As Michael Gersh commented in previous post, high quality video distribution will be viewer paid.
Who is going to collect payment from viewers? Will it be a content distribution infrastructure owner like Comcast or content distributor/aggregator like Netflix? Why is it important? IMO, it is the company in value chain that has most viewers captive benefits the most. And this is shown very clearly from some back of the envelope calculations for iTunes and Akamai.
Assuming weekly revenue of $10 million from analyst download estimates of $18.5 million songs per week, annual revenue of iTunes store, a content aggregator/distributor, is over $500 million+. Akamai, a distribution infrastructure provider to iTunes and with near monopoly in CDN, total revenues are barely in $400 million range.
With the success of iTunes, it is assumed that content aggregators/distributors are the ones who will be collecting payment from viewers. Distribution infrastructure owners like Akamai will be a service provider to iTunes for a fee.
Cost-side Success Factor
As GridNetworks (GN) will likely be paid by content distributors, it's profit-side success factor depend on number of content distributors using its delivery infrastructure and the revenue generated from each content distributor.
To attract paying content distributors and be a preferred delivery method, GridNetworks need to have the most expansive hybrid CDN P2P infrastructure. So the cost-side success factor for GN comes down to how quickly they can build 40 million quality nodes contributing to their delivery infrastructure and at what cost.
One method to achieve this goal is to freely distribute software for media sharing and playback. Once there are sufficient nodes established, harness those nodes and the brand recognition to make deals with content developers, owners and distributors. BBC deal with Azureus [pdf] will fall in to this category.
There are already enough high quality video content delivery startups trying to follow this route. Most with very little value differentiation originating primarily from the high profile and visible content deals. The success will belong to the ones with market/brand recognition, deep pockets and influence to make high-profile visible content deals.
Should GN follow the same path or there is another way to succeed? Chime in if you have any thoughts.
To be continued later ...
Housekeeping Notes
Recently, I noticed in Google Analytics stats that some traffic to my blog is coming from penny stock forums where link and text of my entries were posted. A caution note for readers from these forums: My posts are nothing more than personal rants and shouldn't be considered thoroughly researched analysis on prospects of any company, its stock, industry or market. Believe in my rants on your own perils.
This picture of a Pachinko in Tokyo seems quite appropriate after the above housekeeping note.
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