TV, the Telco way. TV, the Telco way. Cloud TV: netgem.com. Finding the value in the Cloud. netgem. for Telcos. TV, the Telco way.

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1 Cloud TV: Finding the value in the Cloud for Telcos

2 Partnering and Cloud There is a huge wave of activity going on to roll out Quad-plays and TV services for Telcos. In Europe, there was a record level of M&A activity in the last few years, with convergence plays as one central rationale alongside consolidation of the market. The current wave of convergence plays is really focused on offering integrated propositions to consumers via true triple- and quad-plays across TV, Mobile, Fixed and Broadband. These drivers for convergence will continue and will spread as more markets mature or as enabling technologies are deployed more widely. Technologies like high speed fibre networks or 4G and Telco grade WiFi access networks. These network enhancements are real triggers and enablers for TV services and emerging consumption on mobile and tablets as well as for out of home TV consumption. Customer behaviour changes is a factor as well. For example, with TV consumption behaviour will increasingly be more multiscreen, mobile and interactive (see our Netgem whitepaper: Millennial TV. TV, the Millennial Way Millennials are a leading segment here but other groups are increasingly using or wanting to use TV in non-standard ways. This usage pattern really does align with offering converged services and hits the sweet spot for Telcos, where the TV service is running on their fixed and mobile networks and creates value across the range. For many Telcos, partnering must become the logical choice to go-to-market. Although the TV Service is strategically important and core to their consumer offer, partnering really is the optimal route to market for Telcos. The cloud plays an important role in the delivery of the TV service and delivers the benefits of partnering. For example, for many Telcos there may be limited availability coupled with many demands on their Capex budgets. The cloud, (and partner route), can remove some of these specific issues for Telcos as they assess going to market with their TV service. This paper outlines the general benefits of cloud and going to market and then explores those areas where the cloud brings specific benefits for a TV service. Finally, we deep dive into Personal TV, Video the Telco Recording way (PVR) function which brings to life the cloud route and its implications. PVR functions are critical to a TV service. This paper outlines specific benefits of running PVR capability from the cloud versus locally on the set top box (STB).

3 General Cloud Benefit Irrespective of the specific area such as platform or infrastructure, there are a range of generic benefits of cloud computing which we cover here briefly. These benefits include: Time To Market A cloud deployment offers time to market advantages. This is apparent at first launch. Traditionally deploying a new server into a data centre would take many months in large organisation like a Telco. In a cloud environment this can take hours and at most a few days. Similarly, there are similar time savings as you need to add further storage or processing in life where this can be added quickly and not require a separate IT project taking months. These time savings cascade through all parts of the development process from application development to testing to deployment. For example, having a reliable and available and scalable application development environment allows the development team to focus on development rather than the setup and support of the development environment. These time savings accrue across development, test and deployment pieces. All this add up to time saving across the board. Many business and technology leaders state that the time to market benefits are the single most important benefits of cloud computing.

4 Scalability with On-Demand Cloud-based services are ideal for businesses with growing or fluctuating, unclear or new demand. If needs increase, the cloud model allows for scaling up capacity or different parts of capacity. If there is a need to scale down, that flexibility is supported as well. This level of agility gives businesses using cloud computing a real advantage over competitors. Non Functional Benefits/Disaster recovery Cloud suppliers support high levels of non-functional requirements. These requirements cover the key areas from availability, to scalability, to disaster recovery and reliability. Performance for TV is critical both in terms of the cloud operation and also the operation of specific TV applications. Cloud delivers levels of provision which often would be beyond the means of many businesses or are required but expensive for larger organisations like Telcos. Cost savings GlobalnPVR Non functional On-Demand Data Simplicity Non functional npvr Cost savings Privacy Private Networked Security Scalable Innovation Networked Agility Security Telco User Experience Innovation On-Demand Telco Global Multi-screen Simplicity Multi-screen Private User Experience Time To Market Managed Service Managed Service Data Agility Low Capex Scalable Time To Market Privacy Low Capex

5 Cloud computing is often far more secure than traditional computing, because companies like Google and Amazon can attract and retain (the best) cyber-security personnel Vivek Kundra, Federal CIO of the United States Security The security benefits of a cloud deployment are nuanced and there are some advantage and disadvantages versus on premise and these can also vary across different industries. Typically, the larger cloud vendors will have greater resources, and visibility across the global security landscape and threats than any individual enterprise or Telco. As with other non-functional benefits, cloud delivers to a service level which often would be beyond the means of many businesses or are required but expensive for larger organisations including Telcos. Simplification For the base infrastructure, cloud promotes simplification of the underlying IT infrastructure and resources to fewer standardised products, technologies, and platforms. This standardisation reduces operational complexity and promotes operational consistency. Cloud also encourages IT to develop a catalogue of standard services on which to build business capabilities. Simplification has additional benefits with regard to both cost and reliability.

6 Cloud for TV - Benefits for the Telco user experience For a TV service there are several areas where a cloud deployment delivers benefits that are specific, or have specific nuances, to the TV service industry. User experience is central to any service, especially for digital services. User experience, including richness, relevance, and responsiveness of interactions, ties to key financial, business and customer KPIs. For a TV service where usage is becoming more multiscreen, mobile and interactive, the user experience needs to be nailed at launch and over time as preferences and behaviours continue to change. User experience across multiple screens is now the single most important factor of a modern TV service. Cloud is a key enabler for a multiscreen experience. The cloud model can ensure the interaction from TV to PC to Tablet to Mobile is seamless for consuming TV. For example, synchronisation (content, usage, status) is more straightforward with the cloud being the central control point. It also enables more sophisticated viewer scenarios where devices are being used for control and companion activity. Inserting more complex discovery or sharing capabilities can also be supported. As we look beyond individuals to families and group, these kinds of user experience must be via the cloud rather than local and device based. There are often device dependencies in an end-to-end user experience but the cloud route offers the most effective way to enable and deliver multiscreen and then increasingly more sophisticated usage. Finally, the rate of change in TV is another challenge for TV, a Telco the and Telco ongoing way enhancements are more easily supported (assuming you have the right vendor) as you update the core applications which then cascade through to the TV service and the user experience.

7 agility and innovation Big forces are changing and shaping and impacting the TV industry. The changing preferences of end users drive changes to the user experience. There are other forces in play including market, content, technology, and regulatory shifts. All of these forces are changing the industry and TV services. In this context agility and the need to keep innovating are critical. In some respects this change has been highlighted for the user experience area in the preceding section. They apply across the board as TV services becomes more mobile, interactive and more sophisticated. the cloud is the latest example of Schumpeterian creative destruction: creating wealth for those who exploit it; and leading to the demise of those that don t. Joe Weinman, Author of Cloudonomics: The Business Value of Cloud Computing Shortening the length of time from an idea to the development and then launch of an idea is important because being first, conveys many advantages. Generally, in a changing market, responding to competitor or customer or technology changes is absolutely necessary to keep the service competitive and relevant. It is critical to plan in the ability to evolve the TV service and the cloud route offers the best platform for support innovating and updating the service.

8 capital-expenditure and cost reduction The Capex and Cost reduction impacts apply to many industries and-or service/solution areas. As a Telco looks to launch a TV Service as part of a triple- or quad-play, these are important considerations and there are specific points which relate to the TV service. Cloud computing cuts out the high cost of hardware. The commercial model is pay as you grow. This model is also positive from a cash flow perspective as well. Adding in the ease of setup and management, then Capex hurdles and ROI requirements for any big project are either removed or significantly reduced. The ability to scale up and down also ensure good use of organisational funds. For a Telco which already has significant demand on available Capex from core areas like its network, reducing the Capex hurdle for a TV service is a big benefit. In addition, it may take time to embed the TV service in the organization and integrate the service offer with their fixed, mobile and access businesses to their customers. This creates more variability in forecasting demand (especially with regard to timing) for the service. Not needing to allocate Capex upfront is a big plus.

9 capital-expenditure and cost reduction There are nuances to the cost profile of IT and these vary business per business. As a general rule, there are two ways where the cloud can bear down on costs. One route is when cloud providers are able to offer a unit of compute or storage more cheaply. For many organisations this will be the case but needs to be assessed area by area. The second route is around business focus services and technologies which are not core to the business both in terms of the service delivered and/or the inherent knowledge of the organisation/it team often should be delivered via cloud. For example, if a Mobile Operator s core business and competitive advantage is driven off its network, there is limited technical sense to IT building some on premise TV and content delivery capabilities to expected peak demand and set subscriber levels. The optimal approach for many businesses is some mix of cloud and other on premise deployments depending on business focus where core technologies are run close to the business and non-core technologies are run from the cloud. The TV service is core or becomes core from a strategic or commercial perspective. From a technology perspective, it is better to treat it as non-core as the technologies as the technologies and processes for a TV service are quite different. The industry already has many example of in-house builds and deployments which have taken years to set up, failed to operate effectively and are then very difficult to change and re-orient.

10 Cloud Benefit PVR In the Cloud As we look at important parts of a TV service we can identify benefits that relate to that area. This section uses one central capability of a TV service Personal Video Recording to illustrate and bring to life the benefit of cloud. Historically, PVR has been a central cost driver of the set top box because of storage costs, tuner requirements and increased processing needs. The section outlines the benefit of moving this PVR function to the cloud. There are significant benefits of running PVR from the cloud, though for legal, regulatory, commercial and rights/content reasons, there may be a need to limit cloud PVR function and/or propose more mixed/hybrid models. The Personal Video Recording function allows customers to have access to features such as play, forward and rewind. The recording function is also important and can include: basic recording to recording a season/set to recording multiple channels at the same time, to replay / instant replay to recording in the past. The functions that were previously supported in a separate video or DVD player were transferred (and extended) to the TV service via the set top box. The set top box software, tuners, processors and storage were all enhanced to support these capabilities. Year on year, the functionality and capability increased and now it is not unusual to see PVR capabilities where you can record many channels concurrently, with leading STB supporting a terabyte of storage or more, many tuners and high specification processors. Moving to the cloud creates the next big wave of PVR evolution.

11 cloud PVR offers new possibilities and new user experiences to TV viewers: Flexible and on demand storage capacity adjustable to suit individual customer needs; Enabling offer with potentially unlimited recording; Simultaneous recording of many channels; Watch recordings on any device without any constraints; Server side storage allowing both redundancy and more security in accessing. I don t need a hard disk in my computer if I can get to the server faster... STEVE JOBS 1997

12 changing the cost profile Although storage costs are reducing dramatically the cost of cloud model drives a much lower cost level than local based options and more so for a specific consumer premise device like a set top box. With a cloud based approach, there is no need to deploy hard disks locally in the set top box, the tuner demand diminishes and the consequent processing needs are also reduced. Back of the envelope, typically a set top box with 1TB of storage would cost around 50 euros. For a planned subscriber base of 100,000 this would equate to 5 million euros without even factoring tuner and processor impacts.

13 changing the cost profile Although the full cloud PVR application and storage need to be set up, the equivalent TCO will be much lower with a cloud delivered service: First of all, via a provider like Netgem, the direct cost for that level of storage is significantly lower. Critically this cloud based storage can be acquired on demand so that the cost of storage is only used as needed and actually is matched exactly to the user need. Many users only use a fraction of the storage provided on their local boxes. There are also some clever architectural techniques to reduce the storage level required in a cloud environment. For example, multiple users accessing single copies of content. In simple terms, if a thousand people record a series, you don t need to hold a thousand copies in the cloud. Netgem also has an architectural model and a range of proprietary techniques, to reduce these storage requirements even further. In additional this storage can often be used across the cloud environment for many different parts of the TV service beyond PVR such as catch up and on-demand TV. There are supplementary benefits as well: working capital impacts are positive as cost accrues when storage is used rather than as the set top box is shipped (often well before the actual sale to the customer); there is the additional cost reductions as we consider impacts on tuners and processing, etc.

14 commercial This section has highlighted some of the key benefits of going to the cloud for PVR. These type of benefits can be highlighted for other areas of a TV service. TV, the Telco way Netgem has significant experience in helping make optimal use of the savings from cloud deployments back into the TV proposition and the end user offer. There is a real opportunity to materially differentiate across several key parts of the offer versus legacy technologies. Please contact us for this insight and case studies from different TV services operating across the world. 1 Cloud for SALE There are a whole range of other commercial benefits that accrue with PVR in the cloud: In the preceding section, the ability to be agile and innovate was highlighted as important for a TV service. This applies equally to the PVR area. PVR capabilities can be adjusted after launch. Software can be updated over time. If a competitor launches an enhanced storage offer, the cloud models offers the ability to respond quickly and change the offer on storage. Storage is a significant part of the STB cost. Reducing the cost of storage creates more ROI and margin, allowing more competitive pricing in market and reduced price-points for the end users1. This is a hugely significant tool when positioning the TV service in the market. Offers can be much more compelling. For example, unlimited offers can be presented to market because average storage requirements for a customer base will sit well below the offer level and only a small percentage of heavy user take significant storage. Obviously for local storage on the STB, the local storage level needs to equal to the top offer level, irrespective of the customer use. Alone or with other part of the quad-play offers, cloud based storage can impact churn. The bigger the storage capacity and retention time, the stronger the anti-churn component. Insight on usage is readily accessible from the cloud but not easily accessible from a device with hard drives or many devices with hard drives. This insight enables Telcos to get an accurate picture of usage, often in real time, which supports both optimising the solution and improving the TV service itself.

15 Conclusion Conclusion Conclusion Conclusion Conclusion All the general benefits of the cloud apply to a TV service. However, there are some absolutely critical areas which mean cloud computing needs to be part of a Telco TV service now, or at least planned in for the future. User experience in a multiscreen world with rich content and more interactivity, can only effectively and consistently be delivered via the cloud. And it is not just being able to deliver the current user experience but innovate and evolve it as user habits, content and technologies evolve over time. The innovation and agility benefits are central to a TV service and again a cloud based platform is best placed to support innovation and evolving the service. Committing to a TV service is a big, but often necessary, play for a Telco. The Capex and cost benefits of the cloud route help create the right financial environment and remove significant barriers to entry for the Telco. This paper highlights PVR as one area where significant benefit can accrue. Running PVR from the cloud delivers commercial and technical benefits. PVR was used as an example to bring the cloud computing route to life but other areas of a TV service will also have specific benefits as well. There is significant value for a Telco from the cloud route. Simply, TV s future is increasingly in the cloud.

16 Summary Netgem provides Fixed and Mobile Telecom operators with #TelcoTV - a superior TV service, offering intuitive navigation, simple access to the content consumers love, and multiscreen viewing, in- and out-of-the-home. We offer the widest choice of local and international linear and on-demand content, with flexibility to enjoy both free and affordable premium channels. With 20+ deployments in Europe, APAC, and South America, and over five million active viewers, Netgem is best placed to partner with the most innovative telco operators and help them win in their market. #TelcoTV is what we do, it s TV the Telco way. Find out more at Credits: freepick