informa's iptv perspectives april2010_lowres

IPTV PerspectivesA collection of analysis and commentary on the

global IPTV industry

April 2010

Featuring contributions from:

24/7 access to business-critical insight, analysis and data

The Intelligence Centre is a focused online business tool for those in and serving the telecoms and media industries. It features all of our expert analysis, briefings, data and forecasts on topics, countries and companies as soon as it is available.

The Intelligence Centre includes 10 focused channels, each one providing in-depth primary and secondary research aimed at helping you make better business decisions.

www.intelligencecentre.net

Keeping the world’s leading cellular organisations better informed

World Cellular Information Service (WCIS) combines intelligently sourced primary data from the leading mobile industry players with reliable forecasts and an unrivalled analyst support service. We have close relationships with the leading operators, vendors and regulators globally and we have a dedicated team of forecasters, ensuring that your decisions are underpinned by only the most up-to-date and accurate market data, forecasts and KPIs.

www.wcisdata.com

Cutting edge information on all fixed line, cable and broadband markets

World Broadband Information Service (WBIS) is the industry’s leading source of broadband, multi-channel TV and fixed-line market data. As well as access to a comprehensive, reliable and detailed global database of historic market data, KPIs and forecasts, clients also receive unlimited access to a team of dedicated analysts. The data supplied by WBIS, as well as the online tools and analyst support help you make those important strategic and tactical decisions.

www.wbisdata.com

Join us on LinkedIn: www.informatm.com/linkedin

Follow us on Twitter: www.twitter.com/informatm

Email us: [email protected]

Subscribe to our Connect email: www.informatm.com/connect

Your global research partner Informa Telecoms & Media delivers strategic insight founded on global market data and primary research. We work in partnership with our clients, informing their decision-making with practical services supported by analysts.

Our aim is to be accessible, responsive and connected, both to the markets we serve and to our clients’ business goals.

• Our global analyst teams have a deep understanding of the evolving telecoms and media value chain. Our research programme combines local market insight with sector based analysis for a complete, integrated view.

• Our research expertise is built on the in-house collection, validation and analysis of primary data. We track and forecast new and established datasets, using proven, robust methodologies.

• Our services drive decision-making. Our data, forecasting and analysis, supported by interaction with clients, provides real value.

London JohannesburgDubai Singapore Beijing Raleigh

Sao Paulo San Francisco – opening Spring

2010 Boston Chicago Brisbane

We have offices all over the world

The picture looks decidedly mixed for IPTV in 2010.

According to the latest figures from our World Broadband Information Service (WBIS), IPTV services from telecoms operators only had 5% of the global multichannel-TV market and 2% penetration of the world’s households. They have struggled to win market share from conventional TV and in the major markets, success stories are unfortunately rare. However, our research highlights that IPTV has started to win significant share in several small and emerging markets.

And video-over-broadband is not just a game telecoms operators can play. The technology is increasingly being embraced by conventional cable, satellite and terrestrial TV providers as well as Internet firms and consumer electronics manufacturers. This year’s IPTV World

Forum in London will bring together the IPTV industry to discuss how the technology can increase its share of the market and the opportunities it presents to players from across the technology market spectrum.

Along with a few of my fellow analysts we’ve put this short report together, selecting content covering key topics, such as content delivery network (CDN) strategies and games consoles, an interesting profile on Viasat, which expects IPTV to play a key role in driving subscriber growth, and a detailed look at the lessons to be learnt from the South Korean market.This report starts with an overview of our latest IPTV market data, which our WBIS team updated the week before the IPTV World Forum.

We have a large team of analysts attending this year’s IPTV event, including

all of us featured in this report, with many of us chairing or speaking during the conference. If you want to know more about our IPTV analysis, insight, KPIs or forecasts then please get in touch and one of my colleagues will be happy to take you through our coverage and services.

By Rob Gallagher – Principal Analyst

Contributors

This report features contribution from:

Rob Gallagher– Principal [email protected]

Julia Glotz– Senior Analyst [email protected]

Giles Cottle– Senior [email protected]

Tony Brown– Senior Analyst [email protected]

About Informa Telecoms & Media

Informa Telecoms & Media delivers analysis and insight into the global IPTV sector, which is based upon our own primary research.

Through our World Broadband Information Service (WBIS) our dedicated team of analysts are tracking KPIs and producing reliable five-year forecasts, all of which are searchable and exportable, enabling you to analyse the data most relevant to your business.

Our Intelligence Centre features 10 topic and geographic-focused channels, including one on television and one on broadband & Internet, which house all of our analysis, insight, opinions and commentary, as well as presentations from Informa’s global conferences.

For our clients we are their global research partner, supporting important decisions with actionable intelligence.

Contents

Glimmer of hope for IPTV in select markets 04

Viasat hails IPTV as growth driver 05

Games consoles start to define their roles in the TV ecosystem 06

Operator-CDN market blossoms into all manner of varieties 10

South Korean IPTV numbers on the rise, but questions linger 13

Introduction

03

IPTV success stories remain rare in many major markets, as broadband-based TV services from telecoms operators struggle to take share from conventional TV. But IPTV has gained a foothold in several small or emerging markets and begun to win customers in some developed mid-sized ones, albeit at a slow pace.

Subscriptions to IPTV services stood at 29.7 million at the end of 2009, up from 19.4 million a year earlier (see fig. 1). The number of quarterly net new subscriptions, or net adds, reached a record high of 3.2 million in the last three months of the year.

But IPTV still has a long way to go. The technology had only 5% of the multichannel-TV market and less than 2% penetration of the world’s households, despite services being available in over 50 countries.

And just four countries accounted for nearly two-thirds of all IPTV subscriptions: France, the US, China and South Korea (see fig. 2). In many other major markets, IPTV made slow progress against cable, satellite and terrestrial TV competition.

IPTV has gained significant multichannel-TV-market share where one or more forms of conventional TV is absent or weak, particularly in small or less developed markets, such as Iceland (81.0%), Qatar (80.0%), Cyprus (67.0%), Slovenia (35.0%), Croatia (25.0%), Estonia (25.0%), Montenegro (23.5%) and Greece (23.5%).

Services also began to take the majority of net adds in some more competitive mid-sized markets in 2009, including Switzerland, Belgium, Singapore and Portugal.

Unsurprisingly, the top 10 providers by subscriptions were based in the world’s five largest IPTV markets, though there was some movement of their rankings during the year.

France’s Free kept the top spot, but Verizon of the US overtook China Telecom to reach number two. China Telecom was relegated further to number four, after being overtaken by Orange France. Germany’s Deutsche Telekom, at number 11, was the largest provider by subscriptions outside of the big-five markets, followed by Belgacom of Belgium and Spain’s Telefonica.

The providers with the highest levels of household penetration were: Hong Kong’s PCCW (43.7%), Iceland Telecom (38.5%), CYTA of Cyprus (23.2%), Estonia’s Elion (22.5%), and Belgacom (16.7%).

This article features IPTV data from WBIS and has been taken from the Intelligence Centre, the platform through which Informa delivers all of its topic, country and company insight and commentary. For more information, please visit:www.intelligencecentre.net

Glimmer of hope for IPTV in select markets

Rob Gallagher | Principal [email protected]

04

Operator (country) Subscriptions, 4Q09

Free (France) 3,550,000

Verizon (US) 2,861,000

Orange (France) 2,761,000

China Telecom (China) 2,740,000

SFR (France) 2,700,000

AT&T (US) 2,064,000

PCCW (Hong Kong) 1,001,000

KT (South Korea) 994,000

NTT Plala (Japan) 830,000

China Unicom (China) 810,000

Fig. 3: Global, top 10 operators by IPTV subscriptions, 4Q09

Source: Informa Telecoms & Media

Rank Country Subscriptions

1 France 9,011,000

2 US 4,948,000

3 China 3,550,000

4 South Korea 1,713,000

5 Hong Kong 1,172,000

6 Japan 938,197

7 Germany 859,900

8 Italy 855,000

9 Spain 798,000

10 Belgium 752,000

Fig. 2: Global, top 10 countries by IPTV subscriptions, 4Q09


Fig. 1: Global, IPTV subscriptions and net additions, 4Q07-4Q09


Viasat, the pay-television operator owned by Sweden’s Modern Times Group, expects IPTV to play an increasingly important role in driving subscriber growth in its Nordic operations over the next year.

Most of Viasat’s premium subscriber growth in the region in 2009 came from IPTV, which accounted for 60,000 of a total of 69,000 net additions with the rest coming from direct-to-home (DTH) satellite.

During the fourth quarter of 2009, Viasat added a net 21,000 new premium pay-television subscribers – 10,000 DTH and 11,000 IPTV. The company ended 2009 with a total of 823,000 premium pay-TV customers, compared to 754,000 premium subscribers at the end of 2008 (see fig. 1).

Modern Times Group president and chief executive Hans-Holger Albrecht said that premium-subscription growth in the fourth quarter had been driven by more households taking digital-satellite services as analog-terrestrial signals were switched off in Denmark (November 1) and Norway (December 1) as well as by continued demand for IPTV.

Albrecht expected IPTV to continue to be a key factor in driving subscriber growth in the Nordic region in 2010. “We expect continuing subscriber acquisitions with increasing weighting on IPTV in terms of subscriber growth,” he told a telephone conference on Modern Times Group’s full-year results.

Average revenue per user (ARPU) for DTH premium subscribers was SEK4,435 (US$620) for the fourth quarter of 2009, a 9% year-on-year increase, which Albrecht said was largely driven by price increases on some subscription packages and increased uptake in “value-added” services such as digital-video recorders and high-definition channels.

Albrecht expected premium DTH ARPU to continue to grow by “low- to mid-single-digit percentage points” over the next year.

Operating income for Modern Times Group’s Nordic pay-television business was up 5% year-on-year at SEK725 million at the end of 2009.

Viasat’s “emerging markets” pay-television division, which operates DTH services in the Baltic states and Ukraine and which also distributes pay-TV packages through Estonian IPTV operator Elion, reported a 33% year-on-year increase in net sales to SEK875 million compared to SEK658 million in 2008. Operating income for the year was SEK 168 million, up from SEK106 million a year ago.

Baltic and Ukrainian premium DTH subscriptions increased by 9,000 in the fourth quarter of 2009 but were flat year-on-year, with 216,000 at the end of December 2009 compared with 218,000 at the end of 2008. Basic DTH and “mini-pay” subscriptions were both up, reaching a respective 24,000 and 40.78 million subscriptions (see fig. 2).

This piece of analysis has been taken from the Intelligence Centre, the platform through which Informa delivers all of its topic, country and company insight and commentary. For more information, please visit:www.intelligencecentre.net

Viasat hails IPTV as growth driver Julia Glotz | Senior [email protected]

05

Dec-08 Sep-09 Dec-09

Premium subscribers 754 802 823

– Of which DTH satellite 676 675 685

– Of which IPTV 78 128 138

Basic DTH satellite subscribers 69 48 45

Premium DTH ARPU (SEK) 4,077 4,401 4,435

Note: SEK1=US$0.14

Fig. 1: Modern Times Group, pay TV subscriber growth, Nordic region, Dec-08 to Dec-09 (000s)

Source: Modern Times GroupDec-08 Sep-09 Dec-09

Premium DTH subscribers 218 207 216

Basic DTH subscribers 11 22 24

Mini-pay TV subscriptions 36,469 39,620 40,778

Fig. 2: Modern Times Group, pay TV subscriber growth, emerging markets, Dec-08 to Dec-09 (000s)

Source: Modern Times Group

• Informa Telecoms & Media counts 25 third-party pay or catch-up TV services that have launched, or will launch, on the three major games consoles.

• Sony’s more open approach to PlayStation means it has been able to offer more services than Microsoft’s Xbox 360.

• The proliferation and use of existing technologies and platforms, including Microsoft’s Mediaroom and Silverlight and Adobe’s Flash, will determine which providers launch on which platforms.

• Consoles are unlikely to usurp TV platforms as the main method by which services can be accessed.

Introduction

The idea of the games consoles as a connected device that allows for far more than game-playing is not a new idea. After all, it was back in 2002 when Informa Telecoms & Media reported on news of a corporate restructuring at Sony that resulted in the creation of a Broadband Strategy Group within the company. The group was charged with pushing the evolution of Sony’s PS2 console as a broadband-based entertainment-delivery medium.

Several years and one generation of consoles later, and it’s becoming clear that games consoles will be, if they aren’t already, one of the key players in the connected home. In no way is this more obvious than in the types of services available via the devices (see fig. 1). Microsoft, Sony and Nintendo have been gradually ramping up the features of their Xbox 360, PlayStation 3 and Wii consoles, including providing their own VOD libraries.

Where the picture gets really interesting is in the provision of third-party services. Ultimately, the extent to which consoles work with third parties will determine just how ingrained they become in the

connected home. The headline-grabbing deals have included Facebook and Twitter, which are available on Xbox Live in several countries, and Netflix, whose Watch Instantly video-streaming service is available via all three major consoles.

But outside the US, the big move has been the inclusion of major third-party TV services by the main consoles, including catch-up TV services provided by broadcasters and pay-TV services usually delivered via satellite (DTH) or IPTV (see fig. 2).

Analysis

Motivations for offering services via a console vary greatly

There is only ever one ultimate reason for a broadcaster or operator to offer services via new platforms: to go where its audience is, so it can reach as many eyeballs as possible. But beyond this, there are some subtleties and nuances that can hasten an operator’s decision to offer these services:

On-demand on the cheap: Sky in the UK and Canal in France have persevered with the Xbox 360 because the limitations of

their pay TV platforms – satellite – mean it is difficult to offer a true on-demand service. Instantly being able to offer on-demand content to Microsoft’s estimated 2.5 million Xbox Live homes in the UK will be extremely appealing.

Multiroom viewing or STB replacement: PCCW says that one of the main reasons it is offering Now TV via the PS3 is that it will enable people to watch its service on a second set. This will appeal to customers, because such a service is usually something that operators charge for. It is particularly apt in Hong Kong, because many users live in small apartments and space is at a premium, meaning any device providing multiple services usually has an advantage.

Creating a splash: Well-funded communications providers that are new to the TV market can use consoles to boost their TV efforts. KT of South Korea was the first operator to launch a service via a games console, but it was something of a TV laggard when it did so. Legislation prohibited the operator from launching linear services, and its on-demand service came after that of rival SK Broadband, then branded Hanaro Telecom. Launching over the PS3 was a natural step, given that persuading consumers to install and pay

Games consoles start to define their roles in the TV ecosystem

Giles Cottle | Senior [email protected]

06

Console Web service Social Video-on-demand

Nintendo Wii Offers photo sharing, shopping, news and weather forecasts and a Web browser. Other features, including a food-delivery service, are included in Japan.

In-house services including a message board and the Everybody Votes channel are available; Nintendo has yet to strike any deals with third-party social networks or media providers, however.

Nintendo offers Wii no Maa, a social VOD service that offers cartoons and other family-friendly shows from major content providers, in Japan.

Sony PlayStation 3 PS3 users can access Home, the console's virtual world and community, the PlayStation store and other services. The service also includes a Web browser.

Home is Sony's PS3-based online community. Users can create avatars, which live within Home and can interact with the avatars of other users. Users can also access several social-media sites via the PS3's Web browser.

Sony sells VOD content via the PlayStation store in the US, the UK, France, Germany, Spain and Japan. VidZone, a service that allows users to watch music videos free, is available across Europe and Australasia.

Xbox 360 Xbox Live users can play online against each other and download full games and other additional content. Unlike the PS3 and Wii, Xbox Live does not include or support a Web browser.

Twitter and Facebook are available in the majority of countries in which Xbox Live has launched. Music-discovery service Last.fm is available in the UK and US and will soon launch in Germany. Pioneering interactive live game show 1 vs 100 is available in the UK and US.

Zune, Microsoft's VOD service, was made available across Europe and Australia, having previously been available only in the US.

Fig. 1: Nongame services offered by the big three games consoles, Feb-10


for another settop box simply to access on-demand viewing was also going to be a hard sell. Vodafone Portugal also launched its Casa TV service via Xbox Live only a few months after it launched the service.

Sony’s vertically integrated approach: Some eyebrows were initially raised when Sony channels AXN and Animax were included as dedicated catch-up services on the PlayStation Network. Informa estimates that, by the end of 2009, about 2 million PS3 consoles were sold in Europe outside the Big Five countries. The potential audience for viewing Animax and AXN can therefore be assumed to be extremely small. These launches most likely represent an opportunity for Sony to experiment with offering catch-up TV services in smaller markets. Signing up

third-party broadcasters in these markets will be difficult, because the costs of offering the service will be high compared with their potential benefits.

Consoles attract new viewers, but there is some cannibalization from existing sources

Viewing catch-up services via games consoles is popular. Months after launch, the PS3 now accounts for a significant proportion of iPlayer program requests (see fig. 3). And in Australia, ABC achieved 89,000 views a week only days after the iView service officially launched via the PS3, having achieved only 83 views when the service was available via the console but not promoted (see fig. 4).

One reason games consoles appeal to

broadcasters is that they can bring a “lost generation” of viewers back to the TV. Broadcasters reason that if they bring their services to the console, they will be able to win back viewers who have abandoned the TV for gaming. But that is a pretty major assumption to make. Most gamers are technology-savvy people and are arguably those who would still watch via the PC. It is likely that many of these “lost” viewers have abandoned TV because it simply does not interest them as a medium, rather than because they cannot access it in the way they want too.

It is also clear that at least some viewers of catch-up TV via the console are churning from other platforms. An analysis of iPlayer data provided by the BBC shows that the number of iPlayer requests via PCs and Macs dropped in the month the PS3 launched.

07

Country Service provider Service Platform

Australia ABC iView PS3

Bulgaria AXN AXN Player PS3

Czech Republic Animax Animax Player PS3

Czech Republic AXN AXN Player PS3

France Canal Canal+ Xbox 360

Germany ZDF ZDF Mediathek PS3

Hong Kong PCCW Now TV PS3

Hungary Animax AXN Player PS3

Hungary AXN Animax Player PS3

Ireland RTE RTE Player PS3

Netherlands NOS NOS Journaal PS3

New Zealand TVNZ TVNZ ondemand PS3

Poland AXN AXN Player PS3

Portugal Vodafone Casa TV Xbox 360

Romania AXN AXN Player PS3

Romania Animax Animax Player PS3

Slovakia Animax Animax Player PS3

Slovakia AXN AXN Player PS3

South Korea KT Qook TV PS3

Spain Antenna 3 Atenna3videos PS3

Spain La Sexta Misexta.tv PS3

Spain RTVE RTVE a la carta PS3

UK BBC iPlayer Wii, PS3

UK BSkyB Sky Player Xbox 360

US AT&T U-Verse Xbox 360

Note: Includes services announced but not yet launched

Fig. 2: Global, pay-TV and catch-up services offered via games consoles, Jan-10


Fig. 3: iPlayer, program requests by platform, Dec-09


Technology restraints are underpinning which services launch on which platforms

Much has been made of the fact that Microsoft has launched only paid-for third-party video services over Xbox Live, while Sony has embraced free catch-up TV for the PS3. At first glance, these strategies mirror both companies’ online strategies for their consoles. The Sony PlayStation Network is free for all PlayStation users; Xbox 360 users must pay US$50 a year for Xbox Live Gold membership to access the majority of the service’s features. But the split is not one simply between free and pay: For a start, Sony offers at least two pay services – Qook TV in South Korea and Now TV in PCCW – via the PS3.

The main issues underpinning which platform they chose are technical, not strategic. Microsoft has two key advantages in the online-video and IPTV ecosystems: Mediaroom, its middleware technology for managed IPTV providers, and Silverlight, its online-video platform, which is used by many service providers offering streaming video over the Internet. The two IPTV providers it is offering services for – AT&T and Vodafone Portugal – are Mediaroom customers. Microsoft will not be able to provide IPTV services via the Xbox for non-Mediaroom customers. Likewise, Sky’s Sky Player and Canal’s Foot+ both use Silverlight, making integration with Xbox Live much more straightforward.

Silverlight’s big competitor, Adobe Flash, is not supported on Xbox Live but is supported on the Sony PS3, which in turn does not support Silverlight. This means that broadcasters using Flash for online-video services can more easily integrate their services into the PlayStation Network. This is made even easier by the fact that, unlike the Xbox, the PS3 has a browser, via which several services that are not officially supported are actually watchable. Although the BBC described its unofficial version of iPlayer as “clunky,” Informa Telecoms & Media has used several other services via the PSN where the quality could at least be described as reasonable.

The respective strengths and use-cases for Flash and Silverlight also help explain the reason pay services are on Xbox Live and free services are on the PS3. The vast majority of free catch-up TV services use Flash (see fig. 5). It remains a strong video platform and has much higher penetration than Silverlight does, being installed on about 98% of all PCs, compared with Silverlight’s penetration of around 50%.

But Silverlight has a key advantage over Flash in offering paid-for content: Microsoft’s strong heritage in offering DRM. Silverlight’s DRM is considered extremely robust, whereas Adobe only began adding DRM to Flash in 2008.

Silverlight is also widely considered a stronger live-streaming platform; several

broadcasters used Silverlight to show live streaming of the Olympic Games, to great acclaim. NOS of the Netherlands uses Flash for its VOD service that is being made available via the PS3. But it uses Silverlight for live streaming because, it says, it is much cheaper.

Less settop-box subsidization means lower capex and higher ARPU for operators

Although Microsoft Mediaroom customers offering services over the Xbox 360 will not be able to let their subscribers use the device as a primary settop box, Qook TV and Now TV subscribers can use the PS3 as their primary settop box. And of course the whole reason for satellite providers such as Sky and Canalsat to launch via the Xbox 360 is to offer services without requiring users to have a conventional settop box.

Offering content without needing to provide a box could save operators a significant amount, since the cost of providing settop boxes is a major drain on opex for TV providers. Sky also charges users to access its service via Xbox, meaning it can still charge for multiroom services without having to provide the device. For satellite operators, however, this saving is not likely to outweigh the cost of delivering its linear programming via broadband instead of broadcast, which is a far cheaper distribution mechanism.

Wider footprint or better quality of service?

Whereas Sky Player is available to any customers of any broadband operator, the services from PCCW and AT&T will be available only to each operator’s respective broadband customers. The former approach enables the operator to extend its footprint far beyond its customer base. But it also presents problems of delivery, and it is much more difficult to deliver video content “over the top” than via a managed network. Offering HD to the TV set, for example, is difficult over an unmanaged broadband network. And

08

Fig. 4: Australia, iView visits via PS3, Nov-09


guaranteeing good quality of service is difficult when both the network and the settop box are in the hands of third parties.

The Informa view

Service providers will choose the path of least technical resistance

Although service providers want to reach as many users as possible, some will choose technical simplicity over eyeballs when it comes to deciding which console they want to offer a service via.

The fates of Adobe’s Flash and Microsoft’s Silverlight and Mediaroom will therefore decide which services will launch where and which platforms become dominant in offering paid-for services. The next IPTV service offered over Xbox Live will be another Mediaroom customer, with German incumbent Deutsche Telekom a likely target. Sony, meanwhile, has a number of Flash-powered catch-up TV services it can still woo.

The Nintendo Wii is likely to remain more peripheral, simply because of the efforts broadcasters must make to get their services on the platform.

Offering services via the PS3 is relatively cheap for catch-up TV providers. The BBC, for example, rebuilt its application to optimize it, but it was based on the same underlying technologies – Flash and HTML – as the Web version.

With the Wii, the BBC had to abandon HTML completely, because the console was not powerful enough to provide a good user experience. Instead, the BBC had to develop a new application using FlashLite and integrate it with the Wii’s H.264 video player. The maximum level the Wii could deliver was 700Kbps – less than the speed at which regular-definition iPlayer content was delivered – so a lot of work also had to be done on encoding the video.

Expect Microsoft to start offering some free video services on Xbox Live

It will take a fairly large shift in market dynamics for numerous free services to appear on Xbox Live. It would be inconceivable for Microsoft to support Flash on Xbox Live, and it is equally inconceivable for service providers across Europe to offer services in both Flash and Silverlight or to switch en masse to Silverlight, simply to reach console audiences.

But Informa believes that some free services will launch. The stumbling block for iPlayer’s appearing on Xbox 360 is not that it cannot be charged for but that the service cannot be used to upsell a product – in this case, Microsoft’s Xbox Live. Commercial broadcasters will not have this concern. And some free Silverlight-powered services, such as Italian broadcaster Rai’s catch-up service, could be offered via Xbox Live.

Consoles will play second fiddle to TV platforms in offering services

Broadcasters, especially smaller ones without the resources to develop for multiple platforms, will turn to TV platforms first for one of three reasons. First, the audience for catch-up TV via

a pay TV platform can reasonably be assumed to be 100%, whereas many games-console users will not have plugged their consoles in – only 59% of PS3 homes are connected to the Net – or might simply not be interested.

The pay TV audience is also bigger than the console audience. In no country in Europe can the most popular games console claim to have a larger user base than the most popular games pay TV platform.

Finally, it is technically simpler and cheaper to deliver services via IPTV than via a console. To deliver services via Virgin Media, broadcasters simply need to upload their content into the broadcaster’s system, as opposed to creating a new application or coding. It is simply another TV program delivered on-demand. One indication of this is that although cash-strapped ITV has gone on record as saying it is cost-prohibitive to develop for lots of platforms, it does appear on cable operator Virgin Media’s VOD service.


09

Service Country Free or pay Technology

RTL Now Germany Free Flash

Rai TV Italy Free Silverlight

TVE Spain Free Flash

SVT Play Sweden Free Flash

Viasat on Demand Sweden Free Flash

4oD UK Free Flash

BBC iPlayer UK Free Flash

Demand Five UK Free Flash

M6 Reply UK Free Flash

TV2 Denmark Pay Silverlight

Canal Foot+ France Pay Silverlight

Mediaset Italy Pay Silverlight

Sky Player UK Pay Silverlight

Fig. 5: Use of Microsoft Silverlight and Adobe Flash by selected online-video services, Feb-10


10

Content-delivery-network (CDN) services promise to address one of the most pressing problems facing the broadband industry: How network operators can work with Internet and media firms to support the growing burden of video and other bandwidth-hungry services traveling over their infrastructure. Several new models have emerged over the past year, suggesting there’s no one-size-fits-all approach for operator CDNs.

Content-delivery-network (CDN) services aim to help content providers deliver their content in the most effective way possible. CDN providers place servers on networks around the globe, which content providers use to store, or “cache,” their content. These servers then deliver the content to nearby Internet users, rather than the content provider’s servers. This enables content providers to save significantly on bandwidth, while users get a better quality of service.

The CDN market was pioneered by Internet startups including Akamai, Limelight Networks and CDNetworks. Telecoms operators have historically allowed these companies to place caching servers on their networks free of charge, because it reduces their own bandwidth burden.

But a number of major operators are taking a more hands-on approach to the CDN market. 2009 has been a particularly busy year, with at least 13 launching or announcing plans to offer services (see fig. 1). There is now an array of different products from a variety of operators, including major national telecoms incumbents, regional and international carriers and even some cable operators (see fig. 2).

And operator interest is unlikely to diminish. Telecom Italia and TDC are interested in entering the market. Jet Stream, a Netherlands-based provider of CDN services and software to operators KPN, Telenet and Ziggo, says all telecoms operators will sooner or later have their own CDNs.

Market drivers

Offering CDN services is a necessity for operators, according to speakers at Informa Telecoms & Media’s CDN Strategies Summit, held in London in October 2009 (see fig. 3).

Most operators and vendors at the event agreed that Internet traffic would grow at a compound annual growth rate of over 40% over the next five or so years, largely because of the growing popularity of online video services. The resulting congestion could force operators into costly upgrades at all levels of their networks if they seek to address the problem simply by expanding bandwidth alone, they said. Telefonica International Wholesale Services added that this would include upgrades to some submarine cables, once notorious for their abundance of spare capacity after the dot-com boom.

But merely throwing bandwidth at the problem would not address some of the fundamental challenges posed by the way modern online-video services operate, according to BT Wholesale. Many use so-called bit-rate-adaptive technologies, which adjust the level of service to use the maximum amount of bandwidth available. Several also use technologies borrowed from the world of peer-to-peer file-sharing to turn broadband subscribers

with the highest-speed connections into “supernodes” for serving content to other users, causing network congestion and higher transit costs for operators. This problem will only get worse as operators migrate subscribers to superfast connections based on fiber-to-the-x infrastructure, BT Wholesale says.

But speakers at the summit also agreed that online-video services present a valuable opportunity to operators looking to enter the CDN market. Whereas the Web services that drove the first wave of growth for traditional CDNs – such as Akamai – were aimed at a global audience, a growing number of online-video services are restricted to a particular country or region for reasons to do with language, culture and content licensing. In Europe, for example, many of the most popular online-video services are offered by TV broadcasters, which are allowed to provide their content only within their national borders because of regulations or agreements with program makers (see fig. 4).

Operators say they have three main advantages over the likes of Akamai in terms of serving these types of customer. First, they can place caching servers closer to consumers than the traditional CDNs could ever hope to, and thereby offer a greater quality of service.

Operator-CDN market blossoms into all manner of varieties

Rob Gallagher | Principal [email protected]

Fig. 1: Global, number of operator CDN services, 2006-2009


11

Second, they can design their CDNs from scratch to handle online-video traffic. CDN-system vendor Velocix says that traditional CDNs were built largely to accelerate the delivery of Web pages and file downloads and that some have had to construct separate CDNs to deal with online video.

Finally, the operators’ costs will be based on operating regional rather than global infrastructure, so they might be able to offer more-attractive pricing to regional content providers. “Why would a content provider choose for a global CDN if 90 percent of his traffic stays in one region?” Jet Stream says.

There is some evidence that operators are making some progress in this regard. Telenet and Ziggo are using their CDNs to offload traffic from broadcasters deeper

into their networks, to save costs on both sides. BT Wholesale’s trial of its Wholesale Content Connect service involves caching content from the BBC’s iPlayer online catch-up-TV service. Telecom Italia is discussing a similar arrangement with Italy’s national TV broadcasters.

But two of the most high-profile online video services, the BBC’s iPlayer and NBC’s Hulu, both use Akamai for CDN services. And operators admit that the limited reach of their networks could become a weakness in future.

Already a number of national and international operators are looking into interconnecting or peering their CDNs to extend the reach of their respective services. But much of this work is fragmented and embryonic.

Market segmentation

There are already signs that there is no one-size-fits-all strategy for operator CDNs. Aside from the more marked difference in network assets, operators are taking different approaches to the national CDN market depending on their position in the broadband and content markets.

Orange France, for example, is building a CDN largely to support the growing burden of traffic from its highly successful IPTV service. Because its on-demand platform is popular with consumers, it is under less pressure from over-the-top video providers seeking to bypass it, though the operator does plan to also offer a range of wholesale services to third parties.

Operator Service name Type of operator Home market CDN coverage

AT&T Intelligent Content Distribution Service Regional incumbent and international carrier

US US, European Union, Japan, Hong Kong, China, Taiwan

Bell Canada Bell Content Delivery Network Regional incumbent Canada Canada

BT Wholesale Wholesale Content Connect National incumbent wholesale operator

UK UK

Deutsche Telekom n/a National incumbent Germany Germany

Deutsche Telekom ICSS Content Delivery Solution International carrier Germany North America, Europe, Asia, Australia

France Telecom n/a National incumbent France France

Global Crossing CDN Solution International carrier US Global

Interoute Media Services International carrier UK Europe

KPN n/a National incumbent Europe, US, Asia Western Europe, US

Level 3 Content Delivery Network International carrier US North America, Europe

NTT Communications Smart Content Delivery International carrier Japan US, Europe

Pacnet Media Delivery Service International carrier Hong Kong and Singapore Asia Pacific

PCCW Solutions Content Delivery Network Integration Solutions

International carrier Hong Kong Asia Pacific

Reliance Globalcom Application Delivery Network/Content Delivery Network

International carrier India India

Tata Communications CDN Services International carrier India Europe, Asia, North America, India

Telecom Italia Sparkle Content Acceleration Network International carrier Italy Europe

Telefonica International Wholesale Services n/a (under construction) International carrier Spain Europe, US, Americas

Telenet n/a Cable operator Belgium Belgium

TeliaSonera International Carrier Media Distribution Service International carrier Sweden and Finland Europe, US

Verizon n/a Regional incumbent and international carrier

US US

Ziggo n/a Cable operator Netherlands Netherlands

Fig. 2: Global, operator CDN services, Nov-09

Source: Companies, Informa Telecoms & Media

Similarly, cable operators Telenet and Ziggo are using their CDNs mostly to support their own video services, such as GarageTV and Zizone. Verizon, meanwhile, developed its CDN largely to bundle third-party online-video services with its IPTV packages.

The operators’ ability to pull off such strategies will depend on their strength in the content market. Certainly, the low penetration of IPTV in most countries suggests that many telecoms operators will have to accept that the content providers will dictate how they use their CDNs.

Market entry

Operators’ belief in the opportunities presented by CDN services is reflected in their urgency to enter the market, but each has taken a slightly different approach.

Some, eager to start competing, have decided to resell the services of traditional

CDNs, but others have taken on the ambitious task of building their own. Vendors and operators that have built their own CDNs say resale will prove to be a short-term option, since the operator’s involvement will add little in the eyes of content providers that a traditional CDN provider couldn’t offer already.

A number, meanwhile, have gone for the halfway-house option of establishing partnerships to integrate traditional CDNs into their networks. Operators of all varieties are looking to team up with video- and content-management-system vendors to add an extra layer of value on top of their basic CDN services.

Perhaps surprisingly, few operators have chosen to buy their way into the CDN market, with the only recent such move being Tata Communications’ US$11.5 million investment in BitGravity. Today’s CDN market is widely held to be overcrowded and in need of consolidation, but there are questions about the value of some companies. Every single deal of one CDN provider recently acquired by a rival

was “under water,” according to Velocix, meaning that each service cost more to provide than the customer was paying. And toward the end of last year, Internap wrote off US$99.7 million in goodwill from the value of its CDN unit, which it created by acquiring VitalStream for about US$217 million in October 2006.


12

Country No. of services

Austria 6

Belgium 14

Bulgaria 1

Cyprus 1

Czech Republic 3

Denmark 13

Estonia 2

Finland 10

France 72

Germany 49

Hungary 7

Iceland 2

Ireland 8

Italy 16

Luxembourg 5

Netherlands 34

Norway 11

Poland 6

Portugal 2

Russia 2

Slovakia 4

Slovenia 2

Spain 20

Sweden 15

Switzerland 10

Turkey 2

UK 76

Fig. 4: Europe, on-demand audiovisual Internet services by country of reception, Dec-08

Source: European Audiovisual Observatory

Fig. 3: Operator and vendor predictions about the impact of internet video, Nov-09


Deutsche Telekom: Internet traffic will increase at a compound annual growth rate of 43% between 2008 and 2014, reaching 63.5 million terabytes (TB) a month. Traffic from PC- and TV-based Internet video services will grow at a CAGR of 72%.

Cisco: Consumer Internet traffic will grow at a compound annual growth rate of 41% between 2007 and 2012, reaching just under 20,000 petabytes (PB) a month. By 2012, 90% of this traffic will be generated by PC- and TV-based Internet video services and video communication services.

BT Wholesale: The BBC iPlayer online catch-up TV service is consuming 12GB of data every second. Broadband peak throughput per UK consumer grew from 18Kbps in March 2007 to 33Kbps in March 2009. Web video traffic is predicted to grow at a rate equal to tripling current traffic by 2010 to greater than 140Kbps per line.

Huawei: To cope with the growth of online video, an operator would have to multiply the bandwidth of its network by four at the edge layer, by 20 at the regional layer, and by 120 at the core. By using caching, the operator would have to multiply the bandwidth of the regional and core layers by only six and 12, respectively.

Telefonica International Wholesale Services: Existing submarine cable capacity will be depleted on some routes by 2012, with those running between Europe and Asia most likely the first to be affected. Submarine cables and core-network equipment haven’t sufficienly evolved over the past few years, meaning new cables that use exisiting technology may provide capacity for only a few years and with no positive return on investment.

13

South Korea’s three IPTV players are gaining momentum, having shown strong subscription growth recently. But the operators remain frustrated by their inability to access about 40 of the country’s leading cable channels, a restriction that will most likely hinder their long-term growth prospects.

On the face of it, IPTV looks to be doing nicely in South Korea, with take-up growing strongly (see fig. 1) and at a faster rate than digital-cable or DTH services. South Korea’s trio of IPTV players – KT, SK Broadband and LG Dacom – had more than 1.7 million subscriptions at end-2009. However, the refusal of the country’s leading cable-program providers to supply IPTV operators with some of their key channels is still a serious concern.

In all, the program providers are withholding about 40 channels, including several crucial sports channels and local news channels, and their absence is being keenly felt by IPTV operators. Not only does it block IPTV operators from competing on a level playing field with cable TV operators in terms of content, but it also forces them to charge lower subscription prices.

KT offers 86 live channels and more than 70,000 VOD programs on its Qook TV service (see fig. 2), while second-ranked

operator SK Broadband offers 89 live channels. Digital cable services typically offer well over 150 channels.

The cable-program providers and their allies in the cable MSO market have argued that they are not intentionally withholding the channels from the IPTV operators. Instead, they say they are not supplying the channels simply because IPTV does not have cable’s market penetration and is therefore a less desirable distribution platform.

A counterview, suggested by many IPTV-operator executives, is that the program providers are deliberately withholding their channels to try to hold back IPTV growth and protect the cable MSOs’ digital rollouts.

Cat and mouse

The country’s IPTV operators are divided over what course of action should be taken on the contentious issue. Some say

the government should intervene and force the program providers to supply their channels, while market leader KT is still against the idea of legislation.

J. Sebastian Lee, vice president of KT’s media-business-planning department, told Informa Telecoms & Media that KT was still talking to the program providers and that he was still hopeful of being able to secure carriage of the channels before too long.

“We are still trying to get those important cable channels, and we are getting very close,” he says. “The main reason that we are getting closer to an agreement is that the IPTV subscriber base is growing strongly, which is having an impact on changing the view of the cable-program providers. In addition, we have also resolved some of the financial disagreements that we had with the cable-program providers.”

Even if KT and its fellow IPTV operators are unable to secure a carriage deal for the missing cable channels, Lee says it is unlikely that the Korean Communications Commission or any other government body will step in to end the long-running dispute.

“The KCC uses the US regulator, the Federal Communications Commission, as a benchmark for its own policies,” he says. “If you look at the US market, you will see that the FCC does not directly involve itself in programming deals between companies in the cable or DTH markets, so, as a result, I really don’t see any intervention forthcoming from the KCC on this issue.”

That view is echoed by, Yoo S. Yang, the

South Korean IPTV numbers on the rise, but questions linger

Tony Brown | Senior [email protected]

Fig. 1: South Korea, full IPTV subscriptions by operator, 4Q08-4Q09

Source: Companies, Informa Telecoms & Media

Operator Service Linear channels VOD programs Interactive applications

KT Qook TV 86 72,000 57

SK Broadband HanaTV 89 46,000 60

LG Dacom MyLGTV 75 10,000 4

Fig. 2: South Korea, IPTV-platform comparisons

Source: Companies

14

chief telecommunications advisor to the president, who told Informa that the government was not keen on legislating its way out of the problem by forcing the program providers to supply their content to the IPTV operators.

“Because the IPTV operators have relatively a small number of subscribers compared to cable operators, cable-program providers are cautious in supplying their best channels to the IPTV operators,” Yang says. “Each program provider makes its decision mainly based on its cost-benefit-analysis result, so it really is a matter of how quickly the IPTV operators can secure enough subscribers to attract the program providers. Therefore, it really depends on the state of the market as to whether the refusal continues or not.”

He said the government would not act “as long as there is no anticompetitive behavior among the program providers.”

Yang says that the government is planning to introduce new amendments to the Broadcasting Act explicitly outlawing anticompetitive behavior from the cable-program providers or MSOs but that the current situation does not constitute anticompetitive behavior.

“The government deems it more desirable to leave it up to market players for decision-making with regard to content sharing rather than to intervene with regulations,” he says. “At the moment the IPTV operators do have access to most of the cable channels, and they are still in talks in progress between the IPTV operators and the cable-program providers to supply some of the key missing channels, such as the sports channels.”

Yang also says the IPTV operators are by no means doomed to failure if they are unable to gain carriage right for the missing channels from the cable-program providers.

“The key thing to remember is that the success of IPTV operators will not

be decided just by providing existing broadcasting services but also by the various interactive services that they can provide that are not available in the current cable TV market,” he says.

In response, KT’s Lee says that although interactive applications provide IPTV operators with a point of difference with cable MSOs, the absence of some channels – particularly sports channels – is a big disadvantage for the IPTV operators.

“Along with SKB and LG Dacom, we produce our own sports channel, IPSN, but the problem is that we cannot get the exclusive content that is on the cable sports channels,” he says. “We don’t have the rights for all of the really major sports events that are popular with viewers, so people do not really see IPSN as a major sports channel, and that is a real problem for us.”

How big can IPTV get?

IPTV operators’ entry into the pay TV market was fiercely opposed by the cable TV operators, which said the government would be fragmenting the pay TV market just as they were trying to increase penetration of their digital cable-TV services.

Their fears appear to have been largely unfounded, with Ben Way, representative director for Macquarie Korea, the major shareholder of MSO C&M Communications, telling Informa that the launch of IPTV services has had little impact on C&M’s business.

“Our churn rate is the lowest that it has been for the last five years, so the advent of IPTV to date is really just increasing the size of the market,” he says. “It is not in any way taking away from our numbers. The launch of IPTV has not really had a direct effect on our business. In fact, our ARPU has actually expanded again this year.”

That view is echoed by Yang, who says the evidence from the market suggests

that the country’s pay TV market is likely to be big enough for the rival technology platforms to coexist.

“If you look at the situation in the market, the number of cable TV subscribers has not really changed that much since full IPTV services entered the market in January 2009,” he says. “In fact, over that time we have seen the IPTV market and the DTH market increase their subscriber numbers, so it does not seem that the pay TV market is being damaged by the entry of IPTV services.”

Yang concedes, however, that the digitization efforts of the country’s cable TV operators, along with the IPTV operators’ determination to expand their subscription bases, will lead to fiercer competition.

“The entire pay TV market is showing signs of steady growth, and going forward it is likely that the increased competition in the market will create a change in market share amongst the players,” he says.

It is the subject of market share that is of most interest to the IPTV operators. KT says that although its full IPTV services have gotten off to a strong start, taking significant market share from the well-established MSOs will be difficult. KT had just under 1 million full IPTV subscriptions at end-2009, and Lee says the company is hoping to have 2 million by end-2010.

“The cable TV operators already hold around 80 percent of the pay TV market, and it is hard to imagine that they will lose very much of that market share,” KT’s Lee says. “At the moment we have 6.8 million broadband subscribers, and we are trying to expand those numbers. And we are trying to get 50-percent-plus of our broadband subscribers to take the IPTV service. When you think of how strong the cable TV operators are, just getting 50 percent of our broadband subscribers to take our IPTV service still represents a very big challenge for us.”

15

Going it alone

Some cable operators have mischievously suggested that the IPTV players are not serious about staying in the market on a long-term basis and that they are only in the IPTV business to appease the government, which sees the technology as a potentially big export product for the country’s technology firms.

Lee scoffs at such suggestions, pointing out that KT has already invested over US$450 million in its IPTV business (see fig. 3) and is poised to spend another US$1 billion over the next three years.

The problem for KT and its fellow IPTV players, which are set to invest an additional US$1.3 billion themselves in the next three years, is that although they are serious about a long-term future in the pay TV market, they need to ensure that their encouraging start does not blind them to the long-term problems they face.

Although KT is making encouraging noises about securing carriage of the missing cable channels, it remains far from certain that a deal will be done and – more importantly – on what terms a deal would be struck.

The IPTV operators – especially KT – have far deeper pockets than their cable rivals,

but they must not fall into the trap of overpaying for the missing channels and thereby making it impossible to run their IPTV operations profitably. It would be unwise for the IPTV operators to feel that they only need gain carriage of the missing cable channels to make everything right again in the world.

Even if they possess the cable channels, KT and its fellow IPTV operators still face a tough challenge to win subscribers in a market that is still basically dominated by cheap analog cable services and where many people still view cable TV as a utility.

The challenge for KT, SK Broadband and LG Dacom is to figure out how to take IPTV beyond the traditional cable TV offering and offer a genuinely different and compelling service. Once they do that, the cable MSOs will really have reason to worry.


Fig. 3: South Korea, IPTV investments by operator, 2008-2012

Source: Companies

Join us on LinkedIn: www.informatm.com/linkedin

Follow us on Twitter: www.twitter.com/informatm

Subscribe to our Connect email: www.informatm.com/connect

Email us: [email protected]

Informa Telecoms & Media has analyst teams all over the world: USA, Brazil, UK, South Africa, UAE, Singapore, China and Australia.

For more information on Informa Telecoms & Media’s range of research and intelligence services, or to arrange a demonstration, please contact us directly: Telephone: +44 (0)20 7017 4994

Email: [email protected]

Online: www.informatm.com

informa's iptv perspectives april2010_lowres

Documents

iptv analysis

latest iptv market data

iptv services

global market data

iptv perspectives

global iptv sector

analysis of primary

fixedline market data