Opportunities in IPTV

Carolyn Wales Sukun Kim David Leuenberger William Watts Ori Weinroth

What is IPTV?
Definition: systems where television and/or video signals are distributed to viewers using a broadband connection over Internet Protocol
Viewing device is not a defining feature

We will focus on the home subscriber segment

Why is IPTV Important?

IPTV allows new players into video distribution:
Incumbent telecommunication companies Original content providers Start-ups

IPTV allows a new user experience:

On demand convergence of video with other applications (voice, data) on one device and interface. More interactivity

Channels of Video Distribution

Cable/Satellite Distribution
Use existing infrastructure PVR upgrade easy, immediate VOD limited by network infrastructure Rollout of advanced services possible, but likely slow

Telco Distribution
Installing new FTTx networks Switched architecture makes VOD easier Incentive to plan-in advanced features Addition of services not foreseen at deployment likely to be slow

Open Internet Distribution

Low barriers to entry many many players Poorer quality than Cable or Telco distribution Ecosystem encourages experimentation Content producers can connect directly with customers

Telcos: Responding to Cables Voice Incursion

Using VoIP technology, MSOs start offering subscribers triple-play packages: voice, data, video. Telcos face significant threat to voice revenues. Telco reflex: offer video. NPV>0?

Telcos: IPTV Sample Initiatives

SBCs Project Lightspeed is a $2B investment in IPTV. Now TV (500.000 subscribers), operated by PCCW in Hong Kong, launched in Q3, 2003 Maligne TV (125.000 subscribers), operated by France Telecom in France, launched in Q4, 2003 Media on Demand (65.000 subscribers) operated by Chunghwa Telecom in China, launched in Q1, 2004
* All subscriber figures as of Q3 2005. Source: wikipedia.

New IPTV Distributors

Start-ups and internet heavyweights enter the video distribution market: Akimbo
Sells customer a box, $10 monthly subscription service, and some payper-view

DaveTV
Sells some customers boxes, and offers wide range of payment options for content including subscription and pay-to-own

BrightCove
Offer content owners a platform for video distribution and monetization, including ad insertion, storage and servers, shopping cart Receive a cut of cut of advertising revenue and fees from the videos

Google Video Start-up access to mainstream content Opportunity to monetize the tail

Content Providers Go Direct

MovieLink
Owned by movie studios Pay-per-view. Prices range from $2-$5 per movie. Launching pay-toown A lot of criticism of the current user experience

The South Korean experience

Studios go direct to consumer over public internet network
Pricing: $0.5-$1 depending on resolution (equivalent to $1.5-$3 in U.S.) Studios return bigger than when partnering with cable Result: popular TV series had 107K views per week (proportional to 650K views in US) Result: studios gain better understanding about viewing habits

Channel conflict issues

Trends in Video
Increased personalization
Users become spoiled Content available on demand Content available anywhere (devices include mobile)

Content Multiplies
Inexpensive production tools Culture of participation Available distribution/monetization virtuous cycle

Convergence of Devices
IP network allows applications to run over multiple end-user devices, over a single service delivery network

Trends in Video (continued)

New players in video distribution
Akimbo, DaveTV, BrightCove, MovieLink

Interactivity
Two-way nature of IP network enables unprecedented interaction

Targeted advertising
Required in a DVR home Required where consumer has on-demand ad-free choices

Cable/satellite broadcasting isnt disappearing soon

Incumbents continue to add features

Changes in Video Industry Business Models

Increased user sophistication and improved technology drive:
Variety in subscription models (subscribe to a series) Increased pay to own (not just DVDs) Increased pay-per-view (more VOD options)

DVRs, VOD, and customer expectations drive change in advertising models:

Targeted Advertisements Opt-in, pay-to-watch

Content integration with advertisement (Virtual Product Placement)

Advertisers appear are becoming more comfortable with the New World

VC Opportunities
Start-ups selling IPTV tools to Telcos and their competitors
Middleware (e.g. billing, user interface) Bandwidth enhancers (hardware, compression software) DRM Targeted and embedded advertising (e.g United Virtualities Shoshmosis) Search/recommendation tools

Start-ups competing with Telcos in distribution Start-ups providing tools to consumers

Video recommendation tools, including on-line magazines Search tools

VC Opportunities - continued
We will focus on video search and recommendation tools

A successful search tool will effectively address one or more of the following issues:

Crawling for Video

Crawlers have difficulty finding videos on the web
5-10% of video on the web are visble to crawlers on static HTML pages as .mov, .avi, etc Flash players, embedded video players, scripts popup windows, sub-frames hide most video content

Possible solutions:
Find video content based on webpage text Find video content by emulating a user (e.g. Truveo) Video self-identifies by set standards

Identify Video Content

Search engines need to identify what the video contains Possible solutions:
Metadata such as MediaRSS and MPEG-7 input by producers or by aggregators Identify video content based on webpage text Viewer generated metadata Image recognition Speech recognition Indexing captions for the hearing impaired

Ranking Videos for Relevance

Relevance solutions in video may utilize the same methods as text search However, linking as a relevance determinant is problematic Community as a filter may be more important

Copyright Protection
Video search engines need a method to not index copyrighted content unless it is monetized.
Currently no automated way to un-index or not index copyrighted videos Recent BitTorrent-studio announcement

Currently, content owners fend for themselves

Manually Aided by technology (Advestigos digital fingerprinting)

Possible solutions:
Copyright clearinghouse may help: Snocap (music registry)

Recommendation Engines
Professional content becomes fragmented

Difficult for users to discover content of interest

Recommendation engine required Recommendation engines as a service differentiator Two primary methods:
Machine/algorithm (Google)
Human/community (Yahoo)

Input Devices
Living room environment different from PC environment. Current solutions (grid menus, remote) insufficient as content multiplies

Possible solutions:
Wireless keyboard (Microsoft) Voice recognition (AgileTV, OneVideo) New interfaces/devices (Hillcrest HoME)

Video Search Engine Business Models

Should be similar to internet search engines:
Targeted advertising Drive search for content provider for a fee Be acquired by content provider

Q&A

Existing Video Distribution: Satellite

Broadcast model. Up to 215 channels offered. Interactivity limited to TiVo-like functionality (with purchase of DVR) Monthly U.S. ARPU is $64.31*. Only near-VOD available.

*Source DirectTV quaterly earnings statement 2005:

http://media.corporate-ir.net/media_files/irol/12/127160/Q205Earnings.pdf

Existing Video Distribution: Cable

Broadcast model Typical # of channels offered subscribers: more than 200** in U.S., up to 500 in the U.K. Limited interactivity Monthly U.S. ARPU is $50*. Typical VOD programming offer is: 65 movie titles
Source: *Comcast self-reported revenues. Actual monthly RPU ranges from $15 to $98, depending on services provided. **Courier News (Comcast New Jersey)

Telco IPTV Costs

Capital Expense
Customer Premises Cost (CPE) = Set-Top boxes (STB), CAT-5 wiring, ADSL plug/modem, and home installation labor cost $655-$800 Headend Equipments and VOD Servers: transcoders, rate shapers, video servers, core network $75-$200. Middleware Cost: software needed on both the server as well as the client side, including user authentication, content management, interactive program guide, customer relationship management (CRM), digital right management (DRM), billing, browser, MPEG-4 player $75$150 Access Network Cost: widely varying costs depending on network architecture and choice between fiber and DSL. Costs for fiber estimated at $672. Cost of Sales: estimated at 41% of ARPU. Selling, General and Administrative (SG&A): estimated at 21% of ARPU.

Telco IPTV Revenues

Video ARPU $45/subcriber/month Advertising $6/subcriber/month Equipment Rental $5/subcriber/month As a general rule of thumb, adding a strategic product (voice, data or video) can reduce churn by approximately 25% or more*.

* Yankee Group: Driving Toward the Triple Play: The Telco Video Opportunity

Building a Telco IPTV Offering

Telco IPTV services operate over a private IP network, not the public Internet. A private network is required to ensure quality of service (QoS).

Building a Telco IPTV Offering cont. Multicast/ Last

Unicast mile

Linear (e.g., broadcast TV) and on-demand (e.g., movies) content is captured and formatted for distribution over the IP network.

Mix of wellengineered existing IP networks and purpose-built IP networks for video transport.

Asymmetrical DSL (ADSL) and very-highspeed DSL (VDSL) or Fiber-to-the home to provide the required bandwidth.

Set-top box (STB).

Source: IPTV Explained: A Broadband Services Forum White Paper

Telco IPTV Features

Price number of channels two-way interactivity VOD DVR HDTV integration with computer applications: photo, music, voice Search

How Open Internet Distributors Distribute?

When content is monetized appropriately, dedicated servers are not a prohibitively expensive method of delivering the video. When content is not appropriately monetized, P2P technologies offer a lower cost solution: P2P distribution startups: BitTorrent
Predominantly used to pilfer video and other digital content No known means of DRM

RedSwoosh
DRM handled by other applications. Red Swoosh network security only controls the content that flows to the user over their network

Kontiki
Technology enables secure distribution of digital content (DRM) Used by AOL, BBC, Sky and other corporations to provide DVD quality digital content, including corporate sales and training content

DRM required to keep video from going the way of music.

Drivers for Open Internet Video Distribution

Consumers: Increasingly used to video anywhere/anytime Increasingly interested in creating and sharing their own video Technology Companies See an opportunity to get into the distribution market

Advertisers:
Content owners: Ability to connect directly with consumers No strong gatekeepers wanting rents *Ability to use currently available targeting/profiling technology *Ability to track results *Increasing openness to new models