In a non-neutrality world, it’s every content provider for itself

The Wall Street Journal reports this morning that Apple has spent the past year quietly assembling the pieces to put in place its own network for delivering large amounts of content to its users.

According to Bill Norton, chief strategy officer for International Internet Exchange, Apple has recently bought enough bandwidth from web carriers to move hundreds of gigabits of data each second, the sort of volume a dedicated CDN would typically handle. Apple has long relied on Akamai for delivery, but its current contract with the CDN is up for renewal and the bandwidth purchases suggest Apple is preparing to replace at least some of the capacity it currently buys from Akamai with its own.

Apple has also made several key infrastructure hires recently. In September it hired former Comcast executive Lauren Provo, who who handled peering relationships with other networks for the cable ISP. It also hired Jean-François Mulé, former VP of technology development at a CableLabs.

As Frost & Sullivan analyst Dan Rayburn points out at the Streaming Media blog, what Apple appears to be working on “aligns with what all of the other big content syndicators out there have already built, including Microsoft, Google, Netflix, Yahoo!, Twitter, and Facebook; which is a considerable amount of their own distributed origin infrastructure, for both large and small objects.”

There are plenty of good business and economic reasons for Apple to build its own delivery infrastructure. The rollout of iCloud has increased significantly the amount of content it is delivering to users, which increases Apple’s costs. Owning its own delivery infrastructure could allow Apple to control those costs more directly and give it greater control over quality of service for its users.

If Apple is also serious about making a move in TV, the amount of data it would need to deliver could grow by orders of magnitude more.

But here’s another reason it makes sense for Apple to roll its own: With the FCC’s net neutrality rules now gone, the relationship between big content providers and ISPs and other network operators is about to get a lot more complicated. Operators are already developing plans to create paid “fast lanes” on their networks, and there are likely to be a lot more transit points between content server and consumer that will now be the subject of negotiations between content providers and network operators.

The simplistic (and all too popular) view of net neutrality is that, without non-discrimination rules in force, ISPs will now be able to demand payment from the likes of Netflix or Apple to deliver their content to the ISPs subscribers or risk having their signals degraded or blocked outright. That won’t always be the case; the real world business dynamics between content providers and service providers — on broadband platforms as much as traditional pay-TV platforms — are likely to be more complicated than that.

Yet as with any business arrangement where money or value changes hands, leverage is important. And the more of its own delivery infrastructure a content provider brings to the table, the less it needs to rely on others to reach its users, the more leverage it will have with those operators it does need to strike a deal with.

Even if some version of the FCC’s Open Internet order were to be restored, controlling as much of their own delivery destiny as possible is likely to be critical to online content providers’ bottom lines going forward.

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Paul Sweeting

Principal Concurrent Media Strategies

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