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Cable/Video

Video Caching Steps Into the Limelight

Who's really going to make a pile during the Internet video revolution? Look no further than the content enablers, the relatively small group of companies caching video and bringing it closer to consumers across bandwidth-constrained networks.

At least four content enablers are having their share of headlines. Limelight Networks Inc. (Nasdaq: LLNW) recently landed a monstrous $130 million funding round led by Goldman Sachs & Co. (See Limelight Lands $130M .) Akamai Technologies Inc. (Nasdaq: AKAM) has a market cap of more than 6 billion on yearly revenues of around $400 million. Kontiki was sold to VeriSign Inc. (Nasdaq: VRSN) in March for $62 million. CacheLogic earlier this year announced a sizable trial with the British cable company ntl group ltd. (Nasdaq: NTLI) in which it's helping deliver P2P video. (See VeriSign to Buy Kontiki.)

Most of the content enablers cache video content on servers that are relatively close to the end user. Akamai operates a large grid of servers, some of which are co-located in the facilities of network owners like AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ).

For streaming video like live news or sports, the company sends multiple streams through the network to the destination, each one using a different route. One “master” stream is then composed from all of them at the destination point for viewing. For on-demand video like movies, Akamai sends two or three copies of the file to servers at the edge of the network where they are replicated depending on the location of the users who request them. Limelight uses a similar technique, and is now being sued by Akamai.

Kontiki uses a peer-to-peer approach. Pieces of single VOD files are hosted on user machines, and when a user requests the content the pieces are gathered from various machines in the area and reassembled. (See AOL Goes P2P for Video.)

Kontiki CEO Todd Johnson believes the number of companies in the enabler space is relatively small. “Because the industry kind of had a false start five years ago, a lot of the technology companies that were started to power this generation of the Internet are dead and gone,” Johnson says. “So you really don’t have that many companies around with significant IP [intellectual property] in this space.”

That suggests some of the buzz emanating from the companies that are already in the game may be coming from the VC community. “There’s a whole lot more smart money ready to invest in these businesses than there are businesses to invest in,” Johnson says.

Akamai VP of Digital Media Bill Wheaton also expects to see more entrants in the content enabler space. Why? “There’s a lot of money to be made,” Wheaton says. “I expect to see lots of new companies in the space; we have already seen three or four new ones come out this year.”

Wheaton says his company’s grid numbers more than 20,000 servers across 3,000 locations in 69 countries. Akamai is now outfitting many of those servers with dual processors to increase capacity. Between 12 and 15 percent of the company’s revenue is going toward upgrading the server grid every year, Wheaton says.

Three main factors appear to be adding to the content enabler buzz. First, everyone from Apple Inc. (Nasdaq: AAPL) to Disney is starting to deliver their video content over broadband networks. The NCAA finals and the World Cup streamed over the Internet recently for the first time, each drawing millions of viewers.

The second factor is file size. Video streams require loads more bandwidth than voice streams, notes Rami Hadar, CEO of the bandwidth management company Allot Ltd. (Nasdaq: ALLT). Hadar points out that much of the video content on the Web -- both streaming and on-demand –- still takes a while to download and then displays with limited quality in a six-by-six inch window. That, he says, is bound to improve one way or another.

The third factor is the finite bandwidth capacity of access networks. (See Net Neutrality's End Might Turn a Buck.) It will be a while before 50-Mbit/s or 100-Mbit/s broadband connections show up, if they ever do, in most parts of the world. (See Broadband BlahBlahBlah.) Indeed, many connections now can't even be seen as true broadband (more than 1 Mbit/s). (See Net Neutrality Dollars and Sense.)

While broadband connections are slow in coming (and just generally slow), Internet video is happening now. “If you look at the market, the median entertainment industry is about a $200 billion a year industry worldwide, yet less than one percent of that industry has moved to an online distribution of that content,” says Pacific Crest Securities Inc. analyst Brent Bracelin. All this suggests that a large number of content owners will be competing for finite bandwidth to deliver a quickly increasing volume of video. They are coming to the content enablers to help them do it. “You're seeing the median entertainment industry start to trial and test the median of entertainment over the Internet. So that’s obviously having some ramifications for the enablers,” Bracelin says.

Internet video already accounts for a large and growing portion of the traffic on both retail broadband and enterprise networks. “Probably to 50 to 60 percent of it is peer to peer (P2P), says Allot’s Hadar, and a large percentage of peer to peer traffic is video, he says. “The more content we see become video content, the more bandwidth pressure we will see.”

Then factor in the exploding popularity of video sharing sites. YouTube Inc. says more than a million streams a day are flowing from its servers. And YouTube is just one of several video sharing sites that has a sizable audience. (See Video Site Cheat Sheet.)

— Mark Sullivan, Reporter, Light Reading

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