Open Letter To Streaming Media Vendors: Stay Focused In The New Year

While many have asked me if I plan to do a year in review of the streaming media industry, vendors in this space already know what did and did not work well for them by talking to customers, reviewing their product adoption rates and looking at their balance sheet. To me, that’s the best year in review any company can do.

But I will say that by my calculations, more than 90% of all vendors in the streaming and online video market have less than $100M in revenue. Only a small handful of companies can take huge chances and make big bets on the future. As the Dow approaches 20,000 and the markets are doing well, many companies may try to over-extend themselves in the New Year. Don’t. Have the discipline to stay focused. If you look back at the twenty years of this industry, the worst time for vendors wasn’t when the market was bad, it’s when vendors lost focus, trying to be everything to everybody. Trying to sell their product/services into every vertical that exists, losing their way.

OTT is growing, it is expanding, but the business side of OTT is still unproven for most. The number of live streaming events in 2016 was probably a record, but most of them lost money and could only afford to be streamed due to a big financial backer. We are a long way still from being able to monetize live streaming WITH profitability and still have more work to do. 4K is coming, but it’s many, many years off. So be excited, but be realistic. Set proper expectations with your employees and your investors.

Realize that the best technology and platforms is not what always gets adopted. Services that are easy to understand, buy, deploy, manage and track the ROI associated with them will always beat out the newest and greatest technology. Some say we need more “adoption” of online video, but we don’t. The adoption is here and has been for some time. Now we need consumer-facing services with a proven business model and the technology behind those services to work seamlessly. The growth of this industry is NOT due to a lack of adoption or needed growth of the consumption of video or 4K etc. it’s making all the back-end pieces of these platforms work with one another. The ability to track, measure and analyze the entire video ecosystem, along with the quality of the experience is crucial.

My personal thanks to all the content owners, distributors, and vendors who shared so much information, data, and real-world use cases with me in 2016. The only reason I can act as the focal point for disseminating a lot of industry information is because vendors and others share it with me. That data, those uses cases, it allows me to have an insight into the bigger picture of the industry. It allows me to do my job, which I see it is one simple thing; Inform, Educate and Empower others.

I also appreciate all of the vendors (over 35 of them) who sponsored my blog throughout the year. I’m still amazed that for someone who has no training in writing, has no background in journalism and still struggles with grammar at times in my posts – that people still have an interest in what I have to say, and what I report on. I’ve never looked at my blog as being “mine”. As far as I am concerned, it’s a blog for the industry, by the industry, as the information on it comes from those who build, sell and deliver these videos services for a living.

There are many in this industry who have been and will continue be working each day to help this market continue to grow. Passion breeds success. True success equals profitability. And profitability guarantees a stable, realistic and prosperous future. We’ve only just scratched the surface of what this industry is going to evolve into down the road. So keep up the fight. There are more good things to come.

Wishing everyone a peaceful and healthy holiday season.

Accessing The Cloud Providers In South Korea For The Next Olympics

With the Rio Olympics now behind us, we can start to look at what to anticipate for the next event, the Winter Olympics in PyeongChang, South Korea in 2018. The ability of broadcasters and OTT providers to successfully provide streams from these locations depends heavily on the infrastructure in the region. While South Korea does not have as many large cloud installments as Brazil does (see this report) what we can do is look at the likely clouds from major providers in the immediate area around South Korea. These are the most likely the partners that OTT providers will choose to assist with their live streams in two years.

Cedexis recently pulled some data for me that evaluated cloud deployments including; AWS APAC Tokyo, Azure Cloud Asia East, Azure Cloud Asia Southeast, Azure Cloud Japan East, Azure Cloud Japan West, Softlayer Tokyo, and Ecritel E2C in Shanghai. These were selected based on proximity and performance based on a larger set of clouds where Cedexis excluded the poorest performers.

As you can see below from this seven-day look of latency from every network within South Korea, there is a lot of variability.

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In particular Ecritel E2C Shanghai goes from best in the early part of the week to fluctuating to the worst and best in the later half of the week. You can also see fluctuations in performance amongst the best performing pack and the worst performing pack of cloud providers.

Taking a deeper look at this seven-day period, the following chart shows the statistical distribution of latency to the 7 clouds from measurements taken within South Korea.

statistical-distribution-of-latency-to-cloud-from-within-south-korea

As you can see, at 36ms the Azure Cloud – Japan East has excellent latency at the low-end but it’s also one of the tightest statistical distributions. This means that the outliers or worse performers are actually not all that bad; although 119ms is pretty slow. Softlayer Tokyo also has very good low-end latency in its distribution, but note that its 153ms top end is considerably slower. Also note that in the seven-day period Ecritel and AWS Tokyo both had very good latency at the 10th percentile but the outliers for both were very painful.

Its important to note that this seven day period is unique and the best and worst performers will changes as peering relationships and congestion effect the overall landscape of performance. To get an even deeper understanding of how these networks performance can effect the overall cloud performance rating Cedexis took 5 of the top networks within South Korea to show how these networks perform relative to the 7 clouds under consideration.

heatmap-of-networks-latency-to-various-clouds-from-within-south-korea

The greener a box is the faster that networks round trip time (RTT) to the cloud, and likewise the more red a box the slower the RTT. As you can see, on average Azure Cloud Japan East is the winner but it’s also important to note that as we saw in the first diagram, averages can deceive. The best and worst can change constantly over the course of the day. In fact here is the latency to these 7 clouds over the last 60 minutes of the testing to give some sense of the how often these clouds trade positions.

screen-shot-2016-08-26-at-11-47-30-am

While Azure gets the gold for best performing cloud, the race has just begun. With two years to go before the Winter Olympics, the race is bound to change hands many times in the interim. Stay tuned to see who will be the best performer by then. It’s bound to be exciting.

PacketZoom’s New Mobile Benchmarking Study Analyzes Mobile Network and App Performance

05538ff8-packetzoom-logoLast month, PacketZoom launched a new mobile benchmarking study that analyzes mobile network and app performance on a global scale. The company created this ongoing standard measuring millions of data points gathered from usage of mobile apps around the world, to give app developers deeper insights to create apps with better performance. This is the first time, that I am aware of, that performance insights have been presented at the mobile app level instead of merely showing carrier signal strength.

PacketZoom focuses on improving user experience on mobile apps by eliminating performance roadblocks in the mobile last mile. Mobile publishers and developers boost app performance worldwide by accelerating and improving reliability of content delivery through the integration of PacketZoom’s SDK. In the benchmark, PacketZoom measured the performance of mobile apps on live cellular and Wi-Fi networks throughout October 2016 to determine countries and networks that performed the best.

The initial results are pretty interesting:

  • AT&T has the lowest number of TCP drops in the US (2.94% vs. Verizon with 3.66%)
  • Sprint is far behind with over 5% of disconnects
  • Verizon response time is almost 30% faster than AT&T

Countries Leading in Adoption of Advanced Cellular Technology
(*End user adoption of 4G cellular technology by country based on mobile application usage)

  1. Canada: 96%
  2. South Korea: 95%
  3. Japan: 93%
  4. Indonesia: 91%
  5. US: 83%

Best Response Times for Mobile Apps
(*Average round trip time from mobile app to content server as experienced by end users over cellular and WiFi networks – ms)

  1. France: 276 ms
  2. Spain: 338 ms
  3. Netherlands: 355 ms
  4. UK: 357ms
  5. Germany: 389 ms

Every smartphone user knows that the expected customer experience on mobile is the same as we get on the desktop. Some mobile reports show that the accepted wait time on mobile for website and app performance is about 5-6 seconds. However, there are many factors that play into the speed of a mobile website or app and with PacketZoom’s new benchmarking, hopefully the data will help developers looking to create a better mobile experience.

Troubling Trend: Content Licensing Costs So High, OTT Services Struggling To Become Profitable

With all the non-stop mentions of how popular OTT services are, the one thing no one seems to be talking about is how any of these OTT providers are actually going to make money and become profitable. For years many said the key to the success of any OTT business was simply to get enough scale and subscribers to cover the costs of licensing and distributing content. But even as we have seen with Netflix, scale doesn’t get you to profitability when the cost to license/create content is so high and the price you can charge the consumer each month is so low.

Netflix’s subscription rates haven’t grown as fast as they need them to and the company can’t raise prices each year the way pay TV providers do. When content costs go up in the pay TV world, they pass those costs on to the consumer with higher rates. But when content costs go up for Netflix, Amazon, Hulu, Sling TV, PlayStation Vue etc. they end up eating those additional costs and rarely raise their monthly rates to consumers. Viewers have become accustomed to OTT packages in the $6-10 range for VOD and it’s a sweet spot as we have witnessed. Each time Netflix has raised rates, they have lost subs.

With more competition entering the market, content licensing costs have skyrocketed as more OTT platforms have been bidding up prices. As of last quarter, Netflix has streaming content obligations that total over $13B and their licensing costs have grown by more than 50% from 2010-2015 while their revenue has only grown 26% compounded annually. While breath and depth of catalog use to be how Netflix promoted their offering in the market, now they have so many competitors that original content is the only way to differentiate the service. Netflix is spending nearly $5B in content licensing/creation costs in 2016 alone and extrapolating out the numbers simply doesn’t work in Netflix’s favor. The company could literally run out of cash before the number of subscribers can support the business.

And it’s not just video. Spotify’s revenue grew 81% last year, but royalty fees jumped 85% to nearly $2B, taking up 84% of Spotify’s revenue. CBS said they lost money on their content licensing deal with the NFL last year for eight Thursday night games and that was for pay TV, not online. And internally, people at Twitter who don’t want to go on record confirm that they will lose money on their deal with the NFL as well. Content licensing costs aren’t just a Netflix problem, or one tied to VOD content, it’s a system wide problem across music, movies, broadcast TV, for VOD and live linear. That’s why no stand alone company can ever afford to offer a live linear services and has to be owned by an ISP, carrier, MSO or large company in the ecosystem like Google, Sony, Apple, Microsoft etc. Sling TV would not survive if it werent’ owned by Dish. And DirecTV Now is a service that could not afford to be in the market if AT&T didn’t own it. These OTT service are loss leaders for others products and services these companies are selling, or enable them to generate revenue from other services tied to it, like Amazon has with their Prime service. But even then, it’s no guarantee that OTT will make these companies more money in other ways. Hence why so few of them are willing to break out any actual numbers on their OTT ofering or the impact it has on their other lines of the business.

In 2015 Microsoft disclosed how they stopped all plans for live TV service to the Xbox as they said the content licensing costs were so high, they could never create a profitable business from it, at the price point consumers would pay. Hulu’s monthly fee of $12 a month with “almost” no commercials isn’t enough to offset the cost of licensing content, as the company isn’t profitable. Talking to those who saw the term sheet when Hulu was being shopped around last year they say Hulu has had over $1B of cumulative losses since 2008. And then we have guys like Yahoo who lost $42M in 2015 on licensing and original content creation and there are plenty of one-off examples like that to go around.

In any other segment of the industry, we typically judge the success or failure of a company based on their profit and loss statement. Yet when it comes to these OTT services, many want to judge their “success” based on the number of subs they have, without looking at profitability. Why are so many giving these OTT services a pass? And even if we do look at the number of subs, if we strip out Netflix and Hulu, none of the other major OTT services even have 2M subs, with many well under 1M. CBS All Access and Showtime each have 1M subs, as they reported in the summer. HBO Now had over 1M subs a couple of months back. Sling TV and PlayStation Vue won’t put out numbers, but are without a doubt have under 2M subs, with my bet being that both are under 1M. DirecTV Now is new in the market, but the company’s own internal projections are for 1-2M subs by the end of 2017. Hulu reported 12M subs, six months ago, which was up from 9M at the same time period, yet their growth slowed from 2014-2015 when it was growing 50% at the time.

The trickle down effect of what is happening, to everyone in the video food chain, is that Netflix and many of the other OTT service are bidding up prices for content that is so high, that even some cable channels and even studios think they won’t be able to compete. So while we have a lot of choices right now as consumers, the business of licensing content has to change if any of these companies want to make it long-term. The current way of licensing content and the costs that go with it don’t support a profitable business models. As a result, many of these OTT services are going to be impacted and will probably get re-packaged through an aggregator like Amazon, which we are already seeing take place. At some point, profit and loss of the OTT business will matter, for all of these companies.

Verizon Ventures Invests in Beamr to Further the Company’s Market Penetration

beamr-logo-color-horizontal-hiresEarlier this year I reported about Beamr’s acquisition of Vanguard Video, the video encoding technology company best known for supplying the HEVC codec SDK that Netflix is using for all their 4k, Dolby Vision, and HDR-10 content. At the same time, they announced raising a funding round of $15M led by Disruptive Growth, with participation from their existing VC’s Eric Schmidt’s Innovation Endeavors fund and Marker, LLC. With today’s announcement of Verizon Ventures adding $4M to the company, it seems the company’s momentum is set to expand faster.

Beamr tells me the additional funds are being earmarked for market expansion to capitalize on the opportunities they see in the telco, cable, and satellite sectors. Which is in addition to their existing video optimization business and the H.264 and H.265/HEVC encoder SDK business, which I can assume is healthy given Verizon’s investment.

For those not familiar with Beamr, they are an interesting company, who has grown from being a niche technology provider in the area of video optimization to a video encoding and processing technology vendor. New entrants in the video optimization space seemed to pop up every other month a few years back, yet we’ve since seen most exit the market or change directions since that time. With the acquisition of Vanguard Video and the advancement of their perceptual quality measure technology, the company appears to be adapting quickly to the needs of the market. Netflix, IBM, Imagine Communications, Microsoft, Dolby and dozens of other companies in the space leverage their technology.

As new entertainment experiences are being introduced such as VR, 360 and UHD 4K with HDR, there is a clear need for more advanced video encoding solutions. Which in concert with the consolidation that has hit the encoder market this year, such as the acquisition of Envivio by Ericsson and Elemental by Amazon, I see an opportunity for nimble technology disruptors to grab market share based on their technology and ability to adapt to the needs of the market.

In the piece I wrote earlier this year about Beamr, I suggested it’s becoming more difficult for some companies to do business with certain vendors. For example, does a cable company want to buy encoders from an Amazon-owned company? Potentially not. By combining Beamr’s perceptual optimization technology with their highly lauded H.264 and H.265/HEVC codecs, they are in a good position to capitalize on the industry consolidation and technology inflection point as we transition from H.264 to HEVC (over many years) and from hardware to software based solutions.

Though network investment will continue, capacities are always going to be under pressure. The ratio of data per pixel used for encoding video will need to decrease, even while the video quality remains at the same level. Perhaps this is why Verizon invested in Beamr. Verizon has highly capable video engineering teams, and they have built a world-class network. Yet the one area that no operator can address independently is video encoding due to the highly specialized and academic skill sets and knowledge required to further develop video encoding technology. Beamr has a team of 60 engineers focused solely on codec development, which I have to believe was not lost on Verizon.

When you look at the accelerating trends of video consumption – and consider new formats like VR and 360, it doesn’t surprise me that Verizon thru their investment arm Verizon Ventures, invested in Beamr. As the market has shifted to software, and some current encoder solutions dont’ provide the needs of the market, I can see Beamr rapidly becoming a dominate encoding vendor.