Israeli startup Oversi Networks Ltd. says it can help service providers provide a wider variety of video content to consumers with its peer-to-peer (P2P) video servers. (See Oversi Gets $6M.)

The company is marketing its P2P content delivery method as a viable alternative to blocking or shaping the P2P traffic traversing service provider networks today.

Here's how it works: Oversi's servers, or peers, form a grid in the operator's network, catching and caching any video content that is transported in a P2P format (like BitTorrent). Every time a user downloads a P2P file, pieces of that file are stored at Oversi's servers. When another user on the network requests the same file, it's accessed from Oversi "peers" close by rather than from the far-away server where the file originated, which would eat more bandwidth and take longer. (See RBOCs Wait & See on P2P.)

The bulk of Oversi's business so far is with ISPs trying to decongest their networks and provide faster download service to customers. But Eitan Efron, Oversi's co-founder and VP of marketing, says his company's technology could boost telco IPTV networks as well.

Oversi says it's been working with several set-top box makers to ready the software "brains" of those boxes to receive P2P content as well.

Ultimately, Efron believes Oversi servers and P2P-ready set-tops can help IPTV providers add professional-grade and user-generated video to their "walled garden" video services.

Efrom says "dozens" of ISPs are using Oversi's P2P platform, including two unidentified Tier 1 telephone companies.

And outside the U.S., carriers and tech companies are quickly warming to the idea of using P2P technology as a main method of video distribution. The most visible proponents of P2P video include Skype Ltd. founders Niklas Zennström and Janus Friis. The duo's new company, Joost (formerly known as the Venice Project), is beta testing a new P2P video service that will use the public Internet to deliver high-quality video to the PC, for free. (See Skypsters Fast Forward to Internet TV.)

Google (Nasdaq: GOOG) is also making strides in P2P video with its investment earlier this month in the Chinese P2P file sharing network Xunlei.

Oversi's investors put another $6 million behind Oversi's P2P vision. The December round was led by Carmel Ventures and included existing investors StageOne Ventures, Lab-One Innovations, and TempoPark Fund.

P2P video is "getting a lot of initial attention, beta testing, and traction," says Heavy Reading analyst Rick Thompson. "It could be considered a niche at the moment, but I think it’s a viable means for Internet video to grow and be distributed, and certainly one that a lot of people are looking at."

— Mark Sullivan, Reporter, Light Reading