Interviews with Digital Media Thought Leaders
Television Obsolescence
Podcast Audio | Posted by Phil Leigh on March 29, 2010
Phil Leigh
Television industry incumbents often assert that Internet Video is an impractical alternative for conventional television for two reasons. First, they argue that Internet video distribution is presently a money losing business and is likely to remain so for many years. Second, they claim gigantic investments in network infrastructure are required before the Web can reliably deliver video to television-sized screens.
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While such statements are not without basis, they are invalid for two reasons. First, they are exaggerated beyond the point of relevance. Second, they ignore the offsetting advantages of Internet distribution.
Internet Video Profitability
A key factor promoting inflated estimates of Internet bandwidth costs was a Credit Suisse research report about YouTube released a year ago. The report forecast the Google subsidiary would lose about $500 million in 2009 largely as a result of bandwidth pricing. YouTube responded that any analysis relying upon standard industry pricing overestimates its costs because it built its own infrastructure. Moreover, management revealed that continued traffic growth undeniably improves the company’s bottom line.
Later in October Arbor Networks released a report concluding that “Google’s transit costs are close to zero.” Arbor sells network monitoring equipment used by about 70% of the World’s Internet Service Providers (ISPs). They likely know as much about Internet traffic as anyone. Basically Google is merely trading traffic at common peering points with the World’s largest ISPs with no payments involved. Moreover, Google has been deploying banks of servers inside those same ISPs. Thus, much of the traffic within an applicable network never has to leave it, thereby cutting down lag time and transit costs.
Conversely, websites offering popular TV shows and movies like Hulu.com may well be losing money. If so, the two principal reasons are likely (1) a failure to attain the economies-of-scale enjoyed by YouTube and (2) excessive fees for content.
When program suppliers restrict the availability of content they make it difficult for such sites to attract the necessary traffic needed to achieve economies-of-scale. Consequently, the sites are increasingly disadvantaged relative to YouTube in terms of per-unit bandwidth costs. Thus, Hulu.com and similar sites might never be able to compete effectively with YouTube on distribution costs.
Internet Video on TV Screens
Last year Cisco famously forecast that Global Internet traffic would increase 500% by 2013. Furthermore, they projected that video would rise to over 60% of the total as compared to around one-third last year. In short, Internet video was projected to increase nearly ten-fold over the 2009 – 2013 period. Consequently, a number of observers conclude that the Internet will not be able to reliably deliver video to television-sized screens without massive investments in networking equipment. They argue that Internet-Video-to-the-TV will thus fail to be ready for mass market adoption over the foreseeable future.
While there is no disputing that sizeable network investments are needed, it does not follow that Internet-Video-to-the-TV will fail to be “ready for prime time”. One reason that Internet video delivery has been steadily improving is that companies like Google are aggressively deploying caching technology. Caching distributes computer files in a manner that places them at storage locations closest to the user. Moreover, caching is not primarily a reflection of networking equipment like Cisco routers, but instead is more dependent upon software load-balancing and widespread deployment of servers. Google and YouTube’s competitive advantages in this context are one reason that Google management declines to publicly quantify its server deployment.
Thus, we are not wholly dependent upon ISPs like the CATV and Telecom industries to invest in network infrastructure. For example, some observers cynically note that such industries may try to retard network investment in order to protect conventional television. However, they cannot stop Google and others from continuing to deploy caching technology and thereby continually improve video delivery.
When video files are extensively cached the Internet viewer tends to get a TV-like experience. Those that are not so widely cached can be troubled with buffering delays. The difference may be illustrated by example at YouTube. Consider the two following musical performances.
The first is “Jupiter” from “The Planets” suite by Gustav Holst. This performance has been viewed over a half-million times and more likely streams acceptably to the reader’s broadband-connected computer. A second example is the first movement of Shostakovich’s 12th Symphony. This performance has only been viewed about 6,000 times and may well encounter some buffering delays on the same computer. In short, the more widely cached the YouTube content, the more likely the viewing experience approximates conventional TV.
Internet Video Advantages
Finally, as noted repeatedly in earlier posts, Internet Video offers a number of inherent advantages over television from both the consumer and sponsor viewpoint. For consumers it offers searchable, on-demand access and a nearly infinitely long-tail of content that conventional TV can never match. For sponsors it offers advertising accountability as well as the potential of spontaneous online transactions.
In sum, consumers will increasingly seek to watch Internet Video on their TV screens. Over the next five-to-ten years the technical and economic feasibility of mass market adoption is a near certainty. Television industry participants can either become part of the steamroller or part of the road.
Categories: Podcast Audio
Tags: Future-of-Television, Google, Internet-video, Market Research, television, YouTube
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I think another point that tends to be ignore in this debate are the improvements that can/will be made in file compression size. Ten years ago, Mpeg2 was the standard, but it would have been impossible to do HDTV on a large scale because the files would have been huge. Just storing a half hour sitcom on your hard drive would have been hard. Now we have h.264 and Mpeg4 and you can fit half a dozen movies onto a single DVD. In another ten years, who knows where the video standards will be, but if the files keep getting smaller and smaller, but maintain their quality then traffic has to grow exponentially just to keep the bandwidth demands constant. The bigger the problem this becomes, the more money you will see invested in codecs and in bandwidth. Most of the people who argue that the net will break are just looking for a handout from the government anyway.