Verizon Cuts Transport Costs To CDNs: The Real Story Is More Than Price

Yesterday, Verizon announced a new program dubbed the "Verizon Partner Port Program" which gives content owners and CDNs the benefit of a direct connection from their content storage devices to the Verizon Internet backbone network. While Verizon is saying that they are offering "a significantly lower price to connect directly to the Verizon Internet backbone network," this is about more than just lower pricing.

Some would argue that Verizon is simply offering lower IP transit prices, which really is not that big of a deal. Agreed, from a high-level, that's all this could look like. But after speaking with two major CDNs yesterday, they are very interested in this Verizon offering and say that it may enable them to offer a lower price to any content owner who wants to reach Verizon customers.

While many of the major CDNs already connect to Verizon via peering connections and NAPs, this new service offers CDNs a lot cheaper transport costs than just a traditional IP transit link they would negotiate with Verizon. Since these new connections would be all outbound traffic and not inbound, Verizon can manage their network differently and offer a lower price. CDNs have the ability to connect to Verizon from ten data centers in the U.S., most of which are Equinix facilities.

While Verizon would not disclose pricing to me, CDNs that had already spoken to Verizon talked pricing with me that was much lower than what they would pay for traditional transit services. And one of the CDNs I spoke to said that if Verizon could offer pricing that much lower, the CDN could in turn offer content owners a cheaper price to deliver their content to Verizon subscribers. If that in fact happens, this Verizon offering becomes more than just about lower IP costs. It means it has the ability to reduce the content owners distribution costs, the CDNs operating costs and provides a better experience for users like me who are on the FiOS network.

Level 3 and Limelight Should Settle Patent Suit, Here's How

On Monday, in the Eastern District Court of Virginia, the Level 3 and Limelight Networks patent suit got underway. While this is only the start of what is expected to be a long and drawn out legal proceeding, I think Level 3 and Limelight Networks should come to terms and end the suit.

As a company, Level 3 is in a very different position today than they were almost two years ago when they first notified Limelight about the patents they control from the SAVVIS acquisition. Two years ago, Level 3's stock price was around $7 and they had a market cap of almost $10 billion. Today, their stock is under a dollar and their market cap is under $2 billion. Times have changed, the economy has gotten worse and companies are now doing everything they can to cut costs. 

Like all companies, Level 3 is under a lot of pressure in the New Year to increase sales, but they also have a lot of debt to worry about. The telecom industry could take a big hit in 2009 and one would have to think that Level 3 will raise more money as soon as market conditions allow. In my opinion, the last thing Level 3 needs right now is to be spending money, time and resources on a patent suit with Limelight. Even if Level 3 were to win the suit, the process would most likely take years with all the appeals and it's not as if Level 3 would get a lot in the way of damages when compared to the rest of Level 3's total yearly revenue.

Meanwhile, Level 3 spends millions on the suit, ties up executives and can't spend every waking second possible working to improve the rest of their business. Any company engaged in a lawsuit is always distracted in some way from focusing 100% on their customers. Not that the suit helps Limelight Networks either, which is now spending money and time on two suits, the other being from Akamai. The difference however with the Akamai suit is that Akamai and Limelight are a lot more similar in terms of services offered than Limelight and Level 3 are. Level 3 is a carrier and as a result, gets the majority of their revenue from other services outside of similar CDN services offered by Limelight. Level 3 has a lot less to lose with Limelight than Akamai does.

In addition to Level 3 and market conditions changing in the past two years, the technology being debated has changed quite a bit since that time as well. Much of the Level 3 suit is talking about very generic technology and in my opinion, language that could be debated forever. My impression is that when Level 3 filed the suit, it was based on their assumption and interpretation of how they thought the Limelight Network was operating at the time. But compared to two years ago, Limelight is an entirely different company from a technology and services standpoint. Much has changed and I wonder just how much of the patents in question are even relevant to Limelight's offering today.

Like any company, Level 3 wants to protect their patent portfolio and enforce what they believe to be infringement on Limelight's part. But at the same time, I think Level 3 has to weigh what can be gained in the long run, by what can be lost in the short term. Unless a settlement is reached, Level 3 is not going to see any money anytime soon, and could lost the case and never see any money at all. Meanwhile they spend their own money and time on the suit and can't spend that time on improving their business in other ways. It's a bad time for Level 3 to be doing anything other than focusing 100% on their business.

So how could Level 3 and Limelight settle the suit? Limelight buys a lot of transit, one of the core services offered by Level 3. Level 3 could come to some kind of agreement to drop the suit against Limelight if Limelight purchased a certain amount of transit from them each year. I don't know what percentage of transit purchased by Limelight is from Level 3, but I'm sure it is a number that could be greatly increased. Level 3 would get immediate revenue, would cut the millions they are going to spend this year on the suit and could focus their efforts on other aspects of their business. And with Level 3 offering other services Limelight purchases, like co-location, one could make a reasonable argument that Level 3 could sell Limelight other products outside of just transit. I don't think it's that far fetched of an idea.

While I have no knowledge if any such discussion is taking place amongst Level 3 and Limelight, we are at a point in business where all companies are looking at ways to cut costs, increase revenue and focus their efforts on strengthening their core business, not spending time on things that are distractions. Level 3 could accomplish all of these things by thinking about other ways to solve the patent disagreement outside of being engaged in a multi-year, multimillion dollar suit.

Related Posts:

- Judge Denies Limelight's Motion For Summary Judgment In Level 3 Case

- Details From The Markman Ruling In Level 3 and Limelight Networks Patent Case

Apple Drops DRM From iTunes Music, But What We Need Are DRM Free Videos

Today, Apple announced at Macworld that by the end of the first quarter, all songs in their catalog will be DRM free. While that's nice, but not really that big of a deal, the real question is when DRM free videos will be made available?

Lets face it, most folks who buy music from iTunes only want to play it on an iPod anyway and are not moving the content around to many other devices. Music is not what's driving the growth of the Internet, new applications, or bandwidth consumption. It's all about video. If Apple really wants to push the market forward and help video consumption explode, it needs to convince content owners that offering DRM free videos would help jumpstart the industry. New business models would be created overnight and consumers would be happy, which means they would buy and consume more content. We'd see an amazing amount of growth in just a year's time.

For all we know, Apple is already doing this and trying to convince content owners of the need for DRM free videos. But until the day consumers can buy content once and move it to any device they want, the market for purchasing video content won't see the kind of growth that many of us in the industry have been waiting for.

Workflow For Internet Enabled Blu-ray Discs Launched: Will BD Live Be Adopted?

This morning, Akamai, Ascent Media and Sofatronic announced the creating of a new integrated digital workflow and distribution solution for the production, hosting and delivery of BD Live functionality for Blu-ray Discs.

The companies say the new service provides a more efficient and cost effective way for movie studios and content creators to harness the full power of BD Live’s Internet-enabled features, such as bonus content, online community, and interactive and e-commerce applications.

While it's a smart idea for all three vendors to partner on the new service and lay the groundwork for the future, I wonder just how many of the over 1,200 Blu-ray movies offered today have BD Live functionality? And more importantly, how many studios moving forward are going to support the extra costs involved with providing additional content via the Internet? Ideally, this is where Akamai, Ascent Media and Sofatronic's solution would come in, reducing the cost and complexity of making this content available.

But outside of fixing the workflow issue, there are two other problems that need to be resolved, the biggest of which is convincing consumers to purchase Blu-ray players. At the end of Q3 2008, the Blu-ray Disc Association said that "more than 6.5 million Blu-ray capable players, including PS3, have been sold in the U.S. and more than 15 million units have been sold worldwide." But what the Blu-ray Disc Association doesn't say is how many of those units are broadband enabled? Depending on which research report you want to believe, it is estimated that between 20-30 million Blu-ray units are expected to be sold in 2009, with the percentage of those capable of connecting to the Internet unknown. That being said, nearly every analyst report in the beginning of 2008 predicted 30 million units would be sold for 2008, and those estimates were high by at least 10 million. The bottom line is that broadband capable Blu-ray players need to get adopted first and movie studios need to make a commitment to BD Live functionality.

In addition to the adoption problem, the other issue is whether consumers get any real benefit getting extra content from a BD Live enabled service as opposed to just including that extra content on the disc itself. Three months ago when the Iron Man disc came out, whoever was serving up the BD Live content had servers that could not handle the load, which prevented many customers from getting the extra content. And as pointed out in an article on CNET, the fact that most BD-Live features could easily be fit on a Blu-ray Disc, instead of having to download them from the Internet, makes you wonder if the BD Live feature is really worth it. It might just be too new for consumers to see what will be possible with BD Live, or it may just be an industry using a technology because it exists, even if the demand does not. For now, it sounds too early to know either way.

Over the coming weeks I will be getting hands-on with an Internet enabled Blu-ray player and taking a look at the BD Live functionality and the Netflix streaming service. I'll be posting a review of both shortly.

Lots Of Buzz Over Broadband Enabled TVs, But Impact Not Felt For Many Years

As the CES show in Vegas kicks off this week, the buzz and announcements around broadband enabled TVs is starting to heat up. Netflix and LG announced that come later this spring, a new line of broadband enabled LCD and plasma TVs will be capable of streaming content from Netflix without the need for any type of external box. While this is not the first broadband enabled TV that will be capable of streaming content, both Panasonic and Sony already have models, it is the first TV manufacturer deal for Netflix.

The CES show also brought announcements from Adobe and Intel who are looking to bring Flash to Intel's Media Processor CE 3100, which Intel hopes will be used to bring web content to digital TVs before mid-2009. In addition, Intel plans to announce with Yahoo! support from TV manufacturers to sell sets that come with widgets that allow you to watch web content on your TV using the TV's remote control.

While the idea of broadband enabled TVs sounds like a great idea and catalyst for helping to bring more IP video directly to the TV set, the reality is that these devices won't have any major impact on the industry for many years to come. The poor economy has killed the sales growth of new TV sets, let alone new LCD and plasma displays like LG's where the broadband enabled versions cost an estimated $300 more than ones without the functionality.

But of course, that's not stopping the companies building these sets and analysts to say things like, "I think this will be a big, growing sub category in TV" or "Streaming video from the Internet and other means of direct digital delivery are going to put optical formats out of business entirely over the next few years.” It all sounds nice, but it's wishful thinking on their part, especially the idea that broadband enabled TVs and streaming will make the DVD obsolete in a few years time. The real question is how quickly will these new sets be adopted when Netflix says that most research data shows that the average consumer holds onto their TV set for at least a decade?

Parks Associates predicts that by 2012, about 3.6 million broadband enabled sets will be sold in the U.S., or about 14% of total new TV sales. If those numbers are accurate, three and half million sets in three years is not a very big impact on the market considering devices like the XBOX 360 and PS3 sell that many devices in one or two quarters alone.

Broadband enabled TVs could be the future, but the impact they have on the market will not be felt in any major way in the next three years. And while most in the industry are talking hardware, the real question in my mind is what the user interface is going to look like that allows viewers to find and control how they get web content to their TV set? The software layer is going to be the most important factor in the success of broadband enabled TVs and not the actual hardware itself. Building added hardware functionality into a TV set it the easy part, providing the software overlay that will control and operate the new user experience is where the real challenge comes in.

Roku Announces New Content Partner, Amazon Video On Demand Store

Amazon just announced that in "early 2009" they will enable more than 40,000 commercial-free movies and television shows to be viewed with the Roku player. This marks the first new content partner for the Roku device which to date, was only capable of playing content from Netflix.

While the release states that all content will be encoded with H.264 and streamed up to 1.2Mbps, it sounds like HD quality content from Amazon won't yet be offered on the Roku, even though the Roku box is capable of getting HD quality streams.

While it's good to see Roku start to add more content partners, I think they need to add a lot of video content that you can't already get on your TiVo, XBOX 360 or PS3. While most seem to be focusing on the mainstream content offered by Netflix and Amazon, I think that much of the content outside of the mainstream movies is really what would make the Roku box even more interesting. Especially since that for only $100 more than a Roku, you can now get an XBOX 360 and do more than just stream movies.

Roku Adds HD Streaming, SD Upscaling, But Drives Netflix's Costs Up

As expected, this morning Roku announced that the Roku player is now capable of playing hundreds of HD quality movies from Netflix. While my Roku player got the software update over the weekend, Roku says all players will be updated over the next few weeks. In addition to the new 720p HD support, the new Roku software upgrade also allows for up scaling of SD titles to 720p and enables Roku's switch to the new VC-1 AP streams, which previously used to be VC1-MP. The switch to the new encoding gives similar or better quality for lower bit rates. Roku's HD quality videos are now encoded at 2.7Mbps and 3.8Mbps.

While it is great to see HD quality content from Roku, I have to worry about the impact that HD quality video is going to have on Netflix's operating costs. Between the XBOX 360, TiVo, Roku and other devices capable of streaming HD quality video, Netflix is spending more money each month to deliver all of this content. And as more content is made available in HD, that delivery cost to Netflix only continues to grow each month. Even with the economics of scale kicking in and Netflix getting a lower price due to increased traffic, their overall cost continues to go up as the business scales.

While Netflix is betting that in the future they will be able to show revenue from delivering movies online, they don't have an unlimited window of time to prove this. I think sometime next year they are going to have to outline what their online video business model could potentially look like going forward, how they plan to generate revenue or how this offering might help offset other costs associated with their traditional DVD business.

Details From The Markman Ruling In Level 3 and Limelight Networks Patent Case

Over the weekend I got to read through the Markman order that was issued on December 10th in the Level 3 and Limelight Networks patent suit. While a Markman hearing typically does not bring a lot of surprises, there were some interesting details about the suit that came to light from the ruling.

The case was reassigned to a new Judge on September 17th of this year and it is interesting, but not surprising, that the Judge was not familiar with the technology being discussed. In fact, he even thanked both parties saying that the materials they submitted and the technical explanations provided "were all extremely helpful in educating the Court about the nature of the technology at issue in this case." While the lack of technical knowledge by the Judge probably surprises no one, you'd think the court would try to assign the case to someone that has some previous experience with what is being discussed.

Level 3 and Limelight were originally in dispute over twenty two terms but came to agreement on four terms (Subscriber, Resource, URL, Default Path) leaving the court to rule on eighteen terms. The rest of the claim constructions in dispute were in reference to Level 3's 807 and 935 patents, which combined have 66 claims and make for some long reading. So if you want the details on each patent, hit the links for the filings.

The eighteen terms in dispute were Origin Server, Repeater Server, Repeater Server Network, Name, Rejecting the Client Request, Client Request for a Resource, Appropriate Repeater Server, Repeater Selector Mechanism, Subscriber Verifying Mechanism, Embedded, Handled, Obtaining a Client Request, Determining, Alternative/Alternate Path, Destination, Overlay Node, Dynamic Router and Real-time Traffic Information. 

For eleven of the terms, the Judge ruled in favor of Level 3's definition and for the other seven terms, the Judge used a combination of Level 3 and Limelight's definition and/or suggestions from the Court expert, Dr. Zegura, to create his own definition. The fact Limelight did not win any of the claims outright is really not surprising since typically the Plaintiff tries to assert very wide claims while the Defendant tries to narrow down the scope of the meaning. Some of Limelight's proposed definitions were too over reaching and some of Level 3's definitions were too broad and "technically correct but insufficiently descriptive."

There was one instance where Level 3 suggested to the Court that it should adopt its ruling on the definition of "Alternative/Alternate Path" because it was the agreed upon construction in the Cable & Wireless and Akamai suit. The Court didn't agree with the argument saying that "Akamai Technologies is a competitor of both Plaintiff and Defendant and a non-party to the instance case."

Overall, I think both sides got some of their definitions well established and while most would probably say that Level 3 did better, I don't think anyone truly knows if that is true until the case goes to court and we see what phrases and definitions are most important in the case. We can expect that to happen sometime next year.

Note: While I have worked as an expert on multiple patent suits, I have never worked on any patent suit involving any content delivery network.

The Real Cost Of Licensing H.264: Pricing And Licensing Terms

Whenever StreamingMedia.com publishes an article on the subject of H.264, I get a lot of e-mails from readers saying that the licensing costs of H.264 are too expensive or are just too complex to even figure out. Those who sell proprietary codecs use the perception of H.264 licensing as a labyrinthian ordeal as an ideal marketing tool to complement the proprietary technology's "simple" license.

So what does H.264 cost to license? And is the licensing cost as complex to figure out as competitors make it out to be? To help clear up a lot of the confusion, StreamingMedia.com has just published an article by Tim Siglin about H.264 licensing costs breaking out the real numbers and how the different licenses are calculated. If you've always wanted to know the costs and licensing terms, this is a great article to read.

Pacnet Looking To Acquire Public CDNs In Asia: CDNetworks or ChinaCache In Play?

In a story on Bloomberg this morning focusing on Pacnet delaying their public offering, CEO Bill Barney is also quoted talking about acquisitions in the content delivery market. He's quoted as saying, “We’ve been looking at acquisitions not only in Australia, but also in Japan, China and India. We call them players in the content delivery space and we’ve been quite active in the last few weeks.” The article also goes on to say that Pacnet’s acquisition targets include two listed companies, the names of which Pacnet would not identify.

While there are a bunch of companies offering content delivery services in Asia including Broadmedia, CDNetworks, ChinaCache, J-Stream, NTT Communications and PCCW amongst others, CDNetworks and ChinaCache are clearly the leaders in the APAC market when it comes to CDN related revenue and number of customers. In addition, the two are pureplay CDNs who's focus is primarily on delivering content, as opposed to some of the other companies who have many services outside of CDN. Although ChinaCahe is not listed on any exchange, I don't think that rules them out.

I expect we will start to see even more carriers start to make some moves before long to enter the CDN market, especially in Asia and India.