The Top IPTV Developments of 2007
At the January 2007 World Economic Forum in Davos, Switzerland, Bill Gates made a stunning prediction: In five years, people will laugh at the TV they've had up until now. While the statement was met with obvious skepticism, it hinted at things to come. Since digital-video pioneer TiVo brought interactive features to the living room on a mass scale for the first time, consumers have taken control of their viewing experience, and TV will never be the same again. The long-held promise of interactive TV is finally becoming a reality in the U.S., except now it’s the telcos that are in charge rather than the cable companies. Major telcos have been busy rolling out new fiber-optic lines for high-speed, two-way data transmission, taking aim at cable and satellite companies’ entrenched services. Aside from faster speeds and better picture quality, interactive features promise new innovations in advertising and viewing habits.
Take, for example, one of the top stories of 2007 that emerged from January’s Consumer Electronics Show: an IPTV-capable Xbox 360 gaming console, combining interactive DVR (digital-video recorder) and chat functions with Microsoft’s game platform. While the device has yet to emerge, it hints at what’s possible in a future where convergence awaits. The Internet has added a new dimension in which consumers can get their IPTV content, often for free, but it too has struggled. Services such as Joost and Apple TV have been plagued with problems, and the outcome remains to be seen. Nevertheless, the Internet will no doubt play an important role in the years to come.
As noted in Daily IPTV's article on the state of the IPTV market, adoption has taken longer than expected. However, the global market could reach more than 50 million subscribers by 2010, and worldwide IPTV revenues from subscriptions and VOD (video on demand) could reach $12.2 billion by 2011. U.S. market leader Verizon had signed up 500,000 customers for its FiOS IPTV service as of October 2007, with laggard AT&T having signed up 126,000 customers for its U-verse service. These numbers are expected to reach 855,000 and 200,000 by end of Q4 2007, respectively. There has been some struggle over how to name or classify these services, particularly with FiOS’s similarity to cable (although it is an FTTH, or fiber-to-the-home, offering), but their IPTV status is unlikely to change.
What Drives Success
Richard Broughton, an analyst at Screen Digest, explained at length what drives IPTV success around the world. “It really differs from market to market,” he said. “The French services [Freebox, Orange TV and Neuf Box] are primarily free-TV offers. The lack of a high price point is one contributing factor to their success. This, coupled with the marketing from France's extremely competitive and aggressive broadband players, means that services have received maximum exposure to the public. Content is actually fairly evenly distributed across the services here — premium TV is really restricted to the Canal Plus and CanalSat programming packages, which are available on all of the top IPTV operations."
Broughton continued, “Free Telecom [the world’s largest IPTV provider] has managed to muscle its way to the top just through sheer brute investment. The company has taken the unprecedented step of supplying every broadband customer with a TV set-top box [with the latest generation models as HD PVRs (high-definition portable video recorders)] — a massive cost for any company. For Free, this is especially problematic, as customers may not take any further TV packages, making the whole operation work at incredibly low margins. For the time being though, the company is content to continue with this level of investment and as a result will stay on top of the pack for the foreseeable future."
Broughton went on, saying, “For other countries, different strategies have been adopted — Verizon is aimed more at the premium end of the market. Although its TV packages are slightly inferior in [the] number of channels to those of the big cable companies, its VOD library is enormous, and its pricing is aimed slightly lower — partly a consequence of the reduced channel range, but also as a result of the bundling reductions from customers taking fiber-optic, high-speed broadband. Thus far, of course, FiOS TV has been extremely successful, and there is no doubt that its offer will continue to expand. Few days go by when I don't get an email regarding Verizon adding more HD or local channels to its offer."
“South Korean service HanaTV has taken a different approach again," said Broughton. "Regulations in South Korea prohibit it from offering broadcast content over its broadband/telephone lines, so it offers a range of subscription, on-demand packages. Price is again a key factor, with the company taking in ARPUs [average revenue per user] of around 12 euros (about $17) from the product. This is on the low side for IPTV services — the offer is really a complementary one to the company's broadband segment. Rumors have been flying around recently regarding the relaxation of the laws [that] govern IPTV services in South Korea, so it is likely that in the near future, Hanaro Telecom will begin offering linear content as well as subscription, on-demand material.”
Top Market Developments
Broughton noted the following top market developments for 2007:
- Fastweb (in Europe) has begun to offer its TV package as a stand-alone product that doesn't require a broadband subscription. This is a first for a telco offering IPTV — broadband for most operators is still the core business, with IPTV a nice extra. The fact that Fastweb is now able to offer the service on its own means that the TV is profitable. This provides an indication as to where IPTV may end up in years to come. It also acts as a target for other operators — if Fastweb can make a profit out of its TV business, so can they.
- Advertising-funded VOD trials have begun in Europe. While commonplace in the U.S., ad-funded VOD is not really available in Europe. Belgacom is looking to buck this trend by offering on-demand films free, on an ad-supported basis. Other operators, including BT Vision, have expressed interest in funding content through ads, and there is no doubt that the reduction in costs would attract consumers.
- It's the best year yet for net additions for IPTV, although in Europe, it is likely that the peak has been reached and additions will decline from 2008 onward. More than 2.6 million new IPTV customers were registered in 2007 — 20 percent higher than in 2006. Additions were largely as a result of the Tier-1 operators that launched recently, which had a full year to conduct extensive marketing and benefited from a whole year of subscriber additions.
- PlayStation 3 activated for IPTV in South Korea: MegaTV, the service run by Korea Telecom, announced that Sony Corp.'s PlayStation 3 could be used as a set-top box for the TV service. MegaTV had 150,000 subscribers as of September, despite stiff competition from old hand HanaTV. Whether the PlayStation 3 will make much of a difference remains to be seen in South Korea's PC-dominated environment, but as the first console to be used as a true set-top box, it marks a significant point in convergence strategies in the media industry.
- Microsoft’s Xbox 360 is capable of acting as a set-top box. Considering Microsoft's hefty number of Mediaroom IPTV platform clients and its rapidly climbing installed base, this puts the Xbox 360 at a major advantage over the other consoles. However, with Microsoft yet to announce a single actual customer who is able to use the Xbox as a set-top box, this advantage has yet to be exploited.
- France's Iliad Group successfully equipped every broadband customer of Free Telecom with a Freebox IPTV set-top box, making Freebox TV the largest IPTV service in the world. Whether anyone is watching TV using the boxes is a bone of contention — indications from previous years suggested that subscriptions to further packages were as low as 10 percent — but at least as far as deployed boxes go, Freebox is streaks ahead.
- France Telecom hit 1 million customers for its IPTV services across Europe. Its French operations accounted for most of this at the end of Q3 2007, with 975,000 customers, but rapid growth in Poland in particular boosted this number to more than 1 million. Orange TV in France is now likely to claim more than 1 million customers on its own.
- IPTV reached more than 10 million subscribers globally this year. The majority are still in Europe, with perhaps 50 percent of the world's IPTV customers in France, but this is still a major checkpoint for IPTV.
More Developments
The analyst team at MRG Multimedia Research Group Inc., including Jose Alvear, Len Feldman, Steve Hawley and Gary Schultz, provided its own list of top IPTV developments of 2007 as follows:
- Free Telecom (Freebox) reached 1 million IPTV subscribers. This counts actual IPTV users, not customers who are just entitled to use IPTV but either can't, because their xDSL connection is too slow, or who choose not to.
- IPTV vendor consolidation really began in earnest:
- The Alcatel/Lucent merger closed this year, as did the formation of Nokia Siemens Networks.
- Motorola became No.1 player in live encoders, thanks to its acquisitions of Tut Systems Inc. and Modulus Video.
- Ericsson acquired Tandberg Television, and Cavalier Telephone and TV acquired SecureMedia Inc.
- Microsoft's service providers started deploying IPTV to their customers in quantity. While there are still concerns about the mass deployability of the Microsoft Mediaroom solution, it's clear that systems built on Microsoft's middleware have commercial viability.
- The first IPTV deployments (albeit small) began in India. Meanwhile, Korea’s on-demand (VOD) IPTV service is skyrocketing, partially due to Korea being the most broadband-equipped country in the world (with virtually 100 percent broadband penetration), with the majority of homes receiving speeds of up to 100 Mbps.
- For the first time, major cable operators such as Comcast are publicly expressing concern that the telcos' IPTV efforts are starting to eat away at their subscriber bases — and that is impacting shareholders.
- Providers are getting serious about advertising and content. When IPTV was an "early-adopter phenomenon," making it work was an exercise in creative engineering, and the operator's engineers were driving the train. Now, more than ever, concerns over cost containment, breakeven and profitability have engaged the business side of the house.
- IPTV turned a corner this year from an infrastructure perspective. Operators no longer question whether IPTV can be made to work as a business. Instead, the attention has moved toward refining the experience, and therefore, toward investing in testing, measurement and monitoring.
- The U.S. is being seen as finally starting to catch up with the rest of the IPTV world now that U.S. Tier-1 operators (such as Verizon and AT&T) are starting to scale. Yet, the perception of the U.S. and Canada as being "behind" has been a bit inaccurate, because smaller North American operators have been doing IPTV for as long as a decade.
- MPEG-4 AVC set-top boxes are shipping in volume, making it the first time that the true promises of MPEG-4 AVC could be realized after many years of promises. (MPEG-4 is considered the next- generation, highly efficient encoding standard.)
While much progress has been made in the IPTV market, there is plenty of room for growth and improvement. Despite the many challenges that remain, one thing is for certain: IPTV is here to stay. Today’s TV may not be gone in five years, but market dynamics are slowly changing the entertainment landscape. Those solutions that can deliver IPTV anywhere, anytime (TV, PC and mobile) are most likely to succeed in the long run. Although true convergence may not be here yet, it’s on the way, thanks in no small part to IPTV.
by David Cotriss/ dailyiptv.com
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