PeerApp, a Newton, MA-based maker of caching servers that Internet service providers use to speed delivery of frequently-downloaded peer-to-peer video and music files, said today that it has closed an $8 million Series B financing round. Investors Pilot House Ventures, Cedar Fund, and Evergreen Venture Partners, who ponied up $3 million in Series A funding in January, all returned for the Series B, which will go toward an expansion of the startup’s sales and marketing operations. We profiled PeerApp last December.

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PE Week Wire reported this week that PeerApp, the Newton, MA-based peer-to-peer (P2P) video distribution startup that we covered on December 12, has collected $3 million in new venture funding. The round was led by existing investors Pilot House Ventures, Evergreen, and Cedar Fund. The company’s proprietary server technology helps Internet service providers mitigate the drain on bandwidth when customers download video over P2P networks such as BitTorrent.

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When it comes to peer-to-peer (P2P) file-sharing systems such as BitTorrent and Gnutella, the technology world has a like-hate-love relationship. Content owners such as TV networks tentatively like them, since they make it cheaper to get high-bandwidth content like video out to viewers over the Internet. Internet service providers (ISPs) such as Comcast hate them, because P2P content clogs up their broadband networks without bringing in extra revenue. And consumers love them, because they can use the systems to download a host of songs, movies, and TV shows fast and free.

But if two venture-funded startups pairing up to make things easier for the ISPs succeed, the result might just be a like-like-love situation—or at least like-tolerate-love. That could be a big business win.

NY-based Pando Networks runs a commercial P2P network that was originally built to help people swap large e-mail attachments and has now been optimized for delivering high-definition video over the Internet. Newton, MA-based PeerApp makes caching servers that store the most-frequently-requested P2P content inside an ISP’s network, drastically reducing the amount of bandwidth sucked up by content streaming in from far-away peers. The two companies announced yesterday that they are integrating their products.

The result may be a distribution service that ISPs don’t mind hosting because it isn’t such a bandwidth hog, and that content distributors such as NBC (a Pando customer) like even more because they know it won’t rankle the ISPs as much (and because it’s cheaper than using traditional content distribution networks such as Akamai, which I wrote about yesterday).

“In many places in the media world, P2P was long deemed the enemy,” says Eliot Listman, a business development director in PeerApp’s New York office. “It was seen as this rogue methodology for distributing content without paying the content owner for the content and without paying the owners of the pipes for the infrastructure. But what Pando is selling is a P2P-based way of delivering licensed content for the same large media companies that use traditional content distribution networks like Akamai. And bringing in PeerApp couples that with the interests of the ISPs, by helping them to cache and accelerate the content.”

The enemy, in other words, is being rehabilitated. And just in time, too. It’s estimated that P2P content—that is, information that consumers are downloading from each others’ machines, using software such as BitTorrent that breaks media files into chunks and distributes them across a network of peers—accounts for as much as 40 to 70 percent of the data flowing through the ISPs’ pipes. And those pipes are being further strained by … Next Page »

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