Netflix Selected by Level 3 For Streaming, Storage

November 11th, 2010 by · 2 Comments

It's a bit anti-climactic now of course, since the news came out on Tuesday already and caused quite a ruckus for the stock prices of the three content delivery networks involved.  But this morning Level 3 Communications (NYSE:LVLT, news, filings) and Netflix (NASDAQ:NFLX, news, filings) made it official, and offered a few more details on the multi-year contract.  One thing to note is that the PR names Level 3 as 'primary' CDN provider for Netflix, which suggests that they may get a bigger share of this than Limelight Networks (NASDAQ:LLNW, news, filings) does and certainly have displaced Akamai (NASDAQ:AKAM, news, filings) from the top slot.  

Level 3 also gave more color on what that $14M in capex that was earmarked for this Netflix contract is going toward.  They will be adding another 2.9Tbps of total capacity to their CDN platform, giving them the "headroom needed to meet demand requirements from Netflix now and to accommodate future growth."  That is in addition to the company's recent addition of 1.65Tbps, most of which was done in the third quarter before this contract was won.  With 19 million subscribers by the end of the year, Netflix's traffic seems likely to drive more such upgrades down the line.  It will not just be streaming, but also storage of the entire Netflix library of content - currently over 20,000 titles and sure to grow quickly as well.  Level 3 will be doubling its current storage capacity in order to handle it, and content will be moved over to Level 3 storage in anticipation of a launch on New Year's Day.  

That's a pretty quick turnaround I'd say, especially for the holiday season.  I believe that when Level 3 lost out to Akamai at the beginning of 2010, they suddenly realized that Netflix is on course to be the marquee streaming customer, and the CDN that powers their growth stands to benefit greatly.  Level 3's VP of Content and Media, Mark Taylor, said "One of the primary advantages of owning our network is the agility it affords – we’re able to scale, augment and, ultimately, better control the performance of our CDN".  The key word there I think is agility - Level 3 is clearly moving heaven and earth to bring this deal home, and since they own the network they don't have to wait for others to provision services and can therefore always move faster than a CDN that can't - assuming they want it enough.  

There was a time a few years back when the integrations got snarled when it often took them an entire quarter to provision some of the products in their portfolio.  Now they're putting together a major global upgrade - adding 2.9Tbps and doubling their storage for the CDN business in less than that time.  Apparently, they've come a long way on the provisioning front.  Now if only they could get sales growth high enough to test the limits of that provisioning ability.

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Categories: Content Distribution · Internet Backbones

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2 Comments So Far


  • en_ron_hubbard says:

    Rob– check you gmail a/c. I sent you some industry stuff that you might find useful.

  • Anonymous says:

    While the announcement is undoubtedly good news, the effects are no doubt in the context of the convert selloff which made no sense. Add in the fact that LVLT is the largest or 2nd largest shorted stock on the Nasdaq exchange alongside SIRI but just $11M of stock trades per day. When you couple that with the amount owned just by the top two shareholders(when you can count all of Fairfax’s various subsidiaries) is a case study on liquidity squeeze that likely ins’t over yet.

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