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Monday, 12 March 2007


Part 1: The Online Video Market

While the mass market is getting hooked to online video thanks to YouTube, social networking is causing demand spikes for hot content to get ever more peaky and pirate copies of 20GB HD movies are also appearing on the internet. Sooner or later, someone like Apple is going to come along with something like an iPod that brings this all together for the masses.

When that happens, ISPs and content owners need to be ready. Over the coming weeks, we will be looking at how to plan for this. Please go here to see the full schedule or articles.

What content is out there?
A step change is occurring. At the bleeding edge, DRM pirates are cracking the HD crypto keys and sharing 20GB files in private clubs over member’s ADSL2+ broadband connections. Content that was previously locked away safely on the satellite or cable platforms can now be copied and sent around the world on the internet – for free!

Further down the adoption curve, the internet has suddenly become an accepted medium for video. YouTube has kicked the doors down, much in the same way as Napster did for music
. While YouTube is largely a bit of fun at the moment, it is becoming increasingly commercialised. Advertisers are learning how to use the platform to hit their target audience much more cleanly than is possible with broadcast splattercast. The big studios, now that Google is ensuring that DRM is taken seriously, are starting to exploit the vehicle too.

Content is a “hot” commodity with live sport carrying the highest premium. Consider first DVDs: In the US, new DVD releases gross on average 51% of their total in the first 4 weeks. For those that enter at Number 1, this is even more concentrated: 52% of gross in first 3 weeks. For sure, there is a huge archive. Netflix carry 75,000 titles, so there is a long tail, but 85% of the market revenues come from the top 50 titles in any given week, so in commercial terms this is a bit like the long tail on an elephant.

Social networking is a phenomenon that is new since the music industry evolved and this is clearly going to help shape how online video evolves. But how will social networking enhance the experience and what does that mean to the industry?

The key element of social networking is the ability to interact, which takes on one of two forms: the most obvious is the the long tail created by the ability to “Broadcast Yourself”, but the second and by far the most powerful is the ability to wade through the long tail and rapidly promote high quality, obscure content through peer recommendation.

Social networking’s ability to create more traffic doesn’t come from giving a consumer a long tail of choice; it comes from the ability to filter that choice and make it accessible to the masses. Of course, it needs someone to watch the archive to get the ball rolling, but it means that if that someone does like what they see, they can quickly recommend it to others allowing the cream to rise to the top. Social networking brings the ability to uncover new artists, to wade through the long tail and to make something “the next big thing”.

As before, there is still a heavy emphasis on a small number of hot items but what social networking does is enables the next big thing to come to the surface so much quicker. Whereas in the past it took days or even weeks for word to spread about X, Y or Z being good, now it takes hours or even minutes… The same is true of when the content goes cold – when it is no longer the next big thing. Consider YouTube’s “Today’s Views” on the 7th March where the top title (an advert for an EA computer game) was running at 719,000 views that day. Clearly, that video was hot, but in the whole of the week from 5th to 12th March, the same video only attracted 813,000 views.

If the top title had 719,000 views, where was the tail? It is worth noting that the 20th most popular had only 21,000 views on that same day. You might think that over the course of a year or so, this might even out, but the top all time title on YouTube boasts 44 million views, while the 20th has been seen only 8 million times. Certainly, 8 million views is not a small number, but it is 18% of the result achieved by the number 1 title. Ranking DVD rental gross figures in the same way will show that the top title over the year (Nov 05 to Nov 06) generated $62m, while the 20th ranked title generated 79% of that figure at $49m. Does YouTube and social networking in general actually concentrate audiences? It certainly seems that way at this stage.

Where is it going?
Going back to Napster… Napster’s impact was to wake the world up to the possibility of using the internet to get music. It was only a matter of time before that demand was tapped legitimately because there was a mass market out there that wanted the content and was willing to pay a fair price for a legal version that came with a simple widget that made it all work. Cue Apple’s iPod / iTunes businesses – now worth $16bn a year to the company.

Is the same thing on the horizon for the online video industry? Might a device come along that brings the internet to your TV along with a wealth of quality, legal content? Much as the fashionable iPod accessory allowed iTunes to made music downloads simple, an elegant set top box that solves home networking problems is all it could take.

ISPs do not see a penny of iTunes $1.5 music download revenues. They could argue that it drove the switch over to broadband which would be fair enough – it did. The problem was that while ISPs were sacrificing high margin dial up minutes to get customers onto broadband, the value added services that justified that sacrifice were being sold directly to their customers – bypassing the ISPs that were bearing the cost.

Sooner or later, someone like Apple, is going to combine the content rights with social networking and a simple widget that makes it work. Are we going to see the same with LLU and HD as we did with Broadband and Music? Are ISPs really going to miss the boat again as they go for yet another land-grab?

Quite possibly… but what is wrong with the status quo? So ISPs might miss out on content revenue streams again, but they can still make their money from access like they do today. A lost opportunity perhaps, but if you have never tasted it are you really going to miss it? The problem is that the elephant is so much bigger this time around. We will be going into the cost issues in detail in next week’s article, but for now it is worth considering the following:

Today we have the mass market watching low quality YouTube “clips” online but they are buying up HD Ready TVs. Clips on YouTube today are around 200 kbps and are short – usually less than 10 minutes but HD TVs need to be fed at upwards of 10 Mbps. TV programs are also much, much longer: the average UK household watches just under 23 hours TV per week. As HD content, this is 448 GB per household per month, 10 times the average ISPs “acceptable use policy” today.

And users expect their TV to be largely “free”. Sure, some consumers will pay for an “event”, whatever that is to them, but the majority of TV is not in itself worth paying for. And here lies the rub: the content is there, people want it but many cannot afford it or cannot justify paying excessive fees for entertainment. They feel ripped off. They feel like they are being robbed. Whereas with satellite, consumers have had to suffer in silence or go to the next car-boot sale, the internet and pirate copies provide a much more discrete way to obtain what you want quickly and cheaply. If you feel that someone is trying to rob you, you are probably less likely to let moral objections prevent you from robbing them…

Piracy already makes premium content free to those at the bleeding edge, with their unlimited broadband maxed out. In fact, it is free to anyone until they hit their download limit, or they get caught by the traffic management police. Who’s the bad guy when that happens and the customer can’t get what they want? We will be looking at this in more detail in two weeks time in our piece on Traffic Management.

So it seems clear that the market is there for all this content, but it is still not yet certain that this will end up on the internet. Just because there is a demand does not necessarily mean there will be a supply... The reasons for this will be much clearer after the investigation into the costs of delivering video online, to be published next Monday 19th March. It is our view that unless there are major structural changes, ISPs will have no option but to throttle demand (see the article due to be published on 26th March on that subject).

What those changes need to be will be looked at on the 2nd April and a conclusion will be discussed at the IIR ISP Forum in London on the 26th April.

Other Articles in the Series

Part 1: The Online Video Market
Part 2: The cost of Online Video
Part 3: Traffic Management
Part 4: Routing the Money
Part 5: Routing the Packets
Summary Slides

given that the register story woulnt let people post comments directly there i have come here to say my part.

while you gloss over the real solution in the referenced PDF

and talk of
Content Transit IP Stream LLU
50 Minute Album - MP3 Encoding £ 0.01 £ 0.14 £ 0.01
2 Hour HD at 1080p £ 1.03 £ 21.13 £ 1.07

you seem to forget to mention that figure is based on the old MPEG2 codec NOT the far more advanced and lossless option that AVC/H.264 get you ,a FAR greater saving in the initial file size per hour given the HD1080P or less files.

also while you mention the so called edge optimisations , you dont inform the boardroom readers that its in their interest to stop being ludites and lookin gto the US models for milking the last remnents of profit form the MPEG2 format incable etc.

the VM (NTL/tw) accountants comment resently that they are using the MPEG2 codec on their UK cable network and the antiquated V+(TW TVdrive) rather than the far more advanced NTL trialed AVC STB that could be sitting on every Virgin Media customers desk/Tv ready to take any new AVC headend dual codec realtime encoders that exist today.

so were do we stand, this is whats needed and to be encuraged , make the ISP's turn on the included Multicasting capabilitys that have existed in every single commercial router since day one, all the way to the end users cable modem PC's.

insist that the likes of Azureus P2P/torrent coders take up the challenge to incorporate this Multicasting capability into the codebase or at the very least use multicasting tunnels over the ipv4/ipv6 ISP networks, there exista already JAVA multicasting DHT code 'bamboo' and java tunnel code mTunnel that some willing java coder could use as the test base to get someting working and out there, NOONE seems interested in saving masses of bandwidth and that included your pressious/inadiquate upload bandwdth rates.

again , java based Azureus knows about your local lan connections and can use that as a seperate predered download option over the WAN ,so as iv been saying for MANY years put these 3 open java codebases together into a multicastineg hybrid and we are 80%+ there already , someone capable of and willing most at the very least try and put a trial app together to see if it will pan out PLEASE for everyones benefit ,not least the ISP's and the end users alike.....

multicasting, DHT,P2P saves MASSES of BANDWIDTH.

make the Virgin Media's of the world turn on their multicasting to the users today and we can begin a whole new world of real innovation and [b]reasonable[/b] profit.
This comment is largely of a technical nature, so I have replied to it on this page, which deals with how to route the packets.
First let me say I agree with popper, in fact he said half of what I was going to say, the other half is the cost of the backhaul and transit in the UK which is unacceptably high, in the US transit costs can be as much as 1/3 of UK costs, the backhaul costs I do not know, though I do know that there is no reason for the UKs high cost, every year we get more lambdas on a fiber, yet where is the cost saving? What is the answer? Beat Ofcom and the government over the head with a very large stick? I don't know, what I do know is the future of the UK is not in 20%/year appreciation of house prices, it's in getting the technology and tools into the hands of people so we can be more innovative, more efficient and more effective than our competitors.
I wish it were as easy as lighting more fibre. The problem in the UK is that there is no fibre to light - to the majority of exchanges.

As you would expect, there is of course the capacity into the highest volume sites in the main cities but all the fibre network builds in the 1990s were along the same routes - the rights of way owned by the railways - because it was easiest. On top of that you have city rings taking in the financial centres of London and Edinburgh, but really nothing breaking out to the 5,600 or so local exchanges.

It is probably worthwhile for me to post a fuller article on UK exchange demographics. In summary, 22% of the population are served by the largest 200 exchanges (3.6%) which in many cases have access to high speed backhaul (or cost effective low speed backhaul).

Of course you could take the view that the service is ok for them so lets get on with it, but I would suggest that in fact it will be very difficult to sell to a corner of the market without suffering a severe backlash from everyone else. The UK does not do well these days with a class divide and a broadband class of service divide will be no different.
Thanks for the response, first, I understand that the UK didnt have the same scale of fiber layout that the US did, but my point was that we can cram more bandwidth per fiber every year, right now that fiber is way over priced per lambda, what we need is fiber unbundling or increasing the rights of way to allow more fiber to be built. We do have MANs (Metropolitian Area Networks) but they are still small compared to other countries. I've seen what happens when people get hold of cutting edge tech, I remember the 80's when the UK was a hub of innovation, when a significant proportion of games and apps for the ZX81/VIC20/C64 came out of the UK, the situation right now is akin to when Tony Benn killed off packet switching tech in the UK by refusing to fund it, destroying a huge amount of growth and giving it to the Americans.

Let me put it this way, 8 years ago I was on the BT broadband trial, I paid £30/month for 2mbps, then they changed it to 512K for £40/month, 8 years later I am paying £30/month for 2mbps and now have a "Fair Use Policy" which means I don't get better that 512K at peak times, now don't tell me that "It was only a trial" I have heard that a million times, I should have 10mbps for my £30-£40/m by now, waiting for 21C to arrive by 2012 is not enough, we need action, I've watched as Oftel, the forerunner of Ofcom caved in to BT at every stage. Oftel/Ofcom/ is pwned by BT. I wasnt joking about the big stick, it works for Tony Soprano, whether the UK has a future as a high tech, high value producer or whether we follow China to a low wage, low skill, low innovation country really does hang in the balance and high speed broadband is a major part of that whether it's driven by 1080p or not.
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