the largest price ever paid for a CDN vendor in the market”

Statements like this about the size of the deal clearly shows the lack of knowledge some have on the history of the CDN market. Verizon’s intent to acquire EdgeCast for about $400M is not the “largest acquisition of a CDN vendor”, not even close. Akamai bought Intervu for $2.8B and Digital Island acquired Sandpiper Networks for $630.5M. If you are supposed to be an industry analyst covering the CDN market, know your history.

In addition to revenue and valuation numbers that were wrong, some also wrote things regarding competitors that weren’t accurate, amongst other misleading statements. One person wrote, “Verizon revealed that it has completed the purchase of leading Content Delivery Network company EdgeCast.” How someone could get that so wrong is beyond me, but no deal has yet to be “completed”. Another report said, “Akamai has made a significant push to license or manage CDN services for telcos such as Orange, Swisscom and others.” That’s not accurate when it comes to Swisscom as that is a reseller deal, not a licensed or managed CDN deal, something Akamai has confirmed. I don’t know why so many people can’t understand the difference between licensed, managed and reseller CDN deals between CDN service providers and telcos and carriers.

When it came time to discuss the impact on Akamai, a few wrote statements that were simply so far from reality, it shows their complete lack of understanding of the market and competitive dynamics, with some saying:

• “Verizon’s motivation is not to compete head-to-head with Akamai”
• “I do not believe that Verizon is already keen on going head to head with Akamai over the CDN business”
• “the key here is whether Verizon continues to resell Akamai’s enterprise services”

It’s clear that many who wrote about this deal didn’t speak to Verizon and EdgeCast about it or didn’t ask the right questions. Both companies made it clear to me they plan to continue to compete in the CDN market. Verizon isn’t interested in buying EdgeCast to bring the technology in-house for their own needs, they already have a CDN for that. They are going to buy EdgeCast to get into the services business, hence why EdgeCast’s offering will fall under Verizon’s Digital Media Services group. Verizon will be going head-to-head against Akamai and other CDN providers in the market, just like EdgeCast does right now.

On the topic of Verizon no longer reselling Akamai’s value-add-services to enterprise customers, Verizon would not comment on that. But let me make it clear that Verizon will stop reselling Akamai’s services as soon as they can once the EdgeCast deal goes through. All you have to do is have insight into how Verizon has been working with Akamai and it’s clear to see what will happen. For now, some can say this is debatable since Verizon hasn’t gone on-record to discuss it, but it’s one of the reasons why Verizon wants to acquire EdgeCast.

There was a lot of different numbers given out on how much reseller revenue Akamai will get from Verizon this year and I’ve heard the range to be as low as $50M and as high as $100M. We don’t know for sure, but so far this year, resellers have made up 21% of Akamai’s revenue. So even at the low-end of the range, $50M would account for about 20% of all of Akamai’s 2013 reseller revenue, providing their numbers in Q4 are similar to the ones they had last quarter. Having 1/5th of their reseller revenue in jeopardy is not what I would call a “limited impact” or “not meaningful revenue” as some wrote.

There was also a lot of comments made that “telecom companies have historically had difficulty selling content delivery network services,” so Verizon will be in that same boat. I find it interesting that of all those who wrote comments like that, not a single one mentioned which telcos have tried to sell CDN services. The reason for that is that almost no telcos have actually tried to sell CDN as a commercial service, but those writing about this topic don’t know that. The only one they know about is AT&T and comparing Verizon to AT&T just because they are both telcos is flat-out wrong.

AT&T never acquired anything to try to get into the CDN services business and never truly tried to make it work, with any real strategy. Verizon is committing serious dollars to buy a well proven vendor in the market and investing a lot of money after the sale to further build out their services. AT&T talked a big game but never backed it up and never made a real financial commitment. Verizon is doing the opposite, not to mention, is also spending additional dollars to buy other pieces of the ecosystem that tie into EdgeCast’s platform. Verizon still needs to prove they can execute on their game plan, but don’t compare that to AT&T who had no real strategy or product offering of any kind when it came to CDN services or a video ecosystem for broadcasters.

My whole point of this post, and it’s not the first one I’ve done on this topic, is that the media and some analysts, not all, do a very poor job of covering the CDN market. A lot of what you read is crap, they don’t take time to research what is truly taking place and they don’t speak to the companies and more importantly the customers involved.

This week, CDN provider NetDNA announced it would no longer operate two different brands in the market and will consolidate their NetDNA brand into a new name called MaxCDN Enterprise. This is a smart move by the company as the two brands were causing some confusion amongst customers. With one brand, and now one focus, the company will no longer have to share resources between the brands or decide which one gets the most attention. The company has also launched a new tag line, “Maximum Reliability Minimum Price”, which is a direct aim at Amazon’s CloudFront service.

Max CDN Enterprise offers a self-service platform and like Amazon, lists pricing on their website and targets mid-tier high-volume CDN customers. They don’t charge anything extra for SSL delivery and offers something unique by charging one flat price per GB delivered, no matter the region of delivery. The company says they will continue to offer smaller CDN packages to startups and growing companies without a minimum usage commitment, but are now focusing their efforts on enterprise customers. The company says their network can handle 250Gbps of traffic and at their current growth rate, will need to double that capacity by 2015.

The company point outs that unlike some of their competitors, their customer support is available via phone, chat or email at any time with an average ticket response time of three minutes. They wouldn’t disclose revenue to me but says they are currently profitable and will end this year with 43 employees.