IPTV: Change is coming to your television sets.

Transcription

1 Digital Video IPTV: Change is coming to your television sets. By Amy Webb

2 Executive Summary: Youʼve been hearing about it for the past five years: ubiquitous connectivity, and especially to television sets. As of today, there are dozens of Internet-enabled TVs available for purchase and a growing field of content providers creating widgets, special programming and reconfigured broadcast shows/ feature films that are syndicated directly to home televisions. Consumers can now easily watch, stream, share, read and search for Internet and other digital content using nothing but their remote controls. Significance: IPTV has actually been around since 2005, but only recently has it started to reach a more general audience. Today, there are multiple IPTV operators with more than 10 million subscribers. However as the technology matures and begins to reach a critical mass, the marketplace is starting to divide into two ecosystems. Like the mobile market, a lack of standards and cooperation could lead to myriad proprietary systems commissioned by service providers and, as a result, multiple IPTV platforms. On the other hand, it is possible that individual service providers may develop towards a single, unified service platform. Right now, either scenario is possible. Key Definitions IPTV, or Internet Protocol Television, is a system by which Internet content, updates from social networks, feature films and regular television programming are delivered, on-demand, to households via a broadband connection. In the United States, broadband refers to data transfer rates that exceed 768 kilobits per second (Kbps). The average connection speed in the U.S. is 3.9 megabits per second (Mbps), while the average speed in South Korea is 14.6 Mpbs. Why IPTV Matters Now Netflix now offers an unlimited onthly streaming plan for $9, undercutting the price of its own DVD delivery service. There are 17,000 titles available for streaming. The price of IPTV offerings has dropped in the past 12 months, from $2,000 or more to less than $500 for basic models. Because the IPTV field is still nascent, content providers and advertisers should develop strategies now for delivering IPTV offerings during the next six to 12 months.

3 Basic Explanation: IPTV, or Internet Protocol Television, is a system by which Internet content, updates from social networks, feature films and regular television programming are delivered, on-demand, to households via a broadband connection. Some of you may remember Microsoftʼs WebTV 1, which enabled customers to check their and connect to the Internet using a television set (rather than a computer monitor) for display. In a sense, IPTV is an evolution of the WebTV concept. How IPTV Works IPTV requires a subscription to a provider and some additional equipment to work (either a set-top box or an IPTV-enabled television). In order to connect, the user simply plugs either device into an ethernet jack in the wall or directly into a modem. The real difference today, aside from content offerings, is that IPTV is now a service thatʼs provided by telecommunications companies, or telcos. AT&Tʼs U-verse 2 and Verizon FiOS are two examples of IPTV providers. In the U.S., cable companies, such as Time Warner and Comcast, operate under a service territory system, which traditionally has both decreased competition among players and provided less incentive to innovate or extend services to consumers. In the IPTV marketplace, telcos can circumvent the territory system to access a broad range of customers regardless of where they live. For example, on parts of the East Coast, Comcast has maintained a strong dominance in the marketplace offering consumers little choice, aside from installing a satellite dish, should they desire a variety of programming. Verizon, as a telco, doesnʼt have to abide by territory agreements. Verizon recently installed fiber optic lines throughout a wide swath of Washington DC and its surrounds, and residents there can now get access to cable stations (MTV, CNN, etc.) without ever having to deal with the regionʼs traditional carrier

4 For Verizon and other IPTV customers, the easiest way to access IPTV content is via an Internet-enabled television set. There are a number of suppliers and price ranges now from which to choose. Sonyʼs Bravia retails for $4, itʼs a 55-inch, 1080p LDC HDTV with instant Internet connectivity (just plug into wall and youʼre live). While the picture may not be as crisp, Samsung has a 32-inch LCD HTDV that retails for $900 and the same Internet functionality as the Bravia. All thatʼs really needed to get surfing is a service contract and a remote control. But users can also take advantage of IPTV offerings without an Internet-enabled television. New competition in the IPTV space includes Blu-ray players, which are capable of streaming content, and a number of box-based offerings that include Microsoftʼs Xbox 360, Roku HD, MediaPoint and Apple TV. As an example, the Xbox 360 uses the Xbox Live 3 program to offer streaming and other Internet content. Weʼll be the first to point out that this is not a plug-and-play system and requires some technical knowledge, experience working with Windows and a fair amount of patience. Still, after the initial setup (and requisite firmware upgrades, patches and other downloads that come with installing a Windows product), the interface is easy enough for anyone in the household to use. In addition to IPTV sets and box-based offerings, there are also a number of companies, such as Netflix, Amazon and Hulu, delivering live TV or video on demand services now via the Internet. 3

5 Some Key IPTV Players Content provider examples: Yahoo! Connected TV. Main supplier of widgets for IPTV. Coca-Cola Bubbles: Was the first commercial widget for Joost, an early IPTV provider. Verizonʼs FiOS Widget Bazaar SDK: Box-based suppliers capable of delivering streaming/ displaying Internet content: TiVo HD DVR Microsoftʼs Xbox 360 Sonyʼs PlayStation 3 Apple TV Roku HD MediaPoint Vudu Boxee Component suppliers: Sun Microsystems: Built Java TV system. Adobe: Flash is being used in many client-side applications. Oracle: Oracle Video Server is being used for streaming technology. Fig. 1: Sample list of current Internet-ready LCD TVs available in the U.S.

6 In addition, a number of service providers have started to partner with IPTV and gaming console manufacturers to deliver a number of streaming services. Netflix has initiated a subscription model while other providers, such as Blockbuster, use a pay-per-view pricing schedule. Itʼs important not to disregard Hulu ( as a player in this space. Hulu is expected begin charging for some of its available programming within the next few weeks. Fig. 2: Sample list of online streaming services that can be used with IPTV sets, Blu-ray players or other Internet-enabled devices.

7 Typical Fee Structures Currently, we observe three primary fee structures for accessing IPTV content: Free: Many of the widgets from Yahoo! and Verizon are available for free. Content from other providers, such as Netflix and Hulu is advertising supported and delivered at no cost to the consumer. Subscription: Some providers charge a premium to access certain content or content verticals. Pay-per-view: Just as in a traditional cable setting, episodes, movies or live events are priced a a set fee. How is IPTV Being Used? Because the market is still growing, IPTV is mainly being used by two groups: knowledgeable consumers who either opted for fiber because of Internet connectivity speeds and bought a bundled package (phone, cable and Internet), or geeky consumers who specifically sought out IPTV service and had already purchased either a box-based offering or IPTV set. In the coming 6-12 months, we expect to see IPTV being used in the following ways: Targeted advertising that incorporates personalized content, a connection to what the viewer is watching at that moment and geo-aware campaigns. Bringing social networks into a broadcast viewing environment, so that friends and colleagues can comment on content or have live discussions in real-time. Allowing users to work while they watch: , Internet browsing/ searching. Adapting the webisode content model for IPTV, with advertisers and other content providers creating specific episodes for Internet-enabled televisions. Programs will likely have some kind of action associated, enticing the viewers to make a purchase or share/discuss via a social network. To test new freemium business models as individual networks strike deals with other aggregators and providers (itunes, Amazon, Hulu, etc.).

8 Analysis: The Future of IPTV Market Growth When it comes to digital video, emphasis has been placed on the web as the primary delivery method. Webbmedia Group instead predicts that within the next months, nearly half of U.S. households will convert to either an IPTV set or will begin using a gaming console as a way to connect to the Internet. (In all likelihood, most growth will be in the later.) We believe strongly that within this timeframe, the online video distributed and consumed via IPTV will increase dramatically. To wit: Xbox Live debuted Netflix as part of its offerings in November Within the first three months, more than 1 million users -- or 10% of Netflixʼs total membership at the time -- activated the Netflix client and watched more than 1.5 billion minutes of movies and TV episodes 4. Monetization - Advertising In the short term, Webbmedia group believes that ad-supported content will be a driving force within IPTV offerings. Options for users to watch full-length, feature advertising without further program interruption or in-stream video (pre, mid, post-rolls) as well as product interstitials will continue to play an important roll in monetizing video content. In addition to in-stream video advertising, widgets and third-party applications will continue to display player skins, banners and interstitials. That said, we do envision an environment where subscription-based streaming will diminish the need and desire for advertising. Monetization - Content Webbmedia has been researching the potential future availability of a universal IPTV app store, much like Verizonʼs Widget Bazaar or Appleʼs itunes Store. While we think that this is a difficult prospect, even in the very long-term, we do think that individual vendors and providers will begin to create robust IPTV app store environments, hoping to mirror the success of itunes. In this scenario, we envision a revenue sharing model -- and app approval process -- much like that of Appleʼs. 4 Data provided by Microsoft.

9 Content - Availability We think that niche widget and video content delivered via IPTV will start to grow as the popularity of IPTV rises. Niche verticals catering to age (baby boomers, teens), ethnic (African American, Hispanic), religion (Christian), granular topic (health, football), profession (stay-at-home-moms, entrepreneurs), and eventually location (hyperlocal) will eventually emerge.

10 About the Author Amy Webb is the CEO and Principal Consultant of Webbmedia Group. She is an author, speaker and future thinker, adapting current and emerging technologies for use in communications. Amy has spent more than 15 years working with digital media, founding several web-based companies and now advising various startups, journalism associations and media groups as well as Webbmedia's clients all over the world. For more information, see: About Webbmedia Group Webbmedia Group is an international digital strategy consultancy that offers mobile, platform, social and emerging tech/ media strategic services and workshops to Fortune 500 companies, media organizations, mid-sized businesses, governments and universities worldwide. Webbmedia Group provides insider access and tech insights to our client base. Our detailed analysis, tech trend reports and quarterly tech wrap-ups help our clients learn about new industries and gain better expertise in those they already know. For more information or to inquire about our services, please see or call our office: (267)