2015 review and 2016 predictions

As is now customary, I try to grade what I was predicting for 2015 and see what panned out and what didn't. I'll share as well what I see for 2016.

Content providers, creators, aggregators:

"They will need to simultaneously maximize monetization options by segmenting their user base into new price plans and find a way to unlock value in the mobile market.While many OTT, particularly social networks and radio/ audio streaming have collaborated and signed deals with mobile network operators, we are seeing also a tendency to increasingly encrypt and obfuscate online services to avoid network operators meddling in content delivery." 

On that front, I think that both predictions held true. I was envisioning encryption to jump from 10 to 30% of overall data traffic and I got that wrong, at least in many mature markets, where Netflix is big in mobile, we see upwards of 50% of traffic being encrypted. I still claim some prediction here, with one of my first post indicating the encryption trend 2 years before it started in earnest.

The prediction about segmentation from pricing as OTT services mature has been also largely fulfilled, with YouTube's 4th attempt, by my count, to launch a paid service. Additionally, the trend about content aggregators investing in original content rights acquisition is accelerating with Amazon gearing up for movie theaters and Netflix outspending traditional providers such as BBC with a combined investment by both company estimated in the 9$Bn range. Soon, we are talking real money.

In 2016, we will see an acceleration of traditional digital services that were originally launched for fixed line internet transitioning to predominantly mobile or mobile only plays. Right now, 47% of Facebook users are exclusively through  mobile and account for 78% of the company's revenue. More than 50% of YouTube views are on mobile devices and the corresponding revenue growth is over 100% year on year. 49% of Netflix' 18 to 34 years old demographics watches the service on mobile devices. We have seen signs with Twitter's vine,  and Periscope as well as Spotify , MTV and Facebook that the battlefield will be on video services.

Network operators: Wholesaler or value providers?
The operators in 2016 are still as confused, as a community as in 2015. They perceive threats from each other, which causes many acquisitions, from OTTs, which causes in equal measure many partnership and ill-advised service launches and from regulatory bodies, which causes lawyers to fatten up at the net neutrality / privacy buffet.

"we will see both more cooperation and more competition, with integrated offering (OTT could go full MVNO soon) and encrypted, obfuscated traffic on the rise". 

We spoke about encryption, the OTT going full MVNO was somewhat fulfilled by Google's disappointing project Fi launch. On the cooperation front, we have seen a flurry of announcements, mostly centered around sponsored data or zero rated subscription services from Verizon, AT&T.

"We will probably also see the first lawsuits from OTT to carriers with respect to traffic mediation, optimization and management. " 

I got that half right. No lawsuit from content providers but heavy fines from regulators on operators who throttle, cap or prioritize content (Sprint, AT&T, ...).

As for digital service providers, network operators are gearing themselves to compete on video services with services such as mobile TV /LTE broadcast (AT&T, EE, Telekom Slovenje, Vodafone), events streaming (China Telecom, ), sponsored data / zero rated subscription services (Verizon, T-mobile Binge On, Sprint, AT&T, Telefonica, ...).

"Some operators will seek to actively manage and mediate the traffic transiting through their networks and will implement HTTPS / SPDY proxy to decrypt and optimize encrypted traffic, wherever legislation is more supple."

I got that dead wrong. Despite interest and trials, operators are not ready to go into open battle with OTT just yet. Decrypting encrypted traffic is certainly illegal in many countries
or at the very least hostile and seems to be only expected from government agencies...

Mobile Networks Technology

"CAPEX will be on the rise overall with heterogeneous networks and LTE roll-out taking the lion share of investments. LTE networks will show signs of weakness in term of peak traffic handling mainly due to video and audio streaming and some networks will accelerate LTE-A investments or aggressively curb traffic through data caps, throttles and onerous pricing strategies."

Check and check.

"SDN will continue its progress as a back-office and lab technology in mobile networks but its incapacity to provide reliable, secure, scalable and manageable network capability will prevent it to make a strong commercial debut in wireless networks. 2018 is the likeliest time frame."

I maintain the view that SDN is still too immature for mass deployment in mobile networks, although we have seen encouraging trials moving from lab to commercial, we are still a long way from a business case and technology maturity standpoint before we see a mobile network core or RAN running exclusively or mostly on SDN.

"NFV will show strong progress and first commercial deployments in wireless networks, but in vertical, proprietary fashion, with legacy functions (DPI, EPC, IMS...) translated in a virtualized environment in a mono vendor approach. "

We have seen many examples of that this year with various levels of industry and standard support from Connectem, Affirmed Networks, Ericsson, Cisco and Huawei.

"Orchestration and integration with SDN will be the key investments in the standardization community. The timeframe for mass market interoperable multi vendor commercial deployment is likely 2020."

Orchestration, MANO has certainly driven many initiatives (Telefonica OpenMANO) and acquisitions (Ciena acquired Cyan, for example) and remains the key challenge in 2016 and beyond. SDN NFV will not take off unless there is a programmatic framework to link customer facing services to internal services, to functions, to virtual resources to hardware resources in a multi-vendor fashion. I still maintain 2020 as the probable target for this.

In 2016, the new bit of technology I will investigate is Mobile Edge Computing, the capacity to deploy COTS in the radio network, unlocking virtualized services to be positioned at the network's edge, enabling IoT, automotive, Augmented Reality or Virtual Reality services that require minimal latency to access content even faster.

In conclusion, 2016 shows more than ever signs that the house of cards is about to collapse. Data traffic is increasing fast, video is now dominating every networks and it is just starting. With 4K and then 8k around the corner, without talking about virtual or augmented reality, many of the players in the value chain understand that video is going the next few years' battlefield in mobile, OTT and cloud services. This is why we are seeing so much concentration and pivot strategies in the field. 
What is new is the fact that if mobile was an ongoing concern or barely on the radar for many so-called OTT, it has now emerged as the predominant if not exclusive market segment in revenue. 
This means that more pressure will rain on network operators to offer bandwidth and speed. My reports and workshops show that mobile advertising is not growing fast enough in comparison to the subscribers eyeball moving to mobile screens. This is mostly due to the fact that video services in mobile networks are a pretty low quality service, which will get worse as more subscribers transition to LTE. The key to unlock the value chain will be collaboration between operators and OTT and that will only happen if/when a profitable business model and apportioning of costs is worked out.

At last, my prediction about selfie kills seem to unfortunately have been fulfilled with selfies now killing more people than shark attacks. Inevitably, we have to conclude that in 2016, commercial drones and hoverboards will kill more people than selfies...

That's all folks, see you at MWC next month.

Video is eating the internet: clouds, codecs and alliances

A couple of news should have caught your attention this week if you are interested the video streaming business.

Amazon Web Services confirmed yesterday the acquisition of Elemental. This is the outcome of a trend that I was highlighting in my SDN / NFV report and workshops for the last year with the creation of specialized clouds. Elemental's products are software based and the company was the first in professional video to offer cloud-based encoding on Amazon EC2 with a PaaS offering. Elemental has been building virtual private clouds on commercial clouds for their clients and was the first to coin the term "Software Defined Video". As Elemental joins AWS, Amazon will be one of the first commercial clouds to offer a global, turnkey, video encoding, workflow, packaging infrastructure in the cloud. Video processing requires specific profiles in a cloud environment and it is not surprising that companies who have cloud assets look at creating cloud slices or segregated virtual environment to manage the processing heavy, latency sensitive service.

The codec war has been on for a long time, and I had previously commented on it. In other news, we have seen Amazon again join Cisco, Google, Intel, Microsoft Mozilla and Netflix in the Alliance for Open Media. This organization's goal is to counter unreasonable claims made by H.265 / HEVC patent holders called HEVC advance who are trying to create a very vague and very expensive licensing agreement for the use of their patents. The group, composed of Dolby, GE, Mitsubishi Electric and Technicolor is trying to enforce a 0.5% fee on any revenue associated with the codec's use. The license fee would apply indiscriminately to all companies who encode, decode, transmit, display HEVC content. If H.265 was to be as successful as H.264, it would account in the future for over 90% of all video streaming traffic and that 0.5% tax would be presumably levied on any content provider, aggregator, APP, web site... HEVC advance could become the most profitable patent pool ever, with 0.5% of the revenues of Google, Facebook or Apple's video business. The group does not stop there and proposes a license fee on devices as well, from smartphones, to tablets, to TVs or anything that has a screen and a video player able to play H.265 videos... Back to the Alliance for Open Media who has decided to counter attack and vows to create a royalty-free next generation video codec. Between Cisco's Thor, Google's VPx and Mozilla Daala, this is a credible effort to counter HEVC advance.

The Streaming Video Alliance, created in 2014 to provide a forum for TV, cable, content owners and service providers to improve the internet video streaming experience welcomes Sky and Time Warner Cable to the group already composed of Alcatel-Lucent, Beamr, CableLabs, Cedexis, Charter Communications, Cisco, Comcast, Conviva, EPIX, Ericsson, FOX Networks, Intel, Irdeto, Korea Telecom, Level 3 Communications, Liberty Global, Limelight Networks, MLB Advanced Media, NeuLion, Nominum, PeerApp, Qwilt, Telecom Italia, Telstra, Ustream, Verizon, Wowza Media Systems and Yahoo!. What is remarkable, here is the variety of the group, where MSOs, vendors, service providers are looking at transparent caching architectures and video metadata handling outside of the standards, to counter specialized video delivery networks such as Apple's, Google's and Netflix'

All in all, video is poised to eat the internet and IBC, starting next week will no doubt bring a lot more exciting announcements. The common denominator, here is that all these companies have identified that encoding, managing, packaging, delivering video well will be a crucial differentiating factor in tomorrow's networks. Domination of only one element of the value chain (codec, network, device...) will guarantee great power in the ecosystem. Will the vertically integrated ecosystems such as Google and Apple yield as operators, distributor and content owners organize themselves? This and much more in my report on video monetization in 2015.

Speed = QoE?

I was chairing the LTE World Summit in Amsterdam last week. One of the great presentations made there was by Bouygues Telecom's EVP of Strategy Frederic Ruciak. He presented the operator's strategy for LTE launch in France that led the challenger to the number one market share on LTE in less than one year. He was showing that consumers were not ready to pay for "more speed" because they had been sold the myth of mobile internet too many times. Consumers had been sold wap on GPRS, EDGE, them wireless internet on 3G, HSPA with low satisfaction. Using internet as the reason to upgrade to LTE is a loosing proposition.

One of the mistakes many make in this industry is equating speed with quality of experience (QoE). 

Our quest to increase speed in wireless networks is futile if we do not consider the other side if the coin: service experience. 

For instance, there is always a wave of enthusiasm at the launch of a new radio technology, when few users have access to ample network resources and the services that ride on it are those that were designed for the precious generation. 
I have generation 1 iPad and the latest iPad mini both on wifi. When I bought my first iPad, I had a great browsing experience. Navigation was fluid and fast. Now, it is rare that I am able to have more than 10 minutes browsing without a crash. It is not that the browser is corrupted, just that web pages have grown in size and complexity and when it took 2 seconds to load 10 elements 4 years ago, it now tries to load 40+ elements and inevitably runs out if resource, memory and crashes. The ipad mini is not as bad but not as good as the first generation 4 years ago.

When we are looking at LTE and LTE advanced and soon 5G, it seems that the only "benefit" we are selling as an industry is speed. We tend to infer an improvement in QoE, but it is rarely there. If I used LTE to browse a monochromatic text-based wap site, I am sure that speed would be an improvement in QoE. But no, as LTE is launched, web pages grow in complexity and size, encryption and obfuscation is creeping in, video is graduating from SD to HD to 4K... With video, the problem is even larger as the increase in screen size and definition seems to consistently outpace network speeds.
It becomes harder to sell a new technology if all it does is keeping up or catching up with the service, not improve drastically the user experience.

Q2 multiscreen video news

I use a service to curate and collate my news. Reading through the last few months, I realized that there are so many subjects worthy of comment that a single post wouldn't begin to address them meaningfully. I reserve in-depth analysis of specific trend or topic for my paying clients, so I decided to review and comment on press clippings and announcements as they become available as a way to illustrate the trends, threats and opportunities surrounding our market.

Here is what caught my attention in the last quarter:

Technology: Is 4K the new 3D?

April of course is synonymous with NAB frenzy. Sifting through the trough of announcements at the show, I have noticed a sharp change of direction in vendor’s announcements and claims from last year. When 2013 was all about HEVC H.265, this year seems to be about 4K. While HEVC licensing terms have been agreed and announced by MPEGLA in February, Google’s royalty-free VP9 has captured some support as well, forcing chipset and platform vendors to contemplate fragmentation and multi codec support. Obviously, the battle for codec and protocol will determine who controls the management and delivery of 4K content going forward. In this race, not surprisingly, YouTube is siding with its parent company with VP9 support, while Netflix is adopting H.265. Both companies agree though, and are adamant, that 4K is a lot easier to manage and deliver for OTT properties than for traditional broadcasting payTV providers. Netflix forecasts mass market for 4K to be five years out at the current rate of TV replacements. My opinion is that 4K adoption will suffer from H265/VP9 fragmentation. We will probably see further delays because of the cost of implementing dual protocol stack throughout the delivery chain.

Technology: Cloud, SDN, NFV

At NAB as well, vendors were eager to show off their new acronyms, touting dreams of cloud-based virtualized, self-managed, software-defined networks that would… In reality, most MSOs are still focusing on rolling out HD, improving and automatizing workflows and overall costs reduction. I think we still have 5 years to go before seeing practical, mature implementation of SDN in professional video. Anything else is a science experiment or a proprietary implementation at this point.

Business: MSO to OTT

One of the big news was the announcement from AT&T regarding their intent to invest, jointly with the Chernin Group up to $500million to create SVOD and advertising based web streaming services. Umm... Is it too much or not enough? $500 million goes a long way if you want to build a web streaming service, but it does not seem nearly enough if you want to build an attractive content offering.

HBO, the next day was reported to have signed a multi-year agreement with Amazon. The deal should see some of HBO’s back catalogue series made available to Amazon Prime subscribers. Little by little, HBO nudges the boundaries. You will remember that it signed a deal with Comcast last year to offer HBO Go to Comcast broadband subscribers, without a cable subscription. All signs point that HBO could be a major league OTT provider when they will be ready to cross over.

Business: OTT to Wireless

Almost coincidentally, rumours emerged that Netflix was in discussions with the Vodafone Group to distribute Netflix services on some Vodafone subscriptions. It is likely that these deals will increase in frequency. LTE /4G will see opportunities for cord-never and cord-shavers to access their favourite service and content on cellular networks. That is… if they figure out the charging model (paying 8$ a month for Netflix and $150 in data overage charge to Vodafone wouldn't really work).

Business: OTT to MSO

Netflix has integrated its offering on Atlantic Broadband, Grande Communication and RCN Telecom services set-top boxes, a first in the US after having piloted the concept in Europe. Subscribers will be able to select the service from their PayTV provider. It is an interesting strategy for small MSOs to bundle Netflix in hybrid Set top boxes. It increases reach, provides an attractive offering and good differentiation against market leaders.

Business: M&A

Kaltura bought TVinci to expand its SVOD offering to live and linear programming. Arris bought SeaWell Networks for its advertising insertion and packaging at the edge technology. SeaWell Networks’ strong adaptive bit rate streaming skill set will be invaluable to expand the company’s multiscreen strategy.

That’s all folks for this quarter! I will keep all the good net neutrality commentary for next month, hopefully when the smoke dissipates from the PR battlefield.