IPTV: The Business Model (Part I)

IPTV (Internet Protocol TV) has emerged as the driving next-generation core business of the fixed satellite services (FSS) sector. Analysts have predicted there will be between 35 million and 50 million IPTV subscribers worldwide by 2010, up from 5 million to 8 million in 2006.

Demand triggers for IPTV are expected to fuel much of the expected FSS growth throughout the next decade. Which business models are likely to work for IPTV, and which will not?
IPTV is a continuous channel offering over private IP-based network (as opposed to over the public Internet) comparable to existing analog and digital satellite, broadcast and cable programming but transmitted by IP at broadband throughputs necessary to support the video stream and at a consistent video encoding format such as MPEG-2 or MPEG-4. It is a continuous channel in the sense that, rather than video clips chosen by the user from an unlimited menu of choices or real-time streaming video, IPTV offers actual programming packages on channels (although a huge number of channels should be supported by IPTV network efficiency and server capacity), and the viewer must either join a program in progress or record it for later viewing.

The market power of the IP-broadband combination is based on several factors. As with other competing data transmission protocols such as asynchronous transfer mode, or ATM, used for both voice and frame relay data applications, and synchronous optical network, or Sonet, used in fiber optic data networks, IP data is transmitted in packets of bytes of data. Each packet includes a header containing address information, or where the packet is to go and how it is to be reassembled, and a payload, or the message itself.

Unlike analog, circuit-switched communications, packet-switched networks can break up and separately route individual packets of data and coherently reassemble them at the end of the transmission. The result is that the network’s capacity can be used to maximum efficiency — at any given moment moving packets of information from many different messages and senders, mixing them up, transmitting them and then separating and reassembling them at the other end. Not only do packet-switched networks make more efficient use of available bandwidth than circuit-switched networks, they permit different uses and advanced applications of available bandwidth as well.

Finally, digital transmissions are much less susceptible to signal degradation caused by network architecture or over distance. IP, as one of the digital transmission sets available, offers full mass market penetration through increasingly widespread broadband connections. Any computer and many other fixed and mobile devices, from large LCD screens to iPods, can access IP by subscription, and the broadband connection can be provided by satellite, terrestrial wireless, cable modem and digital subscriber line.
So the technology is fantastic, the programming incredibly flexible and the consumer access nearly universal. Still, what will drive the business case?

It cannot be channel proliferation alone; too many terrestrial service subscribers have had the experience of paying for 600 channels with only a fraction carrying active programming, half replicating what already is on lower-numbered channels, and many providing just dead air. Demand triggers for IPTV include high-definition TV, video on demand, interactive programming and bundled services for voice, data and video (the triple play). All these services will be key to making IPTV a compelling consumer choice.

High definition brings an immediacy and quality to the video experience for purchase decisionmakers raised on broadcast analog television, then cable television and most recently on low-definition digital. Video on demand has moved far beyond its roots in pay-per-view offerings to embrace both content and timeshifting of the digital video experience. Interactivity is still largely undiscovered country, and truly seamless triple-play technology of the kind that allows the user to take his or her unfinished program from home viewing onto a mobile device to finish on the way to work, or a student to transfer homework between home and school, may turn out to be as transformative a technology as the Web.
We will examine them all in our next column.