Today, Netflix announced that they have been actively working to build out their own network of caches inside ISP networks and have officially launched the “Netflix Open Connect Content Delivery Network“. With this offering, Netflix aims to lower their CDN costs, rely less on third-party CDNs, provide higher quality streaming and most importantly, give network operators more control over the video that flows through their pipes. While their blog post doesn’t give out too many details, I had the chance to speak with Netflix earlier today to get some more information on their announcement. [See part two of my post on this story here: “Netflix’s CDN News Being Overblown By Many Wall Street Analysts, Focus On The Facts“.

To support the launch of their CDN, Netflix has a new website at openconnect.netflix.com which gives ISPs more details on the hardware and software design of Netflix’s caches, details on how ISPs can peer with Netflix and access to a deployment guide. While many might compare what Netflix is doing with their cache deployment to what Google has been doing for years, the big difference is that Netflix is giving ISPs control over the caches, allowing them to adjust the volume of traffic flowing through their network. This is a smart move on Netflix’s part as many ISPs don’t view Google caches as being friendly because once placed inside the operators network, they can only be controlled by Google.

Under a typical scenario, one Netflix cache can handle about 8.5Gbps of throughput and can support about 25,000 subs. While Netflix is going after the major ISPs for partners, they did say that for any network with more than 100,000 subs it would make sense for them to deploy caches. Netflix said the caching technology they are using was all built in-house and they haven’t licensed any content delivery technology from any third-party. Netflix said that based on the caches they already have deployed, about 5% of their global video delivery is already being delivered via their Open Connect Content Delivery Network, with some locations like the UK, seeing as much of 50% of their traffic coming from their new CDN platform. Netflix plans to serve nearly all of their video globally via this new CDN, but estimate it will take a few years for them to build it out. I would compare this approach to a similar one Microsoft had, which saw them bringing the majority of their CDN in-house over a few short years.

While some might suggest this is a new trend in the market, content owners delivering video themselves, it’s not. There are maybe half-a-dozen content owners who are delivering enough volume of bits, have the technical expertise and have the money to build out their own CDN. Only companies the size of Google, Apple, Microsoft, Netflix and Facebook can take on such a task. Netflix would not say exactly how much money they would save from using their new CDN over third-party CDNs, but even a small fraction of savings per Mbps would be substantial to Netflix since they peak at multiple Tbps of video every day.

Something that’s pretty unique to Netflix’s cache deployments is that they are not demand driven caches. Unlike most content owners who see maybe 80% of their traffic come from only 20% of their content, Netflix gets traffic from all of their content. So instead of someone having to request the content before it is fetched and placed on the caching server, which is how most CDNs work today, Netflix is actually pre-populating the caches inside the ISP’s networks. During peak hours, Netflix’s caches are in read only mode and during off-peak hours, they get populated with content.

Naturally, this news is going to make a lot of people question what impact this will have on Akamai, Limelight, Level 3 and Amazon, now that Netflix plans to do video delivery themselves. For starters, this news does not impact Amazon in any way as Netflix has built a bunch of their non-video platforms on top of Amazon Web Services (AWS), which won’t be impacted. For Limelight and Level 3 who have the majority of Netflix’s video traffic, they will lose most of this traffic over the next eighteen months, if Netflix deploys their caches as expected. About eighteen months ago, Netflix signed three year contracts with Limelight and Level 3 and Netflix said their don’t plan to break any contractual commitments with the CDNs.

While some might take this as negative news for the CDNs, it’s actually the opposite. In particular for Limelight and Level 3, they have spent a lot of money to build out their networks to support Netflix, and most of the revenue they get in return simply offsets their costs. Netflix’s video traffic isn’t really profitable to the CDNs and it’s one of the reasons you have seen Limelight announce they would cut back their CAPEX spend by nearly $15M this year, when compared to 2011. With Netflix doing their own delivery, the CDNs can now spend money to build out services where they can actually see good margins and don’t have to compete so hard on price.

Of course vendors like Limelight and Level 3 are going to have a lot of revenue to replace in the next 18 months as Netflix contributed to just over 10% of Limelight’s total revenue in 2011, but they have been through this shift before with YouTube and Microsoft. If the CDNs don’t have to spend the money to deploy services that are about break even, it means they can spend their time and effort towards more profitable business, which is good for their bottom line. So for anyone who thinks that by Netflix bringing their video delivery in-house means doom and gloom for the CDNs, it doesn’t.

Building out their own content delivery network is a smart move for Netflix as over time it will reduce their costs, enable them to help ISPs have more control of Netflix’s content going over their pipes and also improve their streaming quality to consumers. This is good news for everyone involved.

Updated: I’ve gotten a few emails already asking me which ISPs are participating in Netflix’s Open Connect Content Delivery Network. While I know of a bunch, I can’t mention them by name since so far, none of the ISPs have given me permission to make that info public.

Related Netflix Traffic/Pricing Posts:

– Netflix’s Streaming Cost Per Movie Drops 50% From 2009, Expected To Spend $50M In 2011

– Netflix Viewers Consume Almost 10 Hrs Of Video A Month, Do Last-Mile Providers Have A Strategy?

– Detailing Netflix’s Streaming Costs: Average Movie Costs Five Cents To Deliver

– Bandwidth Pricing Trends: Cost To Stream A Movie Today, Five Cents: In 1998, $270

For more than a few years now, many have been proclaiming doom and gloom to CDNs like Akamai with the reasoning that AT&T and Verizon would come in and disrupt the market, forcing pricing down and taking away market share from the industry leaders. While owning the network does have major advantages, just look at what Level 3 has done, owning the network by itself does not make one a player in the content delivery market.

Two weeks ago at my Content Delivery Summit in NYC, the most common question I got asked by media customers and industry executives was why AT&T and Verizon were absent from the show. While we had just about every other CDN vendor presenting, many with their customers, and had numerous telcos and carriers discussing their deployment strategy, no one from AT&T or Verizon presented or spoke in any capacity.

I offered Verizon multiple speaking opportunities, but they declined all requests saying they weren't yet ready to talk about what they are doing with regards to their external digital media offerings. While it's natural for a company not to want to speak if they aren't yet ready to talk about their technology, it's now been 14 months since Verizon first announced some of their Verizon Digital Media Services (VDMS) at NAB. Since that time, the company still hasn't offered any insight into their products, has no technical information on their website, has not done a press release with a single customer and has refused all briefing requests. And a few months ago, the number they had listed on their website for customers to call to get more information about their Verizon Digital Media Services, didn't work and wasn't a valid number.

While I know Verizon is in fact working on their external digital media services, one really has to wonder if they are getting any traction at all. I hear of them having meetings with large media and entertainment companies, including the big boys like Netflix, but to date, I have yet to hear of a single large customer using them. Amongst many in the industry, Verizon is quickly being compared to AT&T, another vendor who to date, hasn't gotten any real traction with their CDN or digital media services. Unlike Verizon, AT&T has put out a lot of releases about their CDN offering and talked a big game, but has little to show for it. From multiple people I have spoken to who have an insight into AT&T's CDN traffic, it looks as if AT&T will do under $20M this year in CDN services. That's not disruption in the market.

During my pricing presentation at the Content Delivery Summit, I gave out details of a recently completed survey I did of 725 customers who use CDNs for the delivery of video. Of the 408 qualified responses from companies who spent more than $100K a year on video delivery, not a single customer was using AT&T or Verizon. Of the 307 qualified responses from companies who spent less than $100K per year, only 6 customers were using AT&T and 7 were using Verizon. Here's a link to the slides from my presentation and the video will be up shortly.

The reason for me highlighting this data is not to make fun of any vendor, but rather to use it as an example to many who are still saying that vendors like AT&T are going to hurt Akamai, Limelight or Level 3's CDN business. Even as recent as last week, I saw a report from a Wall Street analyst saying AT&T and other carriers were putting pressure on Akamai's CDN pricing. While Level 3, EdgeCast and Amazon are being aggressive on pricing, none of the major carriers, outside of Level 3, have yet to impact the CDN market in any way.

For more than five years now, Wall Street analysts have implied that AT&T will be a big threat to Akamai. In 2007 I wrote a post saying "Analysts Covering Akamai Should Not Be Worried About AT&T" and in 2008, followed up with two more posts entitled "AT&T's CDN Offering Not Displacing Akamai or Limelight Anytime Soon" and "Goldman Has It Wrong: Akamai Not Affected By Network Operators." Yet even with all the evidence we have in the market to show what's really taking place, and the data to show it takes a few hundred million dollars to really enter the CDN market and do any substantial revenue, many still think carriers are going to somehow disrupt the CDN market. That notion could not be further from the truth and the biggest new disruptor's in the market will come from the likes of Amazon and Dell, not carriers.

As for Verizon, I'm not counting them out just yet. I think they still have a shot at doing something disruptive, but to date, they have been working on these services for two years now and haven't gotten to scale or signed up many customers. I think they could still do something positive, but they have a lot to prove in the market and their window of opportunity won't be open forever. But in reference to AT&T, I do think it's about time people stop saying they will "disrupt" anything having to do with the content delivery business.

Note: I notified Verizon as soon as I realized they had a non-working sales number listed on their website. Also, this post is in reference to Verizon's external digital media and CDN services, not their internal CDN, which is quite advanced.

For more than a few years now, many have been proclaiming doom and gloom to CDNs like Akamai with the reasoning that AT&T and Verizon would come in and disrupt the market, forcing pricing down and taking away market share from the industry leaders. While owning the network does have major advantages, just look at what Level 3 has done, owning the network by itself does not make one a player in the content delivery market.

Two weeks ago at my Content Delivery Summit in NYC, the most common question I got asked by media customers and industry executives was why AT&T and Verizon were absent from the show. While we had just about every other CDN vendor presenting, many with their customers, and had numerous telcos and carriers discussing their deployment strategy, no one from AT&T or Verizon presented or spoke in any capacity.

I offered Verizon multiple speaking opportunities, but they declined all requests saying they weren't yet ready to talk about what they are doing with regards to their external digital media offerings. While it's natural for a company not to want to speak if they aren't yet ready to talk about their technology, it's now been 14 months since Verizon first announced some of their Verizon Digital Media Services (VDMS) at NAB. Since that time, the company still hasn't offered any insight into their products, has no technical information on their website, has not done a press release with a single customer and has refused all briefing requests. And a few months ago, the number they had listed on their website for customers to call to get more information about their Verizon Digital Media Services, didn't work and wasn't a valid number.

While I know Verizon is in fact working on their external digital media services, one really has to wonder if they are getting any traction at all. I hear of them having meetings with large media and entertainment companies, including the big boys like Netflix, but to date, I have yet to hear of a single large customer using them. Amongst many in the industry, Verizon is quickly being compared to AT&T, another vendor who to date, hasn't gotten any real traction with their CDN or digital media services. Unlike Verizon, AT&T has put out a lot of releases about their CDN offering and talked a big game, but has little to show for it. From multiple people I have spoken to who have an insight into AT&T's CDN traffic, it looks as if AT&T will do under $20M this year in CDN services. That's not disruption in the market.

During my pricing presentation at the Content Delivery Summit, I gave out details of a recently completed survey I did of 725 customers who use CDNs for the delivery of video. Of the 408 qualified responses from companies who spent more than $100K a year on video delivery, not a single customer was using AT&T or Verizon. Of the 307 qualified responses from companies who spent less than $100K per year, only 6 customers were using AT&T and 7 were using Verizon. Here's a link to the slides from my presentation and the video will be up shortly.

The reason for me highlighting this data is not to make fun of any vendor, but rather to use it as an example to many who are still saying that vendors like AT&T are going to hurt Akamai, Limelight or Level 3's CDN business. Even as recent as last week, I saw a report from a Wall Street analyst saying AT&T and other carriers were putting pressure on Akamai's CDN pricing. While Level 3, EdgeCast and Amazon are being aggressive on pricing, none of the major carriers, outside of Level 3, have yet to impact the CDN market in any way.

For more than five years now, Wall Street analysts have implied that AT&T will be a big threat to Akamai. In 2007 I wrote a post saying "Analysts Covering Akamai Should Not Be Worried About AT&T" and in 2008, followed up with two more posts entitled "AT&T's CDN Offering Not Displacing Akamai or Limelight Anytime Soon" and "Goldman Has It Wrong: Akamai Not Affected By Network Operators." Yet even with all the evidence we have in the market to show what's really taking place, and the data to show it takes a few hundred million dollars to really enter the CDN market and do any substantial revenue, many still think carriers are going to somehow disrupt the CDN market. That notion could not be further from the truth and the biggest new disruptor's in the market will come from the likes of Amazon and Dell, not carriers.

As for Verizon, I'm not counting them out just yet. I think they still have a shot at doing something disruptive, but to date, they have been working on these services for two years now and haven't gotten to scale or signed up many customers. I think they could still do something positive, but they have a lot to prove in the market and their window of opportunity won't be open forever. But in reference to AT&T, I do think it's about time people stop saying they will "disrupt" anything having to do with the content delivery business.

Note: I notified Verizon as soon as I realized they had a non-working sales number listed on their website. Also, this post is in reference to Verizon's external digital media and CDN services, not their internal CDN, which is quite advanced.

Yesterday at the D10 conference Apple's CEO said that so far this year, Apple has sold 2.8M Apple TV units. If you combine that with the 2.7M units Apple sold from September 2010 to December 2011, Apple has now sold a total of 5.5M second (720p) and third (1080p) generation Apple TV's. It originally took Apple 16 months to sell 2.7M units and now they are selling that same volume in 1/3 the time. While it's good to see the growth, the problem is that Apple still has no real presence in the living room and selling 5.5M Apple TV units in 21 months time really isn't that spectacular.

While Apple won't call their Apple TV device a failure since they always thought of it as a "hobby" to begin with, the fact is, they have yet to even get 10% of users who buy an iPad to also purchase an Apple TV. Between the fiscal Q1 of 2011 up until Apple's Q1 of 2012, the company has now sold almost 60M iPads and even more if you count those sold before 2011. So even for those users who have selected Apple's ecosystem, less than 10% of them have purchased the Apple TV. And if you factor in users like myself who have multiple Apple TV units, the percentage of unique users Apple is reaching in the living room is well under 5M.

Naturally, you don't expect Apple to sell many Apple TV units to consumers not using the Apple ecosystem and the content available via the Apple TV doesn't even come close to the variety of content offered from Roku, for the same $99 price. But Apple can't even crack the 10% mark with iPad users and if you combine all of the iPhones sold with the iPad, the Apple TV isn't even reaching 2% of the total iOS market.

Of course these numbers aren't going to stop all of the crazy analysts and media people who are already declaring Apple as the winner in being able to disrupt the traditional TV and broadcast market with a product that does not yet exist (an Apple TV with a screen) and has been speculated about for more than three years with nothing yet in the market. These are many of the same analysts who said that when the first generation Apple TV came out in 2007 it would kill off DVDs. Deutsche Bank went so far as to say that the new Apple TV would, "cannibalize a good chunk of the U.S. DVD player market in the next several years".

Five years has passed since that statement and the Apple TV hasn't cannibalized or disrupted anything in the market. At the same time, when Apple TV hit the 1M sales mark, other analysts were quoted as saying, "one million is a real benchmark". Really? We're now judging the success of a device based on selling only 1M units? Clearly, most of the analysts and media really don't understand these streaming devices or their real impact on the over-the-top video market. They don't get how they really work or have any idea what you can or can't do with them. All I keep hearing about is how good AirPlay is, yet about half the content apps I have on my iPad don't even have AirPlay functionality built in. For instance, TNT's iPad app is AirPlay enabled, yet TNT's iPhone app isn't. And you still can't get something as basic as Hulu on the Apple TV.

To think of it another way, the Apple TV is nothing more than a $99 adapter that lets you mirror what is on your iPad/iPhone on your TV, if the app supports it. That's all it is. And for all of the raving by the media and analysts about how "disruptive" the Apple TV was suppose to be, Apple has yet to even sell it to 10% of their installed iPad base. These are same analysts who are saying the new iTV or whatever it's going to be called, if/when it is released, is going change and disrupt the TV and broadcast markets, which in truth, is as far from reality as you can get.

Note: Here is an interesting analysis on how much revenue Apple might be generating from their Apple TV product.

In February, Boston based Yottaa (pronounced "Yo-ta") announced a new dynamic site acceleration service aimed at the small and medium sized business (SMB) markets with the goal of trying to fill the void left in the market for DSA services, due to Akamai's recent purchase of Cotendo. This week, the company raised $9M in a Series B round and has now raised $13M to date.

For those not familiar with dynamic site acceleration, it is a suite of technologies and products that deals with optimizing dynamically served content across the network. Traditional DSA services often include TCP optimization, route optimization, connection management, on-the-fly compression, SSL offload and pre-fetching technologies.

In addition to offering DSA services, Yottaa also offers mobile content acceleration and content delivery for small objects, not video. The company also announced that they have been granted two patents in the areas of web performance optimization (WPO), Front-end Optimization (FEO), web security and cloud routing. While Yottaa has a long way to go to become the next Cotendo, the company in on track to do under $10M this year, (Cotendo did $24M in 2011) Yottaa did say that in the last month, 5% of the Internet population has visited sites accelerated by the their network.

Yottaa was one of the presenters at last week's Content Delivery Summit and you can see their presentation here that they did with Mocospace, which is one of the largest entertainment destinations on the mobile web with 25 million registered users, spending over 1 million hours per day playing games and making friends.

The company now employees 40 people and current investors General Catalyst Partners, Stata Venture Partners and Cambridge West Ventures combined for the second round of funding, along with additional undisclosed investors.

A lot of news came out at or during the Content Delivery Summit and Streaming Media East shows last week, here’s a rundown of all the news I got sent or saw on the wire.

• Amazon CloudFront Adds Dynamic Site Acceleration Capabilities
• Yottaa Launches Solution for Mobile Acceleration
• Harmonic Sets the Bar for High-Volume Multiscreen VOD Transcoding With New ProMedia Xpress
• Jet-Stream Collaborates with Oversi for a Converged CDN Solution
• Imgur Sees Over Two Billion Page Views a Month on the EdgeCast Network
• Sorenson Releases Squeeze 8.5 at Streaming Media East
• Limelight Video Platform Announces New Features and Capabilities for Online Video Publishers in Summer 2012 Release
• Revision3 Replaces In-House Encoding — Moves to Encoding.com’s Cloud-Based Turbo Encoding
• Globecomm Chooses RealNetworks Helix Universal Media Server to Power
• Limelight Networks Introduces Orchestrate – Industry-Focused Solution Framework to Streamline and Simplify Digital Media Publishing
• Polycom RealPresence Video Content Management Solutions Deliver Live Video Streaming and Video Recordings to Android and Apple Devices
• Skytide Announces Insight for Content Delivery Networks Version 3.0
• WeVideo to Expand Online Video Ecosystem With Third Party Solutions
• Mixmoov Announces Full HD Support and thePlatform Partnership at Streaming Media East
• Scala Integrates Scala Content Manager with Polycom RealPresence Media Manager
• KnowledgeVision 2.0 Raises the Online Presentation Analytics Bar
• Discover Video Announces NIMBUS Live Transcoding and Streaming Service
• Telestream Extends Live Video Production Capabilities for Partners
• TalkPoint Announces Convey, the First SaaS-based, Self-service Webcasting Tool
• EZWebPlayer Announces White Label Service at Streaming Media East
• Streambox Releases Automated Hybrid HD/SD Software Encoder with Low Delay Multi-Path Protocol and Apple Thunderbolt Support
• Brightcove Transforms Web Experience Management with Video Cloud CMS Integrations

There's a lot of webcasting deployments taking place inside the firewall of enterprise corporations and for anyone who may be looking to build out their internal webcasting team, three experienced professionals from Lockheed Martin (Richard Banse, John Hohenstein and Brian Rooney) are looking for new gigs. Over the last few weeks, Lockheed Martin has been doing layoffs and some members from their core enterprise video team are now looking for new opportunities.

Some of them have presented at our StreamingMedia.com shows in the past and these guys have helped build the internal multicast streaming capability at Lockheed Martin, handled a lot of the audio visual hardware, transcoding, media management and a host of AV related tasks. I have included all three of their resumes below, so that anyone who may be looking for this kind of skill set can reach out to them directly.

Richard Banse
Manager of Creative Services
Lockheed Martin IS&GS
View Richard Banse's Resume

John Hohenstein
Multimedia Production Analyst
Sr. – IS&GS Media Services
Lockheed Martin IS&GS
View John Hohenstein's Resume

Brian Rooney
Multimedia Design Engr Sr
Lockheed Martin IS&GS
View Brian Rooney's Resume

Hopefully someone out there is hiring for these kinds of positions and can put them back to work.