Content Distribution Networks — Traffic Up, Pricing Down

Web publishers distributing streaming content and media files rely on Content Distribution Networks such as Akamai, Limelight or Level 3 to scale cost effectively. As Web 2.0 has become richer in content, naturally CDN traffic has grown commensurately. In fact, new research from AccuStream Research estimates CDN market revenues at $1.37 billion for 2009, up 16.4 percent from 2008. CDN contract volume increased 23.3 percent over 2008, another strong growth indicator.

Another analysis by Streaming Media supports this finding, showing a market where “more content is being consumed, more often, at higher bitrates for longer periods of time on more devices.” Revenues for 2007 through 2013 are estimated to grow on a CAGR basis ranging from a conservative 21.2 percent to as high as 32.5 percent.

However, pricing is in decline, forcing CDNs to manage their margins with new efficiencies and cost cutting. For example, witness Google’s recent purchase of the video compression firm On2 Technologies for $106.5 million. Bandwidth compression can help reduce costs and network resources utilization.

As pricing becomes more competitive, look for more aggregation and exits, and more efficiency-related acquisitions to help manage costs and keep margins relatively healthy in the CDN space. All this is probably good news for CDN customers, at least in the short run.

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