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Could France, the birthplace of mass IPTV adoption, also be its resting place?

Operators seem to all copy each other in any given market; in France it is blatant.

Since Free created the 29,99€ “as much as you can eat” price-point in 2001, adding TV in 2003 content has been one of the main messages behind most ad campaigns for triple-play bundles. At least this was true until this year.

Two years ago, Bouygues Telecom came out with one of the world’s first quad play offers priced at 44,90€ per month 2 years ago, but they still only have a small TV footprint.

After a long battle, Orange, the incumbent here, gained regulatory authorization to also launch quad-play this summer.

SFR, part owned by Vodafone, is ready to launch a quad play offer, but so far has just added a VoIP to mobile option to its existing triple play and is still waiting to see how things pan out.

It has become more and more evident that Orange is moving out of content in the big exclusive way it had been pushing since 2004. In September 2010, all of Orange's 5 exclusive cinema/series channels and its Sports channel were officially put up for sale. We still don't know the outcome.

So now, as if in unison, the 3 major operators have dropped content and TV related messages from their 2010 multi-play ad campaigns.

SFR is focusing on customer service with a free Hotline. Free has also focused on a message about getting more and more service for always the same price as well as a second message about how much more (geeky) fun Free is.

Whereas Orange used to aggressively promote its own content and interactive TV features, they now only mention TV as one of many features.

Quad play ad from France's incumbent Orange
IPTV is just one of many messages

The immediate conclusion to draw is that IPTV has become a commodity here. Most other mass-market commodities like water and electricity are delivered by monopolies despite the government’s best efforts to create a competitive environment. Could that mean that IPTV is one of those water-like “natural monopolies”?

But wondering about delivering say water or electricity to a household, are there any conceivable situations under which they are delivered at a loss? The answer is clearly no.

The land-grab rush for IPTV is now over and it seems we’re entering a cost control period. The official reason Orange’s new CEO Stéphane Richard gave for pulling out of exclusive living room cinema and sports, is that his company was loosing 150M€ a year on each.

What will a period of cost cutting do to IPTV? The future is all of a sudden looking a lot less clear for IPTV in France. Anyone who has actually built an IPTV business model knows that to make it float, a little creativity is required. Cost-cutters are not creative people!

It’s a moot point as to whether or not turning back is an option. Is it possible to pose the un-thinkable question for many in the industry: “could a triple-play provider, simply pull out of TV?”

One small reason for hope has a little sting in the tail.

French fibre rollout has been stopping and starting for almost five years. About a million homes are now passed. Yet only 10% of those homes are taking up a fibre service. It seems the culprit is a sluggish commercial approach from the operators. Indeed, I know there is fibre in my street in the west of Paris, but I have had no luck finding somewhere to subscribe. French operators are milking the DSL cash cow and more significantly, they haven’t yet figured how to sell fibre more expensively than DSL except to a few geeks.

The sting here is that instead of becoming the great USP to justify higher prices, the TV component for triple-play is now perceived as an expensive commodity operators have to provide, but haven’t been able to get any money from. Fibre was supposed to change all that with multiple full HD channels galore, but the wind seams to no longer be powering the sails of that dream.

We are in the age of OTT with devices available over-the-shelf that people can pick-up in the high street. France is still the most innovative IPTV market place. Despite the global 3D flop, which I saw coming before the summer (see here), the first-ever commercial 3D IPTV service was just announced in France by Dorcel for adult on demand content.

Clever operators will be those that stop trying to do it all themselves, recognize their weaknesses and concentrate on their strengths. This means building an ecosystem of suppliers where the end customer is no longer someone representing just ARPU or churn, but a stakeholder with a say in the ecosystem. It’s her living room everyone is fighting over, so give her a say. If she wants to add say an Apple-TV to her cable subscription, then make sure you help her do that. If she asks you for a hybrid box that has all the home networking features bar coffee-making, make sure you have a partner to provide one. If she only wants access to FTA channels, have a deal ready with the cheapest zapper box maker for your market.

It’s is not official yet, but my clear vision is that IPTV, as a walled garden service delivered by Telcos into the living room, is indeed dying a slow death here in France. But long live TV over IP in its many new forms. As it’s getting to be quite a jungle out there with the likes of Google entering the fray, an ISP, satellite operators or phone company close to home might be just the person needed to help cope in this brave new TV world.

[UPDATE March 11 2011] After a really interesting debate on this topic on LinkedIn, good news from the IP&TV World Forum organizers (Gavin Whitechurch). We have a slot to discuss this over breakfast in person at Olympia, Thursday 24th March 8AM. Hope you can make it.

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Maybe not all cord cutting is so bad for the industry after all?

I just read David Mercer's blog called "Europe’s TV Viewers Cut the Cord: Free TV Alive And Well" on Strategy Analytics blog.
I wrote a comment on their site, then suddenly the comment feature disappeared.

After reading the European Commission’s latest household communications survey, David draws a bleak picture. European's all over the continent are saying how they are leaving cable-TV for digital terrestrial which is still making big inroads throughout Europe. Read his interesting piece here.

What I wrote as a comment was that maybe cable operators will end up leaner and meaner once they shed all those subscribers that only watched FTA on their service.
ARPU should go up and customer call centers can deliver better service and/or reduce costs.
The survey doesn't say if cable are losing their triple play or high ARPU customers which would really hurt the business.

I know that in France at least, PayTV via DTT has all but flopped.
Joe Bloggs, or Madame Michu as she's called here, considers that DTT is for free TV, Cable and Satellite for pay TV and IPTV is somewhere in between.

YouView's potential success will be more of a real test for the likes of Britain's cableco Virgin or satellite platform Sky, because the DTT platform Freeview is already prevalent in the UK. A successful YouView with monetized OTT, would constitute really scary cord cutting for pay-TV execs.

I agree with David that the landscape is changing, but maybe not as fast as he implies.
I'm sure Strategy Analytics could match some operator subscriber numbers with this declarative survey to add some credibility.

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Back from my first Anga

My feelings from the Anga cable congress can be summed up by my reaction to Cologne’s main landmark.

A surrealist sight hits the visitor exiting the main Cologne train station. The gargantuan cathedral called the ‘Dome’ seems to rear up from the past; which is how I perceive the cable industry that Anga represents. The Dome is surrounded by modern, more ugly buildings, that seem to be slowly encroaching upon it’s lebensraum just like the Internet or DTT threaten Cable. The train station itself, with its underground lines, represents different hybrid ways of transporting things; I wonder if it’s undermining or on the contrary underpinning the great old cathedral’s foundations. From the outside it’s as if the majestic building, symbol of the cable industry, were dying. It’s blackened at places and has almost permanent scaffolding that seems to hold it up.

A different story emerges when you are inside. One’s jaw drops with the shear size. Wikipedia just told me that it was once the tallest building in the world. The vertical proportions of the arches stretch upwards as if some divine hand had pulled malleable stone upwards. Then you look closer and realise that no, this is the work of hundreds of humble stonecutters over centuries. All the carefully crafted slabs stack up in powerful columns, just like the innumerable insignificant single-valley cable plants, in nearby Switzerland, add up to a powerful force. The strength of this force will keep enemies at bay for the foreseeable future.

OK I'll leave the poetry there; now for some reporting:

A first surprise on my first visit to Anga is that it's marketed as a cable event when IPTV, FTTx, Satellite, hybrid and more abound. OK so there are a bunch of booths with nothing more than little bits of cable on display, but no-one ever stops on those anyway and one sees one or two even at IPTV World forum. The organisers must be doing something right though because at least one company I met, Zappware, were on the waiting list and didn’t get a booth.

Wondering around for two days wasn’t enough for my sense of direction to kick in so I kept on getting lost in the huge hall's two sections. There were an order of magnitude less booths than say at IBC, but almost all of them were mid sized. I used the Korea “Green IT” pavilion at one end as a landmark. It was a mistake because each time I passed it I felt a little worse about how clueless-marketers are trying to jump on the green bandwagon and have all but broken it before it has even left the station. The only green thing in that pavilion was the word.

On the positive side, the TivO demo on the Conax booth rocked. It was by far the most convincing illustration an industry oxymoron: walled garden OTT, where operators give access to all the content that is readily available out there, while reassuringly (?) never letting the subscriber out of their sight. The business models and content deals are not yet clear as earlier failures from the likes of Joost show, but the end-user proposition is now overwhelmingly compelling. It’s beautiful. I want it now in my home now!

The OpenTV 3D demo was the first, modest but effective, effort of using 3D in the interface itself, not just the video, which I’ve seen. 3D will not be revolutionizing mainstream interfaces soon, but I definitely got the feeling of peeking into the future.

I saw three interesting companies from my hobbyhorse Quality of Experience area. Ineoquest where present with a big booth clearly hoping to push their IP and head end leadership further into the cable market. Skyline’s Dataminer product was on prominent display. It’s an interesting way to commoditize the likes of Ineoquest by putting the effort on a central piece of software, which other quality systems then report to. Another outsider in the Quality area was the German supplier Axiros. From a background of managing zillions of legacy boxes, their approach is now built on the TR69 protocol. Axiros offer a new product that sits between the device management systems (ACS) and the devices themselves (STBs) so that more meaningful info can be taken from each device. Axiros performs some of the QoE monitoring functions themselves this way.

I got a private demo from German STB maker Winbox. They had a really simple “why-didn’t-I-think-of-that” ideas and an effective demo for simple « push » playlist. A VoD server pushes short content like trailers to device’s local storage (HD or Flash memory) so a personalised preview or barker channel is available. If not a killer app, this could at least be a killer VoD-ARPU generator...

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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)

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I am going to EUROITV2010

After what feels like hundreds of IPTV shows - well probably it was only dozens - I feel an urge to replenish my intellect with some really new Ideas.

I was whining to Arian Koster, a friend from KPN, about how commercial all the shows have become as IPTV is now mainstream. He told me of an academic show where speakers still have to compete on merit rather than budget. So unless there's a strong reason that stops me, I intend to go to the show he recommended after he went last year. It's here: http://www.euroitv2010.org/. Maybe I'm naive, but I feel reassured that you still can't register. The organizers seem focussed on the content of the show for now.

Please drop me a line if you have any feedback from the show.