Thursday, April 7. 2011
Here is the battle to be won. In the UK the customer’s package of choice from the Major Service Operators (MSO’s) like Sky, BT and Virgin is currently broadband dual-play (telephone + broadband or, to a lesser extent TV + broadband). Since the late 90’s the challenge the MSO’s have set themselves, is to convert as many customers as possible to triple play - Telephone + Broadband + Television - bundled services. But before any have achieved success in that task, a new challenge is threatening to upset the apple-cart; namely the availability, via the Internet, of network agnostic Over The Top (OTT) television service. OTT service represents a serious challenge to the ascendancy of triple play subscriptions. Indeed it threatens to bring the trend to a halt. Any man and his dog, is now capable of running a television service and delivering it via the broadband connection, the customer is already committed to paying for each month at a flat rate, with broadband already, in the UK at least, the largest subscribed for service amongst the triple-play set.
There are some modest preconditions that need to be met before customers participate in comfort with OTT service (see below) but once they are in place, there is no friction or inertia that will prevent it taking eyeballs previously destined for the tethered goggle box. Indeed there are now more reasons than ever to think instead there will be considerable factors driving the transition.
OTT has lead to a great deal of talk about “cord-cutting,” which refers to a process where customers opt to cancel their cable television (or satellite) subscription in preference for OTT services. Currently cord cutting is a tethered service provider fear more than a reality. However there are now good reasons to think the fear will translate into reality much faster than the TV industry has been predicting. [Edit, whilst writing this post - I have come across this Tech Crunch post confirming my argument, that cord-cutting rates have been underestimated by the TV Industry, now predicted to be 2 million in the US by the end of this year, up from 1.6 million previously predicted by the Toronto based Consulting Group] Why, can best be understood by challenging the very term “cord-cutting”. Cord-cutting may be the most appropriate term for early adopters, but “cord-withering,” is more appropriate for the general market (though I readily admit it lacks the alliteration required for it to coined by the industry). The distinction may be subtle, but when the new dynamic is fully understood it becomes clear. Triple-play figures are unlikely to challenge dual-play as was once thought at least not without a radical rethink of pricing packaging and contract terms.
Marketeers have a natural conservatism, and are fearful of making grandiose claims about the speed of adoption of a new technology because, most usually, over-enthusiasm proves to be a mistake. However every now and then this strategy is the wrong one. Every now and then a confluence of game changing factors occurs which drive adoption far quicker than was previously anticipated.
The term “cord-cutting” plays into the natural tendency for conservatism implying positive action is required for the transition to OTT to occur and that therefore there is something of an “inertial shield,” or natural “stickiness” that will protect tethered TV service providers for some time yet. It implies the customer has to take radical and slightly risky - scissors through the cord - action to switch. But is this really how it will play out?
Here, as I see it, are the dynamics of the transition to OTT:
The position today. Users are subscribed on mass to TV services because the have had to buy in to a minimum subscription charge that are required to cover the high infrastructure and operational investment of tethered TV service. However by far the largest commercial service from the triple play set, is broadband. As Next Generation (NG) Fibre To the Curb (FTTC) and Fibre To the Home (FTTH) IP network’s continue to role-out, from a purely technical standpoint the need for dedicated TV service infrastructure has largely evaporated. Between them, in the UK alone, Apple TV is proving the quality of delivery can be of the highest calibre (out of over 25 movies rented so far on this service I have yet to encounter a single glitch or failure to stream), BBC iPlayer is proving catch up catalogue content is highly attractive and Sky Player is proving live TV service is entirely feasible. So currently, though there is no single OTT delivered comparison to the full panoply of tethered TV services, there are solutions which demonstrate the practical implementation of every element required to deliver such a service.
Consider the list of often cited strengths of tethered service.
*see my earlier post on HTTP Live Streaming for an example of a key OTT enabling technology
As the MSO’s continue to push triple-play services OTT usage will continue to rise because it’s available and per event on demand purchases are standard. OTT adoption is heavily gated by the connection of either a PC or OTT device to the living room TV, however passing that gate is increasingly low-cost and easy to do.
Until industry standard transport and transaction standards are established, the cost of OTT adoption is equal to the cost of a 802.11n WiFi and HDMI capable TV device. Currently this stands at around $99. Note however XBox and Playstation 3 owners already have a sufficiently capable devices and the combined global customer base exceed that of any single Cable Television network. These devices are hampered because their content offerings are restricted to closed portals but we can expect that to change or at least relax as the model is challenged by game changing devices like the iPad (the iPad also provides a walled garden of sorts, but it is not one where Apple define the navigation of the content hubs - the content owners are doing that).
Whenever exclusive OTT content is available (as is beginning to happen in the US with Netflix service), OTT will gain customer eyeballs and the customer threshold for switching to a triple-play solution will get that bit higher. But the reverse is never true. Exclusive content available via tethered delivery channels won’t similarly excluding OTT service adoption, meaning the process is a one-way street. The inevitability of the outcome can’t be emphasised enough.
Additionally changes to content owner licensing models are also travelling a one-way street. Where is the incentive for any content owner to be tied in to exclusive deals with a restricted market with OTT already promising the greatest reach and with OTT holding out the greater promise of high margins and brand control?
However, in my view, the games consoles and TV connected devices like Apple TV aren’t going to be the prime drivers in the switch to OTT (they aren’t opening to common standards or allowing content owners sufficient scope to integrate with the open internet ecosystem that will prove so effective for driving traffic). There’s a new kid of the block and failure to factor in its effect means predictions regarding OTT service adoption have probably, in my view, been excessively conservative. The new kid is, of course, Apples’ iPad.
True the iPad doesn’t provide a sufficiently dedicated solution for delivery through to the living room TV without the addition purchase of Apple TV. But that means it has been missed out of the equation when evaluating OTT adoption rates. With Airplay and recently released HDMI connectors, the iPad (as well as the iPhone and even the iPod touch) have become mobile TV transaction and subscription processing and play-out devices. However focussing on connectivity to the TV misses the deep and present nature of the challenge. With the iPad proving to be the second fastest selling consumer device in history (second only to the Kinnect, but with far better prospects of sustained sales - and one that starts at $500 to boot) TV service providers need to understand a large part of its success is that it has become an entertainment destination in itself. One that is highly competitive with TV (as well as increasingly likely to drive Apple TV sales).
A key factor the TV industry has failed to adequately identify, is the additional leverage OTT delivered content obtains curtesy of delivery via the open Internet. Facebook, Twitter and the more traditional media channels such as those provided by News International and Sky that have been adapted to the internet are providing increasing competition for customer eyeballs previously watching TV of any description.
The iPad has the enormous benefit of integrating hyper-navigation and televisual experience. iPad video can be initiated from a link in Facebook. It is the nexus and nirvana of media consumption. It has solved the lean/back lean/froward problem providing for Internet usage in the context of relaxation and entertainment time and has quickly obtained massive user affection for that fact. It is proving to be the left of field event that is bound to change the TV industry completely.
Forget all those years of abortive TV STB widget production trying to integrate social networking with STB’s. That model is gone. Interaction with the TV will now be via the tablet interface. Then, when you start watching video on your tablet device and decide you want to share it with others in the room, just throw it onto your TV through airplay. No other device so centrally or so effectively integrates the open internet and media consumption.
So let’s add another row to that table and really consider what these figures mean:
*Wall Street analyst Charlie Wolf of Needham & Company
** Source: Gartner April 2011
Wow, I mean just wow! From a standing start in 2010 iPad adoption at least in the estimation of this analyst firm, is expected to rival where all existing OTT devices are today and overhaul them through having a far more compelling integrated interaction model, all by 2012. [Edit 11/4/2011: Gartner have released their report, indicating just how conservative the previous figures before. Again (and to me unsurprisingly) we are finding earlier estimates have been conservative and have been greatly underestimated - further underlining the main point I am making with this article] This is why iPad should be factored in to projections of TV service adoption more than the PC ever has been. It’s attacking entertainment time and just look where that will have got to by the end of this year.
The OTT consolidation with increased adoption of subscription packages. Like mobile as the customer realises he is consistently making sufficient volume of purchase the content provider will have the opportunity to sell in subscription packages with a fixed monthly rate. By the time this starts to occur - what space will be left for tethered TV services?
That’s cord withering.
The customer isn’t ever going to have to think “I’ll drop all subscriptions and try this OTT thing” The customer will be there already and one day realise tethered TV is bad value. At that point tethered TV will become a mere add-on offer and will no longer be a driver for dual or tripple play service.
The Tech Crunch post on cord-cutting finishes on a cautionary note, reflecting natural marketeer conservatism:
Netflix may be paying up to be able to stream TV shows and movies left and right, but it is still paying only a fraction of what the cable companies shell out for programming. For instance, Convergence says that this year Netflix will double the amount it is estimated to pay for programming to $1.1 billion, while Apple will pay about $450 million, and all the other online providers will pay almost $400 million. Not quite $2 billion total from the Interent for TV and movie programming rights. Meanwhile, traditional TV access providers are expected to pay $38.7 billion for programming.
But consider this, with all the powerful logic behind making the switch - isn’t the disparity in these revenues simply evidence of the enormous potential the OTT model holds? I say again - this isn’t the either/or scenario the term “cord-cutting” implies. Broadband Internet, the prime pre-requisite for OTT service, has the highest penetration of triple play services. The cost of entry for professional OTT service is down to about $100 for these customers. Other devices (iPad) are now driving adoption of services most effectively competing for entertainment time and that offer a more compelling model than POT (Plain Old
Current research by the TV industry has focussed on reasons for “cord-cutting” and blinkered by old usage patterns has not unsurprisingly failed to find many. But that approach has failed to take account of a game changing developments like tablet computing. The conclusion has then been drawn that considerable inertia will see the industry in rude health for years to come. I suspect whilst POT Free to Air will be around for the foreseeable future, subscription service, at least on the current model, has a shorter shelf-life than most TV service professionals currently think will be the case. In what will seem like no time at all the consumer market, currently starting to rounding the curve, will be past the apex. The tipping point will be past. A once vibrant tethered TV service industry will be appear no more than a legacy backwater of diminishing significance. Tethered service with year long contracts that once used to drive revenue, will increasingly be positioned as a mere sweetener for Telephone and Internet available on a month by month rolling subscription.
Wednesday, September 1. 2010
There has been quite a bitter fight going on for the last 8 years or so (ever since Broadband reared its head) for the ownership of the Device That Lets (Comms and) Entertainment Into Your Home. Various Set Top Boxes (cable, satellite) held sway but over the 'noughties have had to duke it out with increasingly powerful multifunctional routers, IPTV boxes, 'net connected games machines, New New STB's like Boxee and of course MyPCTV (my PC controlling the TV set) which has held sway in Chez Broadstuff for some 4 years now, especially since BBC's iPlayer came into use.
Next up is the new Apple TV - or more accurately, the Apple Set Top Box That Controls the TV. It is definitely smaller and more stylish the Old Set Top Boxes (no doubt there will now be a rush to be thin, small and black among other STB makers).
But, while the chatterati all ooooh their way to their Applegasms, it is time for us more sanguine types to look at the overall value chain and ask "what has changed". The old Apple TV was a download and play (iTunes) model, the new one has streaming deals with TV stations and no memory at all. There is no new technology at play here, nothing in the value chain that doesn't exist already, no new "gee whiz" device - what is interesting is that Apple has done a complete shift of value chain model, from download to stream (because that is what most people like).
The really fascinating bit of this picture however, is if you go up one step in the system diagram. Apple now has a plethora of screens and devices that all interact with each other and with an end to end delivery value chain, from content via aggregation to user device. They don't own the distribution piece, but they have made deals with Moble Telcos that no one believed possible beforehand. I await similar with TV Co's (they have already pushed streaming prices down from $2.99 to $0.99). Appls pricing is now coming in at $99, a lot cheaper than most other STB's that don't come attached to large bundles of bloatvid.
And that is where it gets interesting. The big prize has always been to control the Home Multi-media Controller, and this Apple TV device - plus the apparent ubiquitous rollout of a new IOS4 operating system across all their devices - is another move in the Apple play to surround and then own that piece of turf.
By the way, I am no Aple fanboi, but I have been using the Apple Value Chain diagram in consulting to clients since iTunes came out, and what amazes me is that no other big player has replicated it as they have stormed moble music, mobile telephony/smartphones, the mobile web, tablest and starting now, Quad Play in the home.
Incidentally, I believe this is a more robust strategy than Google TV, as SAI notes:
Specifically, Google wants to turn your TV into a computer. Apple says people specifically don't want computers on their TV. Who will win?
This is not even a question by 2010, so I think Google strikes out at first base - we set up usage experiments with the MyPCTV concept in 2006/7, its clear that the TV is not a computer, but is part of a complex "4 screen" (TV, PC, Tablet, Mobile) end user world.
But more than that, the real thing Apple has going for it is that end to end value delivery system which Google hasn't replicated - not in Mobile (albeit they are putting a lot of effort in belatedly with Android), and not in Video.
Oh, and they own the end device - s. Never forget that...............
This does not of course mean they will win - but what they are positionng themselves to do is cream off a lot of early adopters, take massive market share early on with high margins products, make it expensive to roll them back.
Monday, August 9. 2010
Skype on the blocks for an IPO - GigaOm:
This is of course after it was sold to eBay for $2.6bn in 2005, and eBay sold on 3/4 for $2bn in 2009. A great example of major value add. And now it's back on the market lerss than a year after its sale/buyback?
At the "Constant $2.6bn" valuation model the last few years would suggest, this new IPO plan means they are looking to sell about 4% of the business. That's not really a big % (or amount) to IPO for, or to get both Goldmans and Morgan Stanley in the game.
Hmmm.......(as in, there is more to this than meets the eye)
Friday, July 31. 2009
It would appear that eBay does not actually own the IP for Skype, though the company paid $2.6bn + earnouts (a total of $4.1bn) for - GigaOm:
In March — a month before it announced plans for the Skype IPO — eBay filed a claim against Joltid related to the license in the English High Court of Justice. Joltid responded by terminating the license agreement between the two companies. According to eBay’s claim:
If true, this is corporate incompetence on a breathtaking scale:
- What did they value the business so highly on, if not the IP?
Sometimes, you see things that make you think that the protection of "Limited Liability" on boards of directors should be waived!
I am a shareholder of eBay (a very small one, mind) and I am spitting mad! I predict a Class Action........
Friday, November 7. 2008
Interesting article from Point Research on the pricing of different Broadband options (seen in Ars Tech):
Around the globe, DSL remains far more expensive for the speed you get, but it has also shown the greatest drop in price. Between the first and third quarters of 2008, DSL dropped from $25 per megabit to $18 per megabit.
This is all very interesting - as they point out, the reason DSL is so high on aggregate si that it is the only available system in many developing countries, but is highly priced:
Middle Eastern and African countries, for instance, are paying a whopping price for DSL service: $46 per megabit. In Western Europe, the cost is about $6 per megabit. Because phone lines are much more widely installed around the globe than are cable systems, DSL is one of the few viable delivery systems for Internet access in many countries, even when expensive, and is one reasons for DSL's high worldwide price.
Now the other side of this coin - Fibre is very cheap, but is very hard to get - and tends to mainly occur in countries where the government has stepped in to drive the market (Japan, Korea). We believe that intervening like this to drive the price down will confer massive digital logistics advantages to those countries, so it is with some concern we note the OfCom believes broadband buildout in the UK should be a private sector affair.
Tuesday, November 6. 2007
Notes Read/Write web:
Joost, the desktop-based long-form video service that aims to take on the old TV model with a large pile of venture capital*, is scrapping one of its defining features built in-house, inline chat, and replacing it with outside chat service Meebo. Essentially, the announcement means that users will be able to chat with all their friends on MSN, Yahoo Messenger, AIM and GoogleTalk while watching the high-resolution, professional video content on Joost.
Or just chat instead of watching the Ads
Still, its good that they realised that Metcalfe's Law applies to them as well.
And why Meebo of all people?
Meebo is a VC darling as well - this is the kind of deal that high-powered investors can help make happen, a great example of why people say it's as much about the connections as it is about the cash.
Quite. The market still has to buy it though.....
* And all the same old content.
Monday, October 1. 2007
...cos we weren't blogging at the time. We were a little bit sarky here though, if proof were needed that we thought it wasn't the brightest idea.
Anyway, its now finally been officially admitted that it was a crap deal
From CNet at the time:
Company executives said Monday that eBay plans to pay $1.3 billion in cash and $1.3 billion in stock to the global communications company. It has agreed to hand over up to an extra $1.5 billion, for a total payout of more than $4 billion, if Skype meets certain financial targets by 2008, according to a presentation to investors on Monday morning.
Well, apparently the earnout will be capped at $ 0.5bn, but that's still $2.6bn handed over including $1.3 bn of cash - for a c $60m turnover company.
Lesson - if any was needed - not to hand over so much of the loot upfront.
Mind you, it is very entertaining to go back and read the blogs at the time justifying why the deal was such a great one and how they "got" what eBay was up to
Tuesday, December 12. 2006
Those rumours that 3 is for sale just won't go away......John Hauxwell pinged me this afternoon with his post here. I had in the meantime picked up this one from the Inquirer picking up a Mail on Sunday story. (The Mail on Sunday also reported last last month that 130 managers were to be sacked at 3 UK, though 3 UK claimed that headcount will go up in 2007)
To be honest, I haven't heard anything about this, this time around, and was a bit wary of saying anything after the last time when the rumours of sale were immediately followed by that of a 3G price reduction to near 3G datacard levels - I thought I had got a bum steer.
Also, to try to crash the market just before you punt the company seems...errrm....odd?
Mind you, this is Planet Mobile where economic rationality is not always the first thing on the agenda (I will do a Big Blog on the Myriad Myths of Mobile Multimedia Moneymaking soon)
Still, you can't keep a good meme down......
Wednesday, November 15. 2006
Rumours are flying today that 3 UK is to be sold soon...its not just me that heard this, here is another swallow
No surprises really, its been clear for quite a while that the business model is bust, looks like Hutchison's deep pockets have finally been emptied. Very hard to compete in a hypercompetitive market like the UK, especially as 3G has been so slow to take off
So, who will buy?
It is now traditional in the UK for a foreign Telco to buy a UK mobile company, and we don't have a US one yet - but maybe BT could use it given its complementary assets - IPTV, DSL, Fusion et al.
Or maybe Google, as they say that YouTube will go Mobile and Yahoo and Vodafone have just eloped.
Or even Carphone Warehouse? Ntl and Virgin have got together so thats them out probably
Now we think Sky might be a good fit, after all this would give them a Quad play, and maybe all those MySpace users can get a free phone too
Interesting Times....................just a rumour of course
Postscript - Hutchison have apparently denied this rumour, and will instead announce a new business model for 3 UK tomorrow - more to follow later.....
Post Postcript - 3 UK announced today on their website that they are launching a new service model called "X - series". I quote:
So - a new pricing model, based on a flat fee from the 1st of December. US mobile companies are already doing "as much as you can eat" deals, so this is a welcomed plan. What has held the UK mobile media industry back vis a vis the 'Net are:
(i) adhering to a walled garden model, which guarantees a large % of a small pie rather than a small % of a big one. Didn't work on the Internet, it is not sustainable here - the mobile music market went elsewhere, and so will the video market under current conditions. Over the last 3 years new web 2.0 technologies and faster fixed line (and wifi) broadband have made mobile data services increasingly dated.
(ii) unrealistic pricing of services vs physical and internet based media (the dreaded "sticker shock" effect - £1.50 for the song, £5 for the download).
It does not look like the service is fully open, and as yet no details on the prices.
If the prices are set at Internet level then this is attempting to massively disrupt (crash?) the mobile 3G services market - not so much selling the company, as betting it!
Monday, November 6. 2006
Broadlogic announced the awaited TeraPIX video processor today, which (theoretically) enables cable operators to "triple their digital spectrum available." In theory, this device reclaims about 450 MHz of a 750 MHz spectrum by converting analogue cable channels to digital, thus freeing up bandwidth for lots of other new services to be run through the pipes.
As GigaOm notes, it:
More than just that though...it potentially gives Cable companies a new play against DSL based services, including IPTV.
It does not require the user to invest in a new set top box, but the catch is that the Cable Co's have to supply a new residential gateway architecture built with these chips. Not sure yet about the economics of individual suburban houses, but in apartment blocks in major conurbations the battle between Cable and IPTV could get quite interesting.
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