Chapter 3: Broadcasting Meets the Internet

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Among all of the new technologies made possible by the explosion of available bandwidth
on cable systems worldwide, the ability to transport data provides
the most intriguing possibilities. Whether through high-speed-data giants @Home Network
and Road Runner; through turnkey companies like High Speed Access Corp.; or through
homegrown systems, providing some sort of high-speed service is almost becoming a
necessity for cable operators to thrive.

Switzerland-based The Fantastic Corp.'s Lars Tvede and
Peter Bircher, along with Intel Corp.'s Jens Bodenkamp of Intel Europe in Germany,
have teamed up on Data Broadcasting: The Technology and the Business, which
provides a complete overview of the past, present and future of data-broadcasting
technologies.

This week's excerpt -- the third chapter of the book
-- takes a detailed look at the marriage between the broadcasting and Internet industries.

Data Broadcasting: The Technology and the Business is
scheduled for an October release by John Wiley & Sons Ltd., which can be contacted at
44-0-1243-779777 (phone), 44-0-1243-775878 (fax) or
cs-books@wiley.co.uk (e-mail).

"Everything that can be invented has been
invented." Charles H. Duell, commissioner, U.S. Office of Patents, 1899

Data broadcast can be defined as follows: Data broadcast is
a concept whereby a combination of video, audio, software programs, streaming data, or
other digital/multimedia content is transmitted continuously to intelligent devices such
as PCs [personal computers], digital set-top boxes and hand-held devices, where it can be
manipulated.

The broadcast concept means that although a return path
might be available, it is not required. Content is received without being requested.

We shall in the following try to position data broadcast
from two different perspectives: as a technology and as a business.

3.1 DATA BROADCAST: TECHNICAL POSITIONING

Telecommunications is a diverse business, but it can be
divided into two very basic concepts:

• Point-to-point communications; and

• Point-to-multipoint communications.

Point-to-point communications is converging around the
Internet with its TCP/IP [transmission-control protocol/Internet protocol] protocols.
TCP/IP has a number of advantages, but it has one pain. It is slow, mainly for three
reasons:

• The acknowledgement process: Every time you
send an information package, a message needs to go back through the network confirming
that it has been received by the individual.

• Strain on servers: When 1 million people want
the same information, the server has to send it out 1 million times and read all of the
package acknowledgements at the same time.

• Strain on networks: What is sent to John is
not the same as what is being sent to Paul and Mary, so they can't share the same
infrastructure. Three users generally means three times the capacity requirements.

The pain of the Internet is, in other words, in the pipe.

The other main concept of broadcasting --
point-to-multipoint -- is what we looked at in the first chapter. This is today mainly
radio and television broadcast.

Radio and television are fast, cheap and, you may say,
"for the masses" -- a satellite/cable-connected television receives massive
amounts of content 24 hours a day, with no dial-up required and no per-minute fee.

Broadcast is clearly a strong commercial concept, but it is
not smart. Radio and television are single-media, not multimedia.

So how do the broadcast world and the Internet world
relate? Well, first it should be noted that while everyone talks about the Internet today,
the reality is that most electronic-content distribution is broadcast.

If Bob has a cable-TV subscription with 50 channels, then
he may receive 750 megabits of content per second, 24 hours a day. Looking at one of those
channels at a time for four hours may provide him with 27,000 megabytes of content.

If Bill plays on the Internet for four hours with an
average content-download speed of 20 kilobits per second, then he receives 36 megabytes of
content. Broadcast delivers more.

This is no coincidence. Broadcast is so much bigger because
it is so much more efficient at delivering really popular content. There will, for
instance, be no point in trying to deliver widely requested video-based content as
"video-on-demand" over the Internet if it can be broadcast instead. A converged
medium would be able to handle that.

Data broadcasting can, from a technical point of view, be
positioned as the technology that merges broadcasting with the Internet.

3.2 DATA BROADCAST: COMMERCIAL POSITIONING

History has provided many examples of "new
technologies looking for a business." Data broadcast is the other way around: It is
driven by new phenomena in the economy that create the requirement for a new technology.

The best way to understand these economic trends is perhaps
to take a long perspective. We all know that developed economies during the 20th century
have moved from centralized management paradigms to decentralization. We also know that
the most recent trends have been further on toward speed (rapid commercial change) and
disintermediation (the Dell/Amazon effects).

These trends have been reflected in mainstream computing,
which has moved from mainframes (suitable for centralized economies) to minis, PCs and
client-server architectures (suitable for a decentralized economy), and now toward a
multitude of connected devices that we will use anywhere (suitable for an economy of speed
and disintermediation).

The trend toward speed and disintermediation has created
several exciting phenomena:

• The era of IP anywhere;

• The economy of speed;

• The media becoming the market; and

• The new battle for the eyeballs.

Let us briefly look at each of these trends. We can start
with the "IP anywhere" phenomenon.

3.2.1 The Era of IP Anywhere

We have already mentioned that we are moving toward an era
where we will have access to a multitude of connected devices. One interesting phenomenon
here is that most (or almost all) of these devices will have one thing in common: They
will have IP addresses. There are already millions of:

• PCs (Internet-connected PVs) and set-top boxes
(digital televisions) with IP addresses.

But the future will also bring increasing numbers of:

• Cars with IP addresses;

• Mobile phones with IP addresses;

• Personal digital assistants with IP addresses; and
even:

• Vending machines with IP addresses;

• Game consoles with IP addresses;

• Electronic toys with IP addresses; and

• Household equipment with IP addresses.

The area of IP anywhere will develop in waves. The first
wave was IP enabling of PCs. The second will follow the introduction of digital
televisions with set-top boxes (decoders). Availability of set-top boxes means that a
television becomes more like a computer, and it will be ready to communicate in different
ways than previously.

The third (and perhaps largest) big wave in IP enabling
will follow as mobile devices ("mediaphones") will be able to receive broadband
data and process it locally. This situation creates an extremely powerful commercial basis
for electronic convergence: A device with an IP address can be connected to the Internet
and to a one-way digital-broadcast stream at the same time. And the content can be mixed
in the same display environment.

3.2.2 The Economy of Speed

An economy where an increasing part of what people consume
contains sophisticated, innovative technology, or where it was created and distributed by
the use of such technology, makes speed of execution essential. Technology changes
quickly, and corporations that work with technology need to be able to move quickly, to
communicate quickly and to bring their new products to their markets quickly.

One way of providing new agility to large, international
corporate communities is to enhance their electronic communications. Data broadcasting can
help international organizations through this process by enabling them to provide
data-broadcast networks for their employees and customers. Such broadcast networks can
accelerate the communications of new products and procedures, accelerate the distribution
of documents and tie people closer together.

3.2.3 The Media Becoming the Market

The availability of the Internet and the demand for speed
have jointly created an accelerated trend toward so-called disintermediation, where
middlemen are cut out of the products/services value chains and where the transparency of
the markets reduces many players to commodity providers in pure price competition.

While many companies are initially dragged reluctantly into
this market scenario, more and more will choose to actively endorse the new era and to
build their strategies largely or entirely around "visual e-business" -- around
very powerful electronic-communications services to their customers.

Data-broadcast technology can provide these corporations
with the possibility to communicate electronically with their clients with combinations of
powerful video, audio and electronic transactions. This process makes it important for
corporations to find ways of reaching their business partners and end-users with an
electronic-communications form that is as powerful and emotional as television, but that
at the same time allows people to transact electronically. Awareness of this fact is
growing by the day as Internet commerce starts showing its power. Data broadcasting can
enrich a media-based market dramatically.

There is an old saying (by Marshall McLuhan) in
communications: "The medium is the message." However, interactive online
services create a new paradigm where the medium increasingly also becomes the marketplace.

3.2.4 The New Battle for the Eyeballs

Broadcasting business in liberal economies has always been
a battle for eyeballs: Traditional broadcasters have been measuring their market share per
month, day and hour.

The same is now the case on the Internet, which has
recently been shaken by the so-called portal wars. Portals are widely seen as the final
winners in the Internet's battle for the eyeballs. This is frustrating for the
physical broadband-network operators, who are largely reduced to commodity providers of
bitstreams in fierce price competition, rather than owning the portal positions. However,
this may change, because broadband networks have a unique opportunity to launch
data-broadcast portals, containing a seamless three-layered medium (See Table 3.1).

An Internet portal utilizing data broadcast can provide a
browser containing several simultaneous live streaming video channels, streaming
surround-sound audio, etc. The advantages of such a portal would be:

• It can carry content that is more compelling than
any pure Internet site.

• It can carry ads that are richer/smarter than ads in
any other medium.

• It can enrich the e-commerce experience through
enhanced information, selection and convenience.

• It can run "always-on," meaning that there
is rich media running within it even before you have dialed into the Internet. Since it
runs within a browser, it is destined to become the natural launch path for an Internet
session.

Music Choice Europe: Creating the Three-Layered Medium

Music Choice Europe, which is owned by three of the five
big music labels and British Sky Broadcasting Group plc, is one of the leading
data-broadcast pioneers.

The first prototype of the Music Choice data-broadcast
service shows a typical combination of the three-layered data-broadcast medium.

The first layer in this data-broadcast prototype is a
number of nonstop digital-music channels provided as MPEG [Moving Picture Experts Group]
streams over broadband. The user can listen to it (it is compact-disc-quality and involves
no download delay), and he can always read related information about the track, artist and
album that is currently "on-air."

The second layer is the "walled garden." This is
interactive content that has been downloaded to the hard disk (called "walled
garden," since it is separate from the Internet). Music Choice Europe's
prototype service provides new information to the walled garden whenever a new track
starts.

It works as follows: The "Intelligent Channel
Compiler" on the server side receives information about a new track that is starting.
It will then instantly and automatically link into a music e-commerce site on the Internet
to seek information about purchase of the album. This information and the order form are
immediately broadcast to all users.

The user will only see this order form if he likes the song
and clicks to see the form. He can then add it to his electronic shopping basket and keep
doing so over several weeks without ever dialing into the Internet (which is the third
layer in the medium).

However, whenever he wants to actually submit the order, he
has to connect in to the Internet. The result is a very media-rich, always-on service that
provides ideal opportunities for the user to get to know new music and to buy it with
maximum convenience. It combines the best of broadcasting with the best of the Internet.

3.3 STRATEGIC INFLECTION

The "IP anywhere" phenomenon; the phenomenal
drive of the Internet and electronic commerce; and the introduction of digital television
(and, soon, broadband mobile phones) are all processes in the market that prepare the way
for ultimate convergence, which will mean:

• Internet content and data-broadcast content from
anywhere ...

• is transmitted to a wide range of different devices
...

• that we use at the office, at home, at public places
and when we travel

• ... and where we are able to mix the content from
the external world freely with our own content.

Such a situation will, of course, be very attractive for
the end-customer and for content providers, but it will also create what has sometimes
been referred to as "strategic inflection."

It was Intel Corp. chairman Andrew S. Grove who coined the
expression "strategic inflection points" to describe situations where a business
undergoes a dramatic change because a growth curve changes direction. Such a strategic
inflection point is a situation where an external force has changed dramatically, and
where that change provide new threats or opportunities.

Grove referred here to the "10 factor" -- if a
critical external variable changes by a factor of 10, then there is a basis for strategic
inflection.

Data broadcasting will typically provide online data into a
computer or another IP device at more than 100 times (and up to several thousand times)
the speed of a fast Internet connection, which means that it creates a strategic
inflection point for the Internet business, as well as for the broadcasting business.

This strategic inflection point dramatically changes some
of the commercial rules, since it provides new opportunities to operate companies "at
the speed of thought" (Microsoft Corp. chairman Bill Gates) and to provide a powerful
direct communications line between companies and consumers.

The phenomenon will also provide strategic inflection for
media companies and broadband-network providers that are already directly involved in the
distribution of bits and bytes. So from a commercial point of view, we can position data
broadcast as the phenomenon that enables players in the value chains to provide fast and
rich communications to their users anywhere, anytime and anyhow.

3.4 THE DATA BROADCASTING VALUE CHAIN

Data broadcast is a bridge technology between broadcasting
and the Internet, and it is a new and extremely efficient means of providing fast and rich
media in all situations. But whom is data broadcasting relevant for? Which are the players
that will participate in this business?

Any business, including any new electronic-media business,
has a so-called value chain of suppliers. If we think of data broadcasting as an
infrastructure to deliver packages and messages, then we can compare it to the value chain
of traditional mail. The value chain of traditional physical mail includes:

• Enablers: people who provide enabling
equipment like sorting machines, vans, stamps, etc.;

• Senders: people who send information
(individuals, advertisers, catalog-sales companies, etc.);

• Distributors: people who deliver the mail
(bulk mail, direct mail, individual mail, registered mail); and

• Receivers: end-users who receive it.

The main value chain for data broadcasting is not
dissimilar. It includes:

• Enablers: hardware enablers, software
enablers, advertising-metering providers, system integrators;

• Senders: media companies,
corporations/institutions, advertising-sales agencies, shopping-mall operators;

• Distributors: media aggregators, physical
distribution networks, service retailers, support providers; and

• Receivers: end-users who receive it.

This chain may not appear particularly simple, although it
is comparable with value chains not only for television, but for any other media. Figure
3.1 illustrates the typical main tasks for each of the players in this data-broadcasting
value chain.

The data-broadcasting value chain is similar to the value
chain of other media businesses, and it is now in a process where different parties are
trying to identify their roles.

Table 3.2 explains in more detail what each of the players
in this value chain actually does.

Table 3.2: Typical Main Tasks for Different Value-Chain
Players

Enablers

Hardware Enablers

Companies providing communications cards and encoders for
DVB [Digital Video Broadcast] or other data communications. May also be PC or set-top-box
vendors that supply "broadcast-ready" hardware. Can also include a hardware
retailer.

Software Enablers

Companies providing relevant software for aggregating,
tracking, content-broadcast scheduling, bandwidth booking, bandwidth management and client
content manipulation. Can also include retailers and value-added resellers.

Advertising-Metering Providers

Companies that track and verify statistically the use of
different components in branded channels, including viewing of advertising, in order for
advertisers to know the results of their efforts.

System Integrators

Companies integrating data-broadcasting solutions and
channels into corporate, network and reseller environments in order to interface to, for
instance, billing and conditional-access systems.

Senders

Media Companies

Media brand companies providing data-broadcasting content
in order to earn directly derived revenues. Typically, the content is provided either in
incomplete format to content aggregators or in complete format directly to resellers.

Corporations/Institutions

Corporations/institutions providing content typically in
order to enhance their internal/external communications, improve their data
infrastructure, promote themselves, etc. The content is created by standard editing tools
and then managed by data-broadcast software tools. It is typically provided directly to
end-users, and the corporation/institution is in charge of user administration.

Advertising-Sales Agencies

Entities that sell advertising for the channels (in
particular, for branded channels).

E-Commerce Providers

Companies operating electronic shopping malls that can be
accessed from the data-broadcast channels.

Distributors

Media Aggregators

A company aggregating content from a number of different
media companies in order to create a multichannel package, widely though use of software.
The company delivers the channels to the network-operating centers of resellers and to
corporations/institutions that wish to embed the content into their own channels.

Physical Broadband Networks

Networks providing bitstream services. Could be satellite,
cable, XDSL (copper telco digital subscriber line), digital terrestrial or mobile. The
networks are able to offer bandwidth booking with a flexible basis (time, bit rate, etc.).

Service Retailers

Entities that "own" the end-users for branded
channels. These end-users may be focused affinity networks, or they may be the public at
large within a given territory. One may also view a corporation offering its own internal
network as an end-user. The resellers are in charge of user administration, but they
report back to aggregators/content providers. The reporting may include statistical
information, but not the exact identity of each end-user.

Support providers

Companies providing support for end-customers.

Receivers

End-users

Local filtering and data manipulation.

It should be noted here that any player in the chain, of
course, might choose to fill several of the functions within it. It should also be said
that the data-broadcast value chain is somewhat shorter with the launch of a corporate
data-broadcasting solution rather than for the launch to the mass market. Furthermore, a
corporation will typically simply purchase the components needed from any of several
competing vendors, which is relatively easy to do. This is the key reason why the
corporate market is the typical early adopter.

The Convergence/Diversity Loop

An interesting phenomenon rules in electronic-media
markets: The diversity of applications and services increases whenever core technologies
converge.

One early example of this process took place when satellite
and cable dissemination of television converged into an interdependent, compatible
structure. Growth of one stimulated growth of the other, and the combined growth made it
commercially feasible to launch an ever-increasing number of television channels.

The Internet is another example. The Internet has
stimulated a massive wave of convergence in online services, and this has again paved the
way for the current plethora of Internet applications and services. Content providers can
produce content once and know that it will work all over the converged infrastructure.

The same will happen as broadcast and the Internet finally
converge into one supersystem, and when subsequent waves of convergence bring the combined
services into multiple devices in homes that become interconnected through home networks.
Technical convergence means content diversity, which again leads to commercial market
segmentation until every user becomes a single segment.

3.5 THE ORGANIZATION PROCESS IN THE VALUE CHAIN

While an established value chain is taken for granted in a
mature medium, it is in fact always a slow and painful process to organize as each new
medium arises.

Although each player in the value chain has significant
interest in seeing the successful launch and takeoff of a new medium, they will always
undergo a process -- which, at times, appears somewhat chaotic -- in achieving a coherent
co-operation procedure/flow.

One of the reasons for this is that each group of players
has a different technological framework as its starting point. Therefore, all of the
technological frameworks have to be interfaced initially for content to start flowing. The
next chapter will provide an examination of the most important basic frameworks.

A Factor in the Increased Competition Among Broadband
Networks

Broadband markets are rapidly moving from monopolies or
near-monopolies to an era of all-out competition, as protective legislation is abandoned
and new technologies allow telco-line operators, mobile operators, cable operators and
satellite operators to invade each other's territories with competing services.

In time, the decisive sales parameter will thus easily
become price: If two suppliers offer essentially the same solution, then the market forces
will tend to bring prices down to levels where not much money can be made by any provider.

However, the broadband-network provider can use adoption of
data-broadcast services as one of its ways of overcoming these problems, the reasons
being:

• Ability to segment the market: Data
broadcasting uses (unlike, for instance, analog television) highly flexible bandwidth.

Some users might transmit nothing for several hours, then
go up in the megabit range, then drop to a few hundred kilobits, etc. Some might demand
guaranteed real-time throughput (e.g. stock quotes), while others can tolerate limited
buffering. Some might be happy to transmit overnight (e.g. database synchronization),
while others need primetime access. Some can plan their bandwidth usage well in advance,
while others need full flexibility.

So being able to sell bandwidth with the flexibility that
data broadcasting provides makes it possible to segment the market and to create a win-win
situation for customers and network operators alike.

• Ability to provide value-added services:
"Value-added services" is always the strategic advantage necessary for any
commodity business. How do you add to your offering so that price doesn't remain the
only sales parameter? Offering data broadcasting can be a solution, as it may offer anyone
who connects access to broadcast content.

Assume for a moment that there are news, weather, finance
and music data-broadcast channels available on one network, while there is nothing
available on the competitor's network. Which network will customers prefer to use? If
they are interested in embedding any of these services into their own data-broadcast
channels, then they will prefer to use the network with the most compelling content.

• Ability to attract new customers: The third
motive is simple -- it is the ability to attract data-broadcasting customers in the first
place. The broadband network that doesn't offer value-added services will not attract
new customers.

The results of these three advantages of data broadcast for
the broadband network are additional bandwidth sales, higher average bandwidth prices,
reduced customer churn and access to new revenue streams.

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