Is the
future of video delivery over the top? At the Connected TV World Summit in
London, Nagra's Thomas Decieu, noted that the economics of over the top
delivery are getting particularly enticing for satellite operators, who could
trade transponder space for a content delivery network (CDN) and reap
significant cost-savings.
The
attitude of broadcasters toward over the top video delivery have certainly
shifted remarkably over the past two years, but the economics of OTT delivery
aren't what they seem - especially if the use of a CDN is a prelude to an
out-of-network video play. To understand why, look at the recent dust-up
between Netflix and Comcast.
Netflix
CEO Reed Hastings recently took to his Facebook page to lambaste Comcast for unfairly singling
out competitive video apps running on an Xbox. Wrote Hastings:
Comcast no longer following net neutrality principles.
Comcast should apply caps equally, or not at all. I spent the weekend enjoying
four good Internet video apps on my Xbox: Netflix, HBO GO, Xfinity, and Hulu.
When I watch video on my Xbox from three of these four apps, it counts against
my Comcast Internet cap. When I watch through Comcast's Xfinity app, however,
it does not count against my Comcast Internet cap.
These caps refer to the bandwidth Comcast allots to its
broadband subscribers (250GB or about 100 hours of high quality video streaming).
In other words, Comcast was adding a hidden cost to the over-the-top video
offerings from its competitors, while exempting its own service from the rules.
Whether this is legal depends on how Net Neutrality rules are interpreted (and,
crucially, the balance of ideological power in the Federal Communications
Commission).
But what this episode does highlight is how network operators
will respond to OTT challenges. If more and more consumers do cut the cord in
favor of less expensive video offerings - and especially if those video
offerings come from established service providers operating out of network - the broadband owners will respond by hiking
prices on broadband access, nullifying the cost advantage of any competitive
OTT offering. They could do this subtly –
a la Comcast - by applying OTT data usage from competitive apps against a bandwidth
cap while exempting their own offerings. If the FCC frowns on this practice,
they could do so blatantly, by sharply reducing the bandwidth cap or
instituting a tiered bandwidth consumption price structure that recoups
whatever revenue they lose to video cord cutters by making them pay more for
broadband.
Indeed, at a Verimatrix panel at the recent National
Association of Broadcasters Show, Akamai Technologies' Will Law said that
bandwidth caps and tiered broadband pricing are going to be an essential tool
in how network operators manage the proliferation of over the top video
services (including their own). CDNs may indeed alleviate costs and network
congestion for in-network video offerings, but they won't necessarily open the
door to cord-cutting or cheaper video services for consumers.
