Netflix and Amazon vs Network Operators

Network Operators of the world, here comes Netflix and Amazon, to a city near you. For the Network Operator delivering video content in their respective geographies, things just took a turn for the dramatic. Let’s assess the challenges awaiting the Network Operator. Before we start, here is a recap Netflix’s accomplishments over the last four years:

Netflix and Amazon

  • 10K: 2012 revenue = $3.6B, 2013 = $4.4B, and 2014 = $5.5B
  • 10K: “Streaming content rights are generally specific to a geographic region and accordingly our international expansion will require us to obtain additional streaming content to support new international markets”
  • 10K: End of 2014, domestic members numbered 39.1M and international 18.2M: the total # of members is 57.3M
  • 10K: Launched in these countries: Canada, Latin America, UK, Ireland, Finland, Denmark, Sweden, Norway, Netherlands, Germany, Austria, Switzerland, France, Belgium, Luxembourg, Australia, New Zealand
  • Netflix wants to expand from 50 countries to 200
  • Netflix plans on spending $3B on original content
  • Netflix commands 32.39% of upstream and downstream Internet traffic in US, which is 1/3 of all Internet traffic
  • Amazon Studios plans on creating 12 original films per year

Netflix CDN & Amazon CDN 

  • Netflix is an extremely robust, scalable, and feature rich platform, powered by a world class CDN
  • Amazon has a robust OTT platform, powered by a world class CDN

Assessment

  • Netflix (Amazon likely to follow) is expanding into every market in the world
  • In 5 years, Netflix will have invested $15B to $20B in original content, enabling them to sell their own content, unrestricted, to all parts of the world
  • Amazon will follow Netflix strategy, and invest billions in original content every year
  • In 5 years, Netflix and Amazon are likely to invest $25B – $35B in original content (Netflix = $3B x 5 years + Amazon $2B x 5 years)
  • No Incumbent Network Operator will be able to stop Netflix or Amazon from entering their market
  • Incumbent Network Operators will learn to live with an external competitor

The big question is how many members will Netflix and Amazon have in 5 years? 200M, 300M, 400M? Whatever it is, they are going to be a dominant force in all parts of the world.

Counter Measures

Although Network Operators will learn to live with Netflix and Amazon, they must still invest in next-gen CDN infrastructure, and feature-rich OTT platforms. US based Network Operators are living side by side with Netflix, but Comcast built their own CDN, Verizon acquired EdgeCast, and AT&T has a strategic partnership with Akamai. Takeaway: Network Operators that are running outdated infrastructure and platforms will have their hands full, and will need to make difficult choices that will be expensive, difficult to implement, with no guarantee of a successful outcome.

Network Operator Choices

  • Partner with a CDN like Akamai and Limelight
  • Deploy a transparent caching solution from the likes of PeerApp
  • Build an internal CDN like Comcast and Apple
  • Buy a CDN like Verizon
  • Use hybrid model like Telefonica
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