Apologies if I have been slow to respond to any of your e-mails. I hope to be back online in a couple of days and have a lot of posts in the hopper.

UPDATE: On Friday, Barron’s spoke with Level 3 and updated it’s article. LightReading.com also updated their article and removed the quote in question. Good to see both sites do that to make sure the information is accurate.

I am amazed at how quickly some investors and analysts jump to conclusions based on any report on any website without checking facts. I like LightReading.com, but they quoted Level 3 wrong. Lisa Guillaume, VP of CDN Product Development for Level 3, did not say "the company will be offering CDN services at 20 to 30 percent less than its competition". She said to me that CDN services had typically been offered at a 20-30% premium over high speed Internet access. Nothing to do with the competitions pricing.

DataCenterKnowledge.com got is right by quoting Level 3 as saying that "CDN services have historically been offered at a 20 to 30 percent premium to transit." No where is any competitor even mentioned. Saying you are going to cut your pricing by 20-30% is one thing, but Light Reading is implying that Level 3 is cutting it’s pricing 20-30% lower than the competition. That is wrong.

Now Barrons.com and others are quoting LightReading.com in their reports as the reason Limelight and Akamai stock is down in the market today. Is that the reason? Maybe, I don’t know. But if it is, then it’s based on an inaccurate quote.

Yes, I expect Level 3 to come to the market with a lower price when they announce their CDN for streaming later in the year, as I stated back in August. But to date, Level 3 has not announced any pricing discount numbers or percentages.

Today, Microsoft made some major company changes in multiple divisions of their business. Some long time execs including Amir Majidimehr and others are affected and multiple divisions have been reorged. Lots of changes that will affect multiple product lines. I expect we’ll see the changes announced shortly, if not tomorrow.   

I’ve seen numerous reports lately by some in the financial community talking to “bursting” overages by CDN providers. Many of these references talk to overages incorrectly and some analysts might benefit from better understanding the two different ways CDNs charge for their services and exactly how “bursting” fees play into a CDNs bottom line.

The most recent example I read was coverage put out on Akamai where the analyst downgraded the stock based on their feeling that Akamai would not be able to get as much additional revenue for “bursting” overages as they have been getting in the past, due to the recent pricing pressure in the CDN industry. As the analyst stated, 30% of Akamai’s total company revenue comes from what he called “bursting”. That may be the case, but “bursting” and overages are not the same thing, especially when you’re talking about content delivery for video.

The first thing to realize is that no one knows exactly what Akamai products the 30% in overages comes from. Too many assume it’s from the delivery of video, but in most cases it isn’t. It comes from many of the other products and services Akamai offers like static caching, software downloads and application delivery. I asked Akamai for a breakdown of what products accounted for what percentage of overage revenue but they said it was not data they were making public.

Even without Akamai making that data public, all analysts should know the two different ways that all CDNs charge and how overages work. Every CDN charges for delivery of video, via streaming or download, based on two metrics. One is the total amount of Mbps sustained at any given time, over a 95th percentile. The second in the total GBs delivered over the network in any given month. These are two very different metrics with very different overage charges.

The majority of customers for video delivery have contracts where they are paying for the amount of GB delivered over the course of a month. With this model, there are rarely overages as typically when you push more bits then you signed up for, you get charged a lower per GB fee. For example, if you committed to push 100GB in a month and are paying $1.00 per GB, and then end up doing 150GB, typically your pricing then drops to a lower rate, say $0.95 per GB. Rarely do CDNs charge overages on a per GB delivered model and in many cases, some of them charge one flat fee per GB no matter how much you push. Years ago, CDNs use to charge overages with this model, but quickly realized that by doing so they gave customers no incentive to push more traffic on their network. This was how Speedera Networks really got traction in the market, by taking all the overflow traffic from customers who didn’t want to pay overages with their core CDN.

The other way CDNs charge for video delivery is on a per Mbps sustained model. This means that you pay for the volume of traffic you push at any one given time, and not based on the total bits pushed. Typically, this is the pricing model where you are charged for overages above the volume of Mbps sustained that you commit to. It’s also referred to by many as 95th percentile as with this model you are typically allowed to burst over your committed Mbps allotment for less than 5% of the month with no penalty.

There are a few reasons why understanding these different pricing models are important. For starters, don’t assume that you know what products the CDNs are getting overages from. Two years ago, Akamai stated that less than 10% of their contracts for the delivery of video were on a per Mbps model, the rest were per GB pricing. I don’t know what that number is today since Akamai won’t say, but too many are assuming that the 30% in revenue is from CDN for video when it isn’t. Much of what Akamai delivers is content of various types, static images, software, applications and video. When it comes to delivering the majority of content other than video, they are charged on a per Mbps sustained model where overages apply. So to assume that Akamai could take a hit in future overage revenue is to assume that they are seeing 30% of that revenue from video delivery, which they aren’t. How does Akamai compare to Limelight Networks in terms of contracts? Hard to know since we don’t know the Akamai number, but Limelight said on their road show that 40% of their customers have per Mbps sustained contracts.

So why does any of this matter and why do money managers pay so close attention to how much Akamai is making in overages? Simple. There is a fixed cost to any CDN to deliver bits of content and if you can charge two or three times that in overages, then that greatly affects your P&L. It all comes down to the bottom line.

That being said, this is not a prediction on my part of how any company’s stock price will perform now or in the future. I am not a financial analyst and have no vested interest in any company’s stock.

This morning Adobe announced that they launched its Flash Lite 3 software, used for playing back Flash video on cell phones and Flash enabled web sites. Adobe says that Nokia and NTT DoCoMo are planning to support Flash Lite 3 with their upcoming handsets, but didn’t say for how many models. Nokia, said it would launch a new development community today to help Flash developers and designers with mobile software development.

Adobe also announced today that major television broadcasters and leading content publishers would collaborate with Adobe to distribute video content via the new Adobe Media Player. Today also marks the first time that the Adobe Media Player is available to the public as a beta download, with the final version being ready in the first half of 2008.

Chris Hock, who was the Group Product Manager for Flash at Adobe, has left the company and taken a new job. While I have an e-mail in Chris to get more details, I do know that he has taken on a role as the VP of Product Management for BlackArrow, a yet to be launched "multi-platform video ad-management solution".

For many of us in the industry, Chris has always been the face of Flash, leading the charge for the adoption of the Flash platform back before Adobe acquired Macromedia. While there are a lot of smart people over at Adobe who will continue to carry on the platform, I’m sure he’ll be missed by Adobe. Anyone who was trying to contact Chris can now contact Kevin Towes, Product Manager, Flash Media Server who will be taking over some of what Chris was working on.

As soon as I hear back from Chris and get permission, I will post his new details here for anyone who wants to contact him. Chris says you can contact him at chock@blackarrow.tv

Note To Adobe: As of Friday, when you call into Chris’ old number, the call does not get transferred anywhere. And when you call into the Adobe receptionist, they say they have never heard of anyone with his name. There needs to be a better procedure in place to transfer his calls to someone who can take them.

Yesterday, Acacia Technologies announced that it has acquired rights to a patent relating to video editing
technology. The press release says that the "patented technology generally relates to altering video
streams in real time to remove portions of an original image and
substitute elements to create a new image. This technology can be used
to digitally change the background of a video image without using
traditional blue screen techniques."

I’m trying to get more details on the patent number(s) but so far, Acacia is not providing any of that info. As anyone who has followed the online video industry may remember, Acacia Technologies was the firm that hit many in the market with letters claiming that their DMT (Digital Media Transmission) patents were being infringed upon and covered just about every form of video delivery over IP. For more on Acacia you can visit the special patent section on the StreamingMedia.com website at www.streamingmedia.com/patent

You can also learn more about other companies aggressively pursuing patents as potential revenue generators in my article from June entitled "Digital Media Patents for Profit".

(image credit: photo of CEO Paul Ryan from the Orange County Register)