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IPTV (video content over broadband)

1 Overview

IPTV has grown steadily during 2008 and 2009. By the end of Q2 2009, there were just over 26.3 million IPTV subscribers worldwide. That was an annual increase of 53%, up from 17.1 million a year previously.

Whilst much of the earlier growth was in Western Europe and Asia, 2008-2009 has seen US IPTV operators catching up fast. US Tier 1 operators have spent heavily on fibre, have extensive high definition (HD) offerings, and their IPTV services are starting to worry the cable companies. During the 12 months to Q2 2009, US IPTV subscribers grew 86%, compared with 47% in Western Europe.

Although the growth has been significant in some markets, we should remember that IPTV represents only around 6% of total broadband lines (444 million at the end of Q2 2009). The success of IPTV depends on good broadband infrastructure and the right strategies for dealing with the particular local TV market.

Whilst the focus remains on delivering a reliable TV service, some operators are beginning to deliver services that cable or satellite cannot match. The potential for IPTV to bring personalized services – and personalized advertising – to subscribers’ TVs will continue to develop beyond current small-scale offerings. Operators are also expanding their content offerings where possible, both with more channels, especially in HD, and with more content in on-demand libraries.

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.

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. Free in France has built a substantial subscriber base by giving away CPE and charging low prices, but that sort of capital intensive approach is not possible for every operator

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

Since the last edition of this report in Q1 2009, several areas have been updated. It includes new sections on streamed Internet TV, mobile TV and HDTV, as well as IPTV advertising. IPTV market sizes by region and operator are available to Q2 2009 in section 3.1, along with a worldwide revenue analysis and updated pricing section in 3.2.

2 Key features

2.1 In-depth example

Subscribers to a standard IPTV service can watch television just as they have always done. They watch a network TV channel and then switch channels to watch another programme as it is broadcast in real time. In the IPTV example, this programme would arrive at the subscriber’s TV set by a different route. Previously, the programme would be broadcast as an analogue signal, picked up by the TV aerial and converted to a TV picture. In the IPTV example, the original programme might still originate as a broadcast analogue signal but the IPTV provider would convert this to digital IP packets at its broadcast headend. A single IP video stream would then be multicast over the core network and replicated to thousands of DSLAMs, before travelling down the local loop to the subscriber’s integrated DSL modem and STB. The STB would then convert the IP video stream into an analogue signal to drive a conventional analogue TV set, or into another digital format to play on a PC.

IP TV also offers additional features. Pay TV subscribers are currently familiar with electronic programme guides, which give an on-screen menu of the available content. This is also a feature of IPTV, but many IPTV services offer, or plan to offer, greater archives of free, ‘catch-up’ programmes from the previous couple of weeks, along with libraries of pay-per-view content such as movies. These would be available on-demand, delivered as a unicast IP stream. This would involve one-to-one mapping from a port on the video content server to a port on the DSLAM serving the subscriber. On-demand services would also offer pause and rewind facilities.

These features, along with interactive elements such as shopping, banking or email via the TV, make IPTV similar to advanced cable TV services. Indeed, to the consumer, the two are effectively the same. But the TV service remains essentially a ‘sit back’ rather than a ‘sit forward’ medium, and services such as email via the TV have yet to take off.

2.2 Customer appeal

Why would a customer want to subscribe to TV and video services over broadband?

(Largely the) same services as cable, slightly different from satellite TV

When IPTV first launched, there were essentially no differences to the customer between what an IPTV service could offer and what a cable TV service could offer. Although most IPTV operators remain focused on getting the basic service delivery right, some advanced features are starting to appear. For example, Verizon has the ‘FiOS TV Widgets’ service for its FiOS TV service. This is a free application that can run a text ‘ticker’ of information such as weather or travel news, without interrupting the program. Information is tailored by ZIP code. PCCW in Hong Kong runs promotions in association with cinemas, allowing viewers to buy tickets from their TV remote controls.

In the future IPTV will be able to deliver a wider range of similar personalized services, such as content searches, location-based services, user generated content uploading (Free in France offer this under the name ‘TV Perso’), and even interactive healthcare (being trialed in Sweden). These are some of the things that cable would find difficult to duplicate.

There is a slight difference between some satellite services and either cable or IPTV. Satellite cannot provide a dedicated channel direct to the individual home or street. This means that satellite cannot provide a VOD service. Satellite providers can reduce this apparent difference by (a) providing a subsidised digital video recorder (DVR) STB that can record enough television to offer a catch-up TV replacement service, and (b) providing multiple movie channels to give some degree of film choice, although nothing comparable to a full on-demand movie library. It is possible that the entry of satellite providers to the broadband marketplace (such as Sky in the UK) could provide a way around this problem. As an aside, satellites are important in transporting and distributing of video content to IPTV providers’ head-ends. Also, IPTV networks can distribute content owned by satellite operators to IPTV-wired neighbourhoods.

House not covered by satellite or cable

Some homes cannot access satellite TV services. For example, homes in historic conservation areas in France are not allowed to install a satellite dish. Re-broadcasting satellite content over DSL can plug these gaps. Similarly, some homes will be outside the area of coverage of the cable network. Up to 40% of French homes cannot receive cable or satellite. Virgin cable in the UK can offer IPTV to some areas not covered by cable.

Increased choice of content

The viewer may only have access to a limited number of broadcast (or terrestrial) TV channels. The current generation of TV-over-broadband services offers more channels, including premium or pay-per-view content such as live sports. Most channels also have some form of VOD. A key feature of VOD is the ‘catch-up’ TV service, where TV subscribers can access a selection of broadcast TV content from the previous week or two, usually for free. Additional content, including movies or complete TV series, is available on a pay-per-view basis.

Attractive pricing

Broadband operators are keen to attract customers and are using low prices to do so. For example, Neuf Telecom in France offers the Canal Plus TV channels for euro20, plus euro3 per month modem rental. The most attractive offers are usually part of double or triple play bundles. Some telcos could even offer a quadruple play including mobile telephony.

2.3 Variations

Internet TV

From a customer perspective, IPTV is different from Internet TV, which we define as TV or video watched using a broadband Internet connection on a PC (or at least first accessed or downloaded onto a PC. So, even though both types of TV use IP as a transport protocol, they currently offer a different customer experience. Internet TV viewers are NOT included in the subscriber numbers in section 3.1. However we have included Internet TV here for comparison and explanation.

At the moment, IPTV generally provides a ‘full service’ TV environment, similar in feel to traditional pay-TV provided via cable or satellite. Internet TV as it exists now is largely about watching TV on a computer.

Figure 1 Summary of differences between IPTV and Internet TV