Telcos beware, as IPTV advances

26 February 2008

Image: Philips
Image: Philips

IPTV means that the telco business model will have to change as TV and video companies pursue their customers.

Music, gaming, on-demand video, cable and TV video networks, video portals and online communities are the driving forces behind the adoption of IPTV (internet protocol television) which, warns analysts iSuppli, is putting telecommunications operators on a collision course with pay TV and broadband video portals.

The opposition is a wealthy one, able to buy up some pretenders to the revenue crown. Following the purchase of Marconi by Ericcson in 2005, the Swedish telecomms giant spent over $5billion acquiring Tandberg Television, router and management software company Redback Networks and Entrisphere, the GPON (Gbit passive optical network) system provider, in 2007. Likewise, Motorola bought Netopia a carrier-class broadband, router, software company and video on demand developer and IPTV software company, Vertasent, while Cisco system has bought video-networking software developer, Arroyo Video Solutions.

The home is going to be a key focus for IPTV companies. Already, home networking through the internet is one of the principle drivers of IPTV, as attractive as the fact that IPTV operators will support multiple TVs with multi-room digital video recording capability. IPTV set-top boxes are expected to evolve into home gateways with modems, multiple Ethernet ports and wireless access points available, all of which are required for home networking.

Looking across the Atlantic to North America, telecomms companies like Verizon and AT&T are rolling out IPTC services using advanced broadband networks that feature higher data transfer rates than the cable companies’ rates available via cable modem technology. The cable companies have the advantage of an installed base of pay-TV subscribers but how broad a base or how loyal, is unknown.

According to iSuppli, the gap between traditional TV broadcast programming and interactive broadband media will be closed with interactive and value-added services, such as speciality programming and sports packages. Look at the success of YouTube, this is a prime example of web interactive entertainment which will morph into video gaming and online communities with interactive advertising, instant messaging and targeted content profiled via the internet log.

For the advertisers, IPTV figures look promising, with direct and targeted advertising. Building on today’s figures, TV advertising, or close to $180billion, accounts for over half of the total video market. IPTV will use interactivity and personalising ads to differentiate its advertising packages. In other words, ban all children’s TV programmes around Christmas so your household does not get profiled as being a candidate for interminable toy advertising.

IP is not confined to TV services though, consumer devices, such as DVRs, are turning to IP connections as alternatives to QAM (quadrature amplitude modulation) and MPEG-2 technologies as methods of delivery over networks. The collision course referred to earlier is will cable operators continue to upgrade infrastructures to IP globally; will they be able to after upgrading not so long ago, for digital cable TV and broadband internet?

IPTV subscribers are expected to number 103million by 2011, generating revenue of over $39billion, up from 3.9million subscribers in 2006, which in itself increased from 2005’s figure of 2.4million subscribers, according to iSuppli. The total revenue from the IPTV subscriber base services is estimated at $27billion with value-added media servcies and operator advertising representing 14 per cent. In comparison, revenue for pay-TV worldwide revenues, which encompasses analogue TV, digital cable and direct-to-home satellite services, are $20billion.

Another weapon in the clash is triple-play, which is offered by cable companies to entice new voice and broadband subscribers from telephone operators and to retain existing ones. Shift-timing viewing, interactive programmes and user-generated content are spurring on all sides with programmes that encourage audience voting continue to grow in popularity (phone scandals aside). Keeping the viewers tuned in is what attracts the advertising revenue.

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