MLB.com Now Using Level 3's CDN For Video Delivery, Akamai No Longer Sole CDN

Over the past few weeks I have been doing a lot of trace routes to see where video is being delivered from some of today's largest M&E customers. While tracing content from MLB.com, I noticed that Level 3 is showing up more often than in the past and yesterday, on Level 3's earnings call, the company stated that MLB.com now uses Level 3's CDN for video delivery.

While Level 3 has been a network and co-lo partner to MLB.com for some time, MLB.com was not using Level 3's CDN until recently. MLB.com would not give out details on the current split of traffic between Akamai and Level 3, but a person I spoke to at MLB.com made it clear that the business driver behind using Level 3 was due to the need to provide the best performance possible for end-users and that MLB.com moving some traffic to Level 3 was not due to price.

The announcement of the new customer win by Level 3 comes at an interesting time as Akamai reported during their earnings call last week that the rate of traffic growth on their network from media and entertainment customers had "moderated", but that it was not due to them losing business or wallet share in the market. At the same time, Level 3 said traffic growth on their network was accelerating at a faster rate than at this time last year. Basically, Level 3 is seeing the exact opposite of what Akamai is seeing.

Clearly Akamai is losing some share of their M&E traffic to companies like Level 3 and while MLB.com was the only customer that Level 3 mentioned by name during their earnings call, trace routes I've done from other content sites shows Level 3 as a new CDN in the mix. Do trace routes for videos from Facebook and see where those are coming from. The evidence that Level 3 is winning more business is clearly out there and that means the share has to be coming at the expense of another CDN.

Based on my estimates it looks as if 25-30% of MLB.com's traffic is now going over Level 3's CDN and I expect that to grow to a higher percentage over time. And if Level 3 does clear all of the regulatory hurdles in their planned acquisition of Global Crossing, Level 3's CDN network will only get stronger internationally. The bottom line is that Level 3's wins are coming at the expense of another CDN, or multiple CDNs.

Updated 9:27am: Someone pointed out to me that all of the small objects for Twitter are now being delivered from Level 3, in what looks to be the exclusive CDN. I don't know who Twitter was doing this with in the past, but maybe someone else knows more details.

Updated June 6th: Here is the press release announcing the deal.

Comments

[Steve Lerner]

The real question is:

Is this an economic phenomenon or a technology one?

Level3 is one of the top networks in the world, and sole suppliers to many broadband users- it would make perfect sense to originate, transport, and deliver data solely on Level3 for certain types of objects to certain groups of users... assuming that the CDN technology behind the delivery was at market parity, and that the price was at market parity as well...

[Dan Rayburn]

Hi Steve, I asked MLB this very question and they made it clear that they did not move traffic because they wanted a lower price. They moved traffic purely to be able to provide the best performace and end-user experience to customers as possible. The fact Level 3 is cheaper is abonus, but not the reason for the traffic shift.

[Steve Lerner]

Anyone looking at the CDN industry should note very carefully though that not all cases can meet these criteria... especially given that at least 50% of internet traffic is no longer bound for US users...

[Sven Johannson]

Dan - Just curious, do you have some sort of proprietary software you run for these trace routes? I've played around with some of the more basic tools out there before, but was just curious, because when I run them on mlb, for instance, I'm still only seeing Akamai and not Level 3. So just curious how you approach it.

Thanks!

[Dan Rayburn]

There are lots of tools that allow you to do it, more for the PC probably than the Mac, which I am on. By the two most popular programs I know of for the Mac are "Charles" and "LittleSnitch".

http://www.charlesproxy.com
http://www.obdev.at/products/littlesnitch/index.html

[anon]

LVLT said CDN revenues are 2% this quarter, tthat equates to 20m. FOr the whole year it is 80m. This is really not a big deal in terms of the rate of growth etc.

[Matt Larson]

I have MLB.tv and it was a rocky opening few weeks (at least for us that used Apple TV to connect). Despite solid bandwidth at my house there were a lot of issues with severe drops in video quality, frozen streams and unavailable games.

Its been much better for the last 2 weeks or so, so maybe this is why? Anyway, I'm glad they are getting things sorted out.

If you search MLB.tv on Apple's Support forums you can see a lot of people were affected

[anon]

"LVLT said CDN revenues are 2% this quarter, tthat equates to 20m. FOr the whole year it is 80m. This is really not a big deal in terms of the rate of growth etc"

Really? Did you factor these statements into your "80mil" projection?

"From a services perspective, our CDN revenue grew 35% sequentially compared to 27% sequential growth in the prior quarter."

So, you need to take 20mil + 30-35% to come up with the annualized figure. That would put LVLT's CDN business at $120-$135Mil this year.

[anon]

Ok. Around 120-135m. Will they get 35% sequential growth? Thats a big if? This means 40-55m (assuming 80m for last year) which equates to ~1% of this year revenue increase of total 2.4% they are expecting. Go figure that out. What is there core business?

How much of all this is related to nflx contract? The CDN revenues.

[John Hunter]

Only a fool would call L3 2011 2nd Qtr a solid quarter. It doesn't matter if CDN growth 2%, 20%, or 200%. Long term debt increased from 6.4B in 4th Qtr Dec 2010 to $7.1B in 1st Qtr 2011. That's means debt increased 700M in debt in 1 qtr. That's not even including an increase in negative cash flow. So for L3 sake, they better sign up exclusives with Youtube, Apple, Microsoft, Hulu, Netflix, ESPN, and a lot more big businesses so they can pay off that monster debt.

[Miguel]

First Netflix, now MLB. "The tighter your grip, the more star systems will slip through your fingers" - Princess Leah

[InvestorGater]

Most of the posts I read in these two Apple support forums indicate the problem appears to be rooted in the combination of the Apple TV and the MLB application. One repeated complaint is MLB’s bitrate.

https://discussions.apple.com/thread/2803122?start=0&tstart=0

https://discussions.apple.com/thread/2777438?start=0&tstart=0

In the forum posts I read, MLB viewers had no complaints about their reception via Roku. That fact negates the ever-present accusation that the video quality is Akamai’s fault.

Another saboteur is . . . surprise, surprise . . . Adobe’s Flash, about which Steve Jobs warned more than a year ago:

http://www.apple.com/hotnews/thoughts-on-flash/

Once again, panning Akamai fails.