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Netflix’s New CDN Is Good News for Everyone

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In June, Netflix announced that it has been actively working to build out its own network of caches inside ISP networks and has officially launched the Netflix Open Connect content delivery network. With this offering, Netflix aims to lower its CDN costs, rely less on third-party CDNs, provide higher quality streaming, and -- most importantly -- give network operators more control over the video that flows through their pipes.

To support the launch of its CDN, Netflix has a new website at http://openconnect.netflix.com that gives ISPs more information on the hardware and software design of Netflix's caches, details on how ISPs can peer with Netflix, and access to a deployment guide. While many might compare what Netflix is doing with its cache deployment to what Google has been doing for years, the big difference is that Netflix is giving ISPs control over the caches, allowing them to adjust the volume of traffic flowing through their networks. This is a smart move on Netflix's part, as many ISPs don't view Google caches as being friendly because once placed inside the operators network, they can only be controlled by Google.

Under a typical scenario, one Netflix cache can handle about 8.5Gbps of throughput and can support about 25,000 subs. While Netflix is going after the major ISPs for partners, it did say that it would make sense for any network with more than 100,000 subs to deploy caches. Netflix said the caching technology it is using is all built in-house, and it hasn't licensed any content delivery technology from any third party. Netflix said that based on the caches it already has deployed, about 5% of its global video delivery is already being delivered via its Open Connect CDN, with some locations such as the U.K. seeing as much as 50% of its traffic coming from the new CDN platform. Netflix plans to serve nearly all of its video globally via this new CDN but estimates it will take a few years to build it out. I would compare this approach to a similar one Microsoft had, which saw it bringing the majority of its CDN in-house over a few short years.

Something unique to Netflix's cache deployments is that they are not demand-driven caches. Unlike most content owners who see maybe 80% of their traffic come from only 20% of their content, Netflix gets traffic from all of its content. So instead of someone having to request the content before it is fetched and placed on the caching server, which is how most CDNs work, Netflix is actually prepopulating the caches inside the ISP's networks. During peak hours, Netflix's caches are in read-only mode; during off-peak hours, they get populated with content.

Naturally, this news is going to make a lot of people question what impact this will have on Akamai Technologies, Limelight Networks, Level 3 Communications, and Amazon. For starters, this news does not impact Amazon in any way, as Netflix has built a bunch of its nonvideo platforms on top of Amazon Web Services (AWS), which won't be impacted. Limelight and Level 3, which have the majority of Netflix's video traffic, will lose most of that traffic over the next 18 months.

While some might take this as negative news for the CDNs, it's actually the opposite. In particular, Limelight and Level 3 have spent a lot of money to build out their networks to support Netflix, and most of the revenue they get in return simply offsets their costs. If the CDNs don't have to spend the money to deploy services that simply break even, it means they can spend their time and effort building more profitable business, which is good for their bottom lines.

Building out its own content delivery network is a smart move for Netflix because over time it will reduce its costs, enabling it to help ISPs have more control of Netflix's content going over their pipes and also to improve its streaming quality to consumers. This is good news for everyone involved.

[This article appears in the August/September issue of Streaming Media magazine.]

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