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Level 3 Expands CDN

Level 3 Communications Inc. (NYSE: LVLT) will look to beef up its content delivery network (CDN) after sealing a deal to acquire Irish video streaming firm Servecast Ltd..

Level 3 will pay €33 million (approximately $45 million) for the Dublin-based company, which provides video publishing and distribution tools that allow content owners to manage, protect, and deliver online audio and video content. Servecast's platform supports a number of stream rates and formats, including Adobe Systems Inc. (Nasdaq: ADBE) Flash, RealNetworks Inc. (Nasdaq: RNWK) Real Player, Microsoft Corp. (Nasdaq: MSFT) Windows Media Player, and Apple Inc. (Nasdaq: AAPL) Quicktime.

The purchase continues Level 3's push into the content delivery space, which it entered earlier this year through the acquisition of Savvis (Nasdaq: SVVS)'s CDN assets for $135 million. Since that acquisition, the company has launched caching and downloading services over its network, and named AOL Inc. (NYSE: AOL) as a CDN customer. (See Level 3 to Buy CDN, Level 3 Spends $135M on Savvis CDN, Level 3 Completes Buy, Level 3's CDN Story Rides on Fiber, Level 3 Looks for Big CDN Push, and Level 3 Enhances Platform.)

Level 3 has been positioning itself as an alternative to industry stalwarts Akamai Technologies Inc. (Nasdaq: AKAM) and Limelight Networks Inc. (Nasdaq: LLNW), which together combine for more than 90 percent of the CDN business.

The key advantage Level 3 has over competitors is that it owns a global backbone network, so it can deliver content largely without paying interconnection fees. Therefore, it can largely transport content for less than Akamai and Limelight can.

But one of the main knocks against the Savvis assets was that they were developed for a different age of content delivery, before rich media became a major part of the business. While caching and download services are a start, the real money to be made in CDN comes from the rapid growth of Internet video.

According to Merriman Curhan Ford & Co. analyst Colby Synesael, the Servecast acquisition will provide Level 3 with a content management system that will be key to helping the company build and maintain customer relationships.

"Strategically speaking, it's very smart. It fits into the whole content delivery ecosystem," Synesael says. He expects the Servecast platform provides strong incremental margins, but just as importantly, he says it will make Level 3's service offerings "very sticky."

"Servecast's video and rights management platform, combined with its streaming services, complement Level 3's existing portfolio of content delivery capabilities," Brady Rafuse, president of Level 3's Content Markets Group and European Markets Group, said in a statement. "The addition of these services accelerates our planned development of this technology. These capabilities will enable us to manage and distribute online video content in multiple formats to meet the increasing demand for high-quality video over the Internet."

Adding the ability to provide audio and video services could help Level 3 compete in the rapidly growing market for rich media and possibly convert existing IP transport customers Google (Nasdaq: GOOG), YouTube Inc. , and MySpace to CDN customers.

"In 2008, Level 3 is going to be a very serious competitor" in the CDN market, Synesael says.

— Ryan Lawler, Reporter, Light Reading

not_dead_yet 12/5/2012 | 3:05:27 PM
re: Level 3 Expands CDN L3 contends that if you own the backbone you can offer services at better margins. Last time I checked bandwidth was a commodity, merely owning a network is not a good strategy. L3 has sought to acquire companies to monetize their capacity. This strategy might be good if they were good at integrating the acquired people and systems (which they are not).
Honestly 12/5/2012 | 3:05:29 PM
re: Level 3 Expands CDN L3 really needs to delivery rich media and disclose customers. The Savvis CDN needed a huge fork lift and there does not appear to be an entertainment content exec at L3 that knows this world and can grow this. Delivering MS service pack downloads is not close to rich media QoE.
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