Streaming TV: What's the Big Deal About Netflix's Special Networks?

By Fool.com

Image source: Netflix.

Unless you've been living under a rock in the Mojave desert for the past few years, you already know that Netflix cares a lot about high-speed networking. It sort of comes with the territory when you're running a digital video service that can consume more than one-third of all Internet bandwidth at peak viewing hours.

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This big appetite for data bandwidth also gets Netflix in hot water with Internet service providers like Comcast and Verizon . To work around these conflicts, Netflix used to rely on a bevy of specialized content delivery networks owned by Level 3 Communications , Akamai , and Limelight Networks .

But that wasn't good enough. Now, Netflix prefers to install its own CDN solution, known as Open Connect, directly into major networking hubs. Service providers don't always like that idea, even if the Netflix server is sitting just a couple of hardware racks away from the Akamai and Limelight solutions.

What's the big idea behind Netflix's rolling its own content delivery solutions? And if Open Connect really is all that and a bag of chips, why isn't every media publisher doing exactly the same thing?

With these questions burning at the back of my brain, I called up digital-media expert Dan Rayburn at consulting firm Frost & Sullivan. As a leading authority on media technology issues, Rayburn delivered exactly the kind of fresh insights I was craving.

Digital media expert Dan Rayburn. Image source: Dan Rayburn.

Why should Netflix run its own delivery network?

In other words, it's a matter of scale. Yes, the CDN specialists do offer specialized delivery services for video content. But even these titans of content delivery were never really built for the torrential traffic that Netflix videos create in Prime Time viewing hours, so they don't really have a suitable solution for Netflix's specific needs.

Doing one thing brilliantly is simply easier (and often cheaper) than doing many closely related things very well. And at Netflix-sized scale, "very good" just isn't good enough. So the company needed a better networking infrastructure, and the best way to achieve that was to simply create exactly the right thing.

Image source: Netflix.

What's the special sauce?

The basic technologies at the heart of Open Connect are very similar to what you'd find inside other CDN providers. But the system will only do exactly what it was designed for, which is to deliver the kind of digital video media that Netflix serves up, and in exactly the technical formats that the company prefers.

There's no dead weight here, and every piece of the system was explicitly designed to fit into Netflix's media management process. New content appears when Netflix lands a license for it, and falls away when that license expires. It's automated to the hilt, with multiple layers of error handling to ensure smooth operations at all times.

You simply can't expect that kind of custom fit from Level 3 or Akamai. What Netflix needs, only Netflix itself can deliver. The company's unique size and bandwidth heft makes any other solution impossible in the long run.

Where are all the copycats, then? Netflix is fairly open about its Open Connect solutions. The hardware designs are published for anyone to see. Moreover, the company shares much of its custom software under an open-source license. In other words, anyone can essentially build a carbon copy of the Open Connect system at the drop of a hat.

So why isn't that happening today? Dan Rayburn had an answer for that stumper, too.

The cost issue makes sense. There's no need for a small-time video wrangler to build a massive, custom content delivery system. In most cases, off-the-shelf services from Level 3 or Limelight will do just fine.

I was caught off guard by Rayburn's reference to Major League Baseball, though. The sports league offers unique video services and caters to a huge fan base. Wouldn't a media service on that level be able to use an in-house content delivery model?

Size plus expertise equals opportunity Rayburn explained that custom networking lies too far outside MLB's circle of competence.

Indeed, it is. According to the latest digital video report from Sandvine, Netflix streams uses 35% of all downstream traffic to North American broadband households at prime viewing hours. YouTube sports about half of Netflix's bandwidth hunger, and nobody else comes close.

Hulu almost looks like a rounding error with just a 1.4% share of primetime traffic. Major League Baseball wasn't even mentioned by name in that Sandvine study.

So most online media services can get by just fine with standard CDN solutions like Akamai or Level 3. Apple runs its own service to keep its App Store and iTunes media services humming along, and Microsoft runs a similar play for Windows updates and Xbox-related content.

When Hulu is too small to matter, despite more than 6 million subscribers and even more users of its ad-supported version, you know it would take an epic upstart to follow in the footsteps of Netflix and its Open Connect network.

The article Streaming TV: What's the Big Deal About Netflix's Special Networks? originally appeared on Fool.com.

Anders Bylund owns shares of Netflix. The Motley Fool recommends Apple, Netflix, and Verizon Communications. The Motley Fool owns shares of Apple and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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