With all that is taking place with the economy, not surprisingly, the most frequently asked question I am getting is what impact is the economy having on traffic growth for video across content delivery networks? So far, I have not seen any content creators putting less video online and from all the content creators I have spoken to, they are still seeing traffic growth. But the real question is not whether or not traffic is growing, but whether video traffic growth across the CDNs is slowing.

While the CDNs don’t publish their traffic numbers on a monthly or quarterly basis, I have had in-depth conversations with many of them in recent weeks and so far, they are not seeing any signs of video traffic slowing down. Some of that might be offset by the fact that many content creators have moved to higher bitrates and as a result, are pushing more bits, which could be confused as more traffic. And while some slowdown is being seen in very specific markets for the delivery of things like ads and small objects, the traffic for video related content continues to be strong. Without knowing what percentage of traffic across a CDN comes specifically from video, some of the data from the CDNs is hard to verify. That being said, the best data comes directly from the content owners who are the ones paying for the content delivery services and the ones who know all the traffic data.

I’ve spoken to most of the major broadcasters over the past month, many of whom were at Streaming Media West, and it is clear that they are still seeing the kind of video traffic growth they expect, with no signs of that slowing. While I don’t see the economy having any impact on the CDN market in terms of traffic growth, the economy and the general market for CDN services is going to have an impact on many of the CDNs by 2010. As I have said many times, the market is not big enough, and will not grow fast enough to support 50+ video content delivery offerings in the market.

Yesterday, the New York Times Bits blog had a post that rationalizes how Netflix could become the leader in online video content. While I agree that Netflix has made huge strides due to their deals with Xbox, Starz and of course the Roku player, the real question is how they plan to make money from this new distribution strategy?

Each time Netflix streams a movie to your PC, Xbox or Roku, they pay a fee to deliver the bits and pay another fee to the content owner for the rights to distribute the content. Right now, the streaming movie services offered by Netflix costs them money but helps them retain Netflix customers. But over time, as subscriptions to their DVD service slows, how will Netflix translate their online video offering into revenue? Can Netflix convert those who use the DVD service over to a streaming only service? And more importantly, will Netflix offer a streaming only service for those who want to stream movies to the Xbox 360 and Roku but don't want physical DVDs?

Some say that by making the Xbox 360 capable of getting Netflix content, the Xbox 360 console will be more attractive to new users who are deciding on whether to buy an Xbox 360 or PS3. I would agree that for some, it makes the Xbox 360 more attractive. But unless Netflix is getting paid by Microsoft to help sell consoles, which I don't believe they are, Netflix only sees additional revenue today if the user who bought the console is not currently a Netflix subscriber and signs up for the service. And the idea that Netflix can easily tap into the Xbox 360 community around the world is a great idea, but in reality, causes big problems since much of the content from the major studios is typically licensed on a region by region basis.

With Netflix still only having less than 15% of all their DVD inventory available for streaming, the volume of popular content continues to be a major hurdle. If Netflix can get more first-run movies online it will help, but how long will it take to get even 50% of their content online? The problem does not lie with the encoding and hosting of the video but rather the licensing deals with the content owners. Netflix's success with their streaming offering is solely dependent on the major movie studios giving them distribution deals to stream more of their library over time. But the real question is how much inventory will they allow Netflix access to and over what time period?

Netflix is smart to do all of these deals as no one will argue that it makes a Netflix membership much more valuable than it currently is if you could only get physical DVDs. But at some point, Netflix is going to have to make up for the huge amount of money they are spending to stream all of this content to devices. Right now, the Netflix streaming service is a loss leader. That's fine for now, but how quickly is Netflix going to have show how they are going to make money from the service? They may be able to do a streaming only subscription down the road or maybe advertising will creep in over time, but right now, Netflix is burning through money to make all this happen. Exactly how much we don't know, Netflix won't say on record how much their streaming service is costing them. Over time, I think they will get so much pressure from investors that they will have to break out those numbers.

For Netflix, the streaming service is a big gamble that they are betting everything on. They have to turn the streaming service into a real business model down the road or they risk having a cool service, but one that costs them money. If it was anyone else, I'd say they have some bad odds at making it. But so far, Netflix has been very smart at how they operate, doing things like making their platofrm open and providing APIs. I give Netflix about 14 months before they have to start showing investors how they are going to turn their IP based video offering into sustainable business model. I'm rooting for them.

On day two of the Streaming Media West show last month, Anthony Wood, Founder and CEO of Roku gave attendees a preview of how future content will be consumed on the TV. He also discussed about how Roku will soon offer a software development kit to allow their Roku box to be opened up to additional content besides Netflix movies.

Almost all of the conference sessions and keynotes from the Streaming
Media West show last month are now available online at
www.streamingmedia.com/videos.

On day two, Albert Cheng, EVP of Digital Media for Disney ABC Television Group opened the Streaming Media West show with a keynote discussing the current state of the online video advertising market and ABC’s strategy with their video player. Albert’s presentation also gave details on CPM rates amongst some of the major content portals and he discussed the impact long form content will have on ad revenue in years to come. You can download his entire slide deck here.

Almost all of the conference sessions and keynotes from the Streaming
Media West show last month are now available online at
www.streamingmedia.com/videos.

At the end of this month, folks from the Microsoft Research team are presenting results at the Internet Measurement Conference from a recently completed CDN study with the Polytechnic Institute of NYU entitled “Measuring and Evaluating Large-Scale CDNs“. While the event is not for a few weeks, the technical study is now public and available from the Microsoft Research website. Having read through it, the paper is one of the most comprehensive technical white papers I have seen on the subject in quite a few years that is available in the public domain. (UPDATED: On October 15th, I was informed by Microsoft Research that they “decided to withdraw the paper from the Internet” and as a result, I was required to remove my links in this post to the paper.)

For the study, Microsoft Research and the Polytechnic Institute of NYU conducted extensive and thorough measurements to accurately characterize the performance of Akamai and Limelight. Their measurements included charting the CDNs (locating all their content and DNS servers), assessing their server availability, and quantifying their worldwide delay performance.

The purpose of their measurements was to shed light on two radically different design philosophies for CDNs: the Akamai design, which enters deep into ISPs; and the Limelight design, which brings ISPs to home. They compared both CDNs with regards to the numbers of their content servers, their internal DNS designs, the geographic locations of their data centers, and their DNS and content server delays.

In speaking to one of the authors of the paper yesterday, he commented that their measurement techniques can be adopted by CDN customers to independently evaluate the performance of CDN vendors and can also be used by a new CDN entrant to choose an appropriate CDN design and to locate its servers. While the Microsoft Research team was originally going to study hybrid CDNs and P2P delivery, they quickly decided that comparing Akamai and Limelight different network architectures would be a great subject to tackle.

While some might be under the impression that the divisions inside Microsoft that use Akamai and Limelight for delivery commissioned the paper, this is not the case. They were certainly interested in the results, but the report was initiated solely from Microsoft Research and the Polytechnic Institute of NYU.

I will be highlighting some of the findings of the technical paper in multiple blog posts over the course of the next two weeks.

For content owners who want to stream Flash videos with a CDN in the Adobe FVSS program, it’s always been more expensive to deliver streaming videos with Flash than Windows Media. The reason for this is that unlike Microsoft, which makes its money by charging a CPU fee per Windows server that can then run Windows Media Services, Adobe gives CDNs a special build of the Flash Media Server and then makes their money by charging CDNs a license fee based on the number of bits they deliver.

For some CDNs, they bundle that license fee into their cost of doing business. For others, they pass that cost along to content owners on an average of about a penny per GB delivered, which is much_less than it was about a year ago. For customers, that amounts to an extra $1,000 a month for every 100TB of transfer. For larger customers, Adobe has been flexible in working with CDNs to reduce the license fee if the content owner is doing a really large volume of Flash streaming each month.

To find out which CDNs still charge a license fee versus those who don’t, I asked about half of the CDNs in the Adobe FVSS program, on the record, if they charge a Flash license fee.

• CDNetworks: Typically does not charge a license fee, but depends on price points. The lower the unit
  price, they may charge more for flash due to licensing and lesser
  efficiency of server capacity
• ChinaCache: Does not charge any license fee
• EdgeCast: Does not charge any license fee
• Highwinds: Does not charge a license fee unless the pricing is for a really large deal
• Internap: Generally does not charge a license fee but they do take Adobe royalty into account on large deal pricing
• Level 3: Does not charge any license fee
• Limelight Networks: Depending on the deal size they may charge a license fee
• Velocix: Does not charge any license fee

Based on contracts I have seen in the market, Akamai and Mirror Image, who are also in the Adobe FVSS program but didn’t respond to my inquiry, charge a license fee for all Flash streaming deals. AT&T, who wasn’t listed on the Adobe site as being in the FVSS program only a few weeks ago, has just recently been added. They also didn’t return my request for details and having just been added into the program, it’s too early for me to know their Flash streaming pricing.

The good news from all of this is that EdgeCast, Velocix and Level 3 no longer charge any license fee for Flash streaming. Last year, all CDNs charged a license fee of some kind, so the fact that three CDNs in the FVSS program are no longer charging customers for Flash streaming is a good thing. Over time, I expect more CDNs will join them in doing away with the license fee as they get more traffic on their networks and ramp up their services.

While Adobe has been good at reducing the license fee amount since last year, my opinion still is that it’s a bad pricing model. I continue to hear from content owners who don’t use the Flash platform for streaming due to the increased cost, especially for those who are pushing a lot of traffic. Why should the customer have to pay more to deliver their content in one format or another? For a lot of the CDNs that have just built out their Flash streaming networks and have a lot of capacity that is not being utilized, running all their servers at 50%, the license fee is best.

But as they ramp up their business and their build-outs are done, every CDN would prefer to pay Adobe a CPU fee instead of a fee based on traffic. Right now, the Adobe Flash license fee is annoying and a nuisance to many CDNs who want to sign up content owners quickly and ramp up their business as fast as possible. Having to explain to content owners why one format is more expensive than another and trying to then figure out how much more expensive Flash streaming is, when the customer does not even know their traffic, only complicates the process.

I expect that over time, Adobe will move to a CPU based fee for CDNs that deploy Flash Media Servers. Last year, Adobe saw that the high cost of the Flash license fee was hurting adoption and hence made a move to reduce it from around five cents per GB delivered, to about one cent per GB delivered. That change had a big impact on the CDNs and Adobe and as a result, Flash streaming has gained a lot more traction in the past twelve months. To date, Adobe has been good at keeping their eye on the market and adjusting their business model to give content owners more of a reason to adopt Flash for streaming, live and on-demand. If Adobe were to take the step of doing away with the Flash license fee for content owners completely, and get their revenue stream from a CPU license from CDNs, the adoption of Flash streaming would only continue to grow.

Over the last few weeks, I am getting more and more customers asking me why Akamai is quoting one price for streaming delivery and another price for HTTP based video delivery. Am I’m not talking Flash streaming where some CDNs still charge an Adobe license fee. Even with Windows Media, Akamai is charging a higher price to deliver content via a streaming media protocol as opposed to delivering content via HTTP.

I don’t know of any other CDN in the market that is pricing video delivery this way and as a result, I see Akamai not winning a lot of new deals in the market as customers don’t understand why they should be "penalized" for doing streaming over downloads. Why would Akamai care what protocol a customer is using? Does it cost Akamai more to deliver streaming on their network versus downloads? It shouldn’t. If this was simply about Akamai charging more for their services, no problem. It’s a free economy and if you can get more for your services, more power to you. But that is not what this is about. This is about Akamai charging more for one protocol over another and not explaining to customers why they are the only CDN in the market doing this.

I asked Akamai for more details on this so that when customers call me I can educated them on Akamai’s pricing strategy. Unfortunately, all Akamai wanted to say on the subject was "we don’t discuss pricing specifics publicly." I can understand if you don’t want to "publicly" discuss it, but clearly Akamai is not even discussing it with potential new customers or I wouldn’t have so many content owners asking me for an explanation.

This is a bad practice on Akamai’s part not only because of the effect it has on them winning new deals, but also because of the impact is has on the industry. As an industry, we need to move away from the idea that content owners need to make decisions based on protocols. Should a customer really care and have to decide on what protocol their CDN is using? Absolutely not. All they want to do is use the best combination of technology and protocols based on the type of content they have for the device it is being played back on. The pricing and bundling of content delivery services should be made as simple and easy as possible for customers. Every other CDN other than Akamai has already done this in the market and charges one rate for streaming or downloading video content.