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Guest post by Avni Rambhia, Industry Principal for ICT/Digital Transformation at Frost & Sullivan.

By many measures, HEVC has had a pretty good year. Natively integrated shipment numbers are up – notably in Smart TVs, tablets and mobile phones. The most egregious of royalty terms imposed by HEVC Advance have been rolled back. The HEVC community has made solid strides forward in standardizing HDR specifications for 4K and HD content. The UltraHD Blu-ray specification was locked down, and the first generation of devices and content titles are already shipping. Higher-efficiency implementations of HEVC encoding are available in a growing number of processing cores, including Intel’s new Skylake and from vendors such as Advantech. The end to end ecosystem for 4K is in place, and infrastructure for 4K is slowly but surely being rolled out (think 12G and AIMS). So why isn’t the community more optimistic about the codec?

At the Streaming Media East show last week, there was a lot of talk of HEVC and I presented revised forecasts for HEVC uptake, along with recommendations on choice of codecs and architectures for popular applications, in the context of ongoing trends such as 4K, virtual reality and virtualization. [See: Codec Battle Revisited: HEVC vs. AVC In 2016]

Multiple people at the show commented that they was surprised to see an eager movement to announce the death of the codec. At the surface, it’s easy to see how this may be tempting. The Alliance for Open Media, formed as a counterpoint to the irrational muscle-flexing of HEVC Advance last year, has certainly gained momentum. 4K and HDR are growing rapidly from a percentage growth rate point of view, but content volumes are still small as compared to the entire universe of M&E and enterprise video. VP9 has indeed made strong strides forward in enterprise applications as IT companies eager for speedy progress sought an effective alternative to the stymied and potentially risky HEVC standard at that time. None of this, however, materially impacts forecasts for HEVC adoption.

For most of the history of online video, compression standards for enterprise and M&E applications have been different. Where codecs such as Microsoft’s Windows Media Video, On2’s VP6, and later H.263 powered most of enterprise video needs, MPEG-2 was the powerhouse codec for most broadcast media applications. (In fact, MPEG-2 continues to be the go-to codec for many M&E applications today). The convergence of the two ecosystems around AVC/H.264 brought a welcome surge of growth, uniformity and scalability to the entire ecosystem. This trajectory to convergence was by no means a smooth one, some of us remember the patent fracas of MPEG-4 Part II video, followed by the independent development of H.264, and the eventual unification of technologies from these two competing standards as MPEG-4 Part 10, which we now know as AVC.

The reason for the difference between enterprise and M&E standards lies as much in business considerations as in technological realities. Broadcast workflows are extremely demanding – requiring high-density, high-reliability, real-time encoders. These video streams go through editing systems, graphics overlay and other processes, and pass through a number of products including statistical multiplexers, receivers & decoders, transcoders, servers, set top boxes and playback devices to finally be rendered at the consumer end. It takes months, if not years, for this large community of products from a vast array of vendors to achieve the levels of interoperability, scale, cost and maturity that are required for broad adoption and deployment.

That is why standards bodies work slowly, methodically and collaboratively to develop compression technology that can serve a new generation of video applications with a half life measured in decades. This is in stark contrast to consumer device technologies and even OTT streaming technologies today, where a new platform can emerge, mature and fade all within the space of a year or two.

The economics of video technology in consumer devices sits at the confluence of these two worlds. Entertainment content is coming from ever more diverse sources, from ever more diverse types of businesses, under ever more diverse business models. For CE devices to stand out in a crowded field of their own, they will do what it takes to attract as many content services to their devices, with the best possible quality. Royalty issues have always been a challenge for CE device vendors, as they often are seen to foot the bill on behalf of content services and even studios. As an example, we’ve often seen pushback on DRM security standards by CE device vendors, who are seen to be paying the security taxes in terms of protected hardware paths, trusted execution environments and more in order to protect the IP revenues of content companies against piracy.

At the end of the day, however, the industry finds a palatable medium across technology providers, service providers and CE devices to create an end-to-end ecosystem that drives new CE products, enables better service quality and grows the total pie of video revenues. As a case in point, studies have shown that HD+HDR delights consumers more (and in more use cases) than 4K. The natural question then is whether there is a move underway to retrofit HDR into the AVC standard so it can be deployed more widely. Universally, the perception is that TV vendors are eager to move forward with HEVC and HDR, and there is little to no appetite for working HDR into AVC.

If HEVC were indeed on the verge of oblivion, we’d be seeing a rush to incorporate VP9 into MPEG-DASH and an urgent drive to retrofit hot technologies such as HDR into AVC. We would not see continued increase in investments in accelerating HEVC and building it into silicon. We would see a halt in rollout of new broadcast standards such as ATSC 3.0 and DVB-T2 which are based on HEVC. We’d see HEVC-enabled set top box sales grind to a halt, but instead, we’re seeing numbers rise steadily with a rush of new service releases and rollouts slated for the coming year.

Is there uncertainty? Absolutely. Are royalty issues the single point of failure for a codec? Absolutely not. There is plenty of room to sidestep patent pools to negotiate directly with patent owners. Companies already need to negotiate with Technicolor separately and may choose to do so with other patent holders as well. MPEG-LA continues to be a voice of reason, with licensing terms that are resonant with market needs and the ground realities of how sales are reported and licenses are paid. The rest of the ecosystem will fall in line for M&E applications over time, and a growing number of enterprise applications will transition over as performance improves and costs fall. Real-time, dense compression, standardized delivery and ubiquitous playback are required for content ecosystems to flourish.

By this measure, HEVC continues to climb up the maturity curve. The chasm has been crossed, and an upswing is underway. AVC remains the competitive alternative for most video applications today, but HEVC’s time is here, bolstered by killer applications such as 4K and HDR in the short-term and assured by superior video compression in the longer term.

Thanks to everyone who attended last week’s Streaming Media East and Content Delivery Summit shows. We had a great crowd, more attendees than last year, and a lot of really great content was presented. I still have a few presentations to upload, but many are now online and ready to download. The CDN Summit ones are here, and Streaming Media East are here: Day 1 – Day 2. We are working to get all the videos online, which takes 2-3 weeks and I’ll post a link to them when they are ready.

At the Content Delivery Summit in NYC, I released the latest North American transit pricing from data I collected directly from customers. This pricing is from major transit providers including AT&T, CenturyLink, Cogent, GTT, Hurricane Electric, Level 3, NTT, Sprint, Verizon and XO. It does not include pricing from Tata, Telefonica, TeliaSonera or providers outside the U.S.

I’ve seen many that don’t follow the infrastructure market use the words transit and peering interchangeably, but they are not the same thing. In its simplest definition, transit is a network that passes traffic between networks in addition to carrying traffic for its own hosts. Transit is where one network agrees to carry traffic that flows between another network and all other networks connected to it. Different from transit is peering, when two or more networks interconnect directly with each other to exchange traffic. Peering is between two networks whereas transit allows you to connect to multiple networks.

Based on the pricing I collected and released in 2015, it looks like North American transit pricing, on average, is down about 10%, year-over-year. Based on all of the pricing I have seen, AT&T is by far the most expensive, with the rest of the providers all typically within 10-15% of one another, in major cities in the U.S.

It’s important to remember that from a business standpoint, there are many backbone and transit providers to choose from in a highly competitive market. Companies can buy full transit, partial transit, select routes, on-net routes, etc. and ISPs will create the service and pricing around the customer request. Customers have options based on price, performance, port speed etc. and I don’t see that changing anytime soon. I’ve also seen some vendors taking a very strong line on IP pricing and have implemented “walk away” pricing above certain levels, selling more into enterprise at higher rates.

A few notes on the numbers. The rates listed below are usage rates and do not include any costs associated with also obtaining an access circuit. Also, these pricing rates usually require multiple points of interconnect, and at least a 12 month term. And since you cannot run a port at a theoretical 100% rate, the numbers below do not factor that in. With transit, many times the final pricing is based on your setup, for instance deciding between a BGP or static routing configuration, whether to run multiple BGP sessions on one port or not, IPv6 native or dual stack, DDOS and other protections, link aggregation etc. so features needed will many times determine the final price you pay.

Current Market Rates For Transit (U.S.)

• 10Gbps: $0.85 – $1.10 Mbps
• 20Gbps: $0.75 – $0.95 Mbps
• 40Gbps: $0.62 – $0.80 Mbps
• 75Gbps: $0.55 – $0.70 Mbps
• 100Gbps: $0.45 – $0.60 Mbps

If you are looking for transit pricing at volumes other than what I list, feel free to reach out to me and I’ll see what data I have. And if you are looking for more background on transit, see this link. How Transit Works, What It Costs & Why It’s So Important.

If you are in the business of delivering video via streaming or as a download, you’re certainly thinking about content protection. But how much content protection do you really need and what type of content protection works best? And more importantly, how much should you pay for it?

DRM (Digital Rights Management) and Encrypted HLS are the most commonly chosen content protection technologies used today. Both approaches have a strong track record in securing proprietary content. But there is growing interest by studios and other conventional DRM users in Encrypted HLS. So what’s driving this interest?

To start, it helps to understand how each method protects content. When you stream, the content isn’t delivered as one piece, it’s broken down into smaller bits and gets put back together when it reaches the screen. So while video content is delivered to the user’s client, it is unplayable without a decryption key. Content protected by DRM is made playable on a specific device — so that the content is encrypted and only viewable when the device receives its “unlock” code. In this manner, content can only be sent to one device per download, and therefore is not replicable.

Streamed media protected by Encrypted HLS isn’t replicable since it won’t “reassemble” well enough to be copied at a bit rate of 720p or below. (Although 720p is considered high definition, due to the nature of adaptive bit rate streaming, it is not suitable for reproduction and use elsewhere.) As long as content is not delivered over 720p, Encrypted HLS is as good as DRM.

Content owners/providers who are more focused on streaming media are probably more likely to have an interest in Encrypted HLS. This makes sense as Encrypted HLS is simpler and less expensive to deliver, manage and support. Delivery costs are lower since Encrypted HLS uses one format for all devices, as opposed to needing multiple device-specific formats, as one does with DRM. Encrypted HLS is easier to manage internally because there is no need to maintain a complex license delivery infrastructure in order to support multiple formats, as there is with DRM. Some also argue that it’s easier to reach a broader audience with Encrypted HLS, since a DRM strategy requires supporting multiple formats to reach the same audience (think streaming to every type of mobile device vs. needing an encryption key for each specific type of mobile device).

Then, there is the question of customer service calls, which we all know drive up costs. With DRM, when a customer cannot access their content, it takes extensive troubleshooting on the part of the provider to resolve the issue due to the complexity of the content being matched via encryption key to the device. With Encrypted HLS, consumers seamlessly access content they’ve paid for, resulting in lower customer service costs.

Beyond the operational and costs benefits of Encrypted HLS, the rising popularity of streaming to mobile devices is also a driving factor. Encrypted HLS reaches broader audiences more easily, and on a wider range of devices — all key benefits for the content owners targeting mobile users. And Encrypted HLS provides content protection that’s equal to DRM for content delivered up to 720p, another good fit for mobile users. If your end goal is to make your streaming content more widely available at a lower cost, then you might want to choose Encrypted HLS. That’s what RLJ Entertainment has been doing for their premium content service, Acorn TV.

Titus Bicknell, CDO & EVP of Operations for RLJ Entertainment recently told me that his role in the organization is to reduce friction in content consumption. Obviously, he needs to protect the IP holder, but also needs to ensure that his customers who have paid for the service can watch all of the content they want to. And Encrypted HLS has been a really strategic development for their product. Studios already agree to use Encrypted HLS with an important caveat: content must be delivered at 720p, not 1080p. RLJ Entertainment has moved all three of its channels from DRM protection to Encrypted HLS, citing the following benefits to their organization:

• Better reflects consumer behavior. When consumers stream a movie or video, it’s usually with the intent to watch it immediately. The goal of providing seamless access to content at the highest possible speed and quality is more easily achieved with Encrypted HLS than DRM. As Mr. Bicknell explains, “The consumer’s investment in the content is more likely to be worthwhile because the technical barriers are lower.”
• Wider distribution at a lower cost. Content owners can roll out a player that supports Encrypted HLS in any location where their content is consumed, with no need to pay a separate DRM licensing fee, an unlock fee, or hold transcoded renditions in both locked and unlocked formats for different platforms. Managed storage cost is also lowered because content owners are storing fewer renditions.
• Easier on the organization. According to RLJ Entertainment, Encrypted HLS is easier to maintain, and easier on its customer service team, as its reps are no longer dealing with the 5% of people who are blocked from watching the content because the DRM doesn’t work.

“We’re in a business where the churn rate is critical to longevity, as well as our ability to license more interesting and better content for our customers. If you’re losing 1% per month because DRM is getting in the way of your customers watching content that they’re allowed to watch, that just decimates your business,” said Mr. Bicknell.

A recent Brightcove whitepaper also takes on this topic, entitled “Encrypted HLS vs. DRM: What’s Your Strategy for Protecting Your Digitally Distributed Copyright Content?” and explores the use cases for both Encrypted HLS and DRM.

What are your thoughts on Encrypted HLS? Are you sticking with DRM or moving away from it? I’d be interested in knowing your thoughts if you’d take this brief survey below.

At the Streaming Media East show next week in NYC, we have a session entitled “Business or Bubble? The Rise (and Potential Fall) of Subscription-based Monetization“. As OTT monetization strategies diversify, the ways in which subscriptions can be structured have continued to expand. Many companies want to emulate the simple subscription OTT model of Netflix. The past two years saw the launch of HBO Now, Sling TV, WWE Network, Crunchyroll, NFL Game Pass, The Blaze, CBS All Access, and many other subscription services. But how many can the market support? When cord nevers, shavers and cutters look for single subscription services and skinny bundles how many are they likely to buy? The simplicity of a straight subscription model is appealing, but in today’s “in app” world, advanced monetization modeling and hybrid approaches can serve as a gateway to your subscription service. What does it take to be chosen by enough people to make a business? Confirmed speakers include:

• Moderator: Iddo Shai, Director, Product Marketing, TV and Media, Kaltura
• Colin Carrier, Chief Strategy Officer, Twitch
• William Mao, VP, Digital, MP & Silva
• Titus Bicknell, CDO & EVP, Operations, Acorn TV
• Bharat Krish, Corporate Vice President, IT, HBO Latin America

Register online using the discount code of 200DR16 and get a #smeast Discovery Pass for free, or a Conference pass for $895. You can check out the entire program agenda here.

At the Streaming Media East show next week in NYC, we have a session entitled “The Great OTT Migration“. As consumers continue to view content on multiple devices, cut the cord, binge TV and seek new ways to watch, a Great OTT Migration is afoot among the largest providers around the globe. This panel will discuss the hurdles in front of the Great OTT Migration, everything from tech behemoths bidding for sports streaming rights, costs, publishers phasing into broadcasters, technical hurdles, meeting consumer expectations, and a general debate about what will decide the winners from the losers. Confirmed speakers include:

• Moderator: Jim O’Neill, Principal Analyst, Ooyala
• James Glasscock, SVP, Strategy and Business Development, Machinima
• Robby Stein, Senior Director, Product Management, Yahoo Video Guide
• Greg Edmiston, Product Manager, Plex
• John Narus, Director, Digital Products, HBO Latin America

Register online using the discount code of 200DR16 and get a #smeast Discovery Pass for free, or a Conference pass for $895. You can check out the entire program agenda here.

At the Streaming Media East show next week in NYC, we have a session entitled “Advertiser Strategies for OTT“. With most major television outlets developing some form of over-the-top video application—and countless upstarts developing new programming for the new format—brands are taking note of shifting eyeballs. That said, some industry analysts continue to argue there is still not a sustainable economic model for digital video. Will OTT services be monetized as an extension of digital video with primarily programmatic pre-roll, or should advertisers seek new models to engage consumers in this still-emerging environment? What role can brands play either supporting publishers or becoming publishers in an a la carte channel ecosystem? Confirmed speakers include:

• Moderator: Jamison Tilsner, Business Development, VHX
• Noah Fenn, Head of Video Sales & Strategy, AOL
• Robert Davis, Executive Director, Content & Social, OgilvyOne
• Eric Lemasters, VP, Digital Business Development & Strategic Partnerships, Gaiam
• Shannon Rutherford, Director, Digital Media Video Operations, NFL

Register online using the discount code of 200DR16 and get a #smeast Discovery Pass for free, or a Conference pass for $895. You can check out the entire program agenda here.