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IPTV VALUE - Turning consumers into producers
Product success or disaster ultimately comes down to how compelling the experience is to the end user. Some of the most significant successes in the ITC industry, like mobile services and more recently iTunes and iPOD, combine new innovative consumer electronics with the value of being connected to a network. Is IPTV the next service to fuel growth for service providers? Is the offer compelling enough to drive migration from satellite and cable? Per Lembre takes a look
The drive to unify video entertainment, voice, broadband and mobile has already had significant market implications. Recent M&A activities like Tele2 and Versatel, BSkyB and Easynet, Telenor and Bredbandsbolaget, were all motivated by gaining access to broader customer bases and to leverage a wider set of services to attract and retain those customers. In parallel, new technologies emerge to increase capacity and provide greater functionality in support of a converged service offer. The rational is to share resources between services, simplify operations and increase end user experience.
Whilst there are many advantages in delivering multiplay services, service providers still need to look carefully at their video offer itself and consider how differentiating and thus how successful it may be. Video over broadband is finally growing rapidly in Western Europe. Point Topic reported almost 3 million paying IPTV subscribers worldwide as per June 2006, with half of those users resident in Europe. This is in line with some projections, but lower than what many forecasted just two years ago.
The European market for IPTV is fragmented to the extent that it may even be misleading to say it is one market. Rather, every country is a market in its own right, with its own specific attributes. There are several factors that service providers will need to look into when deciding their IPTV strategy. What is the broadband penetration and what does bandwidth competition look like? Are pay-TV services already popular? What platforms do people use to receive their TV signals? The introduction of digital terrestrial TV in countries like Germany, Norway and Sweden forces long time terrestrial users to change from analogue to a digital solution. This technology shift constitute a window of opportunity for IPTV broadband providers, however the window is rapidly closing as people invest in digital set top boxes to continue to use their legacy antenna solution.
Content not enough
Some of the early IPTV pioneers, like Fastweb in Italy, have successfully secured exclusive content, in particular rights to the national football leagues. By carefully selecting high value content, service providers may drive initial penetration levels for IPTV in a similar fashion to how cable and satellite providers attracted subscribers to their pay-TV content some 20 years ago. The challenge here of course is that content rights are already distributed in all developed countries, so what content can possibly be out there that is attractive enough to drive mass adoption of IPTV?
Maybe that is the wrong question to ask. Over time, most premium content will tend to be available on all distribution platforms, simply because content owners will make more money that way. Instead, let's look into the unique capabilities in IPTV. What can the platform provide that traditional broadcasting can't?
First, IP networks are far better suited to deliver unicast traffic, sending data from one source to an individual consumer. This is perfect for distribution of video on demand (VOD), and to allow for a more personal user experience. Adams Media Research recently forecasted consumer spending on video download at $4bn by 2011.
Second, it allows for greater measurability when compared to broadcast technologies. IP networks can provide information about what the users want, when they want it, and what additional services they may be interested in. This has great implications for the multi-billion dollar advertising market. Targeted advertisements represent two to ten times the value to broadcasted advertisements, and when the big brands start to push new innovative advertising on IPTV platforms to get interactivity and better measurement, then the advertising market will embark on a new journey.
Third, and probably most important to the consumer, IP networks allow the user to play themselves. Few consumers use the service provider home page as their starting page on the Internet. Why would they go to a single service provider portal for all video content? The concept of active users, exploring and even producing and sharing content with others actually play to the traditional strength of service providers: It is about personal communication. Let's embrace it.
Consumers or producers?
User Generated Content (UGC) was one of the hottest trends in 2006 and gained a lot of business interest when Google acquired YouTube for $1.65 million in October. Building strong communities and allowing users to produce, share, view and contribute to content creation has already made an impact on the media industry.
UGC is another example of how different innovations together form a critical mass to allow a new service to succeed. UGC wouldn't have been possible without video consumer electronics that you can carry around in your pocket. Nor would it have taken off without inexpensive PC-based publishing software. Or broadband and community portals like Break, YouTube and national news portals allowing upload of video content from citizen journalists.
When Internet users in the UK, Germany and France were asked if they have shared any video content over the Internet, in average 8.7 per cent claim they have, with French users scoring highest at 11.7 per cent. This corresponds to almost 3 million broadband users sharing videos over the Internet. Given the early phase of UGC, this is a very significant number. Subscribers to IPTV services may not only want to look for the hottest releases from Hollywood, they may want to take part in some of the production itself.
Studying consuming behaviours of video content on the Internet, UGC came out as the most attractive type of content with 47.1 per cent of viewers (1).
Telco TV providers have a unique opportunity to blend UGC with broadcast content. Service providers can potentially play a significant role in adding capabilities such as encoding quality levels for UGC suitable for large screens, infrastructure for micro payments, and the concept of 'family channels', allowing users to broadcast themselves. As the IPTV market unfolds, these capabilities help differentiate IPTV against legacy TV distribution platforms.
Understanding consumer preferences
The European IPTV market is still in it infancy and it is hard to foresee how it will evolve over the next years. Broadcasters have started to put a limited set of content available for on-line streaming. Peer-to-peer technologies are evolving from file sharing and voice applications to distribution platforms for television and on-demand streaming media. To add to the complexity, illegal distribution of TV channels over the Internet puts higher pressure on guarding principles on content rights.
The secret lies in understanding consumer preferences. Over time, they tend to get what the want. The early video over broadband market indicates that consumers are moving from passive users of TV broadcasted content. They participate themselves, they vote, they produce and share, they put an alternate end to the latest story online, and they brutally rank what they see. IPTV may put an end to zapping, it may bring a far more personal entertainment experience, and it may swing the advertising market around. To succeed IPTV providers need to break out of the me-too services and leverage the inherent personal nature of IP networking.
(1) UGC and news preferred over sports when users are asked what video content they currently download and watch on the Internet.
Source: Juniper consumer survey, Nov 2006
Per Lembre is Head of Multiplay Marketing, Juniper Networks EMEA, per@juniper.net
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