IPTV: the dependencies for success
Often hailed as one of the "next big things", IPTV is not just on the radar for a number of major companies in the communications sector, but is seen as a key element in their portfolio of service offerings. However, it faces a number of challenges in an increasingly converged marketplace if it is to enjoy a successful take up by consumers; whether on its own or as part of a "quadplay" package with television, broadband, home telephone and mobile telephone communications all through the one supplier. IPTV also faces an uncertain regulatory future. There is a clear conflict between UK industry and Ofcom, supporting a regulatory light touch on the one hand; and the European Commission wanting to extend current broadcasting regulatory frameworks on the other. This paper will examine how IPTV is likely to be exploited by suppliers and just why it is likely to be of interest to consumers. It will also consider the proposed future regulatory frameworks that may affect IPTV and its inter-relationship with commercial exploitation and consumer take up.
1. IPTV: what is it?
IPTV, or Internet Protocol Television, delivers digital television to subscribers via the Internet Protocol. This means video data is sent across the internet in packets of data. It can then be stored on a server and sent to computers or special set-top boxes over a broadband connection.
Despite this it is not "internet television" in the sense that people are or will be logging on to their favourite web page to access television programmes. Rather, it is a way of delivering information over a managed network that gives consumers much greater control over their desired information and entertainment experience.
2. IPTV and the consumer
IPTV allows suppliers to deliver only those channels that the consumer wants at any given time. The consumer can also pause, rewind and replay the broadcast much as it can with video data streamed over the internet. However, the real key to IPTV is often considered to be the fact that it includes two-way capability often lacking in the more traditional television distribution services, and so giving a truly interactive experience.
To further facilitate that personalised experience, IPTV services are often offered in conjunction with Video on Demand (VoD) as well as data services like access to the web, and voice services such as VoIP (Voice over Internet Protocol). Suppliers are also increasingly marketing IPTV to consumers as part of a single "quadplay" package of television, broadband, home telephone and mobile telephone communications.
IPTV services have been available to some extent for some time. It has been available in London via the HomeChoice offering of a combined television, VoD, and broadband internet access. There has also been a recent marketing push ahead of the planned autumn launch of BT Vision. This is a BT product that will combine IPTV with Freeview (the free-to-air digital terrestrial television service), a hard-disk recorder and internet connectivity and will be available throughout the UK. This will be a key area where BT will clearly have to transform itself from telephone company to quadplay provider.
However, is this all as attractive as it seems for consumers? There is clearly an assumption by suppliers that their service offerings will be sufficient to persuade consumers to amend well-established viewing behaviour. This has traditionally focused on two very simple principles: (1) a passive viewing experience; and (2) the tendency to engage in different elements of the available services in different rooms in the house. Research in the US suggests that consumers“are continuing to view TV passively and will do so for the foreseeable future.” Such passive viewing is also primarily undertaken in a living-room type area, with the more interactive services that available over the internet and voice telephony often utilised elsewhere.
The games industry has already managed to erode these “passivity” and “room-shift” issues to some degree. IPTV and quadplay packages will undoubtedly need to take this evolution forward if they are to be a success. The key to such success for suppliers is therefore to make their service offerings “attractive enough” to consumers. Clearly this is a challenge that most suppliers will be well rehearsed in overcoming, as it exists for any new product that is introduced to the market. Effective marketing strategies will, of course, be vital, but the primary component of this will be having a product that is already known, in part, to be attractive. This is likely to be achieved by having the content available that, time and time again, consumers have shown is the component that drives their product and service choices. Accordingly, like Sky with digital satellite television, ISPs with the internet, and much more recently mobile operators with 3G services, the IPTV providers will find that the success of the platform with consumers will be largely content-driven.
Another key inter-dependency for the successful take up of IPTV is the availability of the technology to actually utilise all that it offers. However keen consumers are to avail themselves of the service offering, they will be dependent on the roll-out of high speed broadband and continued improvement in compression technologies so that they are able to receive all that is promised.
Suppliers will therefore need to work hard to overcome the various obstacles that may inhibit the progress of IPTV. As such, it is important to understand what is incentives are leading the suppliers to undertake that hard work.
3. IPTV and the supplier
Convergence is a common theme in the communications sector. It is firmly back on the agenda once more and has the potential to have a transformational impact across the industry. The four, originally discrete, industries of IT, telecoms, media and electronics are converging. Increased digitisation, connectivity and technological advancements are driving such convergence, with a key contributor to that being the availability and use of IP. IPTV is a converged product and may well be one of the next big things provided, as discussed above, suppliers really identify the benefits and desirability of the service to consumers.
The initial drive towards IPTV has been from telecoms companies (known as ‘telcos’) (although identifying a company in relation to this one industry is becoming increasingly outdated). It has been identified as a crucial weapon in their armoury for fighting back against the cable companies, which had some time ago infiltrated the telecoms market, and most recently by offering VoIP along with their television and web access services. For the telcos it is also a prime opportunity to provide a new revenue stream by exploiting their extensive existing networks. By building IPTV capability into the same existing networks the telcos become able to deliver data, as well as the voice related services that have traditionally been its historical market. Naturally this gives it an opportunity to significantly change its operational costs over time.
However, it is not just the telcos that are interested in the IPTV market. There is also limited space for more television channels, so using the internet as another means of delivery is understandably attractive. Combine this with the interactive and ‘personalisation’ capabilities of IPTV and it is clearly going to be a delivery platform that current broadcasters are extremely interested in. Not only will it allow them to offer new services and exploit new revenue streams themselves, but it will be a move they need to make to compete with the increased encroachment into their traditional market from the telcos and cable companies.
The ability to personalise content also gives the various service providers the ability to gather all sorts of information regarding a consumer's particular preferences. This, in itself, then releases further revenue opportunities as it is an ideal platform upon which to add e-commerce, advertising and gaming capabilities. Advertisers, particularly, will benefit from being able to reduce their use of relatively low-impact broadcast advertising and increase their use of more personalised targeted advertising, with a potentially higher chance of instigating sales. Even where the IPTV technology is being utilised to offer a widely accepted broadcast, as opposed to a specific on-demand service, more personalised content could be offered during the advertising break. As such, targeted adverts could be sent to different IP addresses depending on the consumer’s known preferences.
The incentives for suppliers then are clear, but they do still need to overcome the key hurdle of consumer take-up. The roll-out of broadband continues, not just in the UK, but throughout the world with some forecasts predicting growth from 97 million subscribers in 2004 to 256 million subscribers in 2009. The number of those availing themselves specifically of IPTV is predicted to be around 37 million, with about 4.5 million of those being European based by 2008. In order to drive those numbers, the acknowledgement by suppliers that content will be vital is clear to see. BT Vision alone has agreed content deals with such big names as BBC Worldwide, Paramount, Warner Music Group, National Geographic, and DreamWorks. Most recently it has obtained the rights to show ‘near-live’ FA Premier League football matches.
The increasing interdependency for success based on the underlying delivery platforms, technologies and software, along with the content required to make IPTV truly attractive is undoubtedly encouraging convergence and consolidation within the supplier’s industry sectors. Recent examples in the UK are Sky's purchase of Easynet, as the digital satellite broadcaster looks to add high-speed data services to its offering. Then there is O2's acquisition of Swedish ISP ‘Be Unlimited's’ UK business, as a combination of mobile and fixed voice and data delivery capabilities. Add to this the merging of NTL and Telewest and subsequent take over of Virgin Mobile, to enable a consolidated quadplay package. Even equipment manufacturers are looking to get in on the act, with companies such as Ericsson partnering a company called Kasenna to allow it to provide IPTV, while Alcatel is working with Microsoft to roll out large deployments at AT&T and Deutsche Telekom. Siemens has also bought up a small company called Myrio and now has a complete IPTV offering. Such widespread consolidation could make many stand-alone service providers very nervous and certainly lead them to consider their options.
4. IPTV and regulation
Existing broadcasting regulation in the UK focuses much on the content of broadcasts and there is generally a division between the regulation afforded to broadcasting and that afforded to services provided over the internet. This logic has historically been based on the premise that mainstream broadcasting normally involves the transmission of programmes for simultaneous reception by a group of persons, whereas services over the internet are generally made available in response to a request by specific users. The distinction here is now often identified as ‘linear’ for the traditional broadcasting model, and ‘non-linear’ for the ‘pull’ or ‘on demand services.
Existing regulation deals primarily with ‘television licensable content services’. This very broadly covers a situation where the service is concerned mainly in making available television programmes (itself being in part defined by the fact that it is intended to be seen on television) for reception by members of the public. To the extent that certain television services are provided by an ISP as only a part of their overall service offering, no licence is required. However, the advent of services such as IPTV, seriously blur the distinctions that are being made here. Soon it will no longer be clear what the difference is between a television and a computer screen, and there may well be a number of services offered that are concerned primarily with showing television programmes, but not necessarily intended to be delivered to a television ‘as such’.
Ofcom, the key regulatory body, has stated that content, such as television programmes, transmitted over the same medium as is used for internet access, will be outside its regulation. It has further indicated a reluctance to extend its remit to cover such areas. It has said that it would be impossible for it to effectively police television content streamed over the internet and this job must rest with the individual viewer.
This is at odds with the latest proposals from the European Commission for the revision of the ‘Television without Frontiers’ Directive which would, as a consequence, require re-naming as the ‘Audiovisual Media Services Directive’. The Commission proposes, among other changes, to extend some of the Directive's regulatory provisions to websites and other online services streaming audiovisual digital content to consumers. While this would not include video clips and animations in news and press websites, nor blogs, video podcasts, picture telephony over the internet and other non-commercial content, it is intended to extend the scope to cover on-demand content such as shows, movies, serials, sports events and news reports, including the advertising therein.
There is some debate about the extent to which this would bring television content on the internet within the parameters of responsibility of regulators such as Ofcom. The Commission maintains that the new proposals continue with the approach of treating “internet services and downloads with a lighter touch that traditional TV.” However, there remains a real concern that the legislation is drafted in such a ‘catch-all’ way that services such as IPTV will be caught simply because they are referred to as ‘television’. The uncertainty about whether services are to be regulated or not (and to what degree) arise, for example, because the distinctions between commercial and non-commercial services and linear and non-linear services are simply not clear. In the future, defining exactly what is and is not a ‘television broadcast’ is potentially going to be crucial to identifying the extent to which a product or service will be regulated; yet this will increasingly be difficult to do.
5. The IPTV market: the potential effect of regulation
The uncertain regulatory environment, described above, is also unlikely to assist companies involved in planning the development of new services as they will not know what they may or may not include or what business model to utilise. For example, it is common for the internet services initially to be given away free and then, if successful, attract advertising revenues and then later still to be offered on a subscription basis. For such a service to be caught by ‘heavy touch’ regulation may depend on whether it is deemed to be a commercial or non-commercial service. What is not clear in this example is whether the service has to be paid for by subscribers or advertisers or necessarily make a profit at all or, indeed, comply with any other criteria, before it is judged to be ‘commercial’.
Despite such issues, the Commission claims that the proposals are actually intended to create legal certainty and encourage the development of the industry. The responsible EU Commissioner has said that “[t]his would obviously be an opportunity in terms of legal certainty and of opportunities offered to the industry to provide cross-border services and develop new business models. It would mean fewer burdens and less regulation, not the opposite."
In its consultation response to the Commission’s proposals, Ofcom was very critical of the idea that the ideas expressed would benefit the industry. Instead it warned of a “net outflow of jobs and development in the new media industries from the EU area”. The Ofcom response further noted that, were the proposals likely to deliver on their own objectives, then more support from new media businesses would have been expected as opposed to the somewhat grave concerns that have been expressed.
Any increase in regulation over content almost certainly increases costs to suppliers. This does not necessarily mean that it is a bad thing, such as where it exists to protect children or upholds public health and public order. It is also often cited as being beneficial where it aims to stimulate another market. This is the case put forward in support of requirements concerning EU and independent production quotas. Yet there clearly needs to be a balance with the increased costs that such quotas cause to a new market area, such as IPTV, that is in its formative stages and itself in need of stimulation. It also seems likely that if this was applied to ISPs they might well seek to avoid regulation altogether, either by moving abroad or if this was not feasible, then simply restricting their service offering.
Ofcom and the Confederation of British Industry (CBI) in the UK are concerned about the possibility of entrepreneurs in the IPTV market being driven away by the fear of increased costs. Without such driving forces from within the business world the development of IPTV would clearly be inhibited. However, perhaps of greater concern is the increased cost and reduced flexibility caused by regulatory uncertainty. Additional compliance requirements could just result in a reduction in the diversity and quality of content being offered. Given the points already discussed this is likely to be a key driver in the take up of new services. The danger is that its impact could cause a slow down in the number of subscribers to broadband and hence pose a very real risk to the success of IPTV itself.
This article was first published in Computer Law & Security Report Vol 22 No 5 2006
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