Forget the content deals for a moment and consider Verizon's technology strategy leading up to the launch of its mobile-first video service, reportedly called Go90. From its network infrastructure to its video processing tools, the telecom company has systematically put key technology pieces in place to support its new over-the-top video venture. Not only that, but Verizon has enjoyed a rehearsal of sorts by serving customers with those same technologies for their own video apps.
Having the right technology is no guarantee of success for Go90. However, Verizon Communications Inc. (NYSE: VZ) will certainly benefit from using systems that have already been field-tested by customers like Walt Disney Co. (NYSE: DIS) and Yahoo Inc. (Nasdaq: YHOO). The issue is not even so much about how well the technology works, but how well Verizon understands how the technology can be used to drive profitable business.
Let's take a look at the history.
Over the last several years, Verizon has built up its digital media services business (now called Verizon Digital Media Services ) to help content companies both prepare and deliver video over IP. When Verizon launched the DMS business unit in 2011, it targeted everyone from broadcasters to cable companies. It sounded ridiculous at the time that cable operators in particular would buy video services from Verizon, but the telco has done a lot since then to build its case. (See Will Cable Buy What Verizon DMS Is Selling?)
The big VDMS success stories are still media company customers, but Verizon has also teamed up with one of its largest cable rivals through a partnership with thePlatform Inc. , a Comcast Corp. (Nasdaq: CMCSA, CMCSK) subsidiary. At the very least, Verizon has shown it can succeed in the media services market whether or not most cable companies want to be a part of that story.
Verizon made two critical acquisitions in building up its VDMS business: EdgeCast and Uplynk. The first brought a new content delivery network into the Verizon portfolio, while the second added adaptive streaming technology. Interestingly, Verizon's investments show a striking contrast to AT&T's in the video space. While AT&T Inc. (NYSE: T) bulked up by buying satellite provider DirecTV, Verizon has focused its resources on extending its technology capabilities.
Those capabilities are bringing in new revenue. On the CDN side, for example, Frost & Sullivan analyst Dan Rayburn says VDMS is on track to do roughly $200 million in revenues this year, and that's already double what EdgeCast was earning when Verizon first bought the company.
For the new Go90 service, however, the fact that Verizon owns and operates its own CDN will also come in handy. Verizon will have a cost advantage in delivery, and greater control over service quality. Rayburn believes that Verizon probably hasn't built up too much extra capacity in the CDN for Go90 so far because it will want to see how quickly the service grows, but the telco will be able to add capacity as needed.
As far as capacity is concerned, Verizon owns not only the CDN part of the video delivery network, but also other large chunks of that pipeline too, including the last-mile connection for a large number of mobile subscribers. No one service provider can control the whole delivery chain, but in theory, by owning more of it than many other service providers, Verizon should be able to target necessary infrastructure upgrades more efficiently.
"The good news is because it's their own infrastructure, it's easier and faster for them to add capacity," says Rayburn.
Although Rayburn goes on to say, "The other thing to look at though is telcos and carriers take a lot longer to do anything, so even though you own it, if you're a bigger company and there's more red tape… is that really a benefit?"
From a video processing standpoint, Verizon will also be able to use its own VDMS tools for simplifying video delivery when it launches Go90. As Joseph Hopkins, Verizon Vice President of Media and Entertainment Sales, explained at Light Reading's Big Telecom Event in June, VDMS uses a single-protocol approach to video streaming that centers on Apple Inc. (Nasdaq: AAPL)'s HTTP Live Streaming (HLS) for delivery. Hopkins noted that HLS is supported by more than 140 devices today, and where HLS doesn't work, Verizon can insert player-side libraries within an app to manage the video experience.
In its partnership with thePlatform, Verizon has also experimented with virtualized video experiences. Hopkins noted in June, "[We've] worked with thePlatform on a project where as a user you download the app, select stuff, and it builds up a unique experience for you."
He continued by saying that the technology used in that partnership makes it so that a cooking network, for example, "could set up a channel for each particular chef, or a channel leading up to an event to see if it gets any traction."
These types of virtualized experiences are very much a part of what the future of TV will be about, particularly as service providers shift from the old version of IP network operations to the New IP. Providers will get faster at introducing new and targeted services by moving more functions into the cloud and controlling more features at the software level.
There are other components of Verizon's upcoming video service that we know less about than its CDN and video processing technologies. The company has said it will make use of LTE Multicast, which hasn't been deployed yet, and that it will subsidize bandwidth costs for consumers through the use of sponsored data. (See Verizon: Multicast Is 'a Year Away' and Verizon Dubs New OTT Service Go90 – Report.)
Much of Verizon's technology for video delivery, however, has been widely and publicly tested.
In essence, Verizon has had a dry run with over-the-top video through its VDMS work with media customers. It has the advantage, on the technology side, of extensive experience before Go90 is even launched.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading