7 Comments

Summary:

Remember all those stories and reports about how the writers’ strike was driving TV viewers over to the Internet? Limelight Networks wants you to forget them. After posting a larger-than-expected loss for its most recent quarter, Limelight says the current quarter won’t be much better. Why? […]

Remember all those stories and reports about how the writers’ strike was driving TV viewers over to the Internet? Limelight Networks wants you to forget them.

After posting a larger-than-expected loss for its most recent quarter, Limelight says the current quarter won’t be much better. Why? It’s those pesky picketing writers, who are costing Limelight $1 million this quarter in lost business. And they’ll cost Limelight millions more this year, even though they went back to work last week.

Limelight, which like Akamai makes money by shuttling high-bandwidth digital content around the Internet, said big customers are trimming their online spending until the release of new programming returns to normal.

Interestingly, although the strike began in early November and lasted for most of the most recent quarter, Limelight says it had little negative effect on its earnings during that quarter. But it’s urging Wall Street to revise down their future revenue projections. Limelight, whose shares fell 4 percent Tuesday before the bad news, saw them sink another 15 percent after they reported.

This is quite the contrast from Akamai’s recent report. Akamai said the use of online video was booming last quarter, pushing the company to surprisingly strong profit. Akamai also raised its own estimate for revenue this year to a growth rate of 28 percent.

It’s funny that the writers’ strike is hurting Limelight, but not Akamai. Of course, Akamai could suffer as well, but it’s at least as likely that customers are pulling away from Limelight because of the costly patent lawsuits brought by Akamai and Level 3, not to mention the brutal pricing wars in the CDN market.

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has a regular stock column at TheStreet.com and is a contributor to Wired, Business 2.0 and Popular Science. He has previously worked at Bloomberg News, Wired News and The Industry Standard magazine.

  1. You need to start reading Dan Rayburn’s Streaming Media blog.

    First of all, Akamai does many things beyond just CDN, whereas Limelight does only CDN. So it isn’t odd at all that Akamai’s earnings don’t move in concert with Limelights.

    The second thing is this talk of a “brutal price war”, which is never backed up by data. Again, Dan Rayburn has collected a lot of data showing that this “price war” is a myth. The GigaOm article to which you link talks about how Level3 is pricing its CDN service at the same level it prices bandwidth, and somehow this is supposed to instigate a price war. But do you even know what Level3 charges for bandwidth? They are one of the most expensive!

    Share
  2. Thanks for the tip, Andy. I’ll check it out.

    A quick Google search on “cdn price war” suggests there is plenty of talk about this elsewhere. If you have data to the contrary, feel free to post it here.

    Akamai stressed their revenue growth is across the board. Paul Sagan remarked several times in the Q4 call on how quickly entertainment content was moving onto IP networks.

    Share
  3. “…it’s at least as likely that customers are pulling away from Limelight because of the costly patent lawsuits brought by Akamai and Level 3…”

    Really? That’s a very specific statement, yet made in a general term with no details. Likely based on what? Customers you spoke to? Something Limelight said? Something you can point to? That’s a very_bold statement to make considering how many people are watching that trial very closely and any “assumptions” readers may make of that being true could have a big impact on the shares.

    And If anything, Limelight’s continued growth of net new customers each quarter says the opposite.

    Share
  4. Dan,

    I guess I’m flattered you don’t underestimate the power of a single blog post, but don’t you think there’s a danger in overestimating it? The humbling truth is that LLNW rose after my post appeared.

    I don’t think it’s controversial to say that costly patent lawsuits are huge turnoffs for investors and customers alike. Vonage is a good example. Limelight has been spending $2 million – $3 million a quarter on litigation costs, and it could run as high as $4 million this quarter, according to Limelight.

    Share
  5. Yes, the lawsuit is scaring some investors away, but you didn’t say investors, you said customers. To date, I have not heard of or spoken to a single customer who is worried about the lawsuit or has let it affect their decision on which CDN they pick.

    In the CDN market in particular, there are way too many “rumors” that are based on no data and even though you may be guessing, many people could see it as fact and run with it. Look at the rumor about Apple leaving Akamai to go to Google for delivery? That started as a quote on one website, with no name attached to it, and quickly became “fact” within a day with many investors, even though it wasn’t.

    Too much speculation in the market.

    Share
  6. chris arthur Tuesday, March 4, 2008

    jeez dan, lighten up… an opinion isn’t a rumor. is it speculation when you say level 3 is going to buy limelight?

    your own blog is sponsored by limelight. congrats on lining up such an influential sponsor!

    Share
  7. [...] the shuttering of Stage6 is just more bad news for Limelight, which recently blamed the writers’ strike for its poor [...]

    Share

Comments have been disabled for this post