Video growth prompts new revenue approach

Jessica Scarpati
06 Jun 2011
Understanding subscribers' quality of experience (QoE) with online video is critical—and not just to prevent cranky subscribers from flooding contact centers with complaints that they can't access the latest episode of their favorite shows.
Network operators pursuing a content monetization strategy for OTT video can differentiate themselves by offering advertisers and content providers something that CDN providers like Akamai Technologies and Level 3 Communications cannot: subscriber usage data and video QoE metrics.
"[Service providers] can't keep expanding the capacity of the network to satisfy everybody's need for high-resolution stupid cat videos," said Melanie Posey, research vice president at IDC. "The end game for carriers is [to establish] that direct relationship with the content owners and turn that into some kind of revenue stream.... [But] before you develop a content strategy, you have to know what your subscribers are consuming."
Peer-to-peer traffic has historically made up the largest percentage of Internet traffic, but online video snatched that title for the first time in 2010, according to a newly published forecast from Cisco Systems' fifth annual Visual Networking Index. By 2012, video will account for half of all consumer Internet traffic, up from 40% this year, according to Cisco. Meanwhile, Netflix generates nearly a third (29.7%) of peak downstream Internet traffic in North America, according to a recent survey by Sandvine, a network equipment vendor.
As other players cash in on online video growth—content providers, advertisers, distributors and independent CDN providers—traditional network operators receive no incremental revenue from the flood of video traffic while spending capital to build networks to support that growth. Moreover, when online video QoE suffers, subscribers often look to their service providers to improve performance—even when the network isn't to blame for degraded quality of experience.
However, carriers want to court top content providers away from the CDN players and go head-to-head with the likes of Akamai and Level 3 to recoup that revenue, according to telecom consultant Tom Nolle, president of CIMI Corp.
"The network operators have kind of looked at this and said to themselves, 'You know what? It's kind of illogical for Netflix to be running a process that everybody is contributing to, and we need to find a way to monetize content better instead of carrying it for free,'" Nolle said.


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