AOL Goes P2P for Video

Time Warner Inc. (NYSE: TWX) division AOL will use a peer-to-peer approach borrowed from the file-sharing world of Kazaa and BitTorrent when it begins delivering high-definition Internet video to consumers next month.

Like other ISPs aiming to distribute video content over the public Internet, AOL faces the challenge of delivering its service across increasingly congested broadband pipes. And 93 percent of those pipes are owned by cable and telephone companies wanting to offer their own high-bandwidth services to consumers. (See AOL Teams for Broadband and LR Poll: Net 'Squatters' Should Pay.)

To deal with the potential bottleneck in the last mile, AOL plans to borrow space on its customers' PCs to store video content at the edge of the network. As customers begin ordering video content, small parts of the files are cached on their hard drives. When a consumer orders a video, it is pieced together from PCs (peers) nearby on the network, avoiding the need to push the entire file out from a central server. Once pieced together, the file is wrapped with digital rights management (DRM) code to control its usage after download. One of AOL's DRM rules, for example, is that the user must be connected to the Internet in order to view the file.

AOL's new video service, called "In2TV," is set to launch in March and will feature high-definition content delivered over the peer-to-peer network. AOL spokeswoman Jennifer Rankin says the initial content offering will be free, on-demand streams of older Warner-produced shows such as Alice, Chico and the Man, and Wonderwoman. But this, she says, is just the beginning. (See AOL Buys Video Search Engine.)

Two years ago AOL enlisted the help of Sunnyvale-based video distribution company Kontiki to help it devise a video strategy. Now AOL is using Kontiki's video storage and management systems designed to deliver video on a large scale.

“The last mile is always a problem,” says Kontiki VP of marketing Scott Sahadi. “You’re competing for that bandwidth with television, with VOIP, with Skype calls, with instant messaging and email, and [then you] have to deliver that one-gig file of Starsky and Hutch.” (See Verso Tests Skype Filtering.)

AOL's approach is similar to the one adopted by the British Broadcasting Corporation (BBC). In 2004, the BBC conducted trials of an "Interactive Media Player" that used BitTorrent P2P technology to offer free access to archived TV programs. (See P2P Gets Serious.) Following that initial trial, the BBC also turned to Kontiki and integrator Siemens Business Services for further development and has just completed a 5,000-person pilot service. Further details are currently unavailable.

But the peer-to-peer concept itself has negative connotations for many consumers, as it is often associated with illegal file sharing and virus spreading. (See Grokster Shuts Down.)

Sahadi says Kontiki's brand of P2P is unlike Kazaa-style file sharing because there is never any direct contact between the "peer" computers themselves. (See Broadcast TV Will Never Die.) And he believes P2P networks shouldn't be judged on their somewhat checkered past: “The peer-to-peer industry has unfortunately grown up in this sort of illegal environment... based on file sharing."

Meanwhile, AOL says it will be upfront with customers on the technology. “We make it very clear that this is not a file sharing network,” says AOL spokeswoman Jaymelina Esmele.

AOL will inform customers that their computers are being used for local video caching, and will give them a chance to opt out. Esmele says users can also adjust their PC settings to control how much hard drive space is being used.

On a more practical level, will customers be comfortable loaning out space on their hard drives to store video for other people? AOL is betting that video customers will understand their PCs are part of a secure "grid" that makes movie delivery faster for everybody. Kontiki believes its brand of video distribution is up to 25 times more efficient than traditional approaches.

If consumers do consent, AOL could have an advantage over other Internet video services. It might also find itself less beholden to the cable and telephone companies that own the broadband pipes.

In terms of its content offering, AOL is probably just getting started. AOL’s parent, Warner Brothers, owns perhaps the largest catalog of video content anywhere with over 20,000 video titles, and a quickly growing portion of it will be available on demand at AOL.com. (See AOL/Google: VOIP Buddies .)

With all that content and a sleek way of delivering it, AOL might steal away a lot of eyeballs from cable and telco TV. (See Google Says No to QOS Fees.) To that end, AOL has signed a deal with Intel Corp. (Nasdaq: INTC) that will make its video files watchable on regular televisions. It is also working with Microsoft Corp. (Nasdaq: MSFT) on distribution of video through the Windows Media Center, which would accomplish the same end. (See Intel Teams With Google, AOL.)

AOL has a lot to gain from its peer-to-peer Internet video business, maybe even a new identity. The company is undergoing a difficult transition from its subscription fee roots to new revenue from content and advertising. A compelling video offering may be crucial to AOL remaining an oft-clicked Internet destination.

— Mark Sullivan, Reporter, Light Reading