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Can Video On Demand Save IPTV? VoD Economics, Global Forecasts, and the Case for IPTV VoD
Pyramid Research, Inc., June 2007, Pages: 66
Internet Protocol television (IPTV) is rapidly emerging as a new TV platform. Delivered over broadband, it promises to reenergize the telco business model and disrupt the traditional TV business. The technology leverages the flexibility and scalability of IP to transform the television experience by providing access to more content—content that is superior in quality and can be more personalized and interactive than traditional broadcast TV. Within this context, video on demand (VoD), by enabling further service differentiation, is becoming a key component of the IPTV proposition.
IPTV and VoD services are as uncertain as they are tantalizing, however. The TV business is complex and largely new territory for telcos; the jury is still out on the commercial viability of IPTV and VoD services.
This new report—Can Video on Demand Save IPTV? VoD Economics, Global Forecasts, and the Case for IPTV VoD—takes a long, hard look at the VoD business model for IPTV operators, analyzing its value proposition, investment requirements, content dynamics, and overall market opportunity to assess whether telcos should take on the challenge or make do with pay-TV alone.
In Section 1, we review the global evolution of VoD services, platforms, and deployment economics. Section 2 includes an analysis of the new telco business model and the VoD value proposition for IPTV players. In Section 3, we examine the IPTV VoD business models of today and how and why they will change over time. VoD thrives on compelling content, but IPTV operators are quickly finding out that content acquisition is more time-consuming and expensive than envisioned. Section 4 delves into VoD content dynamics, providing insights into successful VoD content strategies and best practices from the perspectives of IPTV operators and content providers. Finally, in Section 5, we project VoD transactions and revenues over IPTV networks, by region. Included in this report are also four case studies of operators that provide VoD services:
- France Telecom, France
- PCCW, Hong Kong
- Time Warner Cable, USA
- Verizon Communications, USA
Key Objectives
- Can VoD save IPTV?
- How will the VoD business model evolve on IPTV platforms?
- Which IPTV VoD packaging strategy will come out on top?
- What type of content is necessary to make VoD work?
- How much does IPTV VoD cost?
- What is the IPTV VoD opportunity?
Target Audience
Operators: Understand the technology, competitive, and content challenges that await an IPTV VoD launch. Use our forecasts to size the market opportunity and our case studies to assess best practices and develop your go-to-market strategy.
Content producers: Evaluate new markets opportunities and develop strategies to expand the audience for your content and to increase your revenue from it.
Vendors: Understand market dynamics and assess the needs of both IPTV VoD carriers and content providers. Use our forecast to develop sales plans and identify key market opportunities.
Broadcasters: Evaluate the impact of the new technology and the competition to develop a market-leading but realistic growth strategy.
Report Extract
The evolution of IPTV VoD business models: From customer retention to multiplatform VoD
- VoD services over IPTV networks don’t promise direct returns in the medium term, but they will contribute to customer retention efforts. With new movies representing the most popular and costly VoD assets, IPTV players pay almost all revenue back to the studios and can hardly achieve any profits from VoD transactions. Initially, VoDshould be about customer retention. TV is an essential component of a triple or a quadruple play, and VoD can help differentiate a telco’s IPTV service. There is little evidence, however, to suggest that TV carries more weight than the other services. Simply put, exclusive, premium VoD content cannot compensate for deficient voice and broadband offerings. Yet VoD is a necessary evil for IPTV operators. For some, it is a way to differentiate themselves from satellite DTH carriers; for others, it is about matching competitors’ pay-TV offerings. It is also a way to convince consumers to pay for TV.
- IPTV VoD models should be more lucrative as customer bases grow over the next five years. Shorter release windows for content will play a significant role in the evolution of the model, but more importantly, by developing a multiplatform presence for their VoD content, IPTV operators will build larger audiences and grow profits. When IPTV VoD reaches an acceptable scale, we expect that telcos will have more negotiating power with the studios and more opportunities with advertisers.
- Utimately, to make up for declines in wireline voice revenues and stay relevant, telcos should invest in building
a robust content business. VoD is a key component of that strategy. With consumers increasingly demanding access to content anytime, anywhere, and on any device, telcos have an opportunity to build fully integrated multiplatform VoD services that can be accessed from TVs, PCs, and mobile devices. Most telcos have access to large amounts of funds to make sure that they can put together differentiated content offerings. For example, France Telecom has already created ’mobisodes’ and special highlights for its VoD content for mobile devices, as well as trailers, previews, and exclusive interviews for the PC. Indeed, France Telecom reported revenue of €400m from content services in 2006, including sales of VoD, music downloads, and games. The operator has experienced unprecedented growth in its content business; it had originally planned to achieve that level of content revenue by 2008, and expected VoD to generate 22% of the total. Without a content business that can readily respond to the rapidly changing patterns of media distribution and consumption, IPTV players risk becoming dumb pipes as over-the-top providers bypass them and reach consumers directly.
- Developing a multiplatform offering will take time, largely because of copyright and licensing issues. While telcos such as Telefónica, Verizon, and France Telecom are already pursuing the multiplatform opportunity, they still have to license content for each platform separately. Having content that’s licensed for an IPTV VoD platform does not mean that it can also be distributed over a mobile platform. Indeed, telcos have reportedly found the content sourcing process to be more complex and time-consuming than anticipated. Content providers are interested in extending their reach, but they are also concerned about disrupting established advertising models as well as about piracy.
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