This morning, Cisco announced that it intends to acquire privately held Extend Media with the deal expected to close in the first half of Cisco's fiscal year 2011. Someone inside Cisco's Service Provider Video Technology Group, who didn't want to be named, told me that Cisco valued Extend Media at "around $40M". Cisco's PR department declined to comment on that number and said that they "aren't discussing financial terms of the deal." While the $40M number comes from someone inside Cisco who would know the details, the valuation seems high to me.

Updated: I have learned that the deal is actually worth about $80M. While that number initially seems high since that would give Extend Media a 4-5x multiple on revenue, as it was pointed out to me, Cisco paid more than usual due to competitive reasons. Extend Media and thePlatform are really the only two companies in the space with carrier grade solutions and with Comcast already owning the platform, Extend Media was really the only other company for Cisco to acquire for which they had to pay more of a premium.

Extend Media did have some well known customers but their customer count was small. The company which had raised just over $30M in VC funding was not profitable and like many smaller companies in this space, faced a tough choice of trying to raise another round, or find a suitable buyer. In this case, Extend Media made the right move as raising a fourth round in today's market would have been very difficult, especially with the industry being so competitive with numerous vendors. The sale to Cisco now gives Extend Media the resources they need to grow their business and Cisco gets a platform that does have some good functionality, but will require Cicso to make an investment into scaling out the platform.

Lots of folks are asking me if Extend Media was considered an online video platform (OVP) and if so, are there other companies similar to Extend that might be attractive to other large players like Cisco. The term OVP is very generic these days but Extend Media would not be classified as an OVP. Most OVPs provide solutions directly to publishers and content owners and Extend Media focused on selling their platform to telcos and carriers. Extend Media is a software play deployed inside the carriers network whereas OVPs offer their services via a SaaS based offering. Some of their customers include Bell Canada, AT&T and Verizon.

Today at 2pm ET I'll be moderating another StreamingMedia.com round table webinar entitled "Developing Your HTML5 Strategy". With many organizations embracing HTML5 to deliver video to the iPhone and iPad, there has never been a better time to learn how and why adding HTML5 to your video strategy can improve the video experiences you deliver. Whether you’re thinking about HTML5 or already incorporating it into your video strategy – this webinar is an opportunity to learn key developments for HTML5 video delivery.

Join Jeff Whatcott, SVP Global Marketing from Brightcove and Jan Ozer, Author of ‘iPad and HTML5 Adoption’ for a discussion on what companies need to think about when incorporating HTML5 into their video strategy. The webinar will cover:

• The drivers behind the growing use of HTML5
• Creating a holistic video experience
• Real world examples of how some companies are using HTML5 as part of their video strategy
• Key considerations for working with HTML5
• Trends for broad industry adoption of HTML5
• What you need to think about to launch or improve your video strategy

You can still register and attend for free at this link.

Netflix’s domination of Apple devices is now complete. This morning, Netflix released their streaming app for the iPhone and iPod Touch which joins the iPad and Apple computers that are now capable of streaming Netflix videos. I’ve downloaded the app for the iPod Touch and have watched a few clips and overall, the quality of the video looks pretty good. Some of the older movies are really letterboxed which wastes a lot of pixels on the iPod Touch screen, but with newer content you have the ability to fill the entire screen.

With Netflix saying they expect 100 different devices to have support for Netflix by the end of this year and for those devices to have an install base of 100M, Netflix continues to lead the market with their device penetration.

There are far too many people associated with the online video industry that want to imply that cord cutting is real. Too often, their motives are to present an inflated value of online video with the intention, in my mind, to justify that this industry is more successful or cooler than it really is. Make no mistake, I want to see this industry grow. But myself and many others want to see content owners offer services that consumers are willing to pay for so that sustainable business models evolve, which is the only true way to judge the success of the industry.

For all the talk about cord cutting, TV everywhere, broadband enabled devices or 3D TVs, you'll notice there is almost never any talk of the companies that are supposedly benefiting from these trends. If cord cutting is in fact real, where are the companies who are making money from it? Why are so few companies in this space profitable? If TV Everywhere is in fact such a big deal like so many say, where are all the case studies from content owners making money from the service? There are lots of arguments on blogs and amongst industry folks on what these services should cost or look like yet no on seems to disagree that today, almost no content owners are making money from their online video offering.

I don't disagree that these services are exciting, have potential for growth or could be the future of the industry, but when they are talked about, many folks don't describe them based on the reality in today's market. When Apple announced the Apple TV in 2006, analyst after analyst said things like, "there's no question that Apple TV will be a success" or "Apple TV will forever change how consumers watch video." Now three years after the Apple TV was released for sale, one would have a hard time arguing that it has had any real impact on the market in any measurable way. Yet that has not stopped far too many people who write about this industry to once again talk about how big of a disruptor the next version of Apple TV will be, before it has even been confirmed or announced. We have example after example like this from our industry over many years that shows the danger in inflating the true success of these products and services.

Cord cutting is no different. Yes, the latest numbers from SNL Kagan do show that subscriptions to TV services declined in the second quarter, but one bad quarter is not a trend. Nor is it a business. In fact, even the analyst who wrote it suggested that the bad economy had more to do with the poor numbers as opposed online video offerings. When cable TV subscriptions grow in a quarter, no one writes about it or seems to take notice. But the moment the numbers go down, far too many in this industry want to use it as proof that cord cutting is real, almost as if to say look how well this industry is doing. Trends in this industry don't happen over night, they happen over many quarters or usually, many years. As fast as the technology moves, the adoption of video based applications is slow. Don't be fooled by thinking that all of a sudden we can judge the success of the online video industry based on some negative numbers from the broadcast industry.

Remember a few years back when far too many people wanted to imply that the online video advertising industry was doing so well simply because the advertising market on TV was doing poorly? Just take a look at the wild predictions that many analysts made in 2008 on what the size of the market for online video advertising would be in 2012. Those numbers don't have a chance. Yet, still to this day, far too many people judge the success of the online video advertising market by the supposed failure of the TV ad market. Far too many people seem to think that one service has to replace another when most of the times these services are simply a complement to one another.

People rant and rave about broadband enabled TVs, yet even the boldest predictions by analysts say that maybe 25M sets will be sold in the U.S. by 2013. To put that in perspective, there are already more than 25M Xbox 360 consoles in North America today. Granted the Xbox 360 has a big install base, but it has taken nearly four years to get to that number. And in that time, how many content owners or content business have grown or become profitable simply due to the Xbox console? It takes a lot more than just one device, be is a game console, broadband enabled TV or video platform like TV Everywhere to actually change an entire industry. And that's why when you see people talk about these devices or platforms, they almost never talk about how many have actually been sold to date, what the adoption rate is or the size of the market today. It always seems to be about the "future" because that makes the industry look better than it is.

The online video industry is not new. In fact, 2010 marks the 15th or 16th year the industry has been around, depending on how you measure when it started. The success or failure of every kind of product offering in this market can be soley judged based on revenue. Sure, things can take place in the industry that are exciting and services can come to the market that look great, but without a business model behind it, they can't last. It is not enough to simply talk about how cool all of this technology
is. We're not in the Internet bubble of 2000 anymore. The only way this
industry can measure success is with services that are deployed to a
mass market that generate enough revenue to help companies or services to become profitable.

I know some folks are going to say why am I so negative, but it's not negativity, it's reality. Notice almost no analyst talks about what's taking place today? It's almost always about the future and three or four years down the road, yet there are plenty of opportunities right now. This industry survived the crash in 2000 because expectations were re-set and consumers, vendors, VCs and others all came back down to reality of what was real and what was hype. Many of us don't want to see the industry go through another correction like that, even though in the long run, it was the best thing that could of happened at the time. It will sound odd to some, but for those in the industry at that time, they will most certainly agree with me that our industry needed to go through that in order to survive and be where it is today.

Don't let the hype in this industry become the metrics for how we judge true success in the market.

Each week I spend a lot of time trading emails with CEOs in the industry and simply due to time restraints, many of the conversations never go up on my blog. While probably half of what they tell me I’m not able to disclose anyway, there is a lot of information they share that I can make public, especially when it comes to the trends they are seeing in the market. With that in mind, I am going to try and post a few Q&A pieces each month on the blog. If you want your company interviewed, send me an email and let me know as I already have a bunch of these Q&A posts in the hopper and will always be looking for more executives to interview.

Over the past seven years, Inlet Technologies has made a name for themselves with products that help content companies manage their workflow to help automate the entire process of content capture, ingestion and transcoding. Unlike many companies that have changed business models over the years, Inlet’s has stayed the same, focusing on solving one very important process in the video ecosystem. Over the past year, the company has been through some changes as thirteen months ago, co-founder and CEO Neal Page passed away after a year-long battle with Acute Myeloid Leukemia (AML). Last week, I had the chance to interview Inlet’s new Chairman and CEO Don Bossi and get some updates on their business and trends they are seeing in the market.

Question:  Inlet was one of the first list of partners when Google announced the WebM project back in May. Since that time, what kind of traction have you seen for VP8 and what are customers asking about when it comes to the WebM Project? Do you see VP8 ever truly displacing H.264?

Don: Our customers are definitely asking about VP8, so there is overall industry interest in it. Its open-source and royalty-free nature make it an appealing option. Plus, several of the big players in the industry have voiced support for VP8. However, since WebM has only been released for about three months, it stands to reason that adoption is not yet widespread. That said, I expect VP8 to represent a reasonably significant part of the video encoding ecosystem in the future.

To the question of VP8’s impact on H.264, I certainly don’t expect total displacement. The reality is that H.264 is a well-established codec, supported by Apple, Adobe Flash, and MS Smooth. Our view of the future is one with multiple codecs.

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Over the past few weeks, I've been getting a lot of calls from folks asking about Akamai's CDN business and how they are doing in the market along with questions on the stability of CDN pricing. As I wrote in January, due to Akamai getting aggressive with their CDN pricing at the end of last year, in 2010 I have seen Akamai win and retain a lot more business than they did in 2009. Akamai's CDN business appears to be doing pretty well and there is no question that their reduction in pricing is making it harder for their competitors. At the same time, pricing is very stable in the market and I expect it to remain that way for the next few quarters. On average, CDN video pricing should be down about 25% this year for the average customer compared to being down 40% last year.

In general, Akamai's CDN business shows no signs of slowing down. While competitors like Limelight and Level 3 are still serious competitors for products that Akamai gets 45% of their revenue from, no one has yet to truly compete with Akamai on any scale for the value add services they sell. That's not to say that Akamai will be the only game in town for services like dynamic site acceleration (DSA), application acceleration and services for the retail vertical, but they are still the clear leader and will be for some time to come. Other companies will challenge Akamai for these services, but it will be a few years before these competitors are at scale or can compete with Akamai on product functionality.

While many CDNs are just now starting to diversify their revenue away from pure CDN services, moving from a service based company to a software platform company is not easy to do and does not happen overnight. It takes years, literally, to make it happen. Limelight has been working on it for the past 18 months and it will be 2011 before they start to show a real shift in the products that generate revenue for them outside of purely CDN services. From the date Limelight started to make this shift, it will have been over two years in the making.

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We're pleased to announce that StreamingMedia.com is kicking off a new series of webinars with Adobe starting this Wednesday at 2pm ET. Over the next few months, Abobe's webinars will cover topics pertaining to Flash Media Server, Video Delivery in the Enterprise, HTML5 vs. Flash Media, Monetizing and Delivering Protected Content and more. On Wednesday I will be moderating a Q&A session with Adobe’s Flash Media Server guru, Kevin Towes who will be presenting an introduction to the Flash Media Server. You won’t want to miss out on this opportunity to ask Kevin your questions pertaining to Flash video.