As the fight among carriers for media and entertainment clientele intensifies, Level 3 Communications has quietly developed a major relationship with Sony, with the two planning to deliver digital movies, music and games to customers.
Level 3 and Sony have negotiated contracts calling for the carrier to transport content for various Sony initiatives, including the Screenblast video and audio distribution technology. Level 3 execs hope to leverage the relationship to launch more cohesive multidivision services for Sony.
After working behind the scenes for about two years to make inroads into Hollywood and the broadcast media world, Level 3 is making public its plan to offer network-based services that will encode, distribute and deliver content. Level 3 executives are preparing a new generation of services, armed with knowledge of what customers such as Akamai Technologies, AOL Time Warner, Comcast, DirecTV, EarthLink, Sony and The Walt Disney Co. are doing individually. Customers such as Sony could use the new services to launch entertainment offerings over the Internet.
"Sony Online Entertainment was the first beta customer that we had in our New York and Los Angeles gateways," said Mike Knaisch, Level 3s senior vice president and head of its media and entertainment unit. "Through that anchor relationship, we expanded across Sony to include Sony Media Solutions and Sony Digital Pictures Entertainment."
Knaisch hopes the recent announcement that five major Hollywood studios are starting a joint venture to deliver digital movies will help Level 3 gain an advantage in IP distribution by leveraging its business model. The carrier plans to sell more bandwidth for the same price by taking advantage of advances in fiber-optic technology.
"I think what they are talking about is an alternative distribution, such as something that would compete with or supplement Blockbuster," said David Takata, a financial analyst of investment firm Gerard Klauer Mattison & Co.
Level 3 also plans to face off against rival Global Crossing through an extranet offering that will target the business of moving unfinished video between post-production studios. Meanwhile, Global Crossing is expanding into turnkey digital media distribution, along with Level 3.
Global Crossings Media and Entertainment division has a head start: It signed the British Broadcasting Corp. and CNBC Europe earlier this year, and plans to announce a plethora of new customers at a European cable show in mid-September. Global Crossing is also investigating alliances with satellite companies.
"We will be able to partner to expand the pie, instead of displacing their customer base," said Donna Reeves, president of Global Crossings media & entertainment division. "Me and my large backbone fiber are never going to go to the consumer. So I need to partner with satellite providers to go to areas where fiber doesnt go to today."
With new-generation carriers feasting on these opportunities, some predict companies such as the BBC and Sony will grow into new anchor tenants for the networks of companies like Global Crossing and Level 3. By outsourcing hundreds of millions of dollars worth of business to carriers, the content players may fill the big empty pipes with music and movies instead of phone calls and e-mail.
But that day has not yet arrived, new telecom executives say. Reeves said it would take a movie studio about a year to be able to do widespread movie distribution on the Internet. Level 3s Knaisch believes the revenue from these new opportunities is also at least a year away.