Google and cable firms warn of risks from Web TV
AMSTERDAM (Reuters) — New Internet TV services such as Joost and YouTube may bring the global network to its knees, Internet companies said on Wednesday, adding they are already investing heavily just to keep data flowing.
Google, which acquired online video sharing site YouTube last year, said the Internet was not designed for TV.
It even issued a warning to companies that think they can start distributing mainstream TV shows and movies on a global scale at broadcast quality over the public Internet.
"The Web infrastructure, and even Google's (infrastructure) doesn't scale. It's not going to offer the quality of service that consumers expect," Vincent Dureau, Google's head of TV technology, said at the Cable Europe Congress.
Google instead offered to work together with cable operators to combine its technology for searching for video and TV footage and its tailored advertising with the cable networks' high-quality delivery of shows.
One cable chief executive, Duco Sickinghe from Belgian operator Telenet, said it was "the best news of the day" to hear that Google could not scale for video.
Mixed blessing
Google was welcomed with a mix of fear and awe by the cable TV companies, which are concerned that Web companies will try to steal their lucrative TV business. The Internet on the whole is a mixed blessing, cable carriers said.
Broadband Internet delivery to homes and small businesses is one of the most lucrative segments for cable TV operators, but heavy investments in infrastructure are needed to meet the rapid rise of Internet file-swapping and video downloads.
The data involved in one hour of video can equal the total in one year's worth of e-mails.
"Most of the IP (Internet protocol or data) traffic is peer-to-peer (file swapping), and most of that is video. Every year we have to invest substantially just to maintain the user experience. In fact it has actually decreased," said Spanish cable operator ONO Chief Executive Richard Alden.
"People (Internet service providers) don't like to talk about (the fact) that just to stand still, they have to invest. But you cannot keep investing at the same clip," he added.
Research group Gartner estimates that 60% of the Internet traffic that is uploaded from computers is peer-to-peer traffic, mostly from consumers swapping films and TV shows through select user groups and BitTorrent.
Financial advisers praised the cable TV industry because, unlike the large telecoms operators, it has been expanding and has been more efficient with capital and more profitable.
Shares of cable operators trade at around nine times forecast 2007 earnings before interest, tax amortisation and depreciation (EBITDA), while telecoms operators trade at around six times, said Charles Manby, Goldman Sachs' global co-head for the telecoms, media and technology industries.
Cable operators are set to return to capital investments of a modest 10 to 12% of revenues, but they can be forced to spend much more due to outside pressures from increased Internet consumption and from rival telecoms operators that upgrade their broadband Internet packages to fibre optic super speeds.
"Then, the world becomes cloudy," Manby said.
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