Maintaining quality could enable service providers to gain new revenue streams.
Study after study by research analysts point toward a clear and, probably, irreversible trend: downstream web traffic comprised of streaming internet video is rapidly growing both in absolute volume and as a percentage of overall traffic. In fact, IDC predicts that by 2013 slightly more than half of all downstream broadband traffic will be streaming video and that the volume of this traffic will exceed all downstream traffic in 2009. In short, streaming video, frequently referred to as over-the-top (OTT) video, threatens to swamp broadband networks as it undermines business models built around linear video broadcasting (cable, DBS, and IPTV).
Broadband Service Providers (BSPs) feel understandably pressured—they are expected to expand their broadband coverage and increase the capacity of their broadband networks while the prices associated with basic broadband services steadily decline. Even with the help of broadband stimulus funds from US taxpayers, it is difficult to construct viable business models that call for pouring capital into infrastructure yielding declining per-user revenue.
Fortunately, there is an emerging business model that can generate the incremental revenue streams required to justify capital investment in broadband infrastructure. Understanding this business model requires a closer examination into the nature of streaming OTT video.
Coincident with the unparalleled growth in OTT video is a change in its composition. Whereas in the past, the bulk of OTT video traffic was composed of short-form, YouTube-ish clips viewed on user laptops, PDAs, and smartphones; increasingly it is made up of long-form TV episodes and movies viewed on flat-panel televisions, sometimes in high definition. Obviously, in addition to fueling the massive growth in the first place, this shift in the composition of streaming OTT video carries with it stringent quality requirements. Many may have tolerated low resolution video clips that frequently timed out (i.e., froze) when the video was free and the viewing device was the computer. But when they pay for the content and display it on their HDTVs, these same viewers become extremely sensitive to anything other than crystal-clear video and audio fidelity.
Unfortunately, the best-effort traffic management principles associated with the Internet in general and broadband in particular are not well suited to handle traffic with such stringent service quality requirements. Recognizing this, virtually all video content storefronts (e.g., Apple iTunes, Amazon Video on Demand, Hulu, Netflix, etc.) pay content delivery networks (CDNs) to bypass the somewhat rickety internet and deliver high-value video traffic directly to BSP peering points. CDNs, with well-managed, high-capacity backbone networks and distributed storage points, are able to provide video storefronts with explicit service level agreements (SLAs), something the internet will never be capable of doing.
But video content storefronts still face a challenge: the CDNs do not deliver traffic to the end user, they deliver it to the BSP. The traffic then has to traverse another network before reaching the ultimate end user. To CDNs this did not initially appear to be a problem as they believed they were “close” to the end user, measured in terms of router hops (in fact CDNs were born primarily as a way to minimize router hops between web browsers and web servers). And, indeed, the point at which CDNs hand off traffic to BSPs is often no more than one or two router hops away from the end user. But while the end user may appear “close” at layer three, he/she is still somewhat distant at layer two. The entire broadband aggregation network as well as the broadband access facility itself is a large, multi-hop, layer two network that is often heavily congested. In most cases, that entire network is governed by first-come-first-serve, best-effort traffic management mechanisms (or lack thereof). Obviously this is not an environment well suited for streaming OTT video.
Arguably, this problem can only be rectified by the BSP; they own and operate the only portion of the network between video servers and digital video players that does not carry an explicit SLA. It stands to reason, therefore, that if BSPs could guarantee service quality for specific OTT video streams and provide SLAs on those streams, various parties might be willing to pay them for the service. Here there are two potential revenue sources for the BSP: the end user, paying for “premium internet TV,” or the CDN/content storefront paying for an explicit SLA. (See Figure 1.)
Figure 1.
Whether the end user pays for a superior OTT viewing experience, one that is nearly indistinguishable from a locally attached DVD player, or the CDN/content storefront pays for a guaranteed SLA, the technical requirements placed on the BSP are identical:
1. Identify OTT video “sessions.”
2. Determine policy for each session (e.g., has this subscriber requested premium OTT service?).
3. Determine availability of network resources (i.e., don’t make service quality guarantees that can’t be fulfilled).
4. Allocate specific amount of bandwidth (above and beyond basic high-speed internet access) for the duration of the video.
5. Monitor video quality during session (optional but highly desirable).
6. Release dedicated bandwidth and generate settlement records at session termination.
How these functions are implemented will be service provider dependent. In many cases they can be implemented within a single device, in other cases multiple devices may be required. But in any case, these functions are required in order to recognize and handle streaming OTT video in a manner that delivers the viewing experience subscribers are looking for—and will pay for.
Most questions service providers have on this topic deal not so much with technology but rather with consumer and regulatory acceptance. Fortunately, there are positive indications on these fronts as well.
From the standpoint of consumer acceptance, surveys conducted by IDC have consistently shown a substantial subset of the population willing to pay incremental fees for an OTT video viewing experience that approximates that of a locally attached DVD player. The size of the subset obviously depends on price and other services that are bundled with the service but, contrary to conventional wisdom held by many BSP marketing departments (“customers won’t pay for anything”), there is a clear willingness to pay for better video.
One factor to keep in mind is how premium OTT video services are marketed. If the service is billed merely as a better way for broadband to handle streaming video, take rates might peak in the 20-25% range. However, if the service is billed as a TV video on demand (VOD) service and bundled with a digital video player (e.g., Roku), take rates may be much higher. The reason is that in the former case, the subscriber may believe that broadband should already deliver such capabilities. In the latter case, the subscriber views the service as a TV/movie service, not a broadband service.
A final point is the regulatory treatment of these services. Many analysts covering the FCC believe, and recent FCC reports seem to concur, that these services would be acceptable from a regulatory standpoint. The reason is that these services, by and large, have nothing to do with the internet. Rather, they take traffic from CDNs and deliver it over broadband using discrete “broadband video channels” with specific bandwidth allocations and separated from the high-speed internet (HSI) access channel using protocol mechanisms. The HSI channel is unimpaired by streaming video. In this regard it is similar to the handling of cable TV and IPTV.
With more and more consumers “cutting the cable cord” and obtaining their video on-line, the business case for premium OTT video services is especially compelling; the capital cost to offer the service (even with bundled digital video players) is modest compared to IPTV, and consumer demand is high and growing. Regulators appear, rightly, focused on stamping out bad behavior rather than obstructing services consumers are clamoring for. In short, all lights appear green.
