Breaking The Logjam
by Sam Znaimer, Senior Vice President

For years it felt like the world stood still, innovation stifled by the miserable Internet and telecom bust. We waited for something to burst through the logjam of misaligned and broken infrastructure that had prevented the creation of new, compelling broadband consumer Internet applications. Impatient, we finally stopped paying attention to the steady improvement of broadband services and the accelerating competition between cable service providers and the conventional telecom carriers. Now, it seems, everyone has woken up to the idea that beyond email, browsing, & music, video is the next great application for the Internet. Just look at YouTube.

From its initial release last December (preceded by the usual interminable beta) YouTube, the video sharing site, has quickly become the market share leader, serving up more than 35 million videos per day. My newly minted colleague, Dr. Paul Kedrosky, points out in his blog ‘Infectious Greed’ (http://paul.kedrosky.com/archives/2006/04/09/fun_with_youtub.html) that this is equivalent to 200 terabytes per day, or more than 10 times the total traffic across the entire Internet backbone a scarce decade ago. This is a very good thing for YouTube, since they are joined in their pursuit of market domination by at least 200 very similar competitors.

While many are focused on the delivery of consumer-generated video over the public Internet, the telecom service providers are busy developing IPTV (Internet Protocol Television) systems to deliver television over their proprietary network access systems. Driven by declining voice revenues and increased competition from free offerings like Skype, “parasitic” offerings like Vonage, and bundled offerings from the cable providers, the incumbent telecom service providers have committed themselves to becoming broadcasters. With video running through an IP pipe, they can offer their consumers incredible levels of flexibility, interactivity, and integration. Customized programming content, interactive programming guides, messaging and polling, viewer contests, caller ID on the TV screen, display of personal photos and videos on the TV – all these become straight-forward applications once the conversion of TV to an IP platform is complete. Even more importantly, the service providers now have a tool to compete against their cable brethren, offering Triple Play (voice, High Speed Internet, Video) or Quad Play (voice, High Speed Internet, Video, and Cell) to their customers.

Whether it’s video podcasts, community video sharing sites, or conventional broadcast TV delivered via IPTV, consumers are emphatic in their demand for the highest video quality. This is evident in the growing popularity of high definition TVs. Over the past 3 years, the sales of HDTV sets have increased by five-fold and industry pundits predict that HDTV sets will make up 70% of overall TV sales by the end of 2010.  Have any among you not watched the FIFA soccer matches on a stunning hi-def plasma screen? In time, consumers will also demand the highest quality from the web and the delivery network, insisting on higher resolution videos, an end to codec artifacts, and the elimination of any variable latencies and buffering interruptions that interfere with our viewing pleasures. Some of us will even pay to enhance our pleasure, shelling out a few bucks each month to receive the best programs at the highest quality. In my personal utopian dream, all commercials that haven’t won at Cannes are banished for $3 a month. But I digress…

Why do we care? Video is a massive theme and will present huge opportunities to the venture capital community. Ventures West is fully engaged in this area and has invested in a number of companies that are addressing video opportunities at multiple points along the value chain. Any telco looking to deliver mobile videomail services or offer scaleable multi-media conferencing systems will turn to Convedia, the global leader in IP Media Processing. Zeugma Systems, still working in stealth, will have lots to contribute to telecom service providers intent on delivering differentiated broadband services. Meanwhile Fresco Microchip will be delivering silicon tuner and demodulator products that will enhance the quality and universality of hi definition video. Innovations in video delivery and IPTV are happening at whirlwind speed here in Canada, and abroad. The logjam has been breached.