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Netflix & co. face spiralling delivery costs, says IHS

Providers of over-the-top (OTT) video services such as Netflix in the US and LoveFilm in the UK may eventually be forced to change their business models and invest in their own video content distribution infrastructure due to the efficiency limitations of unicast delivery, according to analyst house IHS.

The cost of OTT delivery is expected to rise to uncompetitive levels when scaled up to meet the demands of large numbers of viewers, as the unicast model (one-to-one delivery) will become unsustainable in comparison to multicast (one-to-many) delivery techniques, as used by existing broadcast platforms like cable.

“To serve the viewing needs of a mass-market audience, the content delivery network (CDN) costs for OTT streaming services would have to fall by a factor of as much as 25,000 just to reach parity with the most efficient broadcast technologies,” said Guy Bisson, research director for television at IHS.

“At current prices, it would cost €1.2bn euros in CDN costs alone for OTT unicast streaming to serve the population of the United Kingdom with the kind of high-definition (HD) viewing they are accustomed to.

“For the same price, 5,000 linear channels could be broadcast, nearly ten times the number actually serving the UK today. When OTT unicast 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 CDN cost-per-hour to provide OTT streaming standard-definition (SD) video is calculated by IHS to exceed that of satellite delivery when the audience reaches 8,000.

“Even at just 8,000 simultaneous views, unicast streaming becomes less cost effective than broadcast—and this is a tiny amount compared to a typical primetime audience for linear TV,” comments Bisson.

Possible solutions mooted by IHS range from the use of edge servers for localised content storage (thereby reducing CDN costs), all the way up to full construction of a coax or fibre-based distribution platform by OTT providers.

The use of edge servers however would still be insufficient for the mass delivery of linear content (where traditional pay-TV rivals excel), and the construction of a dedicated distribution platform would be eyewateringly expensive.

“If the future of OTT video streaming providers like Netflix lies in offering an infrastructure-based service that costs US$ 120 a month, consumers doubtless will be asking ‘what’s new?’” concludes Bisson.

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