Broadband

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Julian Herbert

Principal Analyst Broadband and Internet [email protected]

IntroductIon

The union of the world of content delivered over the unmanaged internet and that of the walled-garden IPTV service has moved from the realm of mere prediction to being an all-pervasive PR message and in one or two cases, commercial reality. The TV ecosystem now includes games consoles. There are 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 (20 out of 25 services launched so far) than Microsoft’s Xbox 360, but 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. For all the hoo-hah, games consoles are unlikely to usurp TV platforms as the medium of choice for broadcasters and content providers, but they represent an opportunity for operators to reach new audiences at low cost. Consoles aside, some operators are now openly embracing OTT (over-the-top) strategies, by launching innovative hybrid settop boxes (STBs), in order to segment and expand audiences. STBs will require a strong brand and unique services for customers to pay for them. In November 2009, Telecom Italia became one

of the first operators to launch a hybrid over-the-top/digital terrestrial TV box alongside a managed IPTV service, called ‘Cubovision’. The shape clearly started a trend, as French pay TV broadcaster Canal+ has responded to decreasing market share by introducing Le Cube, which will enable it to bring on-demand content to its customers. The concept behind both boxes – expanding the content of an STB beyond linear TV – is sound, but both fall down in some major ways. It remains to be seen whether these are merely interesting experiments or part of a strategy which has legs. OTT perhaps poses the biggest threat to that group of operators which are marketing high-speed broadband quite aggressively, but which also offer PayTV. Cable operators face the conundrum that the faster the broadband speed, the more potent the threat from OTT providers: who needs a managed TV service when broadband can offer all the bandwidth (and stability) one needs to watch TV or download video over the open internet? Speed gives cable operators the marketing edge against incumbents, but may yet prove their undoing as PayTV providers.

Julian Herbert

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2 © Informa Telecoms & Media 2010

contEntS

Speed is cable’s biggest strength against incumbents but its Achilles’ heel against OTT players
Andrew Ladbrook
Research Analyst

4

Games consoles start to define their roles in the TV ecosystem
Senior Analyst

9

Giles Cottle

Stagnating TV operators look to hybrid boxes to segment and expand audience
Andrew Ladbrook
Research Analyst

14

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3

Andrew Ladbrook
Research Analyst Broadband and Internet [email protected]

SpEEd IS cablE’S bIggESt StrEngth agaInSt IncumbEntS but ItS achIllES’ hEEl agaInSt ott playErS
25 March 2010
n Cable-industry revenues and ARPU are growing as

broadband-subscription numbers rise. n Speeds that are higher than incumbent rivals’ are proving an effective marketing tool but will provide opportunities to OTT players. n The proliferation of legacy settop boxes will restrict cable companies’ abilities to deliver new services. n Cable operators’ content partners are embracing OTT strategies as they seek to reach their viewers directly. n Owning the living room will not be enough for cable: It must seek to become important over all devices.

Analysis

Speed is working against the incumbents With a few exceptions, such as in the UK and Spain, the leading cable companies in most countries are growing faster than the incumbents (see fig. 2). In Norway, Portugal, Germany and several other countries, cable’s growth is over 20 percentage points higher than the incumbent’s. The growth in the number of cable-broadband subscribers is due to three factors: the cable industry is becoming more serious about bundles as it faces up to competition from IPTV services; consumer dissatisfaction with unreliable DSL; and strong marketing built around an emphasis on high speed and reliability. Subscribers are not choosing the highest speeds available, but they are choosing cable broadband. Liberty Media and Kabel Deutschland say their most popular broadband packages are 16-30Mbps. With FTTx rollouts taking place slowly, cable is likely to maintain its speed advantage in the short-to-medium term. Because of this, it is likely that cable companies will continue to be able to sell their broadband services to their pay TV customers and continue to raise ARPU. Even if the incumbents can catch up to today’s cable-broadband speeds, Welho has already demonstrated that even greater speeds still can be squeezed out of DOCSIS 3.0 in some cases. But speed will be good for OTT players The last mile – the part of the broadband network that runs into the customer’s home – is considered a major weakness for OTT video. Although content providers can use content-delivery networks to guarantee quality in the core network, they cannot do so closer to the home. With DOCSIS 3.0, cable has gone some way toward overcoming both these problems with more-reliable networks and faster speeds. Although this does not guarantee quality, one of the major impediments to OTT players – lack of bandwidth – has been removed, and that can only make their services more attractive. The speeds that cable companies now offer also mean that OTT can offer much better services. iTunes downloads and video-streaming services will now be nearly instantaneous, without lag and in full HD. These OTT players also have well-known brands that might attract many cable subscribers to them and be used as substitutes for cable’s core content services.

Introduction

On the surface, the outlook for the cable industry is positive. Subscription numbers are rising, as is ARPU, as more and more customers subscribe to digital cable services over TV and broadband. Broadband take-up is being driven by DOCSIS 3.0, which provides a big speed advantage over DSL providers, few of which have rolled out extensive next-generation access networks. In March 2010 Finnish cable player Welho announced that it was launching a 200Mbps service, claiming the title of the world’s fastest broadband. The cable industry is using its advantage in the speed war (see fig. 1) to underpin its marketing efforts. The cable industry claims that it owns the living room and that it is an industry built on delivering premium content. However, it finds itself being challenged on its core proposition – content – by several disparate groups. As TV manufacturers introduce connected TVs, they have signed several deals that will enable their devices to provide a variety of “over the top” (OTT) services – those that are delivered to the end-user via the Internet. Other consumer-electronics manufacturers, including Apple, Microsoft and Sony, have all introduced settop boxes (STBs) in various guises, aiming squarely for control of the living room. Also, some pure OTT players, such as Boxee, are trying to migrate from the PC to the TV, by either offering their own boxes or licensing their software to be used in TVs or STBs. In this regard, with its unblinkered focus on higher speeds, cable could be sowing the seeds of its own destruction, because it gives OTT players the perfect platform to deliver their services.

4 © Informa Telecoms & Media 2010

SpEEd IS cablE’S bIggESt StrEngth agaInSt IncumbEntS but ItS achIllES’ hEEl agaInSt ott playErS

Country Belgium Belgium Denmark Denmark Finland Finland France France Germany Germany Japan Japan Netherlands Netherlands Norway Norway Portugal Portugal South Korea South Korea Spain Spain Sweden Sweden UK UK US US

Service provider Telenet Belgacom YouSee TDC Welho Sonera France Telecom Numericable Kabel Deutschland Deutsche Telecom J-Com NTT UPC KPN Canal Digital Telenor Zon PT SK KT ONO Telefonica Com Hem Telia Virgin Media BT Comcast AT&T

Service-provider type Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent Cable Incumbent

Advertised speed (Mbps) 25 20 50 20 200 100 100 100 100 50 160 100 120 20 70 50 1,000 100 100 100 50 25 100 24 50 20 50 18

Fig. 1: Selected countries, advertised speeds for leading cable and incumbent providers, 1Q10

Cable 60 50 Year-on-year change (%) 40 30 20 10 0 -10
*

Incumbent

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Fig. 2: Subscription growth of selected cable and incumbent providers, 4Q09 (*Q308 to Q309) 5

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Cable’s content partners are experimenting with directly distributing their own content The rise of connected devices means that cable’s traditional partners, TV broadcasters and content producers, are seeking direct access to their viewers. They have taken two main paths. The first is to form partnerships with CE manufacturers that are courting content providers for their connected TVs (see fig. 3). The second is to create new platforms that will enable TV to be delivered over IP. In the UK, a consortium that includes several TV broadcasters plans on launching a new platform, Canvas, that will enable OTT delivery of TV content. It will be an open platform, which means that any content provider can deliver its service using Canvas. Until early 2010, Virgin Media had remained quiet about Canvas, allowing pay TV rival Sky to lead the complaints. However, it has subsequently broken its silence, saying

that a publicly funded body should have no interest in funding such a service. In the key markets of France, Germany, Spain and Italy, similar developments are occurring with HbbTV. In the US, online aggregator Hulu continues to attract large audiences. It has yet to lure anyone other than the technology savvy, but in some circles it is being spoken of as a cable replacement. Furthermore, with cable companies and TV broadcasters squabbling over retransmission fees – Disney recently removed its channels from Cablevision after failing to come to an agreement about future retransmission prices – online delivery might be an attractive option. Not all TV broadcasters are attempting this shift. Some still see advantages in remaining with companies that have

Date 6-Jan 09 6-Jan 09 6-Jan 09

Participants LG Electronics (South Korea), Netflix, Yahoo, YouTube (all US) Samsung (South Korea), Yahoo (US) Toshiba (Japan), Yahoo, Intel, Microsoft (all US) Panasonic (Japan), Eurosport (France)

Announcement type Partnership Deal Deal

Deal LG partners with Netflix, Yahoo and YouTube to offer video streaming on two HDTV sets using its Netcast Entertainment Access service. Samsung teams up with Yahoo to put the latter's Widget Engine on selected HDTV sets starting in spring 2009. Toshiba launches devices such as LCD TVs and LCD TV/DVD combos that support Yahoo/Intel's Widget Channel apps and Microsoft's Windows Media Center. CE manufacturer Panasonic partners with Eurosport. Content from the European sports TV broadcaster will be available on Panasonic's connected TVs German TV broadcaster ARD Television makes some of its content available on Panasonic's Viera Cast-enabled TVs Boxee, a provider of home-media software, signs a deal to bring videos from Major League Baseball's MLB.tv site to the platform. The companies announced that Samsung Internet-enabled TVs will be able to stream Blockbuster movies. TV broadcasters ZDF and Nova make TV shows available to be streamed over Panasonic's Viera Cast-enabled TVs. The Amazon video-on-demand service is available on new Samsung connected TVs. BSkyB makes its VOD service, Sky Player, available on Windows 7 PCs. Netflix announces that its Watch Instantly online-video service is available via several Sony devices, including Bravia Internet Video-capable HDTVs and the Sony Network Blu-ray Disc Player. The BBC and Nintendo announce a new version of the BBC's iPlayer for Nintendo's Wii console. Dutch public broadcaster NOS begins offering content to Dutch PlayStation owners via the PlayStation Network. French TV broadcaster TF1 teams up with Samsung to provide its online-video services and selected widgets and applications via the South Korean consumer-electronics giant's Internet-connected TV sets. Online-video platform Brightcove has teamed up with Yahoo to give its customers access to Yahoo's connected-TV platform. Divx, a digital-film distributor, signs a deal with consumer-electronics company LG to provide its over-the-top video service to LG's connected TVs and Blu-ray players. TV manufacturer Vizio announces that it has added several new content partners, including TV broadcasters CBS and Showtime. Panasonic adds two new content partners, Netflix and Fox Sports, to its Viera Cast platform. Users will be able to stream films from Netflix and get sports statistics and news from Fox Sports. Sony Computer Entertainment has signed deals with all six major movie studios to distribute their HD-quality movies on its PlayStation Network. It is the first service in which all six studios will have HD-quality films available.

24-Feb 09

Partnership

24-Feb 09 22-Jun 09 13-Jul 09 3-Sep 09 14-Oct 09 21-Oct 09 16-Nov 09

ARD Television (Germany), Panasonic (Japan) Boxee, MLB (both US) Blockbuster (US), Samsung (Korea) Panasonic (Japan), ZDF (Germany), Nova (Czech Republic) Samsung (South Korea) BSkyB (UK) Sony (Japan), Netflix (US)

Partnership Deal Partnership Partnership Launch Launch Deal

16-Nov 09 19-Nov 09 10-Dec 09

BBC (UK), Nintendo (Japan) Sony (Japan), NOS (Netherlands) TF1 (France), Samsung (South Korea)

Launch Partnership Partnership

6-Jan 10 6-Jan 10

Yahoo, Brightcove (both US) Divx (US), LG (Korea)

Deal Deal

6-Jan 10 6-Jan 10

Vizio, CBS, Showtime, Vudu (all US) Panasonic (Japan), Fox Sports, Netflix (both US) Sony Computer Entertainment America, Sony Pictures, 20th Century Fox, Walt Disney Pictures, Paramount Pictures, Universal, Warner Bros. (All US)

Partnership Partnership

8-Mar 10

Deal

Fig. 3: Selected deals and partnership between content providers and CE manufacturers, Jan-09 to Mar-10 6 © Informa Telecoms & Media 2010

SpEEd IS cablE’S bIggESt StrEngth agaInSt IncumbEntS but ItS achIllES’ hEEl agaInSt ott playErS
established billing relationships with their viewers. HBO said it intends to remain on cable platforms for the near future, seeing little profit in operating a stand-alone OTT service. In Eastern Europe it sees its partnership with cable companies as a means of tackling piracy and strengthening its service. HBO plans to give its Eastern European customers ondemand access to its shows the day after they have been shown in the US. Offering this service alleviates one of the major reasons for piracy: viewers’ desire to keep up to date with their favorite shows. Another reason for HBO to remain on cable is that it sees little value in the a la carte model and remains strongly tied to subscriptions. Cable networks will require major upgrades to provide an adequate response to OTT Cable companies are not all at the same place when it comes to their rollout of digital cable. Comcast expects that by end-2010 all of its customers will be on digital cable. Liberty Media is aggressively deploying digital cable in all the countries it operates in, but it does not expect to have the vast majority of its subscribers on digital cable until late-2011. There is also a vast a range of settop boxes in the homes of cable subscribers, many of which cannot deliver the new services being introduced by cable companies. Unless the settop boxes and cable systems are upgraded, cable companies will have no chance to compete with OTT rivals of any stripe. Even with the upgrades, cable providers face a dilemma in offering new interactive services. Most cable operators deliver video via DVB-C and data via DOCSIS 3.0, which is a cost-effective way of delivering both types of traffic. To offer many new interactive services, cable operators will need to deliver everything over DOCSIS 3.0, which will substantially increase delivery costs. they can be accessed, making them less than ideal. Subscribers should not be chased into the arms of OTT players who give their users access no matter their location or device. If content delivery is going to stop cable from turning into a dumb pipe, cable operators should make sure their subscribers can get to their content. This value-added service only enhances cable’s greatest strength and takes into account modern realities. Focus new services on the right audience Just as not every subscriber is going to care about getting digital cable or HD, not every subscriber wants to access OTT content. Cable’s focus on the living room means that it is losing the generation that does not spend time there but prefers its own room or device. These tech-savvy users have already adopted many OTT services, and their relationship with cable companies as a content provider is weak. It is unlikely that this group will be interested in the walled-garden services offered by cable companies via advanced settop boxes, because they will not want to give up services they have become familiar with. Any new services that cable companies introduce as a means of tackling the OTT players should be twopronged, to give older generations new features as a churn-reduction strategy and to build a relationship with the younger generation. If you can’t beat ’em, join ’em Having already aggregated premium content, and with good relations with content producers, cable players are already in a good position to offer OTT services. Such services might be a good way to provide their services universally and to younger demographics. Going OTT has three other advantages. First, it means that the cable player is now competing directly with OTT players, which should enable them to gain some market share and crowd out any new competitors that might have arisen without their presence. Second, to deliver video, OTT could be a virtuous cycle; by delivering high-quality premium content, demand for faster broadband should rise, which will have a positive impact on ARPU. And by embracing OTT fully, cable companies will also be able to reach customers who are outside of their footprints, which are typically smaller than incumbents’ footprints. Belgian cable company Telenet, which offers its complete service as an OTT service for the same price as its cable TV service, has had little success with this approach. User numbers remain low and annual revenues remain below 11 million (US$1.33 million). But it stands by its decision, saying it is learning important lessons and is positioning itself for the future. This analysis has been taken from the Intelligence Centre, for more information about the service please visit: www.intelligencecentre.net/broadband-internet/
7

Informa viewpoint

Speeding toward a dumb pipe In providing ever greater speeds to grab headlines and win broadband customers, cable is moving even quicker than its incumbent rivals toward being a dumb pipe. Managed services lose their advantages when so much high-quality, reliable bandwidth is available. DSL operators, with their slower and less reliable lines, have not yet reached this point; their managed services still hold a tangible difference in quality over OTT. Cable must own devices, not the living room Cable’s boast about owning the living room is anachronistic thinking, because the TV does not have the place that it used to. Users now have a plethora of devices, such as smartphones and laptops, that not only take attention away from the TV but offer access to whatever they want, wherever they want. A focus only on owning the TV will push these users to OTT services. Some leading cable companies are already embracing this view. YouSee in Denmark and Comcast in the US are doing so by providing access to their TV content on the PC. These services are often limited as to the location where

Market data you can trust
Europe, fixed-broadband and mobile-broadband subscriptions and net additions, 4Q07-4Q09
200 150 Million 100

50

0 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

● Fixed-broadband subscriptions ● Fixed-broadband net additions

● Mobile-broadband subscriptions ● Mobile-broadband net additions Source: Informa Telecoms & Media

Note: Subscription figures refer to quarter-end

“Increasingly fixed operators are keen to tap into the mobile broadband boom in some way. Mobile broadband subscriptions in Europe rose by 91.4% to 61.9 million in the year to end-4Q09, against a 12.1% rise for fixed-broadband subscriptions. Incumbents, for the most part keen to sweat their legacy copper networks for as long as possible, are less likely to offer fixed/mobile broadband bundles than their alternative operator rivals. Meanwhile, the number of alternative operators offering mobile services is set to increase as there is a pool of alternative operators as yet without a mobile offer. These companies, which include providers in the cable sector and some utility-backed fiber-tothe-home/building (FTTH/B) operators, see mobile broadband, bundled or not, as a key part of their future strategy.” Julian Herbert, Principal Analyst & WBIS Product Manager

World Broadband Information Service (WBIS) is the industry’s leading source of broadband, multichannel 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

Senior Analyst Broadband and Internet [email protected]

Giles Cottle

gamES conSolES Start to dEfInE thEIr rolES In thE tV EcoSyStEm
25 February 2010
n 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. n Sony’s more open approach to PlayStation means it has been able to offer more services than Microsoft’s Xbox 360. n 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. n Consoles are unlikely to usurp TV platforms as the main method by which services can be accessed.

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 videostreaming 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).

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.

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 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.

Console Nintendo Wii

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

Social 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. 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. 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.

Video-on-demand 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.

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

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.

Fig. 1: Non-game services offered by the big three games consoles, Feb-10 9 © Informa Telecoms & Media 2010

gamES conSolES Start to dEfInE thEIr rolES In thE tV EcoSyStEm
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 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).

Country Australia Bulgaria Czech Republic Czech Republic France Germany Hong Kong Hungary Hungary Ireland Netherlands New Zealand Poland Portugal Romania Romania Slovakia Slovakia South Korea Spain Spain Spain UK UK US

Service provider ABC AXN Animax AXN Canal ZDF PCCW Animax AXN RTE NOS TVNZ AXN Vodafone AXN Animax Animax AXN KT Antenna 3 La Sexta RTVE BBC BSkyB AT&T

Service iView AXN Player Animax Player AXN Player Canal+ ZDF Mediathek Now TV AXN Player Animax Player RTE Player NOS Journaal TVNZ ondemand AXN Player Casa TV AXN Player Animax Player Animax Player AXN Player Qook TV Atenna3videos Misexta.tv RTVE a la carta iPlayer Sky Player U-Verse

Platform PS3 PS3 PS3 PS3 Xbox 360 PS3 PS3 PS3 PS3 PS3 PS3 PS3 PS3 Xbox 360 PS3 PS3 PS3 PS3 PS3 PS3 PS3 PS3 Wii, PS3 Xbox 360 Xbox 360

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

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.

PC Virgin Media Mac PS3 Wii iPhone Other mobile Visits (thousands)

100 89,000 80 60 40 26,000 20 0 83 Week 46
(Nov 9–15) (Nov 16–22)

Note: Problems with collection of iPhone data means that the iPhone’s share is in reality higher than as presented Fig. 3: iPlayer, program requests by platform, Dec-09 10

Week 47

(Nov 23–29)

Week 48

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

PC + MAC 70 No. of requests (mil) 60 50 40 30 20 10 0 Jul Aug

PS3

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.
Oct Nov Dec

Sep

Fig. 5: BBC iPlayer, selected program requests by platform, Jul-Dec 09

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 (see fig. 5). 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.

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. 6). 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%.
Service RTL Now Rai TV TVE SVT Play Viasat on Demand 4oD BBC iPlayer Demand Five M6 Reply TV2 Canal Foot+ Mediaset Sky Player Country Germany Italy Spain Sweden Sweden UK UK UK UK Denmark France Italy UK Free or pay Free Free Free Free Free Free Free Free Free Pay Pay Pay Pay Technology Flash Silverlight Flash Flash Flash Flash Flash Flash Flash Silverlight Silverlight Silverlight Silverlight

Fig. 6: Use of Microsoft Silverlight and Adobe Flash by selected onlinevideo services, Feb-10

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 livestreaming 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.

11 © Informa Telecoms & Media 2010

gamES conSolES Start to dEfInE thEIr rolES In thE tV EcoSyStEm
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 guaranteeing good quality of service is difficult when both the network and the settop box are in the hands of third parties. 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. This analysis has been taken from the Intelligence Centre, for more information about the service please visit: www.intelligencecentre.net/broadband-internet/

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.
12

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Research Analyst Broadband and Internet [email protected]

StagnatIng tV opEratorS look to hybrId boxES to SEgmEnt and Expand audIEncE
19 February 2010
n In November 2009, Telecom Italia became one of the

first operators to launch a hybrid over-the-top/digital terrestrial TV box alongside a managed IPTV service. n French pay TV broadcaster Canal has responded to decreasing market share by introducing Le Cube, which will enable it to bring on-demand content to its customers. n Internet-enabled STBs are not direct competition for IPTV but can be part of a wider strategy. n STBs will require a strong brand and unique services for customers to pay for them.

Introduction

Canal, a French pay TV broadcaster, also introduced a hybrid box in 2009. Unlike Telecom Italia’s Cubovision, its Le Cube builds more directly on its previously established services. It too requires users to pay a large fee for an STB, a departure from the norm, since STBs are typically heavily subsidized. Le Cube acts as both a satellite-TV receiver and a VOD box, offering free catch-up services and paid-for content. It also enables users to watch via a second TV set connected to Le Cube by an Ethernet cable. To make Le Cube more attractive, Canal also offers access to its most popular shows before they are broadcast, a service regular Canal subscribers must pay extra for. Both Telecom Italia and Canal are not subsidizing the cost of their STBs as part of a subscription package. Cubovision and Le Cube are walled gardens, restricting over-the-top access to preapproved services.

Hybrid settop boxes (STBs) have been on the market for several years. Traditionally, they have been used by operators that want to offer video-on-demand (VOD) services and lack the resources to absorb the cost of investing in a full-fledged IPTV service. One prominent example is UK incumbent BT’s BT Vision service. However, in November 2009, Telecom Italia, which already had an IPTV service, launched its own hybrid product, Cubovision. The STB offers PVR, linear digital terrestrial TV (DTT) and crucially, access to some over-thetop (OTT) services. It also offers users USB connectivity and an SD-card reader, which will allow digital media to be transferred easily from a computer to the Cubovision STB (see fig. 1). Telecom Italia appears to be the first major operator to offer an IPTV service and a hybrid box separately.
Fig. 1: Cubovision Cubovision and Le Cube features, Feb-10 Fig. 1: and Le Cube features, Feb-10

Analysis

IPTV is failing in Italy Incumbent Telecom Italia is seeing its broadband market share fall, but it remains the dominant operator, controlling just over 60% of the market. Even so, it has failed to successfully push its IPTV service to its subscribers, adding just under 200,000 customers between end-3Q08 and end-3Q09. Customers using the IPTV service accounted for only 6% of total subscriptions at end-3Q09 (see figs. 2 and 3).

Cubovision Cubovision Cubovision Provider Price (€) Telecom Italia ProviderProvider Telecom ItaliaTelecom Italia Price (€) 199 199 HDD (GB) 500

Le Cube Canal+ 320

Le Cube Canal+ 320

Le Cube Canal+

Price HDD (GB)
Inputs Additional ports Outputs Inputs

Deposit: 75; subscription: 6/month Deposit: 75; subscription: 6/month

1199 500

Deposit: 175; subscription: €6/month

Inputs HDD (GB)

One HDMI, Ethernet, one TV reciever One Satellite Outputs HDMI, Video composite Video composite HDMI, 2nd TV decoder 2nd TV decoder receiver, one Ethernet port, USB port HDMI,
Canal+ play, Canal+ Two Noneports, SD card reader, Wi-Fi b/g/nM6 replay play, M6 replay USB 2 USB ports

Additional ports ports, SD card reader, Wi-Fi card reader, Wi-Fi b/g/n 2 USB 2 USB ports, SD b/g/n 2 USB ports

1 Ethernet, 1 DTT 1 Ethernet, 1 DTT reciever1 Satellite reciever, 1 ethernet 320 USBethernet port, USB port 1 Satellite reciever, 1 port port, 500 reciever 2 USB ports

Catch upAdditional portsupNone TV Catch TV Paid VoD

Other free video services La7.tv, YouTube, various Web TV services Web TV services Extended catch upExtended catch up service Other free video services La7.tv, YouTube, various Early premieres, Early premieres, service

Outputs

Paid VoDEpisodes of Lost, selected movies selectedSelected movies Selected movies Episodes of Lost, movies

HDMI, video composite None

HDMI, second TV decoder Canal+ Play, M6 Replay

Catch-up TV
Source: Companies video services Source: Companies Other free

La7.tv, YouTube, various Web TV services Episodes of Lost, selected movies

Early premieres, extended catch-up service Selected movies

Paid VOD Note: 11=US$1.37

Fig. 1: Cubovision and Le Cube features, Feb-10 14 © Informa Telecoms & Media 2010

StagnatIng tV opEratorS look to hybrId boxES to SEgmEnt and Expand audIEncE

DTT 15 12 Users (mil) 9 6 3 0

Sky Italia

Telecom Italia

FastWeb

7 6 5 Subscribers (mil) 4 3 2 1 0 Broadband and voice Triple play

3Q08

4Q08

1Q09

2Q09

3Q09

Fig. 2: Italy, multichannel-TV users, 3Q08-3Q09

Fig. 3: Italy, Telecom Italia subscriptions, 3Q09

Given this state of affairs, adding a DTT hybrid product alongside its IPTV service looks to be a good strategy for Telecom Italia. However, having persevered for so long with only an IPTV offering, it has missed an opportunity, since DTT penetration had already increased from 27% to 49% in the 12 months to end-3Q09. There is clear demand for DTT, and the confusion regarding the switchover should have a positive impact on sales of Cubovision. In Italy, analog TV is being phased out on a region-by-region basis, forcing people to consider which DTT service or STB is best for them. Until the launch of Cubovision, Telecom Italia had opted not to provide a DTT service, despite operating several of the country’s DTT multiplexes. DTT’s association with low-ARPU users might have been a factor in Telecom Italia’s late entry into the market. OTT complements, rather than competes with, IPTV Telecom Italia’s IPTV service and Cubovision both offer linear TV and on-demand services. However, the operator is trying to sell both products to very different markets. IPTV service is being offered to premium customers, who will pay for HD and the improved quality of service that managed services bring. Cubovision is being marketed to lower-ARPU subscribers, who are unlikely to subscribe to IPTV. In offering Cubovision, Telecom Italia can access a large segment of its broadband subscribers it had previously not served. It also means that its IPTV service no longer needs to try to be attractive to the mass market and can concentrate on better serving premium users.

Subscribers (mil)

Italy has a strong satellite operator in Sky, which has a near monopoly on pay TV; DTT adoption has been relatively fast in the past year, since the country has begun its migration to digital television. Neither Telecom Italia’s nor FastWeb’s IPTV service has made a significant impact on the market.

IPTV 10 8 6 4 2 0

CanalSat

3Q08

4Q08

1Q09

2Q09

3Q09

Fig. 4: France, pay TV subscriptions, 3Q08-3Q09

Using OTT to stay ahead A very different set of problems has moved pay-TV broadcaster Canal to introduce a hybrid box. Unlike Telecom Italia, Canal already has a large subscription base for its satellite-TV service. Another difference is that the French pay-TV market is very competitive and is one of the few in which operators have managed to introduce successful IPTV services. In four years the combined subscription base of the IPTV operators has exceeded that of Canalsat (see fig. 4), and IPTV is now the dominant technology. Much of this growth has occurred because IPTV is bundled with broadband at a reduced price. IPTV is a more interactive medium than satellite in that it has a two-way communication between the user and the TV, enabling VOD services to develop from push to pull. However, it costs more to deliver live TV via broadband than via satellite. With Le Cube, Canal has released a product that can take advantage of the two-way communication of broadband delivery and the cost efficiency of satellite delivery. It also means the operator can deliver VOD to the TV, something people are much more likely to pay for than VOD to the PC.

15

Making STBs attractive STB prices have been kept artificially low because they have been subsidized by service providers aiming to attract more subscribers. As a result, the STB has become a commoditized item, and customers have become reluctant to pay for such a box, possibly hindering adoption of Le Cube and Cubovision. Despite having the cheaper box, Canal provides greater incentives to its subscribers to acquire Le Cube. It has a relatively low price of a 175 (US$102.50) deposit and a subscription fee of 16 a month. Le Cube also comes with additional content; users will be able to access popular programs on-demand before their first airing on linear TV and will be able to access a catch-up service for longer than the usual seven-day window after broadcast. Another unique feature is that Le Cube comes with a second decoder, which will enable linear TV to be viewed on another TV connected to it; in effect, Le Cube is two STBs for the price of one. Canal also designed Le Cube to be more visually attractive and have its own branding, making it quite different from many other STBs. Telecom Italia have employed a similar approach. It too is attempting to build Cubovision into a brand of its own, giving it a distinctive design and separate Web site. It has eschewed providing catch-up services, which would have probably incurred licensing costs, but it has added various Web TV services and YouTube as well as its own onlinevideo services. This approach takes advantage of the connected capability of Cubovision to provide more than just what is already available on linear TV. Telecom Italia has for several years been developing various online-video portals, such as La7 and usergenerated-content site Gulp. Cubovision has access to both of these services, which means it has access to unique content. Additionally, it should drive traffic to both sites, and Telecom Italia should therefore benefit twice from this cross-promotion. Alongside the free content available on Cubovision, there is a paid-for on-demand service. In February 2010, the only paid-for content available was episodes of Lost, but the lineup is likely to be expanded because it makes Cubovision more attractive to users and should generate revenues for the operator.

providing only an IPTV service. Cubovision is the tool most suited to reducing churn, because Italians prefer DTT to paid TV. Likewise, Canal has reacted to the popularity of IPTV in France by pursuing a strategy that focuses on this particular challenge. It has done so not only in launching Le Cube but also in allowing its Canalplay service to be available on the Xbox 360. It is providing several routes to access its content and give users the on-demand services they desire. Good intentions but fundamental flaws The concept behind both boxes – expanding the content of an STB beyond linear TV – is sound, but both fall down in some major ways. Cubovision broadly fails to deliver on what it promises, and inclusion of its La7 service does not compensate for a lack of many other online services. YouTube via the TV is a nice add-on but cannot be called a premium product. Cubovision’s failure to include any other services from competitive broadcasters is understandable, given Telecom Italia’s position in the TV market, but it severely hampers the product. The proposition for Le Cube is stronger, in that it offers at least one popular third-party catch-up service in M6 Replay. But it still offers broadly the same content as its regular subscribers can receive. Providing access to YouTube or other short-form video sites, for example, would enable Canal to, at little cost, provide something beyond a mere extension of its core product. If it did this, Le Cube would be a genuine hub for all users’ video demands, be that skateboarding cats or the newest episode of Lost. Both boxes are also priced too high. If Telecom Italia is genuinely aiming for the mass market, 1200 for a settop box with some added bells and whistles is considerably more expensive than its potential rivals. Le Cube is cheaper, but save for the inclusion of catch-up TV services and getting some US shows earlier, there appears to be little benefit in users paying an extra 16 a month on top of their regular satellite subscriptions. Push VOD is not a USP Cubovision and Le Cube are Internet-enabled but offer users little OTT content, preferring to provide limited walled-garden services. Push-VOD services are a good means by which operators can increase ARPU but are by no means cash cows. And as hybrid boxes become more popular and numerous players enter the market, providing VOD will no longer be enough to make an STB stand out. And to limit the OTT capabilities to video is to ignore a great deal of online content that non-tech-savvy users would like to access on their TVs.

The Informa view

Operators must play what is in front of them Canal cannot be said to be failing in the TV market in quite the same way that Telecom Italia is, but it is continuing to lose market share each quarter. Both companies’ strategies show an awareness of their native markets. In Italy, DTT is proving popular and IPTV is not. For Telecom Italia to augment its strategy with a hybrid STB is a good move, because it gives it access to this much larger market. It shows an adaption to market conditions, which is a better move then persisting, in isolation, with

16 © Informa Telecoms & Media 2010

StagnatIng tV opEratorS look to hybrId boxES to SEgmEnt and Expand audIEncE
Several OTT boxes offer services with unique features. Boxee provides users with social features that enable them to recommend movies and TV series to friends using Facebook. Roku’s STB provides access to OTT services such as photo-sharing Web site Flickr, Internetradio service Pandora and some Facebook interactivity. These services have yet to enter the Italian market, but it is inevitable that similar services will launch in the future. There are, of course, major barriers to offering these services – namely the cost to the operator of supporting them, and the difficulty operators face in persuading service providers to develop services for what remain small platforms. But these are areas that service providers might not be able to avoid in the future. This analysis has been taken from the Intelligence Centre, for more information about the service please visit: www.intelligencecentre.net/broadband-internet/

furthEr rESourcES

Across the 10 channels of the Intelligence Centre, clients have access to over 9,000 pieces of analysis, over 500 data and forecast spreadsheets, over 3,000 conference papers and over 21,000 comments. In addition, the service features over 200 individual country profiles and over 1000 company profiles, all of which are updated on a regular basis. Here is just a selection of further content related to OTT and IPTV:

Analysis & Comment
efforts

n Operators ramp up their IPTV value-added-service n Look beyond the E3 hype for proof of Microsoft’s

Data & Forecasts

n BBC iplayer performance, December 2009 n Global IPTV forecasts to 2014 n Internet-enabled TVs and corresponding services n Global IPTV subscriptions to end 2009 n Global fixed broadband subscriptions to end 2009 n Global fixed broadband subscription forecasts,

march toward owning the digital home
n O2 looks for new strategy to combat DTT n Internet-enabled TVs and corresponding services n Cable: if you’ve got it, flaunt it n 2010 heralds a new dawn for operator CDNs

2010–2014
n Global conditional access systems (CAS) contracts

To find out more about how the Intelligence Centre can help your strategic intelligence and decision making visit: www.intelligencecentre.net/broadband-internet/ or contact us today.

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