Value Growth

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IPTV survival in the OTT age

By Ted Hsiung & Grace Lo

The arrival of OTT video and changes in how entertainment is consumed (multiscreen viewing, real-time social media feedback, etc.) are challenging all the media that came before, including IPTV. Telcos need to bring something new to the table, or they risk falling into the “dumb pipe” trap.

IPTV survival in the OTT age

IPTV’s struggle

or the last decade, operators have been looking to transform their services in every way possible, from access to content to applications. However, the content

business is a complex one, already crowded with pay-TV and free-to-air services, making IPTV a dim prospect on its own. Triple-play services have helped here, both in terms of growth and churn.

Management Research Group Inc. forecasts that global IPTV subscribers will enjoy healthy growth at a CAGR of 26% by 2014, with the global

Fnumber of subscribers reaching 111.5 million in the same year despite fierce competition from different platforms.

In 2012, the two largest U.S. IPTV providers, AT&T and Verizon, reportedly captured over eight million IPTV customers at the expense of a declining cable customer base. To further sustain their margins, telcos intend to leverage fiber-based broadband for advanced IPTV delivery.

Google has also gotten in on the game through its pilot fiber program in Kansas City, with very high approval ratings seen for its predominantly IP-based TV applications, when compared to the incumbent. However, content is still king when

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it comes to IPTV; 40% of Kansas City residents who have already paid Google’s pre-registration fee plan to get pay TV from another company, and FierceMarkets attributes this to an uninspiring selection of content on Google’s part.

OTT disruption

OTT services, fueled by streaming or adaptive bit-rate technology, have been disrupting the pay-TV market since the mid 2000s. Netflix’s emergence as the single largest provider of pay TV in the United States, serving some 26 million domestic streaming subscribers in 2012, was an eye-opener to all, including the telcos who provide the access. According to Netflix’s Q1 2012 financials, DVD-only subscriptions continue to decline, down 1.1 million (y/y) to 10.1 million in total, with streaming video predicted to further overtake physical media.

Cable TV providers are also losing ground to cord cutting, as a Convergence Consulting Group survey indicates that approximately 2.65 million U.S. citizens canceled their cable TV subscriptions between 2008 and 2011 to opt for low-cost Internet video streaming subscription services or other free video platforms, a major concern for broadcasters and the advertisers they depend on.

Informa forecasts that OTT video viewers will

reach 380 million by 2015, with connected TV devices exceeding 1.8 billion by 2016. In light of such a disruption, IPTV, despite its hit and miss history, is being considered by pretty much every player in the ecosystem – telcos, pay-TV providers of every stripe, and even device manufacturers who offer STBs, connected TVs, and other categories of CPE.

IPTV vs. OTT

IPTV and OTT are both IP-based services, with the former delivered through an exclusive IP bearer network and the latter arriving via one or more carrier networks, giving the former the advantage of quality control, though content management systems and advanced CDN can give OTT a boost. More importantly, OTT services can reach any connected device, giving a key competitive advantage in terms of customer reach, despite the diversified bit rates, operating systems, digital rights management (DRM) solutions, and screen formats involved.

Telcos are reacting to the challenge by delivering a comparable “TV everywhere” service, including the promotion of wholesale services via their platforms to other ISPs and content providers. In the past 18 months, a number of major telcos & MSOs have launched multi-screen services,

Telcos are reacting to the OTT challenge by delivering a comparable “TV everywhere” service, including the promotion of wholesale services via their platforms to other ISPs and content providers.

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Editor:XuShenglan xushenglan@huawei.com

including Sky, AT&T, Telecom Italia, Comcast, Deutsche Telecom, PCCW, and Telstra; many have offered free multiscreen services that complement existing pay-TV services as a growth/anti-churn measure. With the appropriate price point, a telco OTT service is inherently superior, thanks to those aforementioned guarantees.

Premium content is needed

However, quality guarantee alone probably will not prove advantage enough for IPTV. Operators with fiber-to-the-home (FTTH) services should deliver an enhanced user experience that goes beyond A/V quality to other areas such as picture in picture (PiP), recording/time shifting, games, and onscreen/second screen statistics.

British Telecom (BT) earmarks over USD328 million per season for English Premier League broadcast rights. According to CEO Ian Livingston, “BT is already investing GBP2.5 billion in fiber broadband. Securing Premier League rights fits naturally with this, as consumers increasingly want to buy their broadband and entertainment services from a single provider.” The carrier will launch an exclusive football channel to broadcast games in January 2013, offering new interactive functions over fiber while distributing games on various platforms as well.

Premium content is not only the key to attracting IPTV viewers, but also the incentive for them to share it with others. Young viewers enjoy social media on their companion devices while the TV is on. According to Guardian, more than a fifth of TV viewers are chatting on Facebook or Twitter while

watching their shows. The 2013 Super Bowl, an event viewed on average by 108 million Americans (about one in three), generated 47.7 million social media interactions (including 27.7 million tweets), up from 17.4 million interactions the year before. This “synchronization” phenomenon is becoming very common with live programming such as variety shows, entertainment awards, and the like, making SNS a new channel for content distribution, customer relations, and nurturing prospects.

In the future, pure IPTV service will evolve into hybrid IPTV/OTT, IPTV + Digital Video Broadcasting (DVB)-x, or some other combined platform that enables a diverse range of premium content, live TV, interactive services, and SNS.

Hybrid vigor

Operators who lack FTTH and have yet to roll out IPTV will probably offer OTT (multiscreen) services initially to develop their content business and expand customer reach. After fiber deployment, they may offer a hybrid service that enhances the user experience for premium, VOD, and Internet-based content. Furthermore, FTTH service would facilitate a fully connected home (utilities, security, etc.) with multiple TV screens that display HD and 3D content on multiple channels, all with DVR capability, as well as the options for users to generate and upload content wirelessly.

Huawei is at the forefront of hybrid TV, providing an open platform for unified operation of different TV services, irrespective of access method/device. This platform demonstrates seamless modular scalability that maximizes legacy re-use, making for lowered CAPEX/OPEX and futureproofing for hybrid/advanced TV services.

At present, up to 90% viewers still watch linear TV as per broadcast schedule over traditional platforms. IPTV provides a compelling user experience thanks to its premium content. In addition, large flatscreen televisions remain a major advertisement delivery platform for marketers. Paul Wright, Chief Digital Officer of the integrated communications agency OMD, has pointed out that we are “definitely not” in a post-linear TV world. However, OTT will be a disruptive force to traditional pay-TV and IPTV services. In light of this, operators could adopt a hybrid TV approach that combines a top-tier user experience with the convenience of “TV everywhere” that you get with OTT.

IPTV survival in the OTT age