Of all the calls I do with analysts, money managers and others tracking the content delivery market, rarely do those I speak with ask about video birates. For me, the growth of the content delivery market and the very success of the CDNs relies heavily on the trend we see developing for increased bitrates. Most think CDNs can only grow their business by signing new customers or growing their existing customer base. But increased video birates has a huge affect on any CDNs bottom line and 2008 is the year that the bitrates of old finally turn the corner.
Five years ago, the average broadband video stream was encoded at 300Kbps. Last year, 300Kbps was still the norm but we saw many moving to higher quality. Within the last six months, the average broadband video is now at least 500Kbps. We have all seen bigger window sizes, better frame rates and all of that comes from increasing the bitrate. In just the past few days or weeks alone, MLB.com, MTV.com, Yahoo!, YouTube, and Daily Motion amongst many others have all increased the quality of their video.
Gone are the 300Kbps streams and small window sizes. Many content owners are now doing 750Kbps streams and come this year they are going to be delivering many more bits than last year. And with most content owners using some form of a CDN to deliver their content, the CDNs are poised for some explosive traffic growth this year. The average content owner I speak to says they expect to grow traffic 2-4x times this year, without the increased bitrate. Factor in moving from 300Kbps to 750Kbps and content owners could push 4-8x more bits this year than last. Of the over 1,000 content owners who took our CDN survey, 68.9% of them said they would increase their bitrates this year above 300Kbps.
Some say HD is going to be the biggest factor for CDN growth but HD viewing adoption in large numbers is years off. HD will have some impact this year, but most content owners are not encoding content in HD and are focusing on a bitrate around 700Kbps. But even with HD having a small impact this year, it still adds to the growth that CDNs are going to see in the next few quarters. Content owners are putting up more content, in more platforms, in higher bitrates and much of that content is longer in length. This all amounts to a huge increase in the number of bits being delivered via the CDNs.
That being said, the real question is will the CDNs be able to turn the additional traffic into additional revenue or will more traffic simply mean they will have to lower their price? As any content owner should know by now, the more traffic you do over time, the lower price you pay per GB delivered. But for most content owners, it’s going to take a few quarters before they see that growth. Lower pricing is not going to come overnight and for those who aren’t doing huge numbers to being with, even doubling your traffic may result in just small savings. Taking a look at contracts and pricing I see in the market, a large content owner doing say 300TB a month is only going to get about a 15% reduction in price on average for doubling their traffic to 600TB a month. Commitment levels and contract lengths play a factor in that percentage, but doubling traffic does not mean pricing then gets cut in half. For really large customers who grow their traffic quickly, they could see their price per GB cut in half. But if they are doing 4-8 times more traffic, even with the 50% price cut, the CDNs are still making more money. For some of the largest customers the CDNs have the increased traffic and lower price point could cancel each other out over time, but it will take many quarters for that to happen.
One of the best ways we could see the growth the CDNs are seeing from customers is if we knew how many streams the CDNs delivered each quarter. A few years ago, many CDNs use to give out that data each quarter or at least a few times a year. Some, like iBEAM, used it as a marketing vehicle to promote how quickly they delivered their 1 billionth stream. While the number of streams a CDN delivers does not equal a profitable company, as iBEAM found out, it would at least give us a way to see what type of growth customers and CDNs are experiencing. Today, the number of streams a CDN delivers each quarter and the growth they are seeing are one of the many data points that CDNs are scared to release to the market. Scared that if their number is lower than a competitor a customer may go with someone who did more volume. Scared because they won’t be able to use some of the marketing language they use today if their numbers don’t match. Scared because most CDNs in general are too focused on what customers "think" they do, as opposed to what they really offer. In the CDN landscape, they all seem to be focused on "perception" rather than reality, which keeps a lot of data from being revealed.
But the problem with this stay quiet approach is that as an industry, we need the CDNs to step up with this kind of data and show the growth. CDNs don’t need to list out customers by name, but there is nothing stopping them from saying we delivered X amount of total streams last quarter. We need data points in the market that we can all rally behind to show Wall Street and others the value CDNs provide today and the role they are going to play when this becomes a billion dollar market. We need to show advertisers how many streams content owners are growing by each quarter and we need data points to show everyone how important the CDN market is. CDNs, think of the bigger picture. You hold the keys to being able to show everyone what the real growth patterns are for online video.