OPINION: Leveling the scale

By Paul Sweeting -- Video Business, 10/12/2007

With its announcement this week that it has begun licensing its Digital Network Accelerator (DNA) service to online video providers, kicking it off with Brightcove, BitTorrent Inc. has taken a significant step toward resolving one of the more vexing problems facing content owners looking to distribute programming over the Web: scalability.

If the BitTorrent DNA service proves viable, it could significantly improve the economics of online video distribution.

Some background: BitTorrent technology was developed by Bram Cohen in 2001 and quickly became the protocol of choice for people swapping movies and TV shows over the Internet.

Unlike earlier peer-to-peer systems, in which entire files are transferred among computers on the network, BitTorrent breaks files into pieces, which can be distributed across many computers.

When a user requests a file, BitTorrent retrieves the pieces from the nearest available spots on the network and reassembles them into the full file. The result is much faster downloads and less demand for bandwidth.

In 2004, Cohen and his partner, Aswin Navin, formed BitTorrent Inc. to leverage the technology, but the company quickly came under pressure from the studios, who accused it of promoting piracy.

Some analysts have estimated that BitTorrent traffic represents as much as 40% or more of total Internet traffic, the vast majority of it illegal.

In 2005—in something of a shotgun wedding—BitTorrent went legit and agreed to work with the studios to fight piracy.

Last November it began legally distributing TV programming online from Comedy Central, MTV, Nickelodeon and others, and early this year, it launched a legal movie download service after signing deals with several major studios.

ONE OF THE problems facing anyone trying to make a business out of online video distribution has been the lack of economies of scale. In most download or streaming scenarios, each time someone requests a file, the provider sends a discreet data stream to that user.

As more users request the same file, the number of discreet streams—and the amount of total bandwidth—quickly mounts. The more popular a title, in other words, the higher the bandwidth costs of distributing it online—in many cases overwhelming whatever revenue can be derived from the title, either through advertising or direct payment.

That’s the exact converse of the DVD business, where unit costs go down as volume goes up, making it highly efficient—and highly profitable—for the content owner.

The scalability problem is a major threat to the economics of online distribution, particularly as online sales begin to cannibalize DVD sales.

BitTorrent DNA promises to turn the scale problem on its head for online distributors. Incorporating BitTorrent technology into their platform allows distributors such as Brightcove to harness the peer-to-peer power of the 150 million PCs worldwide that have installed the BitTorrent client.

In a Torrent environment, the more popular a file is, the more copies there will be on the network, and the more places will be available from which to retrieve pieces to assemble into the whole. The network’s efficiency improves as the number of people using it increases.

For the content owner, that has the potential to make the economics of online distribution behave more like the economics of the DVD business, making cannibalization less of a threat.

It also improves the economics of ad-supported business models, by offering advertisers greater reach without increasing costs to the program distributor.

The Brightcove deal announced this week is only one deal, of course. There’s still a long way to go before BitTorrent DNA has a meaningful impact on the economics of online distribution.

But it would be ironic indeed if a protocol the studios tried to strangle in the crib turns out to be the key to opening up profitable new business models online.

Paul Sweeting is editor of Content Agenda. Get more of Sweeting's analysis here.