In addition to my role at StreamingMedia.com, I’ve also been a Principal Analyst at Frost & Sullivan in their digital media group, for the past five years. Part of my job is to track the growth of various products and technologies in the video ecosystem and provide research and analysis on market drivers and restraints. One of the reports I author each year is about the size of the video CDN market. We’ve recently published our latest report and findings and expect the video portion of the CDN market to reach about $1B by the end of 2015. (contact me if you want to learn about how to get a copy of the report)

Some might notice that our 2010 CDN report suggested that the video CDN market would grow to $1B by the end of this year, but as we saw and heard from CDN vendors in 2011 and 2012, traffic growth on their networks didn’t grow as fast as they were expecting. While video traffic is one of the fastest growing segments of the overall CDN industry, it is also the most volatile when it comes to pricing and volume trends and has very low margins. While we originally thought the video CDN market could grow at a compound annual growth rate (CAGR) of 28% until 2015, the latest data shows the market growing by 15.2%. The good news is the market is still growing, but that the rate of growth has slowed.

Our market sizing numbers do not include telco CDN revenue or revenue from licensed CDN services, a separate report we are currently working on. There is still money to be made in the video CDN business, especially at scale, and 2012 saw pricing remain very stable, with my expectations that 2013 will be the same with no major declines in video CDN prices. Add in the new CDN business models we are seeing from the likes of Netflix, along with what service providers are deploying and they is plenty of growth still to come from today’s video delivery infrastructure market. (For a complete list of all the CDNs in the market, see www.cdnlist.com)

Note: We are currently working on an update to our Transparent Caching report and will be putting out a new report this year on the size of the Dynamic Site Acceleration (DSA) market. Contact me if you want to be added to the list to be notified when they are available.

Almost five years to the day, the NYT published an article proclaiming that, “TV is becoming obsolete” and was joined by plenty of other media outlets claiming that within a few short years, streaming video could displace the traditional means of video distribution. While some in the industry still want to set false expectations that streaming media technology is somehow going to replace the primary means of delivering video to the living room, the fact remains that five years later, cable TV is here to stay and is still the primary way to get video into the home.

While reading a post on another site on a similar topic, a reader left a comment saying, “streaming is still in its relative infancy”, a false statement I hear often. Some seem to want to use the argument that streaming media technology is new and will improve as a reason why it will one day replace cable TV distribution. But in reality, 2013 marks the 19th year since streaming media was first used on the Internet. And while the industry has made advances and will continue to do so, the improvements in the technology over the last few years have been small. Compression technology gets better, protocols start to get standardized but year-over-year, we aren’t seeing huge leaps and bounds. That because today, the primary building blocks of all streaming media services, like storage, encoding and delivery can’t get that much better. Infrastructure vendors are spending most of their time to make these services more reliable and scalable and others are using these fundamental technologies to build out ecosystems, protect content and monetize it. But it can only go so far.

Streaming media has limitations and that’s not a bad thing, you simply have to apply it to the best set of applications as you would any other technology. But many are hell-bent on the concept that one technology has to replace another, when in fact, most times, one complements the other. Streaming media is never going to be as reliable, scalable or as high-quality as cable TV, even in the future. Those who suggest that do so as they don’t understand how streaming works and the limitations to the technology. Think of all the companies over the past 10 years who said their technology, be it better compression or P2P delivery etc. could solve the issues with delivering high-quality video to “TV sized” audience. They couldn’t. And even with guys like Netflix taking the smart approach of placing caches for free inside ISP networks, there is a limitation to what can be achieved.

In 2009, Akamai, the largest CDN on the Internet peaked at 7.7M simultaneous video streams during the Obama inauguration, for all of their customers combined. It was so much traffic on their network that they had to cap customers and they made it clear that there is no such thing as “unlimited” capacity on the Internet. Last year, YouTube claimed they did the largest live event on the web with 8M simultaneous streams. So three years in between events and the largest live event numbers didn’t grow that much. Of course years later, both Akamai and YouTube’s network have grown and their capacity improved, but the 8M number puts things into perspective.

CBS Sports said the NFL Playoff game (Broncos vs. Jaguars Ravens) from this past weekend had 35.3M viewers and peaked at over 40M. Even if half of those were simultaneous viewers, that would be nearly 18M streams, for one show. Multiply that times the number of shows going on at the same time and the numbers are huge. The Internet can’t and won’t be able to handle that kind of volume, now, or in the future, at cable TV quality. People love to argue the point, but the numbers, facts and data proves otherwise. When you turn on the TV, it works and you know what type of experience you will get from an HD channel. On the web, you don’t even know what HD really means as some call video HD when it isn’t, when compared to broadcast standards.

With streaming, there is no guarantee what the experience will be. Content services like Netflix and Amazon and CDNs like Akamai are working hard to give consumers the best experience they can, but they are working with technology that has limitations when it comes to scaling. Sometimes you can get good quality video with no problems. Many times you can’t, or you don’t have a consistent experience or there is some other computer/browser/player/app issue. There are a lot of moving pieces in the entire video ecosystem as opposed to cable TV which has very few.

It seems many outsiders want to judge the “success” of the streaming media industry and the technology on how quickly it can “displace” cable TV as a broadcast distribution medium. What a false idea. The fact is, the technology is already proven and for the right applications, we’ve already seen plenty of success stories. All streaming services combined, the size of the industry is in the billions of dollars, content owners are starting to get paid and business models evolve each year. That’s the definition of success. For those in the industry who understand this, don’t let those who try to set false expectations of streaming replacing cable TV distract you from staying focused and applying the technology where it is best suited.

[Updated Jan 11th: I had the chance to speak with Fortinet and have updated the post with more details] In December rumors were going around that Fortinet had acquired CDN provider XDN and on Wednesday, XDN made the news official on their blog. XDN, formerly called 3Crowd, provides a cloud based application delivery platform and a CDN platform with something they call CrowdDirector. While Fortinet would not discuss terms of the deal, but I know it will not have a material impact on their revenue or expenses. I’ve heard from others that the acquisition valued XDN at under $10M, which sounds right since XDN didn’t have a lot of revenue. Fortinet says that six to seven of XDN’s engineers have joined their team but that some of XDN’s management, including their CEO and CTO/Co-Founder will be leaving the company.

Fortinet said they didn’t have much interest in XDN’s CDN technology, which allows content owners that use a multi-vendor CDN strategy to automatically route user traffic based on geography, performance and business rules. Instead, Fortinet said they acquired XDN for their patents, their engineers and their global traffic management technology. While Fortinet said they will keep XDN’s content delivery network up and running for now, they don’t plan to be in the business of offering CDN services. [Update 2: Fortinet now says the CDN has been shut down and the few customers using it were notifed of the shut down and assisted with transfering their content to a different CDN.] Fortinet is in the network security appliance business so a content delivery service does not fit into their core offering. The company said they will use some of XDNs traffic management solutions, integrated into some of their products, to create some cloud based services.

I’ve always heard that a good amount of XDN’s traffic came from the porn industry, so I wonder if that’s a segment of the business Fortinet will kill off or continue to service. Fortinet says that they will not service the adult industry and said that XDN had lost some of those CDN customers as of late and did not think any adult related companies were still being served on the XDN network. Either way, they said they would not target or accept business from that segment of the market.

While Fortinet was clear to say they don’t want to let down any existing customers using XDN’s CDN platform and won’t be shutting them off, anyone using XDN for content delivery services probably wants to start transitioning to a new provider.

Last month, Elemental Technologies put out a press release highlighting the fact that their revenue growth exceeded 200% year-over-year. Many vendors put out these kinds of releases at the end of the year and since most of them are private, the percentages quoted don’t really mean much since we don’t know what base numbers they are working off of. But in the case of Elemental, we know the numbers and they are impressive.

Based on a Inc. Magazine company profile, Elemental’s revenue was $10.2M in 2011. The company grew their revenue to more than $21M in 2012 and ended the year with more than 250 paying customers. To date Elemental has raised $29M in VC funding and still has more than half of that money in the bank as they are currently losing only $1-$2M dollars a year, with plans to be profitable by 2014. The company counts customers in 40 countries and has content owners like the BBC, HBO, Comcast, and ESPN using their products to create content for multiscreen delivery.

Unlike other vendors in the industry, Elemental does not have plans to grow their business at all costs. While many companies tell me they want to take the Amazon approach of “get big fast” and go out and raise $75-$150M to do so, Elemental doesn’t see the need to burn through a lot of cash to grow their business, instead choosing to grow their business organically and at a sustainable rate.

Elemental’s done a good job of diversifying their revenue regionally with nearly 50% of it coming from outside the U.S. and 35% of their total revenue coming from resellers. An approach that allows them to scale their business without having to use up a lot of capital and have a negative effect on their bottom line.

These days it seems so many vendors are concerned with calling themselves the number one vendor in the market, based on revenue, that they lose sight of the fact that they need to be profitable. Scale is a good thing, but not if it comes at the risk of having to raise four to five rounds of funding and then still be losing money.

Elemental seems to have the right approach to the market, gets really high marks from customers and will be an interesting one to watch in the New Year.

Clouds and SaaS are hot topic these days so the dilemma of “owned vs. rented” assets also becomes very important. Every company uses solutions that might be divided into two wide categories: critical (you can’t live if they fail) and optional (good things which make your life less complicated). So more and more optional assets are moved to some outsourcing for SaaS products. Even key pieces of the video ecosystem like media servers are becoming cloud-enabled, like Wowza on Amazon AWS, and there are a variety of tools and options for analytics and control in the cloud.

WMSPanel (wmspanel.com) is a company that was started almost two years ago as a reporting project for Windows Media Services. From the very beginning it was designed as SaaS solution and unlike traditional server software analytic tools, it was made as a multi-tier system with an “agent” running on the media server-side and a controller/processing/presentation system built as a web application. No log parsing is required, you can just take any data a media server may spit out and push it to central server. This allows customers to avoid any processing overhead or having to allocate any special computation and storage resources. In addition, since only a delta of information is sent between two parts of the system, there’s no traffic overhead either.

The plugin ideology has served WMSPanel well before as the team had already open-sourced their WMSAuth Windows Media plugin (wmsauth.org) for links re-publishing protection. Having this SaaS-powered idea and the first working prototype WMSPanel launched a promo site to move it towards potential customers in early 2011. As basic reporting for WMS was available, the team started evaluation of Wowza Media Server knowing its great solution capability, mature partner ecosystem and huge market share. So by the end of 2011 they had Wowza reporting capable of showing basic statistics.

Having a proven approach of “agent-controller” chain, the team made another step forward and started implementation of server management capabilities. The agent takes commands from the central server and since the agent is a Wowza server add-on, it’s able to do a number of things which may otherwise only be done via an SSH or JMX connection. Every common operation, which usually requires manual log into the server, can easily be done online via the web control panel, with just a few clicks. The company says users of the system can see server VHost and applications structure, create new accounts, change or delete existing applications and their instances and has a full set of control operations, without needing any server access for manual app restart, since everything is done from the panel itself.

Another advantage is that the WMSPanel is a central place for all operations, which mean you can apply most of the management features to multiple servers at one time. So if you create an application on an origin server or change its configuration, you can apply this operation to all of the edge servers as well. Once a stream is added in the config, all of the existing servers can know about it right away. The WMSPanel team then applied their existing WMSAuth feature set to Wowza and expanded it with simultaneous connections count limit, geo-location and IP-range limitations, and the same proven links re-publishing protection.

WMSPanel has reporting capabilities, real-time, high-detail and daily statistics, with a lot of flexibility in reporting options. Duration analysis might be especially interesting for those who like to know more about their visitors and statistics may be cut to “data slices” to see any aspect of applications usage. And for stream hosting resellers, the control panel may be provided as white label service since some customers prefer showing stats to their clients via custom domains and separate user accounts. Another advantage of the WMSPanel web interface is that it enables all the feature set to work on iOS and Android devices, without the need for Flash or Silverlight for the UI, instead using just HTML and AJAX, something that should be highly appreciated by Apple users.

It’s taken WMSPanel less than a year from making the initial version of their Wowza agent to becoming a Wowza product partner thanks in part to what WMSPanel says is a good approach by Wowza to work with anyone who brings a good user experience and valuable solution to the Wowza partner ecosystem.

At this moment WMSPanel processes data from hundreds of Wowza servers doing hundreds of thousands of streams. As a result that means big performance challenges for access control and reporting features but that’s where the cloud-based infrastructure allows the solution to easily scale. Compare that to traditional statistics and control solutions which a customer’s system administrator must install, maintain and tune to meet new portions of logs data. The WMSPanel team takes the responsibility of scaling the solution and guarantees robustness and availability – not bad considering that WMSPanel has a starting price of only twenty bucks.

On a conference call this morning, Aereo announced they have raised another $38M in funding and plan to expand to nearly two dozen cities in the U.S. this year. The Barry Diller/IAC backed company takes live over-the-air broadcast TV signals via their antenna farm and streams them to subscribers PC/Mac, iPad or iPhone with subscription plans that range from $8 a month to $80 a year.

Anyone who has seen me write about Aereo in the past knows that I think Aereo is one of the most over-hyped companies in this space in a long time.  [See: “Barry Diller’s OTT Service Aereo Is Dead On Arrival“] Their CEO keeps talking about how Aereo is disrupting the traditional broadcast TV market even though as of May of last year, the company announced they had only 3,500 subscribers, many of which were still under the 90-day trial period. And in August of last year, someone inside IAC told me Aereo had less than 2,000 paying subscribers, a number I still have yet to see Aereo dispute.

Aereo calls what they are doing an “innovative new business model” even though they have no traction and as of today and only offer twenty English based content channels, of which I’ve only heard of eight of them. The service does not work on many devices, the quality of the video they deliver is not what most would classify as HD and the company still hasn’t disclosed any details on how the videos are encoded or delivered.

Once of the biggest arguments of why Aereo can’t disrupt the traditional broadcast TV model is that they simply don’t have deep enough pockets and they can’t do much with the nearly $21M their raised in their first round, something that was proven today with the fact they have already announced a B round of financing. Even with today’s announcement, the company has only raised just over $60M. Part of that money will go towards their legal bills as broadcasters have taken them to court over their business model since Aereo doesn’t currently pay any re-transmission fees and trying to expand into nearly two dozen cities will burn through a lot of capital.

It would take Aereo signing up 262,500 customers, each paying $80 a year, just to make back their original investment of nearly $21M and of course, none of that would be profit. Streaming consumer business models like this do not scale cheaply and you have to pump a lot of money into the service before you can get it to a scale. Just look at all of the other companies in the market who have some kind of video streaming service and the amount of money they have spent just to get their platform to the point of where they can guarantee a QoS that consumers have come to expect. That’s not going to happen even with $60M in funding.

Aereo has said that there is a, “significant portion of the population that is not interested in continuing the closed ecosystem of cable bundles”, but of course, they haven’t said what those numbers are and even if the percentage is high, Aereo’s current offering is not what consumers are looking for to replace the current cable model. Aereo likes to say their solution provides an a la carte model to consumers, a phrase that people in the media go wild over, yet Aereo is only offering eight channels anyone would actually watch. So there is nothing a la carte about having such a limited choice of content.

As I wrote in my last Aereo post, there are more than 100M consumers in the U.S. that pay for TV via cable and satellite and Aereo has implied that a big market to them would be about 300,000 subscribers. That’s not even one half of one percent of the total number of cable/satellite TV subscribers in America, yet they think their service will somehow “disrupt” the cable TV market or make cable companies change their practices? It’s not going to happen. It’s the whole reason why Aereo’s CEO “declined to disclose how many people had signed up for Aereo so far” when asked by the NYT. The number is so small because whether the technology works or not, in its current form, this is not a service consumers are willing to pay for.

You can see a list of the 22 cities that Aereo plans to expand to by visiting this page on their website.