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The Connected Home is almost here, not quite

The exhibition
For once got to see all that was on show in the booths as there were four to visit. This was surprising as the show is already in its third year, but also gave a feel of being part of a closely guarded secret

Motorola was showing their 4HOME acquisition of October last year. This is a software platform for service providers including energy companies. The service provides a home-control and monitoring platform residing in the cloud.
The message to telecoms operators is that as VOiP is commoditized, this approach can add value. This idea was echoed during the conference by the Telco speakers like Ann Shaub of Verizon.
Use cases revolve around triggering cameras and door locks for example to let delivery man in or check if the kids haven’t left the lights on or have they arrived home after school.
4Home call this “assisted living” and hope to improve energy management. The platform’s concept is to create “scenes”, like going-to-bed or watching-a-movie.
4Home claim their Unique Selling Point is being able to link the scenes.
The demo on site was of an extremely basic Web interface to create such scenes. Clearly such a system can be useful, but needs to be integrated into an overall offering to really shine. I expect the Moto execs will get some compelling bundles together from their portfolio.

I was surprised to see T&W in another of the sparse booths. They are a Chinese hardware manufacturer of CPL, modems and the like, founded in 1991, they expect a 600M$ turnover for 2011. They have 7000 employees, 1000 of which are engineers. They were showing optical stuff: GPON (mainly for Europe), EPON (for Asia) and what they called point2point (for the connection to the home, to “replace last mile”), but their core business in DSL routers (over 20M units shipped per year). The message I got out of talking to them was that optical is the future I suppose this message comes from DSL margins having been commoditized to smithereens.

Twonky has a far sexier name than anyone else on the show and I had never seen a booth with quite so many goodies on display, but they didn’t give me much in the end. Twonky is a US company with development teams in Berlin and a presence in Basel & Tampere, they are the part of Packet video that Alcatel Lucent strangely didn’t buy almost a decade ago. They now belong to NTT DoCoMo. To position their home connectivity products, think of them as competing with Awox that I have written about a few times.
Like Awox, they are DLNA zealots and have software in the field. Western-Digital Media players constitute their largest installed base. They also equip some routers but they came to the show to target operators of all shapes & sizes.
I was impressed with Leon Chicheporte’s honesty when I told him about the inconclusive DLNA tests I had done in my home (see here). He said that 2 years ago we were only half way to usability for the end user, and that now we’re almost there. Note the ‘almost’. That kind of honesty makes me want to do business with a supplier.

3view is a new kid on the block in the STB-with-a-service-behind-it neighbourhood. Founded in 2009 and running out of central London, they are still independent and run off private funds.
They claim to be the 1st Z-wave enabled STB. The platform runs on the SD8655 chipset with a 500GB HD and twin DVB-T2 tuners. In the UK they are a consumer brand that deliver a YouView experience before YouView is ready, competing with the likes of FetchTV. The motto on the booth was just three words: Watch, Search and Interact which I thought was pretty slick marketing although I didn’t get a chance to check if they deliver on the promise.
The BBC iPlayer is already on board and they plan to have SkyPlayer by Q3 this year. Adaptive Bitrate Rate is supported over IP. Current retail price is £299 and the device has been shipping since Christmas from John Lewis and Amazon. They can deliver a white-label box to this spec for a BOM (Bill of Materials) of around £170.

The conference

I listened in to almost all of day one of this two-day conference and tweeted live from my @nebul2 account. The conference gave me the impression that we may not have peaked yet on the hype cycle i.e. there might still be more hype before this becomes really real. We also still need some more convincing use-cases to see the true value of a connected home.

Operators are taking the connected home seriously. It’s another way to avoid commoditization especially where content-based services are not delivering. Energy control is a promising feature for Verizon. It helps the operator onto the feel-good green bandwagon. But Ann Shaub underwhelmed me with the use-cases Verizon is working on for home automation. Her favourite was “Sleep mode” where you “just hit one switch for all doors to be locked and lights turned off, no more fumbling around in the dark…”. It sounded a bit like using a sledge-hammer to push a drawing pin into a soft wall. She did however make excellent business sense when pointing out that STBs are still very expensive and difficult to keep relevant over the full (accounting) lifespan of the device. Convergence between the STB and other devices still remains to be clarified.
Ann went on to tell us the key marketing messages for Verizon’s connected home initiative: it’s about “Peace of mind” & “ease of use” and not about “saving money”. The current pricing model is a $9,95 subscription with devices being slightly subsidised. Verizon doesn’t want to get into CPE business. The current trial will turn into a soft launch very soon, with a hard launch still a bit further away.

Paul Berriman, the industry veteran from PCCW in Hong Kong, gave a broad talk about the overall strategy there. The journey from Fixed line to TV to PC to Mobile phones to Tablets & Games consoles now has to go through the connected home so as to get it all to work together. I agree when he says that getting all the devices to interoperate is going to be a real challenge, but that interoperability will become a USP once it does work. He spoke of a special focus at PCCW on enabling the free flow of content throughout the home but I think that may still be out of reach for premium content as rights owners stay too picky on DRM. “NOW 360” tries to capture ALL the screen usages of PCCW customers whatever the screen. Paul finished with one of those simple “why didn’t I think of that?” questions: health has been targeted BY operators for years and they have already spent a lot on it, but as fitness requires the same kind of infrastructure and has an early-adopter target market to boot, why not start there? Makes sense, so maybe will see Runkeeper types of apps from operators …

The conference organisers then did a strange thing. A video of a presentation from IPTVWF a few months ago was shown. In the audience we all looked at each other wondering what was going on. I doubt anyone listened to much of the Telecom New Zealand presentation, we were so bemused by this strange process. I am green, but this was pushing recycling too far.

Raoul Wijgergangs of Sigma Designs came on next to say that the key to the connected home is already here in the form of the G.hn standard. He promised products with a bandwidth 2,5 times faster than today’s HomeplugAV, before the end of the year. The prototype devices he showed looked so small that even if the STB remains part of the ecosystem we’ll have to stop calling it a box. I agree with his view that home automation is the “low-hanging fruit” of the connected home, but I wish he’d told us what SD think lies on the higher branches, out of sight.

Thomas Kleist of Native made an interesting point during the next panel session: exclusivity is an OK entry point for operators, but over time openness (i.e. apps) will be the winning strategy.
On the same panel Steve Koenig of the CE Association in the US illustrated how energy is creeping into CE purchasing decisions (85% of buyers care about it compared to 95% for price & only 57% for brand). He went on to say that Americans are driven to reduce energy consumption only because of cost. Doh! That got me wondering if taxing energy, as we do in parts of Europe, will slow down the connected home…

The next panel on “Monetizing the digitized home” had just 2 panellists, which poses the question of whether the subject is addressable yet. Swisscom was pessimistic on the connected home business model because the telecoms budget is fixed for most homes, so revenues has to come out of an existing spend. The question is what’s going to give?
As a vendor, Twonky was much more upbeat on the connected home’s business prospects, pointing out that as the TV will remain the best screen, and other devices will always be better for interaction, the secret to raising ARPU will be linking these two champions CQFD.

Tim Wright, one of the two Sony speakers, told the conference that the Ultraviolet common file format (CFF) contributes to interoperability within connected home and is complementary to DLNA. He made the case that this new industry initiative will reduce costs and not increase them for operators. I have yet to witness anything from the security industry reducing costs, but I do live in hope.

We then moved on to standards for the connected home. Rami Amit from Jungo was refreshingly honest in stating that DLNA streamers almost work, but not quite yet. Guilhem Poussot of Vodafone said that the next decade is going to be about user experience. When prompted from the audience about “whether standards are for losers” he boldly retorted that standards are for winners and in any case we have to beat Apple.
Another issue raised from the audience was on the openness of standards “the more open a standard, the easier it is to hack, so do we want an open standard in the living room at all?” When the chairman pushed even further by asking the panel if he’d ever get a virus on his TV, the question was politely ignored.
Helen Anders, a lawyer on the panel, reminded us that there have ALWAYS been competing standards like Beetamax vs. VHS, and she saw no reason that this will be any different for the connected home.
On the down side for standards Roger Blakeway of the SCTE couldn’t see Sky moving away from their box to any kind of open system.
This pessimism was countered by Sony’s Renaud Di Francesco who said that barriers put up by operators would soon be overcome by Wifi or LTE or some other pervasive technology.
Karl Tempest Mitchel from AirTies seemed less committal stating that the jury is still out as to which one it’ll be, but that one device will control content in the home.

Andrew Ladbrook an Informa analyst closed day one with some figures from the latest study on the connected home that he urged us to buy.
Games consoles will not grow as fast as Connected TV or Blueray, although they will become mainstream and be VERY connected (contrary to connectable Blu-ray that will most often not be connected in the home). Informa believes that Media-streamers à la Apple TV will remain niche.
Ladbrook made an interesting and controversial point on “Video not needing QoS” as seen by OTT boxes like those from Telstra (Netgem) or Telecom Italia (Cubovision) that he says are doing fine. Less QoS means less CAPEX & less OPEX. I’m not sure if this is linked to the connected home debate, but we’ll be seeing very soon if this strategy pans out over more than a quarter or two.
Informa wrapped up with some strategic advice, on defensive opportunities with multi-room offerings that enable connected home and reduce churn towards OTT providers. He finished by suggesting that the next-best defensive opportunity is improving home networking because that too enables the connected home as seen by Apple’s Airplay.

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My plans for IP&TV World Forum 2011

Like many attendees, this year I’ll be wearing several different hats again during the show. I’ll start as a blogger and a bit of a twit (@nebul2), then put on the independent expert & analyst attire. I shall finish off the conference wearing my active IP&TV / VoD consultant’s hat.

On the exhibition floor, I’ll be milling around and peeking at everything. Last year was notable for the fancy UI demos based on Intel chipsets. This year I expect the other chipset vendors to respond. So I’m looking forward to Sigma Design’s G.hn demos and whatever is new from ST and co. I trust Pace, ADB and the other STB makers will oblige.

I’m proud to have got my 3D prediction right: last year was too early for the 3D bonanza, and it looks like this year is already late enough to avoid it again, so I don’t expect to waste much more time looking at puny 3D demos.

Last year’s OTT and connected TV demos were still mostly just concepts despite several of them having already been around in 2009, but I expect to see more live services demoed this year. I’ll be especially attentive to any booths that are showing OTT services that, beyond looking desirable to the end-user, make business sense. I suppose a holy grail while going from OTT demo to OTT demo will be anything that looks like it could become a connected TV Esperanto, but that’s probably just wishful thinking; I must save some expectations for 2012’s show.

Now for the conference.
Day one: I’ll head off to the OTT breakfast hosted by an interesting ecosystem of companies, three of which I often write about. For OTT to make a difference, cooperation is central that’s why I find this initiative interesting.
Awox’s Olivier Carmona is technical marketing director of a small company with a big vision that dared to nail its colours to the DLNA mast way before it was hip.
I’m looking forward to a scheduled interview with Steve Christian of Verimatrix.
Unlike most competitors in the security business who still only really care about today’s CAS cows, Steve also gets fired up about what’s coming. He often leaves me with a “why didn’t I think of that” feeling.
Next comes Thierry Fautier who is Harmonic’s IP convergence guy. His forceful views on the way the industry is heading always take me by surprise.
Then I’m looking forward to getting the views of Minerva, Real & Heavy Reading whom I know less well but will be there too.

Thus I’ll miss the opening keynote plenary. The main conference room is usually packed with journalists so if anything interesting comes out of those presentations I’ll pick it up on twitter (@julianclover usually tweets if its really breaking news so I recommend following him as well as the #iptvwf hash tag). The only operator in the opening session is Virgin Media. IP&TV WF still has this bizarre UK focus on keynotes in spite of the fact that this is supposed to be a WORLD forum and that the UK is a long way from the centre of the IP&TV universe. As an expat Brit, I can’t help wondering if it’s an unconscious remnant of the British empire: when my Austrian grandparents got married in the 20s, they went to the centre of the world for their honeymoon, it was Nelson’s column. But that was almost a century ago.

Anyway, back to IPTV, I’ll then spend the rest of day one between the 4 conference streams and the exhibition floor.
As I’ve always been fascinated how marketing genius creates brands like Häagen-Dazs or Red Bull out of absolutely nothing, I’ll try and get to the Red Bull presentation at 3:10 in the Content stream.

Wednesday morning’s plenary seems more promising with speakers from both YouView and HbbTV, so I’ll be looking forward to some sparks flying there and a debate beyond the confines of the UK market.
If I still have fee time in the morning, I’ll be going to the Network optimisation stream, which is about adaptive rate streaming, one of my hobby horses from 2008. Huw Price-Stephens, the stream chair is probably the best chairman I’ve seen at IP&TV WF. He’s witty and provocative, so even when the speakers disappoint, he raises the standard. I’ll certainly be staying in his stream later in the afternoon, as a panellist at 15:10 on video delivery for the last mile.

I don’t know if that’s a demotion or a promotion, but for the first time, I’m not invited to the awards ceremony, which is held this year at the end of day 2. I never like Madame Tussaud’s and in any case I’ll be going to an exclusive Warner & Grey Juice screening that evening instead.

Day three will kick off for me at 8AM as I’m hosting an analyst breakfast on the commoditization of IPTV. So far we’ve had an exciting LinkedIn debate with 60 contributions so far. It came in response to a blog on the death of IPTV in France that I published on my site.
Then for much of the last day I’ll be wearing a consultant’s hat talking to clients.
I’m not too worried about missing the Google & Netflix talks during the plenary session. I’ve only ever been disappointed when listening to these big guns. Note that that may be because my expectations are set wrongly.
I’ll try and catch some of the CDN stream, which focuses on where operators are either in pain or see opportunity today as opposed to yesterday or tomorrow for the other streams.
IPTV WF have had to fight so hard to get credible speakers from the network operators (I remember being one of the first in 2004 or 2005), that now the pendulum has swung the other way: in the whole day on CDN’s almost all speakers are network operators. I’ll make a point of trying to attend the presentation from Astro, the Malaysian DTH platform at 3:30. It’s always better to start by understanding the market needs before the offers.

Then it’ll be a rush back to St Pancras station to catch a Eurostar, and hopefully write up some notes to publish here on the journey home.

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STBs: from CAPEX to Cash-in

Un TV Connectée powered by Awox
A connected TV powered by Awox

For the last six years, I’ve been going around trade shows hearing and saying that the big bad wolf in IPTV economics is the STB, which typically represents up to 70% of total capital expenditure, or CAPEX in Telco-speak.

As OTT and social media are accelerating the arrival of a new technical and business environment, my premise is that the huge threat is becoming just as big an opportunity. This year’s IPTV World Forum gave me more food for thought when I spoke to Awox, which has a foot in the operator set-top box market and also a smaller one in off-the-shelf devices.

The problem

Let me go back first to the initial problem I’ve had to surmount several times from within operator deployments.

Typically we are talking about a total cost of ownership for a single set-top box (packaged with remote cables and CAS, delivered, installed and maintained) of, say, 150€. If we have a million subscribers the math is simple. We need a spare 10% of boxes for repairs and to ship to new subscribers so the capital required would be 165M€, all for one happy operator to pay for.

All major Telco deployments have had to cross this difficult chasm. To make things worse, IP based boxes were initially very much more expensive than satellite or cable ones. In finance terms, a way of easing the pain is to remember that contrary to head-ends, STBs are a marginal cost, which means you only pay for boxes as you deploy them to customers who hopefully are, in turn, paying for a service.

Why did all of the early operators and many coming to market today want to do something so financially bizarre as own the STB?

The first reasons were security and control.

From the outset, operators needed to obey stringent security rules set out by rights holders to be given access to their content. Before considering interactive services, an operator must at least deliver plain vanilla pay-TV. For that they must have access to the premium content that people want to watch. Therefore they must adhere to the strictest security constraints imposed by content owners. A few years ago it seemed only natural that to get into such a business, one could only play by the rules. So like cable and satellite operators, who have always owned the STB and the smartcard therein, early IPTV operators did the same and most are still doing so.

But ten years on from the launch of the first IPTV commercial trials, a consensus is appearing (there is a good Farncombe white paper on this subject here). Operators only need to own a smartcard for broadcast networks that do not have an inherent return path like satellite or digital terrestrial. For IP networks, where each STB can establish an individual link with a security server, software-based security is sufficient. A smartcard is no longer required and thus, this first reason is vanishing.

Telco’s and especially incumbents have long had a phobia about letting anything that they don’t control onto their networks. They usually have a team of security gurus who have to give a blessing before any new device can be deployed. Looking back a few decades, PTT’s have always jealously guarded their PSTN networks from non-vetted devices, even plain vanilla telephones. As a teenager in the early eighties in Europe (Paris & London), I remember the thrill of plugging an illegally ‘smuggled’ phone from the USA. The phone was made of transparent plastic with coloured LEDs. What a thrill when at the time BT, DT or FT only supplied cream or brown handsets. In the deregulated 2010 landscape, all operators have so little control over the last mile of their networks that it seems silly to pretend that owning the STB still makes a difference, and even incumbents that own the last mile are lost when it comes to managing the home network.

Awox has experienced this gradual change first hand. They got through France Telecom’s red tape with their Internet Live-radio devices currently available to Orange subscribers in France.

Service operators have always worried about stickiness. In today’s Internet world, where the competition is only a mouse-click away, it’s no surprise to Awox that many Telcos have gone for a “walled garden” approach. Indeed Awox have been through those trials and tribulations with Orange already, helping the operator offer OTT services from within their walled garden. But operators still pertain that owning the STB is part of the secret to owning the subscriber, or at least locking him or her in.

Until recently, the lack of standards has meant that operators have had to develop a new portal for most new devices. This has provided yet another argument for those proponents of a tightly controlled device policy, which again ends up meaning that operators want to own the STB.

In the early days decision-makers considered that technology was the hard nut to crack. Getting digital video through IP networks and keeping the service up and running turned out indeed to be really hard. But technological difficulties were overcome in the end and the make-or-break issue for IPTV turned out to be content and features. It’s been a while since anyone has risked the tired old “content is king” slogan, but it was dominant for a long time. If that 165M€ could have been spent on content rather than STBs there might well be even more competition from IPTV operators today.

Let’s leave the past there. What has changed so that 2010 might be different?

Costs can come down:

As a device vendor Awox sees itself helping move the STB away from its current CAPEX-devouring Achilles heel position, in particular through the use of standards.

Throughout the whole tech industry, standards have been the best way to lower costs. Linux Vs Windows is such an example. Awox is one of the IPTV ecosystem’s DLNA champions. Olivier Carmona, the CMO, pointed out that this is particularly true for advanced home networking, for example. You can commoditize many components so that in a fully DLNA home network, for example, a low-end hard disk simply plugged into an STB becomes a ridiculously cheap NAS. Looking further down the road, Awox have contributed DTCP/IP SYNC & DTCP/IP SOURCE to the spec so that DLNA systems will be able to distribute premium content within the home. It’s no longer science fiction for that same 30€ hard disk to enable PVR functionality from a DLNA enabled Pay TV service. This is yet another initiative that goes against traditional STB middleware vendors.

Other reasons:

  • Content owners were badly bruised from the MP3 music phenomenon – I almost wrote debacle there. However, the story is still unfolding and some musicians are living well. Musicians, like the big film studios, have now acknowledged that they must innovate. They will already agree to release content into new distribution channels and even consider entirely new business models.
  • Users have got used to the Internet as a source of content, even if they don’t yet get premium TV from that source. They expect ready access to what is considered as free, like YouTube.
  • New initiatives to deliver premium content are still searching for their business models. Some, like Hulu, are bound to find some kind of stability in 2010. In the same vein, many TV stations are eager for a chance to reach out directly to the world’s hundreds of millions of broadband subscribers.
  • In this area, the never-ending success of Apple has shown that people, beyond early adopters, will pay if the product, including digital content, is truly desirable.
  • Until now, TV-based widgets have been a gimmick. Indeed, if you want stock quotes in your living room you will either use your laptop, smart-phone or some tablet. But finally, demos at the 2009 IBC (more at CES, then NAB this year) are showing some really useful widgets. The secret ingredient seems to be the interactions with content itself, which NDS’s Oona concept illustrates well.
  • Early adopters have shown that they are prepared to pay for a physical device – as long as it is desirable. Take-up of expensive devices like the Sling-box is good evidence. Some pundits predict the latest Tivo box will reinvent TV yet again in 2010.
  • The advent of home networks has led users to expect some control over what goes into their sitting rooms. DLNA championed by Awox will accelerate this further. Empowering users with a wider and constantly renewed choice of devices makes them happy. The marketing message is that the pain of paying is replaced by the power of choice.
  • Operators are scrambling to deliver sexy new 2.0 features. Big companies are rarely successful at this kind of catch-up game. I eagerly await some real figures from Verizon’s much-touted Fios Twitter and Facebook implementations to see if we have reached a turning point (I heard at IPTV World Forum in March that only 10% of the user base knew about the social media features).

There are two ways of looking at the OTT box market. Some are saying that the huge variety of devices, ranging from FetchTV to Myka or Roku through Apple TV, have not yet made a huge impact. I think the glass is half full: there is such a strong a vibrant offer out there, as well as a real demand, I have no doubt that it’s just a question of time – in quarters, not years – before one meets the other and we see one of the OTT services turn their huge mind-share into an equivalent market-share and then ARPU. TiVo has already shown what success can look like, albeit at a modest scale. If a box were to be operator endorsed, that could only help and the TiVo reincarnation in the UK market with Virgin backing could create a de facto standard.

Google’s entry into the TV space is only a question of time. Apple, too, will eventually get it right and both giants will get a slice of the sitting room pie. Again the only sensible way forward for operators is openness, as Martin Peronnet, CEO of Monaco Telecom, pointed out during IPTV World Forum. He pointed to the way the iPhone’s Appstore has diverted ARPU from operators and said, “never again”.

With their internal processes, operators are never quick enough to get the time-to-market right on their own. Many big operators are publishing specifications of network API’s. This is, for example, the case with the Orange Telco 2.0 initiative described by Stephan Hadinger during the last World Broadband Forum. The end game is for end users to always have the best of breed, sexiest new devices that they want enough to pay for. A lightweight certification process could guarantee that basic services all work. Any new over-the-top services would be the vendor’s responsibility.

Getting rid of a huge financial burden is rewarding enough. But that 165M€ of cost discussed already could become extra revenue instead. Indeed, why would you want a better, newer device if you were not going to use it more often? Even if much of the content revenue goes to over-the-top suppliers, those extra hours will always enable some marginal revenue opportunities. Nothing stops operators jumping on to any success story as it emerges and delivering their own service, either OTT or in a walled garden. OTT services are bound to flow through different parts of the home network, where Awox’ staunch DLNA support makes all the more sense.

In the model of my premise, if some technology turns out to be a dead-end, that would be the subscriber’s issue. Leading-edge technology customers expect this to happen from time to time. No one sued their vendor over Betamax or HD-DVDs after all.

Sleek new devices are coming to market anyway. Operators must become better at encouraging their customers to use devices over which they still have some influence because they will not retain control for much longer.

Olivier Carmona commented that “Operators don’t want the living room and it’s content related revenues hijacked by an OTT supplier. Getting the sleekest, newest devices available into subscriber’s sitting rooms seems a good proactive strategy”. Beyond the technology, that I agree is cool, the true innovation is in the new relationship operators can have with their subscribers.

The whole industry claims the ability to link broadcast content with the interactive experience from the web. With an open standards DLNA approach, Awox believes that it is important to make only the link that best suits the user, the moment, the content and the available hardware.

Operators should consider launching new devices or peripherals to existing devices, that customers go out and buy in the stores; after all it will take them at least two years to make a decision ;o)