Coming Up Next On Telco TV
Phone Companies Push on All Fronts
By Todd Spangler -- Multichannel News, 10/21/2007 8:00:00 PM
Now that AT&T, Verizon Communications and others have ridden their first herd of video services out of the gate, what’s in store for telco TV 2.0?
Some industry executives said enhancements to current telco TV services will be incremental, comprising a steady diet of new features like interactive games and personalized navigation menus.
“There’s not a single silver bullet that will tip the balance” from cable or satellite to telco TV, Verizon vice president of video solutions Shawn Strickland said. “TV is the ultimate mass-market product, in that you have such a wide variance of customer expectations and you have to meet a number of those.”
Future IPTV services should break down the silos between different devices, so that consumers can get to any content or communications service they want, whether that’s on a mobile phone, a TV set or a personal computer, said Tiaan Schutte, vice president of multimedia business unit in Alcatel-Lucent’s Convergence Business Group.
| By the Numbers |
|---|
| Telco TV Growth Curve |
| SOURCE: Multichannel News research |
| More than 8 million people worldwide were connected to IPTV services, an increase of 179% for the 12 months ended June 30, 2007, according to a report from industry consortium DSL Forum prepared by analyst firm Point Topic. |
| The DSL Forum report found European IPTV providers had 4.98 million subscribers as of June 30, an increase of 231% from the year before. The Asia-Pacific region had 2.18 million (up 120% from a year prior) and the Americas had 1.07 million (up 161%) by mid-2007. |
| Worldwide IPTV equipment revenue hit $562.4 million in the second quarter of 2007, an increase of 33% from the previous quarter, according to Infonetics Research. In the second quarter, 48% of IPTV equipment revenue came from Asia-Pacific, 32% from Europe, Middle East and Africa and 19% from North America. |
| Infonetics Research forecast worldwide IPTV equipment manufacturer revenue will more than double between 2007 and 2010. The number of pure and hybrid IPTV subscribers reached 9.2 million worldwide in 2006, according to the research firm. |
| The number of IPTV users in China is expected to reach 14.5 million by 2010, up from 550,000 at the end of 2006, according to a report published by Irish research firm Research and Markets |
'BLENDING SERVICES’
“IPTV 2.0 will represent the blending of services in terms of convenience across multiple devices,” Schutte said.
It’s not just an imperative for telcos, either: Cable and satellite providers also will need to figure out ways to make their video offerings stand out in the next five years, said Craig Knudsen, director of business development for IPTV Americas at Tandberg Television.
“When you start looking at the point where everybody is delivering the same high-definition TV, Internet and telephone services, the only way they’re going to be able to differentiate is through value-added features,” Knudsen said.
To others, telephone companies will have an opportunity in the next few years to fundamentally change the video business model, by deriving more revenue from highly targeted interactive advertising and from extended services that let TV subscribers access media and communications in new ways.
Cable companies are also charging forward in these areas. But Taras Bugir, Sun Microsystems director of business development for media and communications, said it is telco’s game to lose because in many cases the newer entrants have based their services on Internet protocols, which in theory provides more flexibility in extending those services with new capabilities.
Moreover, according to Bugir, “the telco infrastructure, down to the billing systems and [customer relationship management] systems, is really geared up for a one-to-one business model.”
At the same time, the primary value of a TV service — being able to watch high-value, high-quality content in the living room — won’t change that much, said Joe Seidel, director of global partner manager ecosystem for Microsoft TV. In that respect, core blocking-and-tackling on delivering the best possible TV experience and customer service will remain a key focus for telcos, which have invested most of their effort to date in developing services with the goal of being at least as good as cable if not better.
“We jokingly say, 'The killer application is TV,’” Seidel said. “At the end of the day, you want to go home and watch the Dallas Cowboys or whatever in high-definition.”
VERIZON: EXECUTE FIRST
Verizon, the U.S. phone provider with the most TV subscribers today — more than 500,000 as of mid-2007 — expects to push ahead on converged services and other new features as points of differentiation for FiOS TV.
But more important, it is continuing to deliver on and improve the core service, Verizon’s Strickland said: “It’s about the quality and execution of the service. That’s going to be a solid focus for us.”
So one key development area for Verizon is, as Strickland put it, “How do you make Verizon an easier company to deal with?”
The telco is developing more avenues to let customers manage their service options, he said, and Verizon expects to introduce “more flexible packaging” in terms of services and billing. Under this initiative, the company may provide self-service options on the TV itself, to let customers check their bill or order HBO using their remote control.
Strickland said Verizon is looking outside the telecommunications industry for benchmarks on customer service. For example, a major customer-service innovation for FedEx was being able to inform customers exactly where their packages were at any given moment. In a similar vein, Verizon is exploring how to provide new customers with “close to real-time updates” on where the FiOS TV installer is on the day they’re supposed to get hooked up.
“That’s the biggest frustration with any service industry: that you don’t know the status of your service request after you contact the company,” Strickland said.
Strickland disputed the notion that Verizon is primarily landing customers who are fed up with their cable or satellite service providers. “I don’t think it’s about disgruntled customers; it’s about raising the level of expectations,” he said, noting that direct-broadcast satellite companies have been growing for the last 15 years and that cable operators continue to add digital-video subscribers.
On another front, Verizon’s marketing and engineering teams will continue to emphasize the overall quality of FiOS TV’s audio and video, which Strickland said has been a key selling point for the service from the beginning.
“We’ve definitely shown that there’s a big gap between what the consumer expects in this space [in terms of video quality] and what we can deliver,” he said, adding, “I certainly wouldn’t hold up what we do today as the end state.”
The challenge has been to demonstrate that purported quality to prospective FiOS subscribers. Strickland said the message is hard to convey in traditional advertising, like print ads, TV commercials or Web banners, so Verizon has built an “alternative channels” program, which includes mall kiosks and demonstrations in retail points of presence.
The best marketing mechanism for FiOS TV remains worth-of-mouth, which Strickland called “a multiplier on your product-marketing expenditures.”
“You need a product people will talk about,” he said. “People don’t talk about, 'My guide looks better than your guide.’ What they say is, 'My picture quality is fantastic.’”
As Sun’s Bugir asked: “Who really sits there and watches the whizzy on-screen graphics? You don’t watch TV to watch the electronic program guide.”
FiOS TV will continue to expand the depth and breadth in content and features, Strickland said. And here, HD content is the most important acquisition driver in the industry for the near future, as DirecTV touts its planned 100-channel HD lineup by year-end.
“At this stage it’s not about which specific HD channels you’ve got. It’s about the amount of HD you have,” Strickland said. Verizon, which currently carries 19 national HD networks, is working on plans to add a “significant amount of HD content” next spring, he said.
'IP RELIEF VALVE’
Down the road, to deliver more HD and other kinds of programming — like in-language multicultural content — Verizon will use what Strickland termed the “IP relief valve” of its hybrid cable/IP set-top architecture. Today, FiOS delivers video-on-demand content over IP, and Verizon expects to be able to deliver linear TV programming over IP by 2009.
Other FiOS enhancements will deliver converged services, such as scheduling digital video recorders and setting favorites from a Web browser, and home networking features like viewing photos and playing music on the living-room TV.
Another card up Verizon’s sleeve: games on the TV. In the first quarter of 2008, the telco expects to add a wide range of interactive games to FiOS, ranging from simple ones such as chess and sudoku, to educational titles for kids and more interactive games originally developed for DVD platforms.
Some FiOS games will be offered for no extra charge to subscribers, while others will be pay-per-play or available in monthly subscription packages. “It’s a little bit of new ground here, in terms of finding the models that will attract the highest number of users,” Strickland said.
Verizon is licensing the games from partners, though Strickland declined to name them. Interactive-TV software firms that have developed set-top-based games include PixelPlay, Zodiac Interactive and News Corp.’s NDS Group. To develop the DVD-based gaming platform for FiOS, Verizon is integrating SeaChange International’s DVD on-demand software into the telco’s own IP-based middleware.
The strategy is pre-emptive, Strickland said: “We want to build a leadership position to make sure our product set is top-of-mind so that if and when this becomes a must-have, we’re out in front.”
AT&T: THREE SCREENS
For AT&T, meanwhile, the big-picture strategy for what’s next on U-verse TV is more explicitly focused on weaving together voice, video and data services on the so-called three screens: TV, PC and mobile phone.
“We’re going to compete on integration and convergence,” AT&T vice president of product and strategy Jeff Weber said.
Today, that takes the form of such features as DVR scheduling from the Web or wireless handset. AT&T, the nation’s biggest telephone company, has also begun offering video content on PCs and mobile phones, though Weber acknowledged that the types of content available on the different platforms “are fairly disjointed.”
“As the content providers grow more comfortable with that, we’ll let you move between those environments pretty simply,” he said.
Weber added, “I don’t think that means I want to watch my favorite show on my PC or phone. It means: I want to watch the game in HD on Big Ten Network on my 50-inch TV, and I also want to watch the 30 seconds of highlights on my phone.”
AT&T is also pushing Internet-delivered content and games to the TV. U-verse subscribers in the Dallas-Forth Worth area last month were the first to receive access to U-bar, which delivers local weather, stock, sports, and traffic information to TV screens; access to AT&T’s YellowPages.com; and Yahoo! Games, such as sudoku, solitaire and chess.
“U-bar blends your broadband experience with your TV experience,” Weber said. “It’s a unique experience, and it’s simple. U-bar is a great example of the kinds of things we are going to do moving forward.”
What’s the business case for these converged services? For Weber, the idea is to offer an increasing set of features a customer can’t get from cable or satellite. “Can you derive revenue from U-bar? I don’t think so. There may be some [IPTV] applications that are revenue generators, but for the most part the incremental value is reducing churn and providing immersion in the service.”
Others, like Microsoft’s Seidel, are convinced the ability to break down the barriers between the TV and the rest of a subscriber’s digital devices will be a killer feature all by itself.
“Once the TV is this good citizen on your home network — it’s not just a dumb piece of glass — that means we can connect to a PC in the house and stream music and photos to the TV,” Seidel said. “And you can pull up TV content on the PC in your back bedroom. Right now you’re stuck with your flat screen in the main room.”
The value of having IP-based content that can be distributed within the home, Seidel said, is that it “gives the customer choice: How do you want to consume this?”
Cool features are one thing. But some IPTV technology vendors believe the real revenue opportunity for telcos’ next-generation TV services will be selling targeted ads, bringing Internet-style tracking to a medium in which tailoring commercials to specific viewers has been technically impossible.
“You will have advertising systems that track your viewing on multiple platforms,” Alcatel-Lucent’s Schutte said. Those will let viewers “interact with the brands they like. If you like Nike, your video provider will let you stay connected to the brand.”
Last month, Alcatel-Lucent bought interactive-TV advertising software firm Tamblin with an eye on helping its IPTV customers start to do that. Tamblin, a privately held 13-employee company based in London, provides software to the BBC, BskyB, Disney Channel UK and other media companies for developing interactive advertising campaigns that run across multiple operators.
Bugir said the real challenge for telco TV services in capitalizing on the advertising opportunity isn’t technical. Rather, he said, it is for phone companies to shift their businesses to be able to sell TV advertising spots.
“Telcos have not traditionally understood content,” he said. “They’ve presented empty pipes, and people talked to each other — that was the content. Now they have to make sure they can buy the right content, segment the content and put the systems in place to deliver advertising to the right audience.”
Weber conceded that AT&T has “a lot to learn” about TV advertising, but he said the telco does have advertising DNA — for example, through its Yellow Pages printed and online directories business. “We do multiple billions of dollars in advertising through Yellow Pages,” said Weber.
In any case, phone companies will need to develop even more sophisticated addressable advertising capabilities for TV, Bugir said. “If a telco walks into a Madison Avenue office, they’ll say, 'We have X thousand subscribers.’ That’s not very compelling. But if they can say, 'I can give you every single college student in this area, and they love pizza on Friday nights,’ they have the opportunity to go beyond demographics and go into psychometric advertising.”
By generating more dollars from its ad inventory, Bugir continued, a telco TV provider would become less dependent on subscriber fees — and could lower its rates.
“If the telco guy can say, 'My TV service is only $9.95 per month,’ because he can get serious money from advertising, that could be a shutout for the telcos,” he said.
Of course, that won’t be the case if cable successfully pulls off its own vision for interactive TV ads. A wide-scale initiative led by CableLabs, code-named Canoe, would provide a set of standards to let advertisers place and track ITV spots across virtually the entire cable industry.
And telephone companies are starting with relatively few eyeballs to trade on. AT&T, for example, only recently hit the 100,000-subscriber mark for U-verse TV this summer after broadening the service’s availability to 25 markets.
“First of all, we need to get scale in the TV space,” Weber said. “That’s really where the work is.”
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