We operate a couple of legal tubes with full scenes and we host all the content on our own servers.
If you have licensed the content, then you can push any sponsor you want, so that's the real advantage of hosting the content on your own.
If you use sponsor provided content, then just burn the sponsor bw and enbed all you can.
also, since you have licensed the content, you can watermark it with your tube URL.
You should encode your videos properly to burn the minimum possible bw while having decent quality. The encoding software and process is very important in this case. We use Sorenson Squeeze to encode our videos in mp4 format at 700 Kbps for 640x480 and 720x568 scenes. It may sound poor quality, but with the proper settings we get the same encoding qualities as encoding the same scene with other encoders at 2000 Kbps. The downside is that with these encoding settings the encoding process takes about twice the time it takes usually, but the resulting file is much smaller.
On the other side, having choosen 700 Kbps is completely deliberated, because some carriers restrict streams to 800 Kbps or 1000 Kbps. That stream speed ensures that your videos will always play regardless of what carriers does your data pass between.
We also created our own CDN that is transparent to our tube software, and is to any other software too. So we could change the tube software without worrying about the content hosting structure. Just tell the tube script that the video is on
http://cdn.example.com/videos/dvds/d...cene/video.mp4 and let the cdn deliver the video regardless of the tube software itself.
Also we geolocalized that CDN to ensure that surfers get the fastest video server near their location. For example, surfers from France will get the videos delivered from french servers while surfers in USA will get them delivered from USA located servers. This allows us to hire cheaper servers while achieving better speeds worldwide than with high cost servers at a specific place. No matter how bad are our french servers outside of France, they will deliver data to french surfers faster than anything else placed outside of France... you get the idea I guess.
For the streaming servers we use per stream capped configuration capping the streams at 1000 Kbps. That ensures 100 concurrent streams per 100 Mbit server witholut resting any user download speed. This grants that videos will always play and will not stop at mid download.
A typical tube with around 50k uniques can burn around 200 - 300 Mbit on peak hours with ease.
With this setup, out cost per 1 Gbps geolocalized data pipe is around 1000 - 1500 euro/month. That is 12 servers spread between USA, France, Amsterdam, HongKong, australia and some other places.
We could give you such kind of service if you want.