A conversation between SSPI Director of Development Lou Zacharilla and SES World Skies CTO Alan Young on the role of satellite technology in a world increasingly disintermediated by IP and "TV in the cloud" among other issues.
LZ: In 2009 you spoke with every major media company in the US about the future and attempted to take a look at what content providers will be spending their money on with regard to both "traditional" and "new" media. What were the top-line results and your impressions of the trends?
Alan Young: There is universal agreement that the traditional linear TV market is saturated. As a result, on-demand capabilities are drawing a lot of attention. Content providers are focused on driving new revenues from their libraries by making them available online and through Video on Demand distributors. While the majority of the money made remains through the traditional linear TV business, no one wants to be left behind, regardless of how fuzzy the business model is today. Content providers are going to seek out as many distribution options as they can, and they’re keen to maintain an online presence in an effort to ensure leverage with large distributors.
LZ: Does the satellite industry have sleepless nights ahead?
Alan Young: There are many aspects which bode well for the satellite industry. Satellite provides high bandwidth, high reliability infrastructure for extremely cost-effective broadcast applications. This opens the door to easier application upgrades, which is exactly why satellite took the lead with HD and why it is likely to lead with 3D.
LZ: What is the perception of the satellite industry out there among the CDN crowd?
Alan Young: Déjà vu all over again. There remained a common misconception about satellite: that we cannot play a role in on-demand. In fact most VOD delivered to the cable industry is delivered via satellite to headend storage devices. With the trend in storage being higher capacity at ever-decreasing prices, home media servers capable of storing every piece of content which viewers are likely to watch has the potential to be the next BIG trend. The question is: how do you deliver that content? In our view, satellite is an obvious choice because of its high bandwidth and great flexibility. We envision a hybrid situation where there is a high capacity "fire hose" delivering the most popular content (both for live and on-demand usage) in ultra high quality, while the "long tail" content is offered over broadband at a lower quality.
LZ: The satellite industry has been tied to the hip with video and broadcasting. "Profitable" video has been based on the number of people who view it within a certain timeframe. The more people who watch it, the better the aggregation is for those all-important eyeballs. Is this concept a truth of "traditional" media, rather than "new" media?
Alan Young: I don’t think so. The media business operates on a basic concept: that the more people that watch or listen to the content, the better it is. This is as true for a YouTube as it is for a big studio movie or the Super Bowl. It is true regardless of the delivery medium, whether it is satellite, cable, telco, online, DVD or your local movie theater. YouTube makes money by selling advertising. The more a YouTube video is watched, the more advertising revenue is generated. Generally speaking, the higher the artistic value and quality of the content, the stronger the case for subscriptions and advertising. This model is more difficult to implement online than it is through traditional channels for a two reasons: First, the internet is viewed as a place to go for free content. Second, the quality available on the open Internet is nowhere near what can be achieved through other channels. It is an unmanaged network by design, which means that there is no absolute guarantee for its end-to-end performance.
LZ: It’s strengths are its weaknesses. But it remains "disruptive." Agreed?
Alan Young: We see disruption for a couple of reasons. First, some content providers are charging retail distributors, such as cable operators, for the same content they’re offering at no charge online - that’s obviously going to cause friction. Second is the volume of increased piracy. Recently a very popular piece of content was viewed online more than 75 million times. But on the content provider’s own web site it was barely viewed 74 millions times less! Think of the rights holder’s lost advertising and revenue opportunities in that case.
LZ: That is disruptive, problematic and a fact of life. But aren’t there structural problems within the new media model that we might help address? At SSPI’s Workshop at PTC you noted a phenomenon called "The YouTube problem." I am simplifying this, but it essentially goes: "Before they pay anyone or make a single dime, YouTube loses something like $180 million. Did I get that right?
Alan Young: YouTube’s cost of delivery is based on the number of people that view content. In order to increase revenue, they have to spend more on delivery – more servers, bandwidth, electricity, and bigger datacenters. My point was that at the time YouTube spent about a million dollars a day delivering content while it brought in $500,000 a day in advertising revenue. LZ: That’s math only an English major (or an economist) could love!Alan Young: Doubling the revenue requires roughly doubling the content delivery costs, so they have a big uphill battle if they are to go into the black with that model. At least that is my view. Now, add to this the fact that they have to pay for some content and the hill begins to get even steeper, right? The ideal situation is to fix the cost of delivery as hard and fast as reasonably possible, regardless of the audience size.
LZ: And that’s where the satellite model shines. They simply need to make sure that there are enough viewers to justify the cost. This is the model that the media industry has successfully employed for decades. What’s the message here?
Alan Young: The message is that satellite and content delivery networks can co-exist. Their respective strengths are complementary – CDNs make it possible for any content to be reliably delivered and satellite can deliver very high quality content to an unlimited number of viewers cost effectively. If you want to reach millions of viewers there is no more cost effective way than satellite. If you have lots of content, but relatively few viewers for each piece of it then a content delivery network may be the best choice.
