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IPTV AND INTERNET TV DEVELOPMENT - Let the TV-battle begin
Only a few years ago startups such as Skype and VoiceBuster gave the telecom 
industry a real scare by allowing people to make telephone calls over the Internet free of charge. They forced telecom operators to cannibalize their traditional voice revenues with VoIP services. It was one of the reasons for the telcos to start investing in IPTV. Now there is a new threat for the telcos in the form of Internet TV. Will new players again traumatize the telecom industry by undermining the telcos nascent IPTV services, asks Rob van den Dam
Many telecom operators are investing in digital content in the hope of offsetting the fall in fixed-voice revenues. They focus primarily on offering television and video services, in particular IPTV; many of them see this as a necessity to combat the trend of losing subscribers to cable companies, which are increasingly offering VoIP as part of triple-play bundles.
But new Internet developments again pose a threat to telecom operators. The Internet has already caused a transformation in the telecom industry in the domain of communication services, where new players such as Skype have forced telecom companies to offer VoIP at substantially lower prices than they previously offered for traditional voice services over the fixed network. And now, the Internet enables Internet-TV start-ups to become a threat for the telcos nascent IPTV-services. Today Internet video is still delivered in rather low quality via sites like YouTube. In spite of grainy images and the small window format, however, these sites have been successful in attracting millions of viewers on a regular basis. And as broadband becomes faster and available to a broader public, they will be able to offer professional video services with a continually improving image quality, in this way providing an alternative for IPTV.
IPTV is a system where video content is transmitted in the form of IP-data packages over a closed secure network. The infrastructure is configured such that viewers can only receive the IPTV provider's own TV-channels. IPTV focuses primarily on the TV-set in the living room, generally a wide-screen TV with high image quality. A Set Top Box (STP) is required to receive the signal. IPTV telecom operators are very uniquely placed to enhance the television experience:
- They can augment their IPTV-offerings with a wide variety of voice and data services.
- They are well placed to combine IPTV on the TV with the other screens: the PC and the mobile.
- They also have a lot of information about the viewer that they can use to deliver personalised content and advertising.
- And last, but certainly not least, they are able to guarantee a qualitative high end-to-end television experience.
Currently most IPTV-services are based on subscriptions and a Video-on-Demand charge.
Up to now, many IPTV operators have focused on offering the same services - the same TV-channels and type of content - that their competitors, usually the cable companies, offer. But some telcos have taken it further. For example, Belgacom in Belgium is competing primarily on exclusive sports content. Other operators rather compete on offering ease-of-use. For example, by offering an Electronic Programme Guide (EPG) that allows individual users in the household to set up their own TV-guide with their own favourite programs and settings. These operators are taking optimum advantage of the possibilities that IPTV offers with regard to personalization and interactivity. There are numerous ways to compete, and each IPTV provider has his own strategy.
Internet TV has the "look and feel" of IPTV, but is delivered over the open public Internet, and is delivered "over the top" (OTT) of existing networks, actually getting a free ride. Internet TV is usually delivered to the PC or another device connected to the Internet, using peer-to-peer technology. Internet TV offers the OTT providers the following advantages:
- They do not have to invest in distribution networks because they use the telecom and cable companies' networks.
- They offer the same type of interactivity and viewing capabilities as IPTV.
- They have a global coverage.
However in contrast to IPTV:
- There are still issues with the video quality, though it is continually improving.
- Users really need some technical know-how to use it properly.
Internet TV is not a controlled environment. There are no guarantees regarding accessibility, availability and reliability. There is no control over who is allowed to watch which programs and under what circumstances, such as related to distribution rights in different countries.
Internet TV providers offer programs for free; revenue is preliminary based on advertising. Obviously, Internet TV is still in the embryonic phase. There are a number of players who are attempting to create a market for themselves. Joost is the most well-known. Joost is coming from the developers of the music-sharing program Kazaa and the VoIP-service Skype, developments which has severely traumatized the music recording industry and telecom sector, respectively. Joost only distributes professionally-made content, and sharing advertising revenue with the content providers. While Joost is focusing on a large public, Babelgum focuses on specific target groups by offering niche content via a large selection of theme-channels. Hulu, the online video project from Newscorp and NBC/Universal has begun its offering to the US-public early 2008. Other providers include Narrowstep and JumpTV.
Variations on Internet TV include BBC's iPlayer and Apple TV. iPlayer is an on-demand TV-service enabling users to view BBC-programs via Internet. Apple TV uses an STB that makes it possible to stream digital information from any computer with iTunes to a widescreen high-definition TV-set. This enables viewers to transmit videos, TV-programs, music, YouTube videos and other Internet material from the computer to their TV-set, or to save them on the STB hard disk. And if it is up to Microsoft, users will soon be able to connect their TV to a Windows Media Centre PC or an Xbox 360 using Microsoft's Media Centre Services to get their daily diet of TV-programs.
All together, more than enough threat for the telcos who have spent large amounts of money building and launching their own IPTV-services. They are understandably worried, that OTT providers will ultimately capture all the value that video-over-IP promises. In that case, they would be left with nothing to offer but the so-called ‘dumb pipe'.
Clashes appear to be unavoidable. IPTV and OTT providers will certainly be confronting one another in the domain of distribution and advertising.
In terms of the first point, the OTT providers shift the distribution problem to the owners of the networks. IPTV providers invest heavily in upgrading their networks for their own IPTV-services; now they must handle the OTT traffic as well, which means additional investments. In fact, incumbent telecom companies face the unique dilemma that as they increase their broadband capacity, they make it easier for OTT providers to deliver the quality-of-service that is required for professional TV-broadcasting. Of course, that will not be acceptable for the telecom companies. They can respond in different ways:
- Filter the OTT-traffic, possibly block specific traffic, and offer higher distribution priority and quality to parties who are willing to pay (more). However, throttling OTT-traffic controversially violates the so-called net-neutrality principles, i.e. blocking other parties' traffic to give their own services precedence. This could lead to intervention by government regulators.
- Find a way to insert themselves into the relationships between the OTT provider and their customers, and make agreements regarding the charge-through of the distribution costs, either to the OTT provider or its customers.
- Open its IPTV-platform to OTT-content by making services from OTT suppliers available as separate IPTV-channels. This would allow the operators to bring in extra revenue.
In terms of the second point, the advertising, ultimately it all revolves around the advertising relationships and the possibilities the Internet offers for more efficient targeting. Internet television is currently paid entirely by advertising. IPTV advertising will also become increasingly important for telcos to fund their content, as customers do not expect to pay for all content. In 2007, IBM's Institute for Business Value conducted a consumer survey to evaluate changes in consumers' media behaviour. A number of questions were related to advertising; the results indicated that in all the countries involved the majority of those surveyed were willing to view advertising before or after a good quality, free video broadcast.
In the battle for advertising funds both parties offer good possibilities for efficient and effective advertising, better than the traditional TV providers. But the telcos seem to have the best assets; assets that advertisers really value. First of all, with their network capabilities telcos are able to better control where the ads go to and to track advertising effectiveness. Telcos collect vast quantities of customer data, which they can use to develop profiles of their subscribers, including viewing patterns and perhaps shopping habits. They can combine these customer insights with their ability to identify the location of individual users and offer highly targeted, localised promotions. Integrated telcos can even combine data collected from fixed, wireless and other networks. They are well placed to enable the advertising experience practically anywhere, on any device and at any time.
Over the short term, Internet TV does not represent a real threat to the IPTV providers. IPTV has a clear possibility to establish a strong position in this market before the problems regarding image quality and the ease-of-use of Internet TV are resolved. But after that, the situation may change. In particular when Internet TV moves to the TV-screen, Internet TV can pose a bigger threat for IPTV.
It is all about getting Internet video onto the TV-screen. The Apple TV initiative mentioned earlier illustrates this. More and more manufacturers of consumer electronics are working on developments for equipping TV-sets with possibilities that make Internet access possible. Sony, as an example, is working on rolling out a network adapter for showing web clips on its HDTV's. It is only a question of time until the access to Internet is a standard feature built into the TV-set. This is an essential milestone from the perspective of the consumer that makes things a lot easier for him.
On the other hand, a partnership between IPTV and OTT suppliers is not unlikely:
- Telcos can make OTT-content available as part of their IPTV-services
- OTT providers can profit from the IPTV providers' "walled garden" that gives them a better guarantee in terms of quality, control over the distribution, and feedback with regard to volumes, viewing times and viewer behaviour.
- Telcos can use the OTT-channel to collect additional customer data regarding consumers' viewing habits for improving targeted advertising.
In fact, we are already seeing this type of initiatives. Some telecom companies are bringing the Internet TV players into their own IPTV-environment, such as Verizon with YouTube and BT with Podshow. They offer, as it were, an extension of their closed IPTV environment. Many providers will offer their own Internet TV in parallel to this, possibly geared to other customer segments, optimally utilizing brand recognition, relations and distribution of content across both channels. BT Vision, with its IPTV-platform and web portal with a download archive for on-demand content and the purchase of physical DVDs, is one example of this.
OTT Internet TV is currently seen as a marginal threat for the IPTV providers. But as bandwidth and QoS will become less of an issue, the OTT providers will increasingly develop into mature TV suppliers of online live HD programming. Joost, Hulu, Babelgum and others are most likely just the top of the iceberg. More of these types of companies will emerge. They will get funding and then fight for customers and advertisers. In the end, it will come down to finding a solid business model. At the same time, IPTV will mature, finding the right ways and approaches to be successful. Probably there is room for both IPTV and Internet TV, each addressing a particular consumer segment, and the possibility for some sort of partnership is certainly there.
Rob van den Dam is European telecom leader of the IBM Institute for Business Value and can be contacted via: rob_vandendam@nl.ibm.com
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