IPTV: The Business Model (Part IV)

This is the last installment in our review of key “demand triggers” for IPTV (Internet Protocol TV) takeup.
Since IPTV is widely touted as the principal driver of fixed satellite service and direct-to-home satellite growth in the near future, understanding what services will make subscribers buy IPTV, the obstacles to that goal and the business issues faced by multichannel video programming distributors (MVPDs) in their relationships with each other as well as with subscribers, programmers, content providers and other players is key.

Previously, we looked at two of the four IPTV demand triggers: video on demand and interactive TV. This month, we review high-definition TV (HDTV) and the bundling of voice, data and video service, which is known as the triple play.

There has been plenty of hype about HDTV and most of it is substantively true. HDTV transforms the viewing experience. However, the hype also hearkens back to previous times when companies would repeatedly tell electronics consumers that they really want and need something in the hope that customers would come to believe it.

HDTV works as advertised, but to appreciate it, a chain with no weakest link is needed. The content has to be filmed and formatted for HD. The uplink/downlink transmission storage, encoder, decoder, protocol and throughput must not degrade, distort or delay the packets of data being transmitted. The subscriber must have the right set-top box and provider-supported service as well as have a TV capable of displaying the full HDTV transmission.

If you have ever wondered about TV commercials showing you how good the advertised TV set’s picture is, you understand the marketing problem. If the TV on which you are watching the commercial is inferior you do not appreciate the advertised set’s picture being shown on it. However, if the TV on which you are watching the commercial transmits the advertised set’s picture in all its glory, you are probably not in the market for a new TV.

So it is for HDTV. Until consumers are served by a chain of HDTV links — from filming the content to the display on their TVs — they will not see what they have been missing and will be disinclined to pay for getting HDTV.

The primary HDTV challenges are pre-subscriber infrastructure implementation and subscriber education. Demand for HDTV has to be created — initially at the content level and then at the MVPD level. How MVPDs tailor their subscriber packages and programming offerings will play a key role in creating that demand.

The looming Feb. 17, 2009 digital TV conversion deadline for U.S. broadcasters should aid HDTV penetration and therefore IPTV takeup by providing a deeper HDTV content base to appreciate. Also, the price of HDTV sets in the United States are dropping rapidly in the classic consumer electronics pattern and likely are approaching a price point at which mass market — as opposed to early adopter — penetration can be expected to increase quickly.

The triple play is an idea whose time may have finally come, and it has taken terrestrial wireless service to do it.
The most likely driver for triple-play service is integrated services, not integrated billing. One of the bundled services must be the key driver for the subscriber, who takes the other bundled services as ancillary added values, much like the “anchor tenant” in a mall that drives commerce to its neighbor tenants. Consumers care about common interfaces, linked services and useful and useable features made available in a bundled service, and that is how demand must be generated.

One underappreciated triple-play model that IPTV packet addressing is ideal to serve is customized programming requested on a video-on-demand or other basis by the subscriber and beamed by satellite or terrestrial wireless to mobile handsets. This will allow subscribers to pick up a program they were watching at home and continue viewing it on a mobile devices. It also will give the subscribers the ability to pause it or put it in background to accept voice or data transmissions and enable interactive TV activity contiguous with that done on the home set based on cached subscriber information that is accessible from fixed or mobile receivers.

This is the kind of thinking outside the box (pun intended) that will drive IPTV takeup and power the next generation of fixed satellite services and direct-to-home satellite sector growth.