Honolulu, Hawaii January 17, 2012
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1 The Opportunities and Threats From Next Generation Television A Presentation at the 34 th Annual Pacific Telecommunications Council Conference Honolulu, Hawaii January 17, 2012 Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law Penn State University rmf5@psu.edu Web site : Blog site:
2 Technological and Marketplace Convergence End Appointment Television The video marketplace has developed into a two-way way platform offering attractive alternatives to conventional broadcast, cable and satellite television. Television Over the Top ( OTT ) refers to the ability of content creators/distributors to provide consumers with access to real time streaming or file downloads via broadband links. Internet Protocol Television ( IPTV ) refers to the use of conventional operating standards and formats to deliver video content via the Internet cloud. Consumers now have alternatives to conventional video delivery business models, but incumbents are closing ranks to prevent self-help, cutting the cord strategies that eliminate, or replace their middleman control, aka 2 disintermediation.
3 Three Evolving Video Distribution Models 1) Illegal, copyright infringing access to content via efficient peer-to-peer file transfer, or other direct links, as well as real time streaming of video content files and Internet delivery of live television; 2) New, lawful access to live television or video files via new intermediaries such as Amazon, Apple, Hulu, Joost, Netflix, and YouTube; and 3) Efforts by incumbent broadcasters, broadcast networks, Direct Broadcast Satellite operators, cable television networks and cable system operators to offer new television everywhere options. 3
4 Challenges to the Status Quo--Incumbents Incumbents face credible threats to core revenue streams. They have responded by reducing availability of free content and enhancing availability of content to paying subscribers. Some incumbents also have resorted to strategies including caps on monthly downloads, new service tiers based on download volume, throttling of bit rates to bandwidth hogs and in the case of Comcast, using broadband deep packet inspection to identify and thwart P2P traffic that competes with Pay Per View services. Incumbents and other stakeholders emphasize how OTT and IPTV increase piracy to justify more aggressive enforcement tactics, e.g., suspension and termination of end user subscriptions and access to specific sites. 4
5 Challenges to the Status Quo Recent Market Entrants Recent market entrants, including Hulu, Netflix and Apple, trigger ambivalence in content providers. These new platforms can create new distribution windows and increase revenues, but they also can trigger cannibalization of existing revenue streams and harm existing business relationships. For example, HBO recently terminated its content distribution relationship with Netflix, but expanded the number of cable television operators with whom it offers on demand access via wired and wireless broadband. Recent market entrants may benefit from less regulatory burdens vis a vis incumbents. Such asymmetry often leads to legislative and regulatory responses to achieve closer parity. 5
6 Diverging Incentives and Increased Risks OTT and IPTV offer consumers the possibility of cutting the cord and terminating longstanding (and expensive) subscriptions. While some subscribers have migrated from all you can eat subscriptions to ala carte content purchases, a mass exit from conventional cable/satellite service has not occurred. Video has yet to incur the same reduced margins and revenues as music. Consumers do appear to benefit from new options, including the ability to select and pay for specific content rather than having to pay for tiered service containing plenty of undesired content. Incumbents, especially cable and satellite operators, may need to further enhance their value proposition in light of limited new content options, e.g., little difference in the top 20 programming services in a decade. 6
7 Near Term Consequences for Asia-Pacific and Beyond OTT and IPTV demand will trigger increasing pressure on broadband access to providers to increase delivery speeds and permissible download volume. People in nations and localities lacking ever faster broadband service will perceive a growing sense of deprivation and a Digital Divide. Content providers and distributors will have to make major decisions about how consumers will access content. The free rider problem can grow or diminish, as can the positive effects of advertiser and taxpayer supported access to content. In the best case scenario, content providers enjoy greater audience aggregation opportunities and consumers benefit from more flexible and possibly more diversified access. In the worst case, content becomes more locked down with less copyright non-infringing fair use. 7
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