The business of video delivery

By now everyone is well aware of the massive growth in video traffic across the Internet. This traffic growth, by most available forecasts, shows little or no slowdown in the foreseeable future. It has become both an exciting and a worrying trend for all those organizations involved in carrying this traffic from content provider to content consumer. (See Figure 1.)

In the past, there has been a relatively virtuous cycle in the development of information infrastructure to carry this traffic. Government deregulation in many countries has led to competition, which in turn has led to significant build-out of infrastructure. Governments have provided tax and other incentives, as well as legal frameworks, to encourage greater investment in more difficult areas, such as rural, less densely populated or poorer geographic areas. With the development of the Internet and Web, network access became not only a service, but a necessity for allowing access to all kinds of services. Providing this access was also necessary to encourage economic development to the extent that broadband penetration, available bandwidth and traffic usage became national political discussions alongside those concerning information security, identity safeguarding and online criminal activity.

However, the unprecedented rise in dense, high-bandwidth traffic streams that typifies video has an unintended effect on the financial strength and viability of the operator organizations. Various analyst organizations have pointed out that the rise in traffic driven primarily by the growth of video builds downward pressure on the return on capital employed (ROCE) characteristics of the operator organizations. This in turn inhibits rather than drives investment, which then becomes a matter of concern not only to the shareholders of the operator organizations but also of the regulatory and economic development arms of the government.

To demonstrate this more clearly, an example of a large tier-one European operator seen in Figure 2 can be used to show both the costs and a possible solution to the issue of video traffic growth — the implementation of a distributed video delivery network (D-VDN).

First, it is important to understand the network topology in place and the cost structure associated with the various elements of the network. In order to ensure that proprietary information is not compromised, this information has been calculated using publicly available information. (Visit

As can be seen in Figure 3, with the growth of traffic, the point of the network under most pressure becomes the backhaul element of the network. This is a highly expensive element as it is frequently not under the direct control of the operator itself and has a relatively linear cost structure. If the mathematics are assumed to be correct, it becomes clear that without a topology change or more advanced methods of managing video traffic, backhaul costs alone accelerate well beyond the additional revenue provided by subscriber growth over the ten-year period analyzed.

At this point it becomes interesting to look at alternate approaches to managing traffic. Although an immediate reaction might be to look at management of the backhaul costs, two elements should be analyzed to create a more compelling and broader-based business case: 1) managing the backhaul traffic by minimizing the traffic traversing that element of the network, and 2) understanding the additional revenue sources that may be available from content providers interested in delivering the best possible quality of experience (QoE) to the viewers of their content.

Neither of these approaches alone offer a full view, as effective video delivery in such a network requires a holistic approach to distributed video delivery. In effect, the operator becomes a content delivery network (CDN) provider, providing a chargeable service not only to its subscribers, but also to content providers that wish to supply their own content to the operator's subscribers.

Core-node vs. edge-node caching

In the topology shown in Figure 2, there are many possible locations to enable caching to reduce the direct traffic load across the network. Because of their central location and low numbers, it is possible to alleviate some of the traffic load by investing in additional core nodes. This tends to be the most popular approach by infrastructure specialists, as well as by network infrastructure vendors who specialize in providing massive capacity in large and costly Internet-class routing and switching nodes. However, as the consumers of this traffic are connecting through the access network, and because backhaul is the highest-cost element, the most desirable caching location lies farther toward the edge of the network, preferably at the remote end of the backhaul connection in a point of presence or exchange location.

Elements of a D-VDN

The challenge with edge-node caching is that it requires a different type of device from the typical data center cache server — one that is “more network appliance than server.” A commercial off-the-shelf server cannot be deployed in this environment due to constraints on power, reliability, heat dissipation and storage. By deploying specialized server appliances designed for this environment, it is possible to gain the cost savings to drive an attractive business case.

The added advantage of deploying this type of system is that it also enables the use of:

  • a sophisticated asset propagation and distribution management system;
  • advanced statistics collection;
  • optimized request management, logging and redirection;
  • >IP and geographical location identification and enforcement;
  • optimized stream-prioritization capabilities; and
  • integration with a security or conditional-access system.

Again, assuming that the mathematics can be taken for granted, the business case for an edge-node deployment is shown in Figure 4. At this point, a D-VDN becomes a highly profitable addition to the provider's delivery portfolio.

Generating additional revenue

In addition, once such a distributed video delivery network is in place, deployed and actively delivering content, it becomes possible to show the content provider the benefits of participating in a premium service that offers a differentiated class of access to ensure the optimum QoE for the subscriber. Advanced theory of operations of a CDN is outside the scope of this article, but a recent analysis of the business case for a video delivery network in place at a Central European provider showed a highly attractive ROI when this additional revenue was taken into consideration, as can be seen in Figure 5.

Successful delivery

The rise of video traffic can be seen as both a challenge and a huge opportunity for operators across the spectrum. However, to take advantage of this phenomenon means that a focus on delivering a differentiated quality of experience — not to be confused with quality of service — can provide the operator with both satisfied subscribers and additional revenue opportunities from the very content providers that have been flooding its network with ever-higher-quality “over-the-top” video offerings.

However, successful delivery requires more than just buying more bandwidth. The growth forecast is so rapid that conventional bandwidth expansion approaches become unprofitable extremely quickly. A D-VDN featuring sophisticated asset, request and stream management; CDN management; and analytics capabilities may be the difference between being a victim of and profiting from this trend driven by subscribers demanding video and television everywhere and at any time.

Duncan Potter is chief marketing officer and vice president of operations at Edgeware.