NBN: Multicast - is it the secret sauce for Broadband take-up?

A good piece by Dom Wright about on-Demand TV in Australia, links iTunes, Spotify, Netflix and other live-streaming services with the pirating wars of 10 years ago. When the content gatekeepers dropped the price barriers and gave us "just works, anywhere", very predictably on-line paid usage has soared. Wright argues that he'd like an "all you can eat, infinite choice" (low) fixed price rental service here.

See my previous piece on this topic as well.

Pirating is driven by a simple equation: the retail cost, in dollars, of an item is high compared to its consumer utility and the cost, in money, time and potential legal action, to bypass the technology is low. People are not motivated to bypass barriers for things that provide higher utility than the sticker price - they'll happily pay for stuff that is perceived as "value for money".

If people are stealing your content in preference to buying it, you've two problems: you're charging more than the middle of the market is willing to pay, you're above their price-point, and you haven't bothered to implement good technical security measures, like not putting a door on a bank-vault.

Which is why TV licences were dropped here. Australia, followed the UK in charging a yearly fee to consumers to watch TV. There was a compliance service & people were fined. Around the introduction of colour TV, licences were scrapped following community outcry. The consumer value placed on the service was much lower than the license fee, and the technology bypass was "too easy": turn your set on.

In all these discussions there is a critical party omitted: the talent.
The way the music/recording business has evolved, the creators of material get the smallest share of the pie. Even if successful, most never make a cent from a recording contract. Which is why concerts and direct-sales are important to them: its where they are allowed to make money.

There are two questions that Dom Wright doesn't explore:

• Are there technological enablers or barriers in the business?

• What is the consumer price-point for broadcast TV?
• We know from Netflix and iTunes that it's a small amount, above the delivery costs, so attractive to content owners/resellers as well.

For 10-15 million TV sets and 2-5 million mobile devices to simultaneously live-stream using TCP requires a massive head-end infrastructure and multiple very high bandwidth pipes. E.g. multiple data centres of 1000 servers per million streams. It's not that much, say $100M to setup with a life of 3-4 years and 20%/year to operate/maintain.

The economic killer is the bandwidth: even at 4Mbps/stream, 20 million streams is 80 Terrabits/sec, or 800 of the fastest ethernet links (100Gbps) available. Two transceivers (SFP/GBIC's) are needed per link and the high-end kit to plug them into. Guess $25-50,000 per link, to setup, then line-rental and volume charges on top. $50M to start and $100M+/year to run, maybe.

A low-ball guess is $250M setup and $150-$250M/year to operate a service to 20M subscribers. More if they want HD. Add marketing costs, content licensing fees and profit-margins and its $750-$1,500M/year. Or $50-$75/user/year, but only if you get everyone to sign-on to your service.

The sting-in-the-tail is you have to overbuild your server farm and link. What's worse than nobody signing-up? Everybody signs-on and your facilities can't cope. As soon as you can't deliver, you're hosed and it'll take a very long time, if ever, to recover. Think "click-frenzy", they were slammed in their first year and learnt from that experience, but people didn't come back in droves after the first bad experience.

TCP links are point-to-point, they have packets following both ways. For each data packet sent to you, your machine sends one back. At 4Mbps, that's around 400 packets/sec each way. For a 3-hour video, that 8.5M packets processed, each end. For 20M streams: 170,000,000,000,000 packets - 170 trillion.

And that's on a normal day.

If we adopt a simple-minded approach to live streaming, we end up doing two things:

• perpetuating the current situation where very high barriers to entry create a very small marketplace. Would it be more of the same: FOXTEL and nobody, or FOXTEL v NetFlix v iTunes?

• Consumers will have limited choice and will pay much more than they need, both because of the high delivery costs and the small marketplace reducing competition.

The talent, the performers and creatives, are still left with no power and almost none of the revenue. The people that we need cultivated and encouraged are again duded by the hordes of Important Fatcats who can't possibly survive on less than $1 million/year, "it's a self-image thing".

There's a simple technology that comes for free with the NBN "bit-stream" design: multicast.

It works identically to radio & TV broadcast, but over the Internet. There are distinct channels and on every channel there is one transmitter and many receivers. Everybody gets the same stream of packets and have to cope with "noise", data errors and drop-outs themselves.

With the Internet, to reach more people, you don't need higher and higher-power transmitters. The network switches copy the packets as needed, acting like perfect local amplifiers for radio & TV.

Not only does the cost of setting up as a broadcaster fall to a few thousand dollars, the consumer charges are low. I'd expect $5/mth for every channel would do it. As the Coalition point out, 12Mbps will stream a couple of StdDef TV channels or a HiDef channel. If you have a phone service and an NTD, you've got 12Mbps. For an extra $5/mth, why wouldn't you get multicast TV?

To set yourself up as a Internet broadcaster over multicast, what do you need?

• Access to RSP's multicast channels, presumably free or cheap.
• One server, even in a home. Probably three in different locations would be good.
• One uplink into the network to handle your 3-8Mbps. Domestic quality links will probably do.
• More likely, you'll pay a small fee ($5-50) to a commercial provider to upload your content ahead of time, then they'll stream it everywhere at a scheduled time.

This is like Youtube: anyone can upload short content for free, longer programs cost money.

Then "servers in the cloud" send it out...

Multicast is exactly like Broadcast, you trade flexibility for price and scheduling of programs.

For people who are willing to trade program cost for time of viewing, this works exceedingly well. 

In these days of cheap PVR's, it's a boon: you get "watch on demand" for the price of broadcast.

There is a significant and valuable market segment that still needs to be catered for:

• people who want more than the scheduled service and are willing to pay.
• you might only broadcast StdDef programs and charge for HighDef, 3-D and others.
• Sports fans will pay a lot to see events live.
• and even more to access multiple, special views
• or if I love a movie, program or series, I might want to buy it and add it to my iTunes/whomever account, then and there.
• There is also a well-established market for "niche" content, be it First-Run movies, Concerts or "Adult Content".

Like broadcast satellite TV, multicast packets can be encrypted, ensuring that only those with the program key can view it. It's relatively easy and low-cost to securely distribute program keys only to paid-up subscribers.

As I've outlined previously, Free-to-Air broadcasters, both commercial and funded, can leverage multicast:

• accurate, real-time program viewing data ("ratings"), including time-shifting, and
• personalised advertising streams
• and "click-to-buy" or "click-for-info" on adverts, directly linked to advertisers.
• The pizza delivery guys would love this!

This is the disruptive business model a universal broadband system can bring: a cheap multicast system for scheduled programs, accessible to micro-vendors with a simple "upsell" capability included.

What we don't know is the market price-points, but evidence from iTunes and Amazon suggest $1/item is one and under $10/month another.

We don't need to reinvent the Big Studio and near-monopoly Premium Services again on the Internet, we can do something different and for the first time allow near direct access to artists, performers and entertainers by the mass-market. 

We could enable many talented people to earn a living practicing their craft in this way, just as Amazon direct publishing is allowing a slew of writers to earn real money, $1-$2 a time. The publishers also benefit from this: authors get to hone their craft, they improve their work with market feedback and establish a following which the publisher can then leverage with the skills, resources and marketing channels at their disposal. Lower risk, higher sales, what's not to like?

This is a powerful and worthy shift in our society.