With Limelight (LLNW) reporting earnings Friday (Call Transcript), it's now clear that the major players in the CDN space, the vendors that control the vast majority of the market share for video delivery, are all experiencing no growth. Akamai's (AKAM) M&E business was down and Limelight, Internap (INAP) and Level 3 (LVLT) all reported no revenue growth for their CDN business. And with Q3 typically being a weak quarter for the CDNs and some of them setting guidance that shows no growth over Q2, we may have yet to see the bottom.
While Limelight was very optimistic that it will see growth in the second half of this year and that the CDN market as a whole will pick up, I'm not so sure that industry wide, that's going to happen in the next two quarters. While pricing still took a decline last quarter, I see the bigger impact being that traffic growth with current customer is nowhere near the levels it once was and many smaller content owners continue to go under. While Akamai and Limelight both talked about the future of HD and higher-quality video, more devices on the market, blu-ray streaming etc. none of that will take place any time soon on any kind of large scale to impact their revenue in the near-term.
I'm constantly asked when is the tipping point and what's the next killer app for video that allows the industry to once again grow at a rapid rate? Devices are great, but there are not enough of them yet to make any real impact on volume overall. That will change, but not in the next two quarters. Higher quality video is coming and we see more of it every day, but again, not enough volume yet by itself to push the industry forward with rapid growth.
While I think we'll start to see some growth again next year, I don't think the CDN market will really start to grow again, at the rate we've seen in the past, until 2011. As an industry, we're still waiting on all these devices to penetrate the market along with higher bitrate video, over-the-top services, the broadcast of more live content and better ad integration. I don't see this taking place in earnest by next year. That's not to say there won't be any growth next year in the CDN market, but I'm afraid it's not until 2011 that we really start to see the surge in the space that we saw in 2006.
Clearly, a lot of questions still remain about the current decline in pricing and where that is headed. With that in mind, StreamingMedia.com will be rolling out our annual video CDN pricing survey that we do each year.
Disclosure: No positions
