As it moves to leverage its audience's huge appetite for video, MySpace is developing its own streaming media infrastructure. This news comes via an earnings update from VitalStream, which currently provides streaming services for MySpace.
"MySpace, which is expected to constitute 31% of revenues in the third quarter, has conveyed to us its intent to develop its own in-house streaming capabilities," VitalStream Chairman and CEO Jack Waterman said in a press release. "Although MySpace continues to use certain VitalStream services, we expect to experience a significant reduction in revenue from MySpace commencing in the fourth quarter. Our third quarter gross margins were negatively impacted by MySpace-related business, consequently we expect gross margins to increase in the fourth quarter."
The comment about lower margins indicates that VitalStream was providing its streaming services to MySpace at a significant discount to its standard pricing. I suppose if you have 75 million users, it's a lot easier to negotiate a nice bulk discount. Partly because of those pricing issues, VitalStream expressed confidence that it can "replace and exceed our lower margin revenues from MySpace with growth from our core content delivery business and growth of our advertising solutions in both North America and Europe."
VitalStream didn't provide any additional information on MySpace's plans for its streaming operation, but the phrasing of the statement indicates that it is an in-house project, rather than simply a switch to another streaming provider. It wasn't immediately clear if the announcement had implications for Limelight Networks, the content distribution network which also counts MySpace among its customers. The Fox TV network, which like MySpace is owned by News Corp., recently began streaming free, ad-supported episodes of several fall series on MySpace, making the web portal the center of its national streaming strategy.
VitalStream has data centers in Los Angeles, Shburn, Va., Amsterdam and Irvine, Calif., connected by a worldwide network.