The Convergence Conversation

Groups & Committees

IPTV - Show me the money!

In June, Intellect's Convergence Conversation looked at IPTV business models.  The debate was wide ranging covering the various opportunities for revenue that exist today and in the future, as well examining the current barriers to IPTV take-up in today’s marketplace. 

What is IPTV?
There are several IPTV models in the market already and more are likely to follow.  In reality IPTV is an umbrella term for a range of technologies and services which incorporate TV content, interactive multimedia services including video on demand, and increasingly the possibility for niche, personalised channels or services appealing to particular interests or geographical areas – all delivered via a broadband connection.  For more information on the definition of IPTV visit: http://en.wikipedia.org/wiki/IPTV

Is IPTV about television?  What do consumers understand by the concept, do they even care about the different types of service?  Currently, much of the dialogue around TV is synonymous with broadcast but is this a cultural thing which will evolve as consumers engage more with new services?  All consumers really care about is "when can I watch what I want to watch?"  Indeed, some argue that these considerations rank far higher with consumers than the quality of transmission or download - as long as the content is compelling, quality is less important.

Is streaming central to IPTV definitions?  Well, in fact streaming is just one model, maybe the one given the most attention today, but as time goes on there is scope for more download and store models to emerge, with storage locally and centrally, giving seemingly limitless capacity for content storage.  The development of storage solutions should go some way to easing the bandwidth pressures often cited as a barrier to widespread rollout of IPTV services.  Possibly the only content which requires streaming in real time is live content like sports events, everything else is storable and the technologies to facilitate this storage exist today and will continue to improve.

What about revenue?
How will IPTV services compete with mainstream broadcast TV services which are so entrenched into consumer culture?  It would be difficult for IPTV providers to compete through straight replication of broadcast services, IPTV services can only flourish when they offer something more - broadcast type content plus extras over and above what consumers are used to today.  This could be via interactive options, eCommerce services such as shopping encouraged by product placement, instant messaging, creation of individual profiles or channels, or a hybrid service integrating browsers into TV like devices or Set Top Boxes to give consumers a PC experience in their living room.

This last example raises another interesting element to the IPTV market – the scope to garner detailed information about the behaviour, choices and tastes of individual consumers.  An IPTV service provider has the potential to understand how each customer interacts with content, advertising and online services, giving the opportunity to develop valuable information about consumers similar to supermarket loyalty card data.  This presents a huge market opportunity.  Where as broadcasters have to rely on BARB type information to inform them about consumer reaction to content and have even less information about engagement with advertising, IPTV providers stand to gain from the interactive nature of their services.  This data will not only inform their own strategy but would be a valuable commodity for advertisers, content producers and other service providers

What's so good about IPTV?
Customisation.  IPTV services offer far greater scope to deliver on-demand content to consumers, with the potential to unleash the revenue of the Long Tail of content.  There is also the opportunity to develop communities of interest where individuals can contribute to and consume information about their locality or special interest subjects.  Both the on-demand options and communities of interest underpin a key revenue opportunity within IPTV models – access to and targeting of niche audiences.  This allows content producers to deliver tailored content to audiences and gives advertisers a glimmer of hope in a fragmenting media market. 

There has been much debate about the impact of timeshifting technologies and the fragmentation of audiences on the marketing and advertising models which underpin the media market.  The days of the 30 second slot appear to be nearly at an end, but with niche content, IPTV allows for targeted advertising which, due to the broadband rather than broadcast delivery, is by definition far more measurable and therefore effective.  IPTV gives companies a great opportunity to go direct to consumers and their TV screen.  It is also possible with forward and store models, to prevent consumers fast-forwarding adverts.

IPTV also opens the possibility of commercial transaction on the back of advertising.  The walls between content and commerce are breaking down.  Product placement is a huge marketplace in US already, something which is likely to be replicated in Europe.  As advertisers become aware of the targeting power of IPTV, it will become a very attractive proposition.  It will be interesting to observe how long it takes them to move away from broadcast models as they become more aware of the benefits that IPTV can deliver.

What is holding back take-up?
With the scope to deliver broadcast type content along with online, tailored interactive services, IPTV seems like a killer application for consumers.  So why is this market not booming?  Surely this presents a far more appealing proposition to consumers than the mainstream offering of broadcast TV and a separate broadband connection…?

The answer to this conundrum is two fold.  Firstly, we need more access – viable IPTV services need reliable bandwidth into homes of at least 4MB.  However, access are issues are transitory – once the next generation of access is delivered, IPTV will become mainstream. 

Secondly, it is important to recognise that IPTV is a relatively new concept.  The market is in a phase of massive change and disruption during which the concept of TV is changing; from one to many, broadcast, scheduled content to a world where content is available anywhere, anytime.  A shift this fundamental takes a while to impact but in time IPTV numbers will increase.  It should be noted that it took years for the TV market to develop; TV specific content did not arrive until long after the launch of TV services.  Equivalent developments will not happen over night so we should give IPTV time to mature. 

The interesting and perhaps encouraging factor in the debate about the barriers to take up is that there are few barriers on the demand side – consumers are not holding back.  We are witnessing consumers' appetite for digital content and new services, particularly in the younger generations who demonstrate high levels of media literacy and interaction with new media services.  The problems appear to relate to supply side issues – alongside infrastructure capacity issues, the age old issue of rights continues to slow the development of new media services.  We are on the verge of a major milestone in this regard however as the first round of new media rights negotiations between the big media players such as the BBC and content producers are almost complete.  This will hopefully lay the foundations for the expansion of new media services like IPTV.

Alongside resolution of rights issues, the other major challenge for industry remains – usability.  The technology industry still appears to assume consumers have more technical ability and patience than is realistic. Many products and services, particularly those which are PC based, remain hard to use. Installation of a wireless router routinely challenges many who work in the tech sector themselves.  Usability issues are not specific to IPTV, they apply across the board to new media services, but to be truly successful, IPTV needs to be a livingroom service – ie not linked to the PC in the study.  Those providers who can deliver a true lean back service, but with the benefits of interactivity, will have a very appealing proposition for the consumer.

Conclusions
In a market moving at this pace, there will be no single killer ap – not that lasts.  The key to success will putting the user at the centre of strategies, industry has to engage with user community to compete, this is the closest we are going to get to a killer ap.  Advertising and subscriptions will be the major revenue streams in the IPTV market – no surprises there but there are also opportunities for non-content services, whether around commerce or communities of interest, which hold the potential for a dynamic market over the coming years, painting a picture of an attractive developing opportunity.

If consumers have the opportunity to create their own content, create their own channels, interact with services and friends, alongside accessing the content they really want to see, they will come.  Not only will the consumers come but the advertisers will too – any service provider who can demonstrate a community of interest, whether around a geographical area or a content related interest, will soon have the advertisers knocking on their door. 

Capitalising on Convergence (pdf 2527KB) more»

Wikipedia definition of user generated content more»