IHS: Delivery Costs of Streaming Video Could Undermine Wider Rollout

18 Sep, 2012 By: Erik Gruenwedel

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Mainstream consumer adoption of over-the-top video services such as Netflix, Amazon Prime Instant Video and Hulu could be compromised as costs associated with the delivery of video over the Internet into the home escalate exponentially making them less attractive, according to a new report.

New analysis from IHS Screen Digest reveals that the costs of delivering unicast streaming video could rise to uncompetitive levels when such services are scaled up to meet the demands of large numbers of the average TV-viewing public. As a result, subscription video-on-demand services may have to change their business models as the market develops, investing in their own video content distribution infrastructures, similar to those already maintained by pay-TV companies.

Comcast, Time Warner Cable, Verizon and AT&T have collectively invested billions rolling out broadband and fiber-optic connections into homes — distribution channels they don’t necessarily want to give away to SVOD services.

With unicast streaming, it is as if every viewer is watching a completely different television channel at the same time. If you have 1,000 viewers, it requires 1,000 different streams, according to IHS. By contrast, broadcast television can deliver a single channel to reach many viewers. Satellite TV and cable are optimized for the simultaneous delivery of content to large audiences. For broadcast, it costs as much to reach one viewer as it does to reach 100,000 or 10 million. The efficiency of broadcast is also its limitation in that only a restricted number of channels can be offered within the given bandwidth.

Conversely, unicast streaming’s advantage is that the number of programs or channels that can be offered is unlimited, because it makes no difference to the efficiency or cost if everyone watches a different channel simultaneously. Practically speaking, however, OTT’s unlimited channels represent only a theoretical advantage, given that the cost of video streaming climbs as it scales to larger audiences.

IHS said that as OTT services ramp up operations — including absorbing escalating content delivery network costs — emulating cable and satellite TV services they will see their price advantage evaporate. Indeed, to accommodate a mass-market audience the content delivery network costs for OTT streaming services would have to fall by a factor of 25,000 just to reach parity with the most efficient broadcast technologies.

“At current prices, it would cost 1.2 billion euros in CDN costs alone for OTT streaming to serve the population of the United Kingdom with the kind of high-definition viewing they are accustomed to,” said Guy Bisson, research director for television at IHS. “For the same price, 5,000 linear channels could be broadcast, nearly 10 times the number actually serving the U.K. today. When OTT streaming services like Netflix are scaled up to suit the mass-audience television market, their advantages in cost, flexibility and technology turn into disadvantages.”

The report said OTT could circumvent the issue by investing in proprietary CDN platforms — a move Netflix is already doing. IHS said that rather than investing in a cost-prohibitive wired or fiber-optic network — the latter option Google is currently experimenting with in Kansas City — it could instead take the form of a so-called “halfway house” of servers for localized content storage, creating efficiencies in CDN costs by delivering content once to a number of local hubs.

The combination of a hybrid system that delivered linear channels using a different technology would go some way toward creating a platform-like service. While scaling an OTT aggregator to meet the usage patterns of a primetime channel could be cost effective with suitable investment, it does not seem feasible to match the service proposition of companies like Comcast without actually owning a platform, according to IHS.

 

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