Over the last few months, I've seen a lot of customer RFPs in the market sent to me from content owners and publishers looking for an online video platform (OVP) provider. In some cases these content owners already use an OVP and are looking to change vendors while in other instances, they have a new content business or have been doing things in-house, and now new to use an OVP for the first time. As customers ask me for feedback and share with me the quotes they are getting from the OVPs, the one thing that is consistent amongst all of them is that the OVP vendors are still getting a large percentage of their revenue from the re-sale of bandwidth.
When you look at how these contracts break down, the largest percentage of revenue isn't coming from platform license fees, it's coming from the delivery of the videos. And since no dedicated OVP owns their own CDN and simply passed that traffic to a CDN, which they then have to pay for themselves, a large portion of the value of the contract is simply re-selling bits. This is something we've known about for years, but many of the OVPs have downplayed how much revenue they get from the re-sale of bandwidth when the truth is, it's a lot.
Brightcove, the one public OVP in the market, won't disclose what percentage of their revenue comes from the re-sale of bandwidth through an Akamai or Limelight Networks. I've asked them multiple times, but all they will say is that it's not a lot. But we have no idea what that really means. And while Ooyala and Kaltura aren't public, they too won't disclose, on-the-record, what percentage of their revenue comes from bandwidth fees. But from taking a look at all of the vendor's responses to RFPs, it's a lot.
As an example, one customer sent out an RFP to move from one OVP to another and of all the quotes they got back, the value of their contract averaged $600k over the next 12 months. Out of that $600k in value, $400K was for storage and delivery, $49K was for platform license fees and the rest was made up of one-time setup fees, support fees, integration fees and professional services for some custom analytics work. That means 67% of the value of the contract to the OVP was from storage and delivery. And since that's not something they do in-house, since they don't operate a CDN, the vast majority of that revenue is being passed on to the CDN. Even if the OVP is marking up the storage and delivery by 30%, they are only making $90K on the $400K in storage and bandwidth. It's not bad for simply reselling, but bandwidth and storage prices decline each year.
OVPs that target MSOs tend to get a higher percentage of their revenue from platform license fees, as they aren't reselling bandwidth and storage, since the MSO is deploying the OVP or TV Everywhere software inside their own network. But for those video platform providers that are selling direct to publishers and content owners, a lot of the value of their contracts is in the resale of bandwidth. Not all of the customers who use an OVP use them for delivery and storage, many have their own contract with a CDN directly and only use the OVP for the cloud based software service. But for those vendors that sell direct to publishers and have a lot of their customer using them for storage and delivery, a large percentage of the OVPs revenue is tied directly to the resale of something they don't actually own or deliver themselves. That's something that all of the video platform providers are going to have to change in their business if they really want to accelerate the percentage of revenue that they keep from these contracts.