This document features our 2012 predictions.
To see our 2014 predictions, click here.
1. Online video traffic will continue to soar
There is plenty to debate regarding the future direction of online video. What is the
optimal business model for monetizing online video? How will online video affect the
existing order of content providers and Pay-TV services? Who will win and who will lose
from all the disruption that ensues?
Everyone is in agreement, however, that online video traffic will continue to surge in 2012
and beyond. Consider the following:
‣ By 2013 online video will account for 90 percent of all
consumer IP traffic. Source: Cisco Visual Networking Index (VNI)
‣ The compound annual growth rate is projected to be a
staggering 32% from 2010-2015.
Source: Cisco Visual Networking Index
‣ "Online video traffic is poised to continue its spectacular
ascent for 2012, be it from IPTV, OTT, video
conferencing, or other video applications like video
gaming. Gartner's bandwidth-estimating model indicates
that data growth per user can easily reach 30% to 50% a
year (Toolkit: Bandwidth Estimating Model for Multi-Year Enterprise Site Planning, Version 2.0
September 2011), particularly due to video." — Akshay Sharma, Research Director, Gartner
Perhaps even more impressive, the projections above may need to be revised upward.
Based on a sampling of Skytide’s own customers, we are seeing growth rates that
exceed the forecasts of industry analysts and equipment vendors. We believe that it
is possible that online video traffic will grow more than 50% annually for the near
term and that the impending capacity crunch could be even more formidable than
At the same time that revenue from legacy businesses like landline telephone service
wanes, Communications Service Providers (CSPs) face mounting costs arising from
capital investments required to meet the enormous “over the top” (OTT) demand on
their networks. Meanwhile, ISP subscriber revenue is not nearly enough to make up the
Unabated growth of online video traffic threatens to only exacerbate this vicious cycle.
To extricate themselves from this downward spiral, CSPs must pursue new strategies that
leverage their inherent strengths — ownership of the network infrastructure and direct
relationships with end users and content owners — to reduce capacity investments and
create new revenue streams. One area in which telcos and cable companies are
leveraging these strengths is online video content delivery.
To successfully compete in delivering video content, they will need advanced analytics
and reporting to help them harness these advantages, optimize quality and precisely
The 4 Keys to Telco CDN Success
2. Telco CDNs will make big waves
After wading in the CDN waters for several years, many
service providers began to jump in head first in 2011.
According to Informa Research, more than 41 carriers are
reported to be in some phase of CDN
lists many of them here.
All of the elements are
in place for the rise of
Telco CDNs to continue
apace in 2012. Consider:
‣ Some of the world’s largest
telcos have now deployed their
own CDNs and are realizing the
benefits: reduced video transit
costs, improved quality of service
(QoS) and new revenue streams.
Now that the potential for Telco
CDNs is being borne out under
real world conditions, others will likely defect from pure play CDNs and build their
own content delivery networks.
‣ With legacy businesses under assault from cable and competitive local exchange
carrier (CLECs) offerings, the pressure will intensify on service providers to stake out
new revenue streams and to establish new ways to control costs. Content delivery
networks can fulfill on both.
Telco CDNs stand to change the content delivery landscape by:
‣ Raising the bar for online video quality standards
Because telco CDNs are able to cache and deliver video closer to the end user, they
are able to provide viewers with improved resolution and reliability that, in turn,
lead to a better quality of experience (QoE). As viewers become conditioned to this
improved picture quality, it will become the baseline for acceptable QoE.
‣ Prompting OTT video providers to partner with ISPs
OTT content owners may look to ISP partners to provide guaranteed QoS levels as a
way to level the playing field with established Pay-TV providers (who can exploit
fully-managed networks) and more effectively monetize OTT video. This could be
disruptive because it would put the onus on service providers to guarantee end-toend quality for OTT video just as they currently do for their own IPTV services.
‣ Diminishing the dominance of pure-play CDNs
The emergence of Telco CDNs as meaningful competition is only one of many trends
threatening the standing of incumbent CDN operators. Witness the entry of strong
companies from outside the space (Amazon, Google) into the CDN business. And the
trend by major content providers (Yahoo, Microsoft, Google) to operate their own
These sources of business erosion may drive leading independent CDNs to reinvent
themselves. Pure-play content delivery networks are already realizing an increased
contribution to their revenue (and margin) from value added services, which often have
little in common with their core CDN offering.
By example, Akamai has greatly expanded beyond content delivery to become more of a
“cloud services provider.” Since it is the bellwether for the industry, we expect other
entrenched CDNs to follow its lead. We anticipate that many will look to license their
technology or, alternatively, they may become Telco CDNs themselves via acquisition —
witness the incorporations of BitGravity into Tata Communications and of CDNetworks
into KDDI. We expect that similar acquisitions will continue in 2012.
How Telcos & ISPs Can Learn to Love OTT
3. Federated CDNs will shift from concept to reality
CDN Federation has been a hot topic of discussion in content delivery circles lately. And
for good reason.
CDN Federation stands to be very disruptive, giving service providers an unprecedented
opportunity to compete directly with market leaders like Akamai and Limelight in the
global CDN arena.
For all the talk, however, CDN federation has
thus far remained largely amorphous and
stalled at the concept phase. That will
change in 2012 as federation models
finally move from the drawing board into
deployment. In fact, the march has
‣ In June of 2011, StreamingMedia.com’s
Dan Rayburn broke the news that a group
of telcos had founded an Operator
Carrier Exchange (OCX) to formalize the
process of interconnecting their content
‣ Four months later, Cisco announced at the CDN World Summit that it had completed
a CDN interconnection pilot involving several tier 1 service providers (BT, KDDI,
Orange, SFR and Telecom Italia).
So, progress is being made which suggests that CDN federation could be operationally
deployed in 2012.
Just launching a CDN federation won’t be enough. To successfully compete with reigning
incumbents the new telco interconnections must:
‣ Move swiftly
Market leading pure-play CDNs are undoubtedly prepping for the eventuality of
competition with a CDN Federation. Telcos — often bureaucratic and methodical
— need to step out of character and accelerate the pace to deploy a full-fledged
federated CDN offering.
They must treat it with the urgency and importance that they displayed previously
when implementing interconnections for mobile and SMS. Otherwise, pure-play CDNs
may neutralize the benefits of federation through moves of their own.
Witness the news of Akamai’s Licensed CDN, for example, with its promise of built-in
federation to Akamai’s own network. If Akamai can recruit key service providers into
this scheme, it may deny any carrier-only federation of some important perceived
‣ Create a CDN Exchange
Discussion of federated CDN models usually revolves around two options: CDN
Exchange and the Bilateral Model. Of the two, we believe that the CDN Exchange
holds the most hope for success.
To fully realize the benefits of interconnection — economies of scale and
maximization of the network effect — CDN federation participants must collaborate
on shared services. Having one central hub is far more efficient than having to
integrate separately with every other member.
The wisdom of this strategy has been validated across a variety of industries for
which interconnections and alliances are important; from financial services to
logistics and everything in between. Bottom line: the bilateral model just won't
scale. Having a federation operator entity to manage shared services such as
analytics and reporting, service level agreement (SLA) enforcement, billing and
settlement becomes necessary.
Match the scope of pure-play CDNs
To compete with the pure-play content delivery networks, Telco CDNs must offer
similar scope in every sense — scope of features and scope of coverage. Skytide
analytics & reporting and CDN federation both extend scope in important ways that
enable Telco CDN to be more competitive.
"Vertical federations" may be a great way to add some features but, ultimately, every
individual federation participant needs to be enabled for key features and be able to
integrate those functionalities with those of other federation partners.
Federated CDNs: What Every Service Provider Should Know
Find out more:
Skytide Insight for Federated CDNs
4. Adoption of Adaptive Bitrate protocols will grow
The appeal of adaptive bitrate (ABR) streaming is obvious for end users and content
‣ Because the video stream adapts to the quality of the network connection, shifting
the bit rate up or down as needed, ABR enables faster start times and a continued,
uninterrupted experience. For viewers annoyed with having to sit through frequent
spinning buffer icons that delay programming, this is very welcome news.
‣ For those who watch a lot of video on mobile devices, it is even better news.
Currently, with progressive download technology, mobile data plans are dinged not
just for the video that subscribers actually watch, but also for all the time that it
takes to load. A subscriber might wait five minutes for a two-minute video to load
and get charged for seven minutes of consumed data. Adaptive bitrate streaming
can rectify this discrepancy and lower charges for data plans.
Video publishers and mobile service
providers will also reap benefits.
Currently, content providers pay
CDNs for video delivery that is never
consumed. Meanwhile, carriers get
stuck delivering excess video and
clogging up the network. This will
change for the better with adaptive
‣ ABR also enables CDNs to stream video over the open standard of HTTP using free or
inexpensive server software and commodity hardware. This can significantly reduce
or eliminate the costly server licenses required for proprietary solutions like Adobe
Flash Media Streaming Server or Microsoft Windows Server.
The market dynamics that led to increased adoption of adaptive streaming protocols in
2011 will only increase in 2012. Consider:
‣ As viewers become conditioned to expect the continuous, uninterrupted online video
viewing experience that ABR makes possible, there will be no going back.
‣ Smartphone sales in the U.S. are expected to eclipse those of standard feature
phones in 2012 Source: Nielsen. These smartphones will benefit greatly from the
advantages of adaptive bitrate streaming addressed above.
As adoption of adaptive bitrate protocols grows, providers of legacy streaming methods
will find themselves under increased pressure to prove their added value. Witness the
recent decision by Adobe to cease further development of its mobile Flash Player.
One opportunity for proprietary streaming technology providers is to embed in their
solutions the capability to capture more interesting information that can be fed into an
analytics and reporting system. This would enable content owners to glean valuable
insights about viewer behavior, content popularity, bitrate usage, delivery quality, and
other important metrics. Some of Skytide’s partners are already working with us towards
What is Adaptive Bitrate Streaming and Why is It So Difficult to Measure?
5. IPTV providers & MSOs will extend reach into OTT models
Pay-TV offerings that can only be consumed on a TV set no longer meet changing
lifestyles or consumer demands.
Consider this common scenario: A person falls
asleep in front of the TV before the conclusion
of a movie. They want to finish watching the
movie on their commute to work the next day
(assuming they aren’t driving!)
Even more commonplace is the desire to
watch programming in any room of one’s home
on any number of devices. TV Everywhere
services like Rogers’ “On Demand Online”
service can address practically all of these use
cases. For more specific applications, every
major U.S. cable multiple system operator
(MSO) is exploring the provision of an in-home
This trend will put Pay-TV providers in the uncomfortable position of losing control of the
Most viewers are unaware that the multi-part scenario described above would require
that part of a video be consumed over the Pay-TV operator’s network and a portion of it
be consumed over another operator’s network.
Because the consumer is not cognizant of this on-net/off-net dynamic, they may
erroneously blame their Pay-TV provider for poor picture quality when the off-net ISP is
actually to blame.
The negative effect on brand equity that this poses is significant, which is why you may
see what was once unthinkable: competing ISPs agreeing to guarantee the quality of each
other’s off-net traffic.
6. Multi-screen viewing will become the norm
With the mass adoption of Apple’s iPad and the continued proliferation of smartphones,
2011 ushered in the era of “anywhere, anytime, any device” online video viewing.
With game consoles, connected TVs and eReaders also
joining the fray, 2012 promises to keep service providers
on their toes, especially as consumers appetite and
expectations for multi-screen viewing
expand. Consider these projections cited
from Cisco’s VNI Global Mobile Data
‣ Two-thirds of the world's mobile data traffic
will be video by 2015, doubling every year between 2010 and 2015.
‣ Of the 6.3 exabytes per month crossing the mobile network by 2015, 4.2 exabytes
will be due to video.
‣ Mobile-connected tablets will generate as much traffic in 2015 as the entire global
mobile network in 2010.
‣ Viewers watching big screen TVs will be far more demanding regarding acceptable
thresholds for quality, bit rate and channel change speeds than those watching on
smaller screens; the latter regard streaming video on tablets and smartphones as
substitutions for HD Digital Terrestrial Television, Cable, or Satellite service.
‣ Provisioning high quality video service to mobile users presents even more challenges
to those on wireline connections since all of the congestion of the radio side
compounds that of the broadband network.
‣ When over-the-top video fully migrates to the living room TV, OTT providers will
need to guarantee QoS levels comparable to those of existing Pay-TV operators.
The Secret to Simplifying Multi-Channel Video Delivery
7. Online video advertising budgets will soar
According to recent “Video State of the Industry Survey” findings jointly published by
Adap.tv and Digiday, online video budgets are expected to rise 27% for 2012.
Brand advertisers who purchased online video ads in 2011 are projected to increase
spending by 47% for 2012. For those advertisers who purchased no video ads in 2011, 84%
indicated that they will include it in their ad mix for 2012, likely pulling budget from
display and print ads.
This expected increase in spending is the result of a confluence of factors, including:
‣ Technological advancements that improve online video resolution and reliability,
which in turn directly affects user engagement levels.
‣ The increasing percentage of time that consumers now interact with tablets and
‣ Innovations in online video delivery. For instance, adaptive bitrate streaming holds
out the promise of seamlessly inserting advertising directly into a video stream,
more closely paralleling traditional TV advertising.
‣ Ever larger inventories of online video, with enough variety in programming choices
and CPM levels, to attract a larger base of advertisers.
It would appear that brand advertisers are now comfortable enough with the online video
viewer QoE — which, by association reflects on their products — that they are prepared to
significantly invest ad dollars.
This could create a virtuous cycle in which increased ad dollars support more and better
online video programming delivered with higher levels of QoS, which in turn attract even
more ad dollars.
How Much Online Video Quality is Enough?
How Did We Do?
We published our original 2012 online video predictions in November of 2011. Now that
we’ve reached the halfway point of 2012, we thought it would be interesting to see how
our predications are panning out.
Our new report takes a look at current market data and trends and compares them
against our predictions. Check it out!
Read it now!
Mid-Year Review of 2012 Online Video Predictions