Next week, on Thursday June 19th, I’ll be moderating a CDN panel at the BMO Capital Markets one-day investor summit in NYC focusing on the evolving “eVideo & eMusic” spaces. Presentations will be heard from both public and private CDN and media innovators who are competing in the arena of Internet Media. You can see the lineup and agenda here.

BMO is giving away three passes to readers of my blog. If you are interested in a pass, please send an e-mail to Steve Freitas at BMO and make sure to include all of your company and contact info.

Following up on part I of my post about mobile video pricing challenges, I asked many content owners what the typical prices are for ingesting big content for delivery to little screens, i.e., many formats in, one or two formats out in lesser quality form? How much are they paying and what percentage of the overall cost of mobile video came from transcoding?

Of all the major content owners I spoke to, none of them really knew an answer. Most content creators are using automated solutions from FlipFactory or Sorenson Media to rip derivatives so it was hard for them to know. Also in some cases like at ESPN the carrier picks up that cost, not the content creator. I’ve quickly found that there is no real industry "standard" for this and the business models vary greatly. Some only do the encoding, others do hosting, others try to do a end-to-end solution. The trend I heard most is that it seems to be going towards end-to-end managed services just because of the complexity.

However, the efficiency on content delivery is important when wireless data access becomes more ubiquitous. We are still dealing with a low percentage of mass market users accessing wireless data in general. This percentage will increase as bandwidth increases and wireless solutions actually give an end user a compelling reason to use it beyond email and web browsing. That application has yet to be found. I don’t doubt that there will be an application or a solution that will stress the wireless network, but this will create opportunities to architect a client/server solution to be more efficient which is what most are doing with their technology today. You can also see this now with Sling Media (unicast) and MobiTV (multicast).  These client/server solutions throttle data rates to address network throughput, which is a start, but by no means a total solution.

I also asked content creators how they would respond to a much-simplified pricing model of say 2 cents per minute delivered, regardless of bandwidth? Overall consensus was this would not work, but it depends on the region. The U.S. is all you can eat. Carriers have drilled this concept into the social consciousness of the US consumer. Wireless access is no different. The hotel or airport paid access model where you buy minute/hourly access to wireless is an interim solution to a longer term ubiquitous access to wireless all you can eat usage. Europe may continue its pay as you go or pay per MB for some years to come. I am hearing rumblings that the all you can eat model for home Internet access is changing, but wireless is still an issue with wireless plans not cross country accessible. There are carriers that are attempting to shape a new model, such as "3" in Europe. 3 has shown that it is willing to work with Sling Media and embrace the solution rather than fight them, like others are doing here in the States.

Also, models that adjust Gbps to cpm or pay per minute have not taken off. Most people adjust those number back to Gbps and compare those numbers. The contracts that go along with cpm or per minute pricing are very non standard and have issues making their way past legal. For example A CDN needs to say video encoding rates can not exceed 300kbps. No one wants a clause like this. Is there a similar model out there now? Movies are by ticket. TV is by monthly subscription. iTunes is pay per unit. On Demand is pay per play. Maybe an "EZ-Pass" model might work where you prepay a debit account that slowly depletes but that would be a big shift.

Another question I asked content creators was, are encoding/ingesting costs smaller, larger, or similar to delivery costs? From a mobile perspective, where the actual quantity of bits delivered can be quite small compared to the size of the original asset. This was the only question where everyone agreed on the same answer. Today the encoding/ingestion cost is much bigger because you need to support a lot of handsets, however it should be lower. Once you get to more than a couple of formats, most content owners invest in encoding automation. Formats add storage costs and at least 200k worth of encoding hardware. Delivery is always a much larger cost and sites with no traffic and lots of content are the exception but those tend to go out of business. The costs should be lower due to smaller file size but that is only if the format is a standard format. Most encoding systems have a high sunk cost and then maintenance can be spread across formats. Licensing encoders can raise costs. Farming out encoding should be by size as long as the encoder has the format licenses. But it also depends on the content. For wallpapers and JPGs it is really small. For ringtones is can be small as well, since many carriers limit the payload to a few hundred kilobytes since they deliver this via WAP sites or WAP push or MMS. There are few mobile devices, like Treos, that allow for a full browser to access the Internet and download anything. If video can get to the point where ringtones and wallpaper is from a delivery standpoint, then it can be successful with low production costs.

For my final question to the content owners, I asked if mobile delivery commands a premium due to the more difficult nature of reaching the end user? This was an interesting question. Some of the CDN providers said yes, we charge 10x more for mobile delivery that Internet video delivery which was not a surprise, since most CDNs are not setup to truly deliver mobile video. But on the other hand, the content owners said it should not cost more to deliver video to mobile and that perception is what the carriers want you to believe. Content owners are not buying it.

Some content owners we’re not really sure either way and said that from one perspective this could be right. But there is also content you get access to that you do not get on the Internet and there is also specific content that you get just for mobile use i.e. based on the usage patterns and that you want to get breaking news and info based on presence that a mobile phone/device is well suited for. I think going forward you will see more "premium" content on wireless terminals and specific services that will you will pay a premium for just because it is easier for the content providers to control the deliver as compared to the Internet so they are more compelled to build a "wireless" service.

My take from all I spoke to is that I think it commands a premium now, since the wireless network is not leveraged across as many users. As an alternate example, the cable operator (Comcast) infrastructure can leverage VoIP, On Demand, basic cable, and Internet access. That is a good use of an ongoing cost infrastructure that needs to be updated over time. The wireless infrastructure is unique that it requires broader reach of connectivity and roaming with a consistent bandwidth. Therefore wireless carriers have to provide a broad infrastructure for each customer, rather than a unique home access to each customer with respect to cable operators. However, if you look at the current all you can eat wireless plans from Sprint, the $15/mo is not that bad for EVDO, since they don’t price differently for 1xRTT or EVDO, it is still $15/mo. That may change, but it is not bad for ~300kbps on a wireless network. However, I get ~20Mbps on my Verizon FiOS for $49/mo. The price is still pretty high for mass market adoption, but for that bandwidth I can do a lot, if it was offered.

The more I speak to content owners about their mobile video offerings, the more I realize that there is just so little being done today. When I asked the major content owners what percentage of their inventory is available for mobile or how many videos/streams they are delivering to mobile today, none of them knew or would answer. And I got the sense that they were not trying to hold back the data, but more that they really just did not know, which means that today, it’s not a big part of their business.

On the CDN front, all of the ones I spoke to said that today, mobile video delivery does not take up even 1% of their business from a revenue or bits perspective. When content owners don’t see much traction, and CDNs don’t see much business, it’s clear that mobile video adoption in the U.S. has not changed much in the past few years. Video to mobile has so many business and technology hurdles to get through that you have to really wonder if it will ever get off the ground in the states in any truly mass-market adoption.

While there were just too many to name and quote, many CDNs, major content owners and mobile video vendors contributed to the information in this post.

Today, thanks to numerous business and technology issues, mobile video adoption in the U.S. is still a long way off. The more content owners I speak to, the more I find they don’t have much insight into what can be done today, what platforms exist and how anyone is ever going to make money from video to mobile. Vendor solutions in the market are quite fragmented and most vendors sell to carriers and ISPs and not directly to content owners. Traditional CDN vendors don’t offer mobile video delivery services today and some question whether they ever can. That could be debated on both sides, but the bottom line is that right now, content owners don’t have many places to go to for delivering content for mobile.

While there are a host of vendors in the market, some of them are only working to solve the transcoding needs, others are working on the entire mobile platform. Companies like ByteMobile, Mobixell, Ortiva Wireless, ROK Mobile, RubberDuck Media Lab, Thin Multimedia, Transpera, uVuMobile, Vantrix, Vidiator, Volantis and others are all in the market, yet it is extremely hard to figure out what they offer, who they sell it to and how much business they really have. And those that do have customers, the vast majority of them seem to be outside the U.S.

Over the past few months, I’ve been talking to a lot of major content owners, CDNs and mobile video vendors to get a sense of the biggest technology and business problems they face. In terms of usage, not cost of delivery, many think mobile video is still really just a press release put out for marketing purposes. The hype is that mobile gives operators some what of a walled garden and a way to monetize content, but is not being done in a way user will benefit. The portability is great, but after the adoption of the web, it will be hard to shackle down consumers on mobile.

The market breaks down into two many categories for delivery of video to a mobile device. Those being videos delivered in a walled garden and those downloaded and browsed on the public Internet. Last year, less than 2 million users had the combination of carrier/plan/handset to view video. That compares to PC based access of 180 million general Internet users that companies like Akamai see on a daily basis. Factor in that the frame rate and bit rates are a throw back to web 1.0 video and the bit delivery business for mobile is not big enough to track as a line of business. AOL for instance relies on partners like mobitv, Motricity and Helio to aggregate a large base of users and combine download and stream content offerings.

As far as the mobile video delivery pricing model, I found that there is no real benchmark. Most are usually pricing based on quantity like pay per clip or subscription for a service. The difference is that the wireless networks are like a "Private" network i.e. the carrier controls the network end to end so that affects the price structure. That being said, almost everyone I spoke to, including the delivery networks said that they have not heard of anyone breaking mobile streaming down in that much detail and comparing it with the broader Internet streaming. If you look at the major streaming sites, most of them rely on Flash streaming and Flash navigation. There are no devices, to date, that I know of, that access this content from a browser besides a Palm Treo 700p with Kinoma’s retail Player 4 EX application which supports Flash streaming and access to YouTube through a built in content navigator. Bandwidth is still the costly item. Clearly the wireless data model is still in its infancy, which we all already know.

The mobile wireless model is very reminiscent of the early modem Internet days. I see a corollary between the telephone modem to cable broadband, and the transition between wireless mobile usage and faster wireless networks like EVDO and UMTS/HSDPA. I believe there will be carriers that will take a chance on being the "pipe" and others that will attempt to build an AOL type walled garden. As bandwidth increases, so do the end user applications, since access to content becomes more realistic. I think, as we see now with cable operators, a combining of billing and general access and bandwidth speed increases offered as a way to maintain the customer base will be the long term approach. There is the integration factor though. Uploading content, hosting it and managing it might require additional cost for the carrier but also for the content creator that needs to distribute to multiple carriers with different middleware.

It’s also interesting to note that most of the delivery being done by the CDNs for mobile is downloads of ring tones, wallpaper and games, it’s still not video. Also, all of the CDNs I asked either don’t support mobile video today or simply do it from Helix or QuickTime servers. They have not invested any money really at all into the infrastructure and don’t plan to do so until there is a real customer demand. Part of the problem is that no one seems to know what value the delivery of content adds in the overall mobile value chain. Most content owners I spoke to said that that 3-5% of dollars paid for content should go to delivery; ironically, mobile delivers fewer bits that are harder to get to the end terminal. Right now the deliver is extremely important because of the complexity of delivering a good end-to-end QoS over a wireless network compared to fixed networks like the Internet.

Also, ring tones pull the paid content revenue numbers way up. The amount of revenue from mobile vs Internet site varies by application. Sites like Surfline with real time surf updates do well on mobile. Casual games are growing fast. Atomic wedgie, a mobile video channel is trying original content and right now the revenue for paid video is so small that it is usually viewed as a trial or promotional by studios. It’s no where near even a single digit percentage once ring tones are removed. That being said, it all depends on the middle man. If you can just put it on the open Internet so that broadband phones can find it, then the percentage is minimal. However, in order for mobile to get the best experience with video, content owners have to do deals with the carriers and that makes the percentage higher. You can see how delivery costs can get high when the operator controls the last mile and the end user experience.

Because of this, the carrier network is always a touchy subject with content owners I speak to since the carriers control access to their wireless network. They have the power to block certain applications or ports. They can bill for certain data and not for others if they want to. The combination Wi-Fi and carrier wireless network based products can avoid this, but if the content is on the carrier server, there is no getting around the wireless billing model or limited access rights. Mobile content can be smaller, but not all the time. For example, Palm says that the Treo based products have a full browser and can download huge files. For example, a user could download large video files from their PC via Avvenu.com onto their Treo700w device, but some carriers cap their bandwidth access per month. That’s the kind of complexity users are dealing with in a fragmented market. Technology is still the hurdle, unlike streaming on the Internet.

Tomorrow in part two I’ll discuss how content owners might respond to a much more simplified pricing model.

At the Streaming Media East show a few weeks back, there were a lot of rumors on the show floor about Microsoft potentially adding H.264 playback to their Silverlight and Windows Media player. While Microsoft has denied this is happening, Jan Ozer lays out numerous reasons in an article at StreamingMedia.com on why this would be good for Microsoft, consumers, content publishers and for the industry. It’s an interesting read backed up with some really valid points. Read the article.

I keep reading a lot of reports and quotes by people who all agree that there are lots of CDN providers in the U.S. and as a result, that must mean that industry consolidation is inevitable. The problem is, right now, very few CDNs have enough revenue to make them worth anything. And with many of the new CDNs not focusing on applications and IP, why would we see consolidation when there is nothing yet to acquire?

There are only three companies, Akamai, Limelight and CDNetworks who will do over $25 million this year in CDN revenue. Maybe someone would want to acquire a CDN doing less revenue, or roll up a few of them together, but since so many of the CDNs are really just getting started in the market, there is nothing to consolidate.

If CDNs start to tackle the workflow and ecosystem problems associated with video and build applications to solve those needs, then they become worth something a lot faster. Case in point. Akamai didn’t buy Nine  Systems for it’s $20 million in revenue and Level 3 didn’t purchase Servecast for their $5 million in revenue. They purchased the companies for the applications they had developed. If either company had large revenue and applications, even better, but the applications were enough.

In the next 12-18 months, I expect we’ll see almost no consolidation at all. Yes, I still think Limelight will be acquired by one of the many telcos who are looking to enter the market, and CDNetworks with its nearly $50 million in revenue for 2007 is also a potential target, but other than those, who else has enough revenue, applications or IP to make it worthwhile today? Eighteen months from now it’s a whole different story as unfortunately, many of the 40 CDNs just won’t have enough traction in the market. But since the CDNs have all raised so much money in the past two years, none of the new entrants are going away anytime soon. And yes, the number one player in any industry can always be taken out of the market. And while there seemed to be a lot of rumors in the past week of Cisco acquiring Akamai, I see nothing in today’s market to indicate why that would happen now.

Eighteen months from now, the CDN market is going to be a completely different industry. We’ll be a billion dollar market in the U.S., we’ll have a few companies doing some real revenue and we won’t have over 40 CDNs in the market. But for now, no consolidation is coming.

[Sept 2016 – email me if you want the lastest version] (OPML File Updated 2/9/09) I’m always being asked what sites and blogs I read that cover the online video industry and what’s in my RSS reader. I have about 100 feeds in Google Reader from many sites and blogs, some mainstream, others not. You can download my OPML file by clicking on the link [Mac users hold down the control key] (Download DanRayburn-RSS-Subscriptions) and drop it into your RSS reader.

I think it would be really helpful if other bloggers and new sites made their OPML file available. I am always on the look out for niche sites and blogs I can keep an eye on.

Today, Pure Digital Technologies announced a newer, smaller version of the widely popular Flip Video camera. Called the Flip Video Mino, the unit comes in at 40% smaller than the original Flip and has rechargeable batteries. Retailing for $179.99, the new unit weighs just over three ounces and is being targeted primarily towards teenagers.

Unfortunately, the new Mino only has 2GB of on-board flash memory and captures up to 60
minutes of TV-quality video, which are the same specs as the original Flip. The Mino has new
touch-sensitive buttons to record, fast forward, rewind, pause and
delete and the new internal, rechargeable lithium ion battery recharges whenever the camcorder’s USB arm is connected to a computer
and provides more than four hours of recording time on a single charge.

I’ll have a review unit in a couple of days and will do a follow up post with some videos.