Telecom & Wireless

Netflix to Build Its Own Content Network (NFLX, INTC, GOOG, AAPL, AMZN, MSFT, AKAM, LVLT, LLNW)

Yesterday’s announcement from Netflix Inc. (NASDAQ: NFLX) that the company would its own content delivery network (CDN) based on the Open Connect standard. White-box provider Intequus will build the servers which will feature 100 terabytes of disk storage, 10 gigabytes on network throughput, and a Quad Core Sandy Bridge CPU from Intel Corp. (NASDAQ: INTC).

Netflix announced the CDN on its corporate blog and noted that Google Inc. (NASDAQ: GOOG) “has long had its own content delivery network” for the company’s YouTube video service. Netflix joins other major Internet traffic generators like Apple Inc. (NASDAQ: AAPL), Inc. (NASDAQ: AMZN), and Microsoft Corp. (NASDAQ: MSFT) among the few companies with enough traffic to warrant building out a private CDN.

The news has hit other CDN providers hard. Akamai Technologies, Inc. (NASDAQ: AKAM) is down -5% in the first half-hour of trading this morning and Level 3 Communications Inc. (NYSE: LVLT) is down about -1.3%. Limelight Networks Inc. (NASDAQ: LLNW) is the hardest hit, down about -9.3%. Netflix generated 11% of Limelight’s revenues in 2011.

It’s hard to see how a private CDN is going to improve Netflix’s bottom line. Netflix needs to expand its content offerings to keep ahead of Amazon and Hulu and the many other streaming video challengers to the company’s once indomitable position. And content now costs more, which has hurt both the top and bottom lines at Netflix. How a CDN helps with that is not immediately apparent.

Netflix shares are up about 1% this morning at $ 65.59 in a 52-week range of $60.70-$304.79.

Paul Ausick