Tuesday, August 08, 2006

Current & Future IPTV Models

Most people in the video content and delivery industry believe that the method of delivering content in the future is going to shift primarily towards the Internet. However, it is important to create a roadmap for acceptance in the industry – consumers, manufacturers, content owners and advertisers must clearly see a benefit in the short term so that they will adopt the new technologies in the long term.

In the current IPTV (Internet Protocol TV) model, video is generally stored on a server and then “streamed” over an Internet connection to the user when requested. Hence IPTV can simulate “channels” similar to Cable TV, but it can also provide Video-on-Demand (VOD). In fact, IPTV has an edge over Cable TV in VOD applications. An IPTV customer is either given or sold a set-top box by the ISP (Internet Service Provider); this box being used as a “tuner” that interacts with the service and displays video on TV. In the most sophisticated IPTV applications, the box is also used as a payment gateway.

Current IPTV models – both business models and technical models, are essentially similar to Cable TV models with some minor variations. While the current models are workable solutions, there are several missed opportunities with both the technology and the business models in use today.

First, Streaming Video, although designed for the Internet, is unreliable in practice. If the video is not on the ISP’s network, its delivery to the consumer cannot be guaranteed. Sometimes, even when the video is on the same network as the consumer, there can be quality issues when concurrent usage is high. Also, when the content is outside the ISPs network there is a significant additional cost to the ISP in the form of peering and bandwidth charges. Thus many IPTV providers are forced to negotiate rights to content in order to place the content on their own network – this creates a significant and ongoing operational burden as well as substantial upfront costs.

Second, current IPTV models generally do not support features that are intrinsic to an Internet based delivery system. An excellent example is file sharing (peer-to-peer or P2P), which can result in a significant cost saving in bandwidth if managed correctly. It also provides a strong marketing opportunity due to its viral nature. However, no current IPTV system supports file sharing because the technical problems of legal file sharing have not been solved until now (L3 technologies do solve the problem).

Third, IPTV models that deliver streaming video using the “Client-Server” approach require significant upfront costs to launch successfully. The primary reason is the cost and operational issues of deploying servers near the users. This also impacts the ability of IPTV providers to quickly expand into new geographic markets. An IPTV provider needs to be able to enter this market at a very low capital cost; else this cost can become a barrier to success.

Fourth, using streaming servers predicates insertion of ads before the content reaches the user. This prevents extremely granular targeted advertising. Cable TV is capable of ads targeted at the neighborhood level. However, if correctly deployed, IPTV can target advertising at a significantly higher level of granularity than Cable TV. For example, advertising can be related to (a) the content being viewed (b) the location and preferences of the user, and (c) the time at which the program is being viewed (as opposed to when it is broadcast). This is very similar to the kind of advertising model available on web pages, and it will not be long before video advertisers expect or even demand it.

Finally, getting consumers to accept IPTV initially is a significant marketing challenge – they are generally satisfied with their Cable TV or Satellite TV (DTH) services. Although IPTV has significant advantages over Cable TV in the long term, any IPTV solution that hopes to introduce “yet another box” into the living room, must have a compelling current selling proposition to a consumer. Also, a “go-it-alone” approach in IPTV means that the IPTV provider has to negotiate a critical mass of content rights. As described above, this can be operationally burdensome, expensive (since most content owners are unconvinced of IPTVs potential, they often demand a premium for those rights) and a barrier to quick entry. Hence, an ideal solution is one that coexists with the current paradigm/providers of Cable TV, but introduces future distribution models in the form of IPTV.

Thus, what is needed is a technology that propels IPTV to a higher level than Cable TV can achieve through their model; a compelling set of current features that are compatible with the way people watch TV today; and the promise of new features that will improve their TV watching in the long run. At the same time, the technology must be so attractive to both content and advertising that these industries will “pay-to-play” rather than the other way round.