With Internet video, speed sells

Internap cashing with rich-media offerings to big-name firms

Video is moving to the Internet at an alarming pace, and companies that make quality rich-media experiences happen quickly and consistently are benefiting. The names are familiar to those who remember the Internet bubble: Akamai Technologies, Level 3 Communications, Internap Network Services Corp., just to name a few. Investors in the latter watched shares plummet from $100 to 36 cents, though after a reverse split and renewed demand for its services, shares have recovered, closing Tuesday at $14.93. Internap CEO James DeBlasio recently spoke with The Hollywood Reporter West Coast business editor Paul Bond.

THR: Who are your entertainment clients?

DeBlasio: Internap is a full Internet services provider, from IP transit route optimization, CDN (content delivery networks), enriched media streaming, ad insertion and co-location data center services. We have 3,300 customers, including Flash video for Disney and video advertising services for MTV Italy. Also Spike TV, MySpace, the Sundance Film Festival and the American Film Institute. These are all products of the VitalStream business that we merged with.

THR: Why did you need to acquire VitalStream for $217 million last year?

DeBlasio: Prior to the acquisition we had 2,400 customers in e-retail, media, entertainment, online gaming, social networks, financial, all asking us for the same thing, to help them move up the value chain. What they particularly wanted was higher reliability video. That's why VitalStream was the perfect fit for us, because they got the products and platform that our customers were looking for. We're the only company that can guarantee 100% up-time. We take down space on eight relevant backbone providers, companies like MCI, Sprint, Level 3, we move IP over their backbones through our patented software. If it detects any latency or slowness on any backbone, it immediately shifts to the next.

THR: Why can't your customers just use peer-to-peer technology?

DeBlasio: They could, but the missing link is our software and architecture, which guarantees that from the point where we collect the data to the point where we drop it off, we route and monitor that traffic 100% of the way. It's a premium service.

THR: How do entertainment companies best take advantage of the Internet?

DeBlasio: The opportunity for us is huge. The major studios are trying to generate revenue by sending major releases over the Internet. We can provide the releases with speed and reliability. The user experience has got to be perfect. Once it starts getting slow, they're off. The real beauty is also the ad insertion, which enables them to monetize their content. You could be watching a show in L.A., and I could watch the same show in Atlanta and, based upon the information you and I have provided, you'll get an ad for a Ford that most people buy in your area, and I'll get one for a Ford most people buy in my area, based on our demographics.

THR: Internet video isn't perfect. What improvements can we expect in the near future?

DeBlasio: Everything taking place in the market now is about video on the Internet. Streams are growing in the 40% to 50% rate, advertising is growing at a greater rate. As video applications over the Internet grow, there's more of a need for delivery services because the quality has to be flawless. The supply of users on the Internet will drive innovation for increased speed. We're still a few years away from the kind of compression that will jumpstart the speed of video transmission, but all the market dynamics are there to spur investment.

THR: Is online gaming a big portion of your business?

DeBlasio: It's becoming one of our largest verticals. When users on the network demand a high-quality experience, that's what we do well.

THR: The bursting of the Internet bubble was brutal, but yours is a particularly gruesome example. What happened?

DeBlasio: You can look at the glass half empty -- that our shares went to 36 cents -- or look at it half full, that we survived.

THR: Can you tell investors why that isn't likely to happen to Internap again?

DeBlasio: If there's a downturn in the Internet economy -- no one is recession proof -- we have customers that are financially very stable. Our entire book of business pays within 40 days. That's good in any industry, that we have 40 days of sales outstanding, which means we have credit-worthy customers. Plus, we lock our customers in for long-term deals. We have IP deals for 1-2 years and colocation deals that span three years. We also span multiple verticals. Of our 3,300 customer base, not one is greater than 2% of our revenue base, so we're not relient on any one customer.

THR: Who are your primary competitors?

DeBlasio: No one company does exactly what we do. We have competitors in CDN, like Akamai, LimeLight, Mirror Image, Level 3, just to name a few. In route optimization our competitors are the same ones we partner with because we take down space on major backbones like AT&T, Sprint, Level 3.

THR: What kind of growth do you expect in the entertainment portion of your business?

DeBlasio: We've given guidance of year-over-year revenue growth of 30%, and I believe it's across all verticals on an equal basis. In media, I've given specific guidance on the CDN business, which is between 35%-40%.

THR: When will mainstream America enjoy Internet video on their living-room TV sets.

DeBlasio: As soon as they realize the benefits. With typical mainstream TV you break for a commercial, but with the Internet viewing experience the entire show can be an advertising experience as well, where there are hot spots on the show. When they see something they like, they can click on it and buy it, and return to the show exactly where they left off.

THR: What bit of advice would you give entertainment companies in regard to their Internet strategies?

DeBlasio: Deilivery is crucial. Having a company stand behind their service level agreements of 100% up-time is as critical as the content they are providing.