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.

NFV & SDN Part II: Clouds & Openstack

I just came back from the OpenStack Summit taking place in Atlanta this week. In my quest to understand better SDN, NFV and Cloud maturity for mobile networks and video delivery, it is an unavoidable step. As announced a couple of weeks ago, this is a new project for me and a new field of interest.
I will chronicle in this blog my progress (or lack thereof) and will use this tool to try and explain my understanding of the state of the technology and the market. 
I am not a scientist and am somewhat slow to grasp new concepts, so you will undoubtedly find much to correct here. I appreciate your gentle comments as I progress.

So... where do we start? Maybe a couple of definitions.
Clouds
What is (are) the cloud(s)? Clouds are environments where software resources can be virtualized and allocated dynamically to instantiate, grow and shut down services.
Public clouds are made available by corporations to consumers and businesses in a commercial fashion. They are usually designed to satisfy a single need (Storage, Computing, Database...). 
The most successful examples can be Amazon Web Services, Google Drive, Apple iCloud, or DropBox. Pricing models are usually per hour rental of computing or database unit or per month rental of storage capacity. We will not address public clouds in this blog.

Private clouds are usually geo-dispersed capabilities federated and instantiated as one logical network capacity for a single company. We will focus here on the implementation of cloud technology in wireless networks. Typical use cases are simple data storage or development or testing sandbox.

Cloud technology relies on Openstack to abstract compute, storage and networking functions into logical elements and to manage heterogeneous virtualized environments. OpenStack is the Operating System of the cloud and it allows to instantiate Infrastructure or platform-as-a-service (respectively IAAS and PAAS).

OpenStack

The OpenStack program is also an open source community started by NASA and Rackspace, now independent and self governed. It essentially functions as a collaborative development community aimed at defining and releasing OpenStack software packages. 

After attending presentations and briefings from Deutsche Telecom, Ericsson, Dell, RedHat, Juniper, Verizon, Intel… I have drawn some very preliminary thoughts I would like to share here:

OpenStack is in its 9th release (IceHouse) and wireless interest is glaringly lacking. It has been setup primarily as an enterprise initiative and while enterprise and telecoms IT share many needs, wireless regulations tend to be much more stringent. CALEA (law enforcement), Sarbanes Oxley (accounting, traceability) are but a few of the provisions that would preclude OpenStack to run today in a commercial telco private cloud.

As presented by Verizon, Deutsche Telekom and other telcos at the summit, the current state of OpenStack does not allow it to be deployed "out of the box" without development and operations teams to patch, adapt and stabilize the system for telco purposes. These patches and tweaks have a negative impact on performance, scalability and latency, because they have not been taken into account at the design phase. They are workarounds rather than fixes. Case studies were presented, ranging from CDN video caching in a wireless infrastructure to generic sandbox for storage and software testing. The results show the lack of maturity of the technology to enable telco-grade services.

There are many companies that are increasingly investing in OpenStack, still I feel that a separate or focused telco working group must be created in its midst if we want it to reach telco-grade applicability.

More importantly, and maybe concerning is my belief that the commercial implementation of the technology requires a corresponding change in organizational setup and behaviour. Migrating to cloud and OpenStack is traditionally associated with the supposed benefits of increasing service roll out, reducing time to market, capex and opex as specialized telco appliance "transcend" to the cloud and are virtualized on off-the-shelf hardware.

There is no free lunch out there. The technology is currently immature, but as it evolves, we start to see that all these abstraction layers are going to require some very specialized skills to deploy, operate and maintain. these skills are very rare right now. Witness HP, Canonical, Intel, Ericsson all advertising "we are hiring" on their booths and during their presentations / keynotes. I have the feeling that operators who want to implement these technologies in the future will simply not have the internal skill set or capacity to roll them out. The large Systems Integrators might end up being the only winners there, ultimately reaping the cost benefits of a virtualized networks, while selling network-as-a-service to their customers.

Network operators might end up trading one vendor lock-in for another, much more sticky if their services run on a third party cloud. (I don't believe, we can realistically talk about service migration from cloud to cloud and vendor to vendor when 2 hypervisors supposedly running standard interfaces can't really coexist today in the same service).

PayTV vs. OTT part VII: 6 OTT Strategies

Pay TV vs. OTT:

Part I: The business models
Part II: Managed devices and services vs. OTT
Part III: CE vendors and companion screens
Part IV: Clash of the titans

Part V: Appointment vs. on-demand

Part VI: 5 MSO strategies

More developments will be presented at Monetizing OTT services - London - March 24/26

enter the discount code OTT_CORE here for a 20% discount

The internet is a perfect medium for content distribution. Storage, access, distribution is inexpensive, allowing the smallest content owners and producers to offer their wares with a small starting investment. For OTT vendors, this is both an opportunity and a threat. The long tail of the content usually find its audience through social media. Specialty content is at home on  the internet, thanks to the advances made in term of search and recommendation engine. The short tail content is pushed by advertising, rather than social interaction. The type of budget necessary to launch a new content can be staggering, as illustrated in the advertisement campaigns preceding new movies and video games. Content is king in OTT and there are a few strategies put in place by the different players in this segment to secure customers and revenue.

1.     Pay-per-view, rental, on-demand

Apple’s iTunes and Amazon on demand are perfect examples of OTT services. Without subscription, any consumer with a credit card can rent and stream content to almost any screen in minutes. Revenues are generated from the transaction. They are collected by the OTT player, which then apportion it to the studio / content owner and so on. It is the literal translation of the pay TV model on the internet. Here again, the control resides in the distribution. Apple and Amazon have been successful because they have an existing customer base that they had been able to convert. This captive audience is the equivalent of the MSO’s set top box.

Brands with a smaller footprint in term of device penetration have struggled to emulate this strategy. Sony’s “Video Unlimited”, available on its PlayStation and selected devices, has struggled to reach its audience, for instance.

2.    Subscription VOD

Inaugurated by Netflix, it has become the reference for OTT video. A monthly subscription allows consumers to watch as many shows as they want. Success in this model relies in both the depth and the range of the catalogue. Netflix had to have headline content to attract new users and enough of a long tail to keep them there. Most SVOD strategies are monthly subscription without commitment, so they traditionally experience high churn.

3.    Free to air

YouTube is the most successful OTT player with a free-to-air strategy. Acquired by Google in 2006, the web phenomenon attracts over one billion unique users each month ^[2]. Monetization of this strategy has been slow. Advertising is currently the main contributor, using Google ad platform, but YouTube has recently launched premium channels, allowing any channel with over 100,000 followers to go premium for as little at .99c per month. It is not yet apparent whether that strategy will be successful.

Adult content is the second largest OTT player in this category, monetizing premium content through subscription. A small percentage of their viewership base subscribes to premium and generates close to 4.9 billion dollars revenue globally.

4.    Securing content

If content is king, content rights are the crown’s jewel. Securing content that will attract and retain consumers is the principal occupation of OTT players. Studios and content producers now have new avenues for the distribution of their content, but as traditional Pay TV weakens in viewership, it still dwarfs OTT revenues. The most popular content can spur a viewership addiction synonymous with subscription and advertising revenue. It has become necessary for the likes of Netflix to secure access to content. In 2012, Netflix lost rights of diffusion of Starz, Encore and Sony catalogues over broken negotiations. Clearly, having your core value (content) submitted to third party control and threatened on a regular basis by the whims of negotiation is not a very good strategy for long term success. Increasingly, OTT players and channels have started acquiring and producing content exclusively in order to guarantee access, control and ultimately monetization of popular content.

HBO has, for instance, developed the series “Game of Throne”, which became an overnight critical and popular success, drawing fans to the network and becoming one of the most pirated series of 2012 ^[4].

Netflix has secured later a deal with Disney, valued at close to $300 million per year for Disney. This deal sees Netflix get exclusive access to Disney’s movies after their theatrical release. In 2013, Netflix doubles down and sign a follow on deal for exclusive Disney content “Agents of S.H.I.E.L.D”.

5.    Favoring binge watching

Consumers buying habit have changed durably, we have seen, but their viewing habits are also undergoing transformation. With the availability of whole back catalogue seasons of a series, binge watching has become a solid trend. Many viewers, when watching a streaming TV show are increasingly watching more than one show per seating. Detecting the trend early, Netflix strategy for the release of “House of cards” has been to release the full season at once, as opposed to a fixed schedule, favored by traditional TV. Netflix has since released a survey with Harris interactive showing that 61% of Netflix series viewers are binge watchers.

6.     Costs reduction

In the same vein as Verizon, Netflix has undertaken to control its delivery network. Unlike Verizon, it is not an acquisition but organic development that sees Netflix launch its own CDN called Open Connect in 2012. Recognizing that delivering massive amounts of video over the internet can be costly and unreliable at scale, major OTT players look at controlling the end to end user experience and leverage economy of scale from a dedicated network infrastructure. Common CDNs are perfect for general purpose internet content but their business model and quality start to be stretched to their limit when it comes to massive video delivery.

Introducing the Mobile Video Alliance

It was a great and unique chance to be invited at the inaugural meeting of the Mobile Video Alliance in London this week. I would like to thank and congratulate Matt Stagg from EE and Rory Murphy from Equinix, who did a great job of bringing together an amazing panel of participants from Akamai, Amazon, BBC, EE, BT, Lovefilm, Netflix, O2, Qualcomm, Sky, Three UK,Vodafone Global and others.

It was an even greater honor to be able to present my views on the future of mobile video and what the ecosystem should focus on to improve the consumer's user experience.

You can find my presentation and the accompanying video below.






In short, it is my first experience of executives from the whole value chain getting together to discuss strategy, business and technology improvements necessary to enhance the consumer's video quality of experience.
Subjects of discussion ranged widely from adaptive bit rate best practice, to transcoding, caching, roaming and data caps, measuring QoE, mobile advertising... in a refreshing neutral, non-competitive environment without vendors trying to push a specific agenda.

The mobile video alliance is a unique forum for the industry to come and solve issues that are plaguing its capacity to grow profitably. Stay tuned, I will follow and report its progress.