Online video service provider Netflix now claims to be delivering the majority of its international video traffic via its proprietary CDN 'Open Connect'. Simultaneously, the company announced that it is now making select titles available in 1080p HD and 3D to Open Connect partner ISPs. In June 2012, Netflix revealed that over half of its UK traffic was being delivered via Open Connect.
IHS Screen Digest has previously highlighted the potential problems faced by OTT providers with platform ambitions of escalating third-party CDN costs as the customer base grows. For further detail, see our report "Scaling OTT: Do the economics stack up?".
Open Connect, which launched in the first half of 2012 and allows the deployment of dedicated caching servers into ISP networks is part of a multi-pronged strategy from Netflix to reduce its own distribution costs, minimise friction points between ISPs and Netflix partner CDNs (which were beginning to result from high traffic and the associated peering costs), and lastly, provide ISPs with a solution to help them better manage network traffic and reduce incentives for engaging in traffic shaping detrimental to Netflix video quality-of-service.
Netflix has committed to minimising integration costs by providing the caching servers to ISPs free of charge, and offers settlement free-peering in the US and UK. Open Connect now has peering locations in 13 cities globally, with key deployments outside the US in London, Amsterdam, São Paulo and Stockholm. Telcos including Cablevision, Virgin Media, British Telecom, Telmex, Telus, TDC and GVT receive some, or all, traffic via Open Connect.
Aside from the potential reduction in peering costs and plus-points for network traffic management, Netflix is now offering further incentives for ISPs to join Open Connect through its Super HD and 3D content, (3D is currently only available to US-based customers of ISPs participating in the Open Connect programme), providing an even stronger direct incentive for ISPs to partner. Given the popularity of Netflix in the US (the company has over 27m subscribers in the US) and its burgeoning popularity overseas, this will put additional pressure on remaining non-participant ISPs to deploy Netflix's CDN technology.