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IPTV (video content over broadband)
6 December 20071 Overview
TV over broadband became increasingly widespread during 2006 and 2007. Between 30 June 2006 and 30 June 2007, the number of IPTV subscribers increased by over 170% to more than 8 million. Much of this growth has been in Europe and Asia Pacific. But American incumbent carrier Verizon began to add significant numbers to its TV services during early 2007, although not all of these subscribers are currently supplied by IPTV (Verizon intends to migrate them to IPTV eventually).
The theory is that IPTV will enable telcos to compete with the triple and quadruple play offerings of the cable companies. But putting this theory into practice involves overcoming many financial, regulatory and technical obstacles.
Point Topic’s first report on video-on-demand (VOD), which was published in 2003, concluded that the business case for delivering video content on-demand over broadband was difficult. By early 2005, falling costs and improving networks made the proposition more convincing when bundled with the delivery of conventional TV channels. Even so there were relatively few deployments.
Of the few operators that had launched by 2005, FastWeb, PCCW and SaskTel had rolled out services with both VOD and broadcast channels. This approach of offering a cable TV-type service has generally been followed for subsequent launches.
There have been some exceptions, however. For example, in 2005, Deutsche Telekom offered a video-to-PC service, although it launched a Microsoft TV-based conventional IPTV service in H2 2006. BT’s Vision service, launched in Q4 2006, is a hybrid. It combines a DSL-supplied VOD service, with a digital terrestrial Freeview set-top box (STB) with integral PVR. Customers may opt to pay for set-up and then on a per-programme basis for on-demand content. Alternatively they may choose a flat fee subscription for unlimited download. Conventional channels are provided by the free-to-air Freeview service, although only about three quarters of UK homes can receive this service because of geographical and transmitter constraints.
Point Topic’s research highlights the complexity of the IPTV market, and the importance of local factors in shaping the market. For example, in H1 2006, only around 20% of French ISP Free’s customers paid for TV content (up from 10% a year earlier). The remainder can access many free-to-air channels via an STB. From the perspective of the broadband industry, paying customers are the most important, although even free channels can reduce customer churn. When looking at subscriber numbers, Point Topic has focused on the paying customers.
Another factor impacting IPTV deployment is network quality. Relatively long loop lengths in the US are one reason for the lack of IPTV deployments there. Verizon and AT&T are deploying broadband TV services via new-build fibre networks. In Korea, the country with the world’s most advanced broadband infrastructure, IPTV has barely started, due to a ruling by the national regulatory authority that telcos cannot distribute TV programmes via their networks. The historical split between two television and telecommunications regulators is a factor here, as it is in some other territories.
It remains true that the business case for delivering video content over broadband is not straightforward. It depends on a host of local factors, including content availability and licensing, network type and regulation, as well as the local penetration and cost of cable, satellite or digital terrestrial broadcasters. For example, the rollout of services in Taiwan was delayed by equipment supply problems.
Because of the high cost of content, profits from IPTV services are likely to be modest. It is the ability of these services to reduce churn to cable competitors that is most important for the moment. However, increasing deployment of fibre, falling equipment costs and increased acceptance of IPTV by content owners means that the viability of IPTV services is continually improving.
This profile explains the key issues, examines likely costs and revenues and lists the major suppliers and operators.
Key issues
1. The network and the customer premises equipment (CPE) are the biggest costs. Delivering video content over broadband allows telcos and ISPs to compete with cable companies. But is the legacy digital subscriber line (DSL) network capable of carrying multi-cast IP streams, or do operators need to deploy fibre to the curb or even to the home? Costing the necessary network upgrades is essential in assessing the viability of a TV and VOD service. Basic STBs cost around $100, while those with advanced features or multiple tuners cost more. Does the operator provide it free as a loss-leader, or charge a monthly rental?
2. Local market conditions are critical. Pay TV is a high-cost, low-margin mass-market business. If there are already established cable and satellite operators or digital terrestrial providers, the business case for ‘telco TV’ is harder to make, since the new operator will find it difficult to differentiate from established players.
3. Triple or quadruple play bundles are a compelling offer. Telcos and ISPs need a competitively priced bundle of voice, broadband and TV to break into markets. Even if they can offer new features like true VOD (which satellite cannot offer), inertia will mean subscriber growth is slow. Explaining triple play bundles and features to customers is complex. So, while churn is low (Free reported less than 1% churn in H1 2007), growth can be slow too. In the meantime, VoIP and mobile continue to erode fixed telephone margins.
4. This paper covers video delivered to televisions, not to PCs or mobile phones. While video streaming to PCs or file downloading are important technologies with significant potential, the television remains the mass market method for watching video content. For this reason we focus on television services. So-called ‘over-the-top’ content is however starting to blur these boundaries. Joost TV offers relatively high-quality TV content via the Web. The Apple TV box enables the user to watch video content stored in an iTunes library on their TV via wireless. So, while someone may not want to watch a 20 second ‘viral’ animation or short piece of YouTube video on their TV, they might wish to watch an 30-minute MPEG or other format video file on their TV set, because that tends to be a more comfortable place to watch video content.
5. The future of the home media server, bringing video, music, broadband and voice to the home, remains unclear. Will the hub of future home entertainment emerge from the PC market with some sort of embedded Microsoft TV software driving the system? Perhaps it will come from the STB market as a progression from some of today’s STBs that already offer modem, wireless router, voice over IP (VoIP) support and one or more TV/video tuners? Or will a games console like the Microsoft X-360 perform the same role? Korea Telecom’s MegaPass service is available via a Sony Playstation 3, as of November 2007. Or will a Slingbox-type device link different screens and handsets? Many manufacturers have a great deal at stake here. But what matters for consumers is that standards are as open and international as possible, to ensure compatibility and ‘plug and play’ ease of use.
6. Regulation is restrictive in some territories, such as Brazil, where telecoms companies may not sell broadcast TV (although they are usually allowed to offer VOD).
New profile content
The significant changes since the last edition of this profile have been market developments. Section 3.1 includes a detailed analysis of IPTV subscriber numbers in to 30 June 2007, with analysis by region and operator. It also includes revenue estimates for end-2006. Section 5.2 has revised estimates about costs. Section 5.4 has an updated section on the future development of IPTV. Section 6 collates the leading service announcements, trials and deployments worldwide to Q4 2006.
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