The 4K revolution appears to have stalled out. 

According to high-profile streaming technology analyst Dan Rayburn, an executive at an ISP he spoke to said that less than 10% of digital bits transmitted over the company's network are related to 4K/Ultra High Definition video -- roughly flat with 2021. 

Meanwhile, an also-unnamed official for an OTT service provider said that less than 2% of the company's streaming time to customers was for 4K/UHD video. 

Certainly, 4K isn't cheap. A majority of smart TV displays in the U.S. market, for example, support the video resolution standard. But a Netflix customer will pay an additional $4.50 a month over the $15.49-a-month standard plan -- $19.99 -- in order to get the "Premium" tier that offers movies and series in 4K/UHD. 

Reporting on his Streaming Media Blog, Rayburn framed the discussion into the larger context of a sudden deceleration of digital traffic being experienced by both internet service providers and content delivery networks.

“Since the beginning of the year our combined peak ingress internet traffic (IP transit, public and private peering, CDN and caching) has been down more than has been in other years," the ISP source told Rayburn. "It is not unusual to be down or flat till this time of the year, but even with subscriber growth we are down this year. I am thinking our year end traffic growth will be lower this year as we are still negative for the year.”

For his part, Rayburn also attributes the phenomenon to more efficient video encoding on behalf of streaming video service providers. 

"Since the start of the year, many streaming services have focused on doing a better job of optimizing their bitrates and in some cases, reducing their bitrate ladders in an effort to save money," Rayburn wrote. 

It's a major factor, he noted, in way top CDN provider Akamai saw an 11% year-over-year slide in Q2 revenue. 

The streaming of live and on-demand events and shows has improved steadily in recent years, but those streams still tend to struggle during highly-watched tentpole events.

Of recent note, Yahoo’s Sept. 24 live stream of the Baltimore Ravens-Jacksonville Jaguars National Football League game in London didn’t go off without a hitch, as some users, particularly watching via TV-connected devices, lodged complaints about buffering and blurry images.

Initiatives such as the Streaming Video Alliance’s open caching initiative are taking aim at those scale challenges, but a content delivery network provider is also trying to solve that riddle.

Edge cloud provider Fastly is trying to get a fix on the issue with Media Shield, an offering that is akin to a control element to the streaming infrastructure and caching layer even in scenarios in which video traffic from an OTT service is travelling on multiple CDNs.

Fastly, which competes in the CDN sector with companies such as Limelight Networks and Akamai, is looking beyond “raw delivery” with Media Shield, Lee Chen, its head of strategic partnerships, said. In Chen’s view, that’s the “least interesting” technology challenge CDNs face, he said.

Related: Limelight, Akamai Bury the Hatchet

Instead, Media Shield focuses on providing a consistent quality of experience and quality of service as traffic travels to and from multiple CDN providers, ensuring that there’s a balance in elements such as low latency and quick streaming startup times. It also aims to help providers rely less on origin serves and apply more streaming resources toward the edges of the network.

By managing that from the cloud, Media Shield aims to balance the load among CDN providers and to manage and gain visibility into what’s occurring as if that video is being delivered on one unified streaming infrastructure.

Having that sort of control is becoming more important as more and more video goes online.

Related: Amazon’s First Live NFL Stream Solid, Not Perfect

The use of multi-CDNs is also becoming more the norm. All of the big OTT players have been using multi-CDN strategies for years, but even smaller providers are migrating in that direction, Dan Rayburn, executive vice president for StreamingMedia.com and principal analyst at Frost & Sullivan, said.

“The performance amongst CDNs for video, specifically, is so similar,” he said, adding that it’s become so inexpensive to go with multiple providers that it makes little sense for an OTT player to put all of its traffic on one CDN.

Fastly, whose customers include A+E Networks, Vimeo, Brightcove and Dish Network, isn’t alone with a system that shapes traffic on multiple CDNs.s Third parties such as Cedexis and Touchstream also provide solutions that let partners shift to other providers in real time, Rayburn said. He said Fastly’s launch of Media Shield is an acknowledgement the company won’t be a sole CDN provider to everyone, but it can still play a key role in other ways, given market shifts.

“The reality in the market is that the customers split up traffic, so Fastly is acknowledging this multi- CDN market and making [that approach] easier to use,” Rayburn said.

The rise of over-the-top television services and a growing cord-cutting trend are applying pressure to cable’s pay TV business as never before.

As the quarterly impact of subscriber losses on legacy cable-TV operators is scrutinized, many investors’ deepest concern is an eventual tipping point at which new, internet-delivered “skinny” TV services will become the dominant viewing option and traditional bundled packages will fade.

While an in-footprint strategy focused on a next-generation video platform helped Comcast buck the trend and actually grow its video subscriber base, most other U.S. cable operators are still consistently losing customers.

Most incumbent MSOs don’t compete directly with other cable operators, a regulatory dynamic that, over many years, has resulted in a mélange of cross-industry policy, tech and marketing organizations such as NCTA–The Internet & Television Association, the Cable & Telecommunications Association for Marketing, the Society of Cable Telecommunications Engineers and CableLabs, as well as joint ventures like Canoe, the cable industry’s advanced-advertising consortium.

Because cable-TV operators are essentially awarded an exclusive franchise to serve an area, they’ve focused their video and broadband assaults on their own footprints and against rivals such as the telcos, satellite-TV providers and overbuilders.

As it becomes more challenging for operators to gain, yet alone retain, video subscribers in their own territories as they fend off old rivals and a fresh phalanx of virtual MVPDs, though, questions are swirling as to when, not if, MSOs will develop their own OTT services to launch beyond their traditional borders.

Such a brash move would create a cascade of consequences for programmers in particular, but it would certainly force other cable distributors to do the same, likely sparking an all-out video Armageddon.

OTT ON THE MARCH
AT&T and Dish Network have no such industry allegiances to worry about, and have already marched ahead with their own OTT TV services — DirecTV Now and Sling TV, respectively. Verizon Communications, meanwhile, has been rumored to be developing a virtual MVPD of its own that could be sold on a nationwide basis.

And though cable operators such as Comcast have stressed that the economics of an OTT TV service simply don’t add up, it’s clear that it and other cable operators are making the necessary preparations to build and deliver an out-of-market service — just in case.

The technology needed to pull this off is the easy part. The more difficult business-facing aspects of building an OTT service are also coming together.

Earlier this year, industry sources confirmed a Bloomberg report that Comcast has already locked in the rights to offer some channels over-the-top on a national basis. However, it was also stressed that a portion of those rights came by way of “most favored nation” clauses in carriage contracts with programmers that ensure that Comcast gets the same terms that are granted to other distributors, including virtual MVPDs. There’s also no clear indication yet that Comcast intends to act on those rights.

And Comcast hasn’t wavered from its position about OTT economics.

“We think we have a lot of opportunity just in our footprint,” Brian Roberts, Comcast’s chairman and CEO, said on the company’s first-quarter earnings call. “It’s a big upside. We continue to believe in what we’re doing. … The second thing, we just haven’t found the business model that works outside. We’ll keep evaluating, keep looking at it, but our success within our footprint is packaging, bundling. So we’ll continue to drive that internally within our footprint.”

But Comcast is a different animal even among its MSO peers, and has some advantages and initiatives underway that others do not.

X1 is a prime example. That multiscreen, cloud-based platform now serves as the core of Comcast’s next-generation video service. However, Comcast is also getting some out-of-footprint benefits, in terms of both economic scale and product influence, via X1 syndication deals it has forged with Cox Communications and two Canadian operators — Shaw Communications and Rogers Communications.

Comcast is also starting to underpin a new in-footprint skinny TV service with X1 technology. Sources confirmed that Comcast is eyeing a third-quarter commercial launch for Xfinity Instant TV, a managed IPTV service that will feature a range of packages, a cloud DVR service, and initially target broadband subscribers who don’t take a pay TV package from Comcast. Reuters said the app-based offering will be priced starting at about $15 per month and include packages that could sell for up to $40 per month, and allow for add-ons such as ESPN.

With the proper digital distribution rights, it would not seem a difficult thing for Comcast to pivot that handiwork into an OTT product.

But would it make any money? Without the benefits of service bundling, including the latching on of superhigh margin broadband services and newer products like Xfinity Home, a standalone OTT TV service would certainly be less profitable.

As another potential advantage that other MSOs don’t have, Comcast will also get a close-to-first-hand look at how profitable (or not) a virtual MVPD can be.

Hulu, which is partly owned by Comcast’s NBCUniversal, last week launched the beta version of a live TV service that starts at $39.99 per month for a lineup of 50-plus channels, including live locals of the Big Four broadcasters in some markets. The new service, which includes Hulu’s premium SVOD offering, also features some add-ons, including unlimited in-home streaming and enhanced cloud DVR service that allows users to fast-forward through ads in recorded shows, that, when bundled, push the price to almost $60 per month.

Hulu’s live service is just getting off the ground, but the company, which has revenues coming in the door from its millions of SVOD customers, is already costing Comcast big money. In a 10-Q report filed late last month, Comcast disclosed its share of losses at Hulu in the first quarter were $54 million due to higher programming and marketing costs.

Speaking on CNBC, Hulu CEO Mike Hopkins expressed confidence the new OTT service will turn a profit via its mix of live TV, SVOD and advanced ad capabilities.

Dan Rayburn, executive vice president of StreamingMedia.com and principal analyst at Frost & Sullivan, is on board with Comcast’s position about the economics of OTT.

“The economics don’t make sense; we really don’t have to debate that,” he said, pointing out that the content- licensing costs alone are a killer. “People say all you need is big scale. Netflix has 100 million subs … and they’re still not profitable.”

And the new class of virtual MVPDs face the challenge of marketing services that are designed to appeal to cost-conscious cord-cutters.

“With a live, linear service, you can never charge customers enough to make up your costs,” Rayburn said, pointing out that it’s this degree of sticker shock that caused Microsoft to throw in the towel years ago when it was mulling its own OTT TV service.

He also doesn’t believe the current pay TV environment and its battle against cord-cutting and luring in cord-nevers will force cable’s hand to go out-of-market.

He said services like Sling TV, PlayStation Vue and DirecTV Now have hardly put a dent in the market, and that there’s a good reason why they don’t (or rarely do) offer subscriber numbers — because they don’t want Wall Street to figure out the costs of running a service that sells for $20 to $40 per month.

But today’s troubling pay TV trend “certainly makes [cable operators] re-look at how things are packaged and offered,” Rayburn said. “But what’s the benefit to your overall business? I don’t see one.”

Telsey Advisory Group media analyst Tom Eagan also isn’t convinced operators are plotting to offer video service outside of their footprints anytime soon. In an interview, he said any attempts to secure out-of-market content rights are more than likely an effort to keep their options open.

“Who knows what will happen in five years?” Eagan said. “You always want to have as many levers as you can. I don’t expect anything in the next couple of years, but they want to have the optionality.”

So why, then, are all of these OTT TV services entering the fray if there’s no money to be made? Rayburn said the answer is simple — they all are owned by larger companies that can hide the bad economics, or take the hit without getting killed. DirecTV Now is owned by AT&T, YouTube TV by Google, Sling TV by Dish, PlayStation Vue by Sony and Hulu by a handful of major programmers. fuboTV, the sports-oriented vMVPD, is an exception.

TOO BIG NOT TO TRY
“No one is standalone” in that OTT TV grouping, he said. “None of these guys can survive or exist if it wasn’t a big conglomerate that was actually operating it or running it, because the economics don’t work as a standalone business.”

Colin Dixon, founder and chief analyst of nScreenMedia, agrees that rising content costs are making all pay TV services less profitable, but also believes that cable operators going OTT is an inevitability.

“I think they’re all going to end up having to do it — the environment is just ripe for it,” he said, adding that pay TV subs are seeking other video options in increasing numbers. “Even if it’s marginally profitable, it’s still incremental revenue that they get to add to the bottom line. I don’t see how they can resist doing it in the long run.”

Mike Farrell contributed to this story.


SIDEBAR: Cord-Cutting Draws More MSO Blood
If cord-cutting is among the key reasons prompting cable operators to look beyond their borders for video growth opportunities, then consider that box checked — in permanent ink.

It’s now undeniable that U.S. pay TV providers are contending with cord-cutting along with a large group of consumers who have never taken a traditional pay TV package.

Even before all public cable providers reported their first-quarter results, MoffettNathanson issued a report that said the U.S. pay TV industry lost about 762,000 video subscribers in the period, making it the worst-ever Q1 when viewed through the video lens.

“For the better part of 15 years, pundits have predicted that cord-cutting was the future. Well, the future has arrived,” MoffetNathanson principal and senior analyst Craig Moffett declared last week in his Q1 2017 Cord-Cutting Monitor, which found that multichannel video programming distributors were taking it on the chin despite positive new household formation.

First-quarter video losses were more than five times as large as last year’s loss of 141,000, and that the incremental number of cord-cutter and cord-never homes has grown to more than 6.5 million since 2013.
— Jeff Baumgartner

Sling TV, Dish Network’s OTT TV service, had about 1.3 million paying subscribers in Q1 of 2017, according to Dan Rayburn, EVP of StreamingMedia.com and principal analyst at Frost & Sullivan.

Rayburn cited that number Wednesday (April 26) in a blog post, basing it on information that Sling TV has been circulating to Wall Street analysts.

Sling TV declined to comment. Dish Network, which has stopped breaking out Sling TV subscribers, is scheduled to report Q1 results on May 11.

Rayburn doesn’t see the growing wave of virtual MVPDs making a huge dent in the pay TV market.

“Between Sling TV, DirecTV Now, PlayStation Vue, YouTube TV, and soon to be Hulu, I expect there will be less than 3M subs to all the services combined, by the end of this year,” he wrote. “So for all those estimates some are putting out on the growth of live TV services, they aren’t realistic.”

Of that group, YouTube TV has launched in a handful of cities, and Hulu is nearing the launch of its live TV offering.

RELATED: YouTube TV Emerging Amid Accelerating Cord-Cutting Trend

Rayburn is also calling on Sling TV to stop using the term “a la carte TV” in its branding for the service, which offers a core bundle of channels and several add-on packages.

“You can’t pick and choose the channels you want and they are [setting] FALSE expectations in the market, which hurts everyone,” he wrote.

Ooyala, the Telstra-owned online video company, has laid off about 70 people, or 14% of its total workforce, amid a restructuring that will open up jobs focused on new product areas, Dan Rayburn, EVP of StreamingMedia.com and principal analyst at Frost & Sullivan, reported Tuesday, citing a memo to employees that announced the changes.

Ooyala, acquired by Australia-based telco Telstra in 2014, did not confirm the headcount figures, but did confirm that it had “reduced part of its workforce” as it looks to create headroom, reinvest in the business, and hire in new areas of expertise tied to its media logistics and ad-tech products that are “above and beyond its continued investment in its OVP [Online Video Platform] business.”

RELATED: Telstra To Acquire Ooyala

The restructuring of its global software and services organization also aims to place more sales and support resources in the field “to streamline customer adoption and deployments of its comprehensive suite of video software and services,” a company official told Multichannel News via email.

Ooyala issued this statement from acting CEO Issac Vaughn:

“We are fortunate in that over the last two years we've made significant headway across all of our product lines. The next phase must be about realizing the potential of our R&D investments. The restructure we announced today will put more specialized product, sales and channel resources in the field, and significantly grow our technical support staff to improve customer enablement and long-term customer success."

Rayburn reported that Ooyala plans to rehire about 7% new employees in pursuit of its plan to focus on areas outside of its OVP product line. A major focus, he said, be on selling a suite that includes the Ooyala Flex (workforce automation) and Ooyala Pulse (advanced/programmatic advertising) products.

Citing the memo, Rayburn said Ooyala’s decision comes as the online video market is “becoming more commoditized by the number of competitors and large enterprises entering the business.”  

Ooyala’s online video competition includes companies such as Comcast Technology Solutions, Brightcove, IBM (which recently acquired Clearleap and Ustream), BAMTech, and Kaltura, among others.  Notably, Telstra’s BigPondTV service tapped thePlatform (now part of Comcast Technology Solutions) a few years ago to serve as its central video management system.

Update: Ooyala said BigPond has since migrated back to Ooyala's technology platform.  

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