Last week, when Google (GOOG) announced on its blog that the company getting into the DNS business, many people on the web wanted to debate whether or not it would give Google too much control over the Internet, by questioning how Google would use the data that's collected. While I don't disagree that it is a valid concern, since no one is being forced to use Google's DNS offering, to me, that's not the real story.

What we should be discussing as an industry is the performance of Google's Public DNS service, something I haven't seen much written about. I've been using Google's DNS over the past week and at least for me, the performance has been worse than Level 3's (LVLT) DNS or my local ISP, Verizon (VZ). While Google is not going into detail on where its DNS servers are located, other networking companies in the industry gave me a list of their locations which are; Atlanta, Reston, Seattle, California, Brazil, Taiwan, Germany, Netherlands, Ireland and London.

Over the past year, cable companies such as Comcast (CMCSA), Time Warner (TWX), and Verizon (VZ) have all announced what they call "TV Everywhere" trials. The premise behind these trials is based on the notion that one day, the cable companies will give subscribers the ability to view on their computers the same content they get to their TV set.

While many want to proclaim that such TV Everywhere offerings will be the future of the cable industry and that the cable companies will be forced to offer such a service, it's not at all clear that this will indeed become a reality. Such a service would be interesting and valuable to many consumers, but no cable company has yet to figure out how the service will be paid for, who will manage the content, what video platform will be used, what type of video quality viewers can expect, and how this content will be delivered with scale and performance. Too many questions still remain about the service and, to date, the trials that are taking place are extremely small-in some cases, as few as 5,000 cable subscribers.

While I've heard some folks say that one of the reasons Akamai (AKAM) is showing signs of their M&E business picking back up is as a result of the adoption of HD quality content, that's not what's driving revenue today. Yes, Akamai and all of the other CDNs are seeing more content owners use HD quality video, but it's not yet happening in large volumes or at mass scale to impact revenue.

Based on a recent StreamingMedia.com survey we conducted in September and October, we asked content owners what bitrates they were encoding their content in. Of the 812 content owners who responded only 11.4% said they were encoding video for at least 2Mbps or more. Compare that to the same survey in 2008 when 8.9% of over 1,000 content owners said they were encoding over 2Mbps. That's not a lot of growth.

The question I got asked most frequently at last month's Streaming Media West show was when I thought the rate of growth for video traffic would once again begin to accelerate. Based on a recent StreamingMedia.com survey we conducted in September and October, of which 812 content owners responded, 53.3% of the respondents said their traffic grew on average of only 35%-40% this year.

When compared to the same survey last year, 53.9% of over 1,000 content owners said their traffic grew a total of 35% in 2008. This lack of growth probably comes as no surprise to anyone who tracks the CDN space, as revenue amongst the CDN vendors has been flat all year. When pricing is down nearly 40% year-over-year and traffic is only growing at 35-40%, that makes it really hard for CDNs to show revenue growth from their M&E video business.

Looking to quell investors' fears about their acquisition by Google (GOOG), On2 Technologies (ONT) has posted to their website some more details about the proposed merger. Even with this supporting documentation, I think there is a good chance the deal won't be approved by shareholders when they vote on December 18th.

That said, the problem shareholders face if they vote against the deal is that On2 would have to find a way to raise more money. As of September 30th, On2 only had $2.2M in cash and short-term investment and negative working capital of approximately $4.1M. That's not a good position to be in.

For the past couple of quarters, I've written many times that Akamai (AKAM) needs to be more aggressive on its CDN pricing or video, so the company can grow revenue, increase the volume of traffic on its network and make it harder on its competition. Many have said Akamai would be crazy to lower its pricing, as it would negatively impact the company's margins. But I've always argued that you make up that decline in profit with more volume on the network, which in time actually increases your margins. Economics of scale is what the CDN business is all about and that determines whether you win or lose in the market.

At the Streaming Media West show two weeks ago, I got to speak with dozens of content owners about who they were using for video delivery and what they are paying. I also got to speak with a lot of Akamai's competitors and it's very clear that Akamai started lowering its pricing, especially with contract renewals, when it comes to video delivery. While it's hard to pinpoint the exact frame time this started to happen, customers I spoke to said they saw the pricing shift around the September time frame. Content owners currently with Akamai said Akamai had dropped its pricing to be near Limelight's (LLNW) and Level 3's (LVLT) and in some cases, was matching their pricing for renewals.

First it was the studios delivering two-hour movies to cell phones, even though consumers weren't and still aren't asking for the service. Then came the studios charging more for a digital download over the physical DVD. That was quickly followed by Sony (SNE) charging $24.95 for a 24-hour rental and admitting it does not want to upset Walmart (WMT) and the studios own DVD business.

Now comes word that Kingston, manufacturer of USB drives and SD cards, has teamed up with movie studio Paramount Pictures to release Transformers, Revenge of the Fallen directly on to a 4GB USB stick. The catch? A 4GB USB stick with the movie costs $29.99 through Office Max (OMX) stores nationwide. Where is the value to the consumer with this offering? The physical DVD costs $17.99 on Amazon (AMZN) and a 4GB Kingston USB stick costs $8.89. So why is does it cost the consumer almost $4 extra to get the movie on a USB stick? Where is the demand in the market for this offering?

Starting on December 8, Sony plans to make the movie Cloudy With a Chance of Meatballs available for streaming, at 720p, a month ahead of the retail release, to those who have broadband-enabled Sony (SNE) TVs and Blu-ray players. The catch? It will cost users $24.95 for a 24 hour rental, or the same price as buying it on Blu-ray.

While some studios have been experimenting with the idea of "day-and-date" release, this offering by Sony isn't even that. While one could argue that you're streaming the movie a full month before you can even buy it on DVD or Blu-ray, charging $24.95 for a rental simply means that Sony is setting themselves up for failure. It's ironic that for all the noise some studios make about offerings like this, they are never willing to go on-record and give out any details on how many movies were sold. I wonder why.

Last week, Netflix (NFLX) started mailing out the discs that Sony PS3 users must insert in their console each time they want to stream a movie. While the disc is a temporary measure until there is a dedicated Netflix app for the PS3, the solution is very slow and painful. The disc takes about 20 seconds to load and once a movie is selected, it takes almost 30 seconds before the movie starts streaming. While the quality of the stream is good and looks the same to me when compared to streaming on the Microsoft (MSFT) Xbox 360, Roku or TiVo (TIVO), the controls that allow you to do things like fast-forward the video are also very slow.

For those PS3 users who have never streamed Netflix to any other device, they may not even notice or care. But for anyone like myself who has used one of the many other Netflix enabled devices for streaming,the PS3 experience really suffers when it comes to the user experience.

Last week I received some images that showed Netflix streaming on a Wii console. I didn't run with the story at the time as I didn't know if the images were legit and it's taken me until today to confirm they are in fact real. I'm not disclosing who confirmed it for me but someone involved in the project has confirmed that Nintendo (NTDOY.PK) is currently in testing stages with Netflix (NFLX) to bring their streaming service to the Wii very soon.

What I'm hearing is that Nintendo originally planned to bring the Netflix service to the Wii before the end of this year, which still might take place, but that Nintendo is also considering holding off on the Netflix service until they release their next generation Wii HD unit in early 2010.

As many readers already know, I'm not a big supporter of the notion that TV Everywhere is going to do much to change our industry. Some vendors in the online video industry disagree with me and want to tell me how TV Everywhere is going to change their business, providing the catalyst for them to really grow their revenue.

While that sounds nice, for the vast majority of vendors, it's a pipe dream. None of these vendors I speak to seem to be able to tell me what the size of the market could be, how many MSOs would want to offer a TV Everywhere type service or how they actually make any money. I get the sense that many in the industry now think they have to use the phrase TV Everywhere to sound cool or to make it sound like they "get it", even though no one seems to be talking about the business side of the offering. (Definition of MSO: Multiple System Operator. It's the industry term for cable company.)

So much for my bet that Netflix would come to the Wii before the PS3. Today, Netflix (NFLX) and Sony (SNE) announced that sometime next month, Netflix streaming will come to the PS3. Initially, users will be required to insert a Blu-ray disc in the PS3 which will take advantage of Blu-ray's BD-Live technology to access the Netflix interface.

The disc, which is free for all Netflix members and can be ordered at www.netflix.com/ps3, is a temporary solution, but Netflix is not disclosing when the embedded PS3 solution will replace it. While the PS3 is clearly a great fit for Netflix streaming, I'm still surprised that Netflix would raise their fourth quarter guidance based on this news. With the streaming not due until sometime next month, and users having to first order the disc, I can't imagine that so much streaming takes place in about a six week window, that Netflix things it will impact earnings.

On Thursday's earnings call, Netflix (NFLX) CEO Reed Hastings said that sometime this quarter, Netflix's streaming service will be coming to a new consumer electronics device. As a result of this forthcoming offering, Netflix said it was raising their guidance for the fourth quarter.

Clearly, whatever device it is, it must have a lot of penetration in the market if Netflix thinks it will have that much of an impact on their earnings so quickly. While it could be the PS3 or the Wii, if it's a gaming console, my money is on the Wii. To date, Sony (SNE) has sold about 10M PS3 units in the U.S., while Nintendo (NTDOY.PK) has sold more than 25M Wii consoles. When Netflix streaming rolled out on the Xbox 360, 10% of Netflix's members used the service within three months, pushing more than 25M GB of video. Based on those numbers, I don't think the PS3 has a big enough install base to impact Netflix quickly enough.

On Netflix's (NFLX) Q3 earnings call, CEO Reed Hastings announced plans to take Netflix's digital offering international, sometime in the second half of 2010. Reed said Netflix plans to roll out a streaming only offering by starting small in one market, proving the model and then expanding into other countries. While such an announcement probably comes as no surprise to anyone and is simply the next evolution for Netflix, the company will have a difficult time generating profit from such a service.

Without any details on how much Netflix plans to charge per month for their streaming only service, you can't figure out their exact costs. But you can come pretty close. Between the prices they pay to the CDNs to stream the videos, which could be a bit more expensive overseas, and the price Netflix has to pay to license the content, users who watch enough movies each month would actually cost Netflix money. With some popular content, licensing and delivery costs can be as high as $0.50 per stream, if not higher. At fifty cents per movie, ten movies streamed by a customer just cost Netflix five bucks.

A few weeks ago, I got to get hands-on with Comcast's (CMCSA) TV Everywhere service, dubbed "Comcast On Demand," via a friend that's in the trial. (I'm not in the Comcast trial personally but am in the Verizon's TV Everywhere trial and will blog more about Verizon's trial when I am allowed.) While Comcast continues to make a lot of noise about the service, I think consumers are going to be very disappointed when it rolls out to all 24 million Comcast subscribers by January 1st.

While I know the beta offering I saw is going to change by the time it rolls out in the New Year, the lack of any underlying business model and user limitations won't be changing. The biggest problem is that these offerings are not truly "TV Everywhere". You can't get the content outside your home, when you travel, to any device other than the PC and whatever you stream with Comcast On Demand counts towards your cap.

Microsoft (MSFT) has given me a few more details surrounding how they are managing to stream 1080p videos on the Xbox 360 with consumers only needing a 4Mbps connection. Microsoft said that Zune Video on Xbox LIVE takes advantage of Microsoft's Smooth Streaming technology, which is a feature of IIS Media Services and that Zune Video was built from the ground-up for the Xbox 360 platform. While the Silverlight plug-in also takes advantage of Smooth Streaming technology, Silverlight is not being used on the Xbox platform.

Microsoft says that Zune video on Xbox LIVE features a state-of-the-art encoder and high performance decoder that allows them to offer instant on 1080p video and 5.1 surround sound with Smooth Streaming playback and smooth fast-forward and rewind functionality. They aren't giving out any details yet on how the videos are encoded and what the settings are, but I expect we'll hear more about that when the service launches to the public. Microsoft also said that they recommend a minimum of 4 Mbps for the full 1080p/5.1 experience but the great thing about the technology is that videos will automatically scale to the best possible resolution based on the speed of the users internet connection.

Monday morning, I got the Xbox LIVE preview upgrade which gives me the ability to test out some of the new features coming soon to the Xbox console including Twitter, Facebook, Last.fm and 1080p streaming. Of course, the new 1080p streaming functionality is really the one I have been waiting to get hands on with and after watching a bunch of movies this morning, all I can say is that the quality is truly incredible.

After downloading a Zune video app, you can browse through movies available in 1080p and new to the movie service, you can choose to stream or download the movies. If you select streaming, the Zune app does a quick check of your connection to tell you if you can get the 1080p content and once you purchase the movie, the buffer time before it starts is less than a second. When Microsoft (MSFT) says that the new Zune video technology allows for "instant-on" streaming, they aren't kidding. (Updated: Limelight is delivering the streams)

Earlier in the month, during Akamai's (AKAM) webcast about their HD network, Tim Siglin pointed out on his blog that Akamai's claim that they could deliver HD video to the iPhone (AAPL) wasn't accurate. Tim had a lot of back and forth emails with Akamai, which he documents on his blog here, and I questioned Akamai on the same topic with a post entitled "Does The iPhone Support HD Video? I Say No. Akamai Says Yes".

Friday, at the Streaming Media Europe show in London, Tim reported that Akamai has changed their stance on the subject and now acknowledges that they are not delivering HD video to the iPhone. From Tim's blog post:

Last week, multiple sources familiar with Hulu's video plans told me that Hulu already has an iPhone app ready to go, but won't launch it until Hulu rolls out a subscription-based service. While Hulu has hinted at such a service in the future, the company is still downplaying it as though it won't come anytime soon. That said, Hulu did say from day one that they will look at a combination of free and paid content offerings for their business, so the idea of a subscription service is not a new one. It's only a matter of when, not if.

While the iPhone does not support Flash video today, one of the sources I spoke with said Hulu has already converted some of their content over to H.264 for playback on the iPhone. However, they didn't know how much of Hulu's content had been converted and for all we know, the content that was converted could have been just for testing purposes. While Hulu is usually quick to downplay anything they might be working on, they do have an entire team working on new projects and offerings and have a section on their website called Hulu Labs.

While many large ad small CDNs continue to try burn through a lot of cash, trying to turn a profit from delivering content on the web, content delivery network EdgeCast has been EBITA positive since Q2 and become profitable last quarter. The company, which has raised just $6M in one VC round, and a little over $10M in total, has grown their business very nicely in the past two years, with only a fraction of the money other CDNs have raised.

While EdgeCast won't talk about or disclose their revenue, I know they are slated to do between $15-$20M in total revenue for 2009. This is a far cry from the CDN revenue that Akamai (AKAM), Limelight (LLNW), Level 3 (LVLT) or CDNetworks is doing, but it does show that CDNs can in fact be profitable. While it is easier to turn a profit as a smaller provider, since you need less money, to date, even most smaller CDNs haven't even been able to survive. Panther Express raised over $20M during the course of their existance, wasn't profitable and ended up being sold for around $2.5M. (Originally I reported the number was $5M, but have since learned it was even less than that) CDN Vusion burned through $11M in VC money in 24 months and went under earlier in the year. EdgeCast has spent half the money Panther did, and has almost the same revenue to show for it, as a profitable company.