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Digital Media InSight
www.generatorresearch.com 1 September 2010
Internet Television: 2010 to 2014 Analysing How the Internet will Change Television
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Contents EXECUTIVE SUMMARY...............................................................................................................9
DEFINITIONS ...................................................................................................................................9 IPTV #1 (Internet Video) ............................................................................................................9 IPTV #2 (Telco TV).....................................................................................................................9 IPTV #3 (Internet Television) ...................................................................................................10
INTERNET TELEVISION: A CLOSER LOOK......................................................................................11 MARKET ANALYSIS .......................................................................................................................13
Comparison with Digital Music .................................................................................................13 Impact on Viewing Hours...........................................................................................................14 Value Proposition.......................................................................................................................14 Underling Demand.....................................................................................................................15 Economics: Business Case for Internet Television ....................................................................15
Address Consumer Electronics Issue ..................................................................................................................... 15 Increase Marginal Revenues.................................................................................................................................. 15 Decrease Marginal Costs ....................................................................................................................................... 16 Content .................................................................................................................................................................. 17
Long Tail Content ......................................................................................................................18 GOOGLE .........................................................................................................................................18
INTRODUCTION ...........................................................................................................................21
Terrestrial Television .................................................................................................................21 Broadcast Architecture .......................................................................................................................................... 21 Transition from Analogue to Digital...................................................................................................................... 22 Importance of Broadband Connectivity ................................................................................................................. 22 Business Models .................................................................................................................................................... 23
Public Service Broadcasters: Terrestrial Television .......................................................................................... 23 Commercial Broadcasters: Terrestrial Television ............................................................................................. 23
Cable TV ....................................................................................................................................23 Infrastructure ......................................................................................................................................................... 23 Business Model...................................................................................................................................................... 24
Satellite TV.................................................................................................................................25 IPTV ...........................................................................................................................................25
Defining IPTV ....................................................................................................................................................... 25 Distribution Infrastructure ................................................................................................................................. 25 Marginal Cost of Video Delivery ...................................................................................................................... 26 Peer to Peer Networks ....................................................................................................................................... 30
IPTV Service Categories ....................................................................................................................................... 31 Online Video ..................................................................................................................................................... 32 Telco TV ........................................................................................................................................................... 33 Internet Television............................................................................................................................................. 35
INTERNET TELEVISION ............................................................................................................38
BENEFITS: SERVICE PROPOSITION .................................................................................................38 Improved On-Demand Viewing..................................................................................................39 Dramatically More Content .......................................................................................................40 Advanced Content Discovery Tools ...........................................................................................40 Social and Community Features ................................................................................................41 Unified User Interface................................................................................................................42 Second Screen Controllers .........................................................................................................43 Third-party Developers: Applications .......................................................................................44
BENEFITS: COMMERCIAL ...............................................................................................................45 Targeted Ads ..............................................................................................................................45
Targeting based on Content ................................................................................................................................... 45 Geographic Targeting ............................................................................................................................................ 45 Internet Television: Example Ad-targeting Scenarios ........................................................................................... 46
Contextual Targeting for On-demand Viewing ................................................................................................. 46 Viewing Profiles................................................................................................................................................ 46
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generator Targeting Based on Optional ad-profile ............................................................................................................ 46
Global Publishing ......................................................................................................................47 PEER TO PEER (P2P) CONTENT DISTRIBUTION ..............................................................................49
Why P2P?...................................................................................................................................49 Very Low Cost....................................................................................................................................................... 49 Global Reach ......................................................................................................................................................... 49
Optimising Use of Network Resources.......................................................................................50
REVIEW OF INTERNET TELEVISION SERVICES ...............................................................56
SONY INTERNET TV.......................................................................................................................56 Service Outline ...........................................................................................................................56
Major System Components.................................................................................................................................... 57 Compatible TV Sets .......................................................................................................................................... 57 Upscaling Technology....................................................................................................................................... 57 Content Authoring Toolsets .............................................................................................................................. 57 Rights Management Software ........................................................................................................................... 57 Premium Content and Revenue Sharing............................................................................................................ 57
Viewing Modes...................................................................................................................................................... 57 Bravia Internet Video (TV mode) ..................................................................................................................... 58 Bravia Internet Widgets (Web mode)................................................................................................................ 58
User Experience..................................................................................................................................................... 58 Our Take ....................................................................................................................................61
GOOGLE TV ...................................................................................................................................62 Service Outline ...........................................................................................................................62
Google’s Open Media Project: VB8 Codec and WebM ........................................................................................ 62 System Components....................................................................................................................63
Hardware and Software Elements.......................................................................................................................... 63 Consumer Electronics........................................................................................................................................ 63 Software ............................................................................................................................................................ 65
Content: TV and Movies........................................................................................................................................ 65 Internet Websites............................................................................................................................................... 65 Google TV Content ........................................................................................................................................... 66
Developer Community........................................................................................................................................... 66 Content Indexing and Meta Data....................................................................................................................... 67 Content Discoverability: Prevention of Unwanted Syndication within the Google TV Platform...................... 68 Sharing Advertising and Other Revenue ........................................................................................................... 68 Implementation of Geographic Licensing Restrictions ..................................................................................... 68 Ad Targeting: Geographic, Demographic and Contextual Criteria ................................................................... 68 Revenue Models for Third Party Developers .................................................................................................... 69
Applications: Example API Features..................................................................................................................... 70 Sharing Data between Applications .................................................................................................................. 70 Event-triggered Applications............................................................................................................................. 71 Location Manger API........................................................................................................................................ 71 XMPP Service API............................................................................................................................................ 72 Notification Manager API ................................................................................................................................. 72
User Experience .........................................................................................................................73 Usage Modes ......................................................................................................................................................... 73
Linear Mode ...................................................................................................................................................... 73 App Mode ......................................................................................................................................................... 73 Web Mode......................................................................................................................................................... 73
Connectivity Options: Companion Box or Integrated TV ..................................................................................... 76 Smartphone Controller........................................................................................................................................... 76 Search .................................................................................................................................................................... 78 Applications........................................................................................................................................................... 78
Our Take ....................................................................................................................................80 APPLE TV.......................................................................................................................................81
Service Outline ...........................................................................................................................81 Our Take ....................................................................................................................................82
BBC IPLAYER ................................................................................................................................83 Overview ....................................................................................................................................83 Service Outline ...........................................................................................................................84 Our Take ....................................................................................................................................85
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generator PROJECT CANVAS ..........................................................................................................................86
Overview ....................................................................................................................................86 Our Take ....................................................................................................................................87
HULU..............................................................................................................................................87 Service Description ....................................................................................................................87 Our Take ....................................................................................................................................89
BOXEE............................................................................................................................................90 Service Outline ...........................................................................................................................90 Our Take ....................................................................................................................................91
SEESAW TV ...................................................................................................................................92 AMAZON VIDEO ON DEMAND........................................................................................................93 ROKU..............................................................................................................................................95 ZOWEETV (FORMERLY ZILLION TV).............................................................................................96
Service Outline ...........................................................................................................................96 Our Take ....................................................................................................................................97
CLICKER.COM ................................................................................................................................99 LIVESTATION ...............................................................................................................................100 VUDU ...........................................................................................................................................100 VEOH.COM ...................................................................................................................................101 CRACKLE......................................................................................................................................102 FEARNET.....................................................................................................................................103 MUZU TV ...................................................................................................................................103 TVCATCHUP ................................................................................................................................104 PPLIVE .........................................................................................................................................105 SOPCAST ......................................................................................................................................105 COOLSTREAMING ........................................................................................................................106 ZATTOO........................................................................................................................................106 JOOST ...........................................................................................................................................107
Content and Marketing ............................................................................................................108 Execution..................................................................................................................................108
AKIMBO........................................................................................................................................109 Price of STB .............................................................................................................................109 Content Catch 22......................................................................................................................110 Marketing .................................................................................................................................110 No Bundling .............................................................................................................................110 Pricing Model...........................................................................................................................111
MARKET ANALYSIS..................................................................................................................112
COMPARISON WITH THE INTRODUCTION OF DIGITAL MUSIC......................................................112 Minimal Access to Content.......................................................................................................112 Not a Replacement Format ......................................................................................................112
IMPACT ON VIEWING HOURS .......................................................................................................113 SUSTAINABILITY OF VALUE PROPOSITION ..................................................................................115
Key Benefits..............................................................................................................................115 Intrinsic Quality .......................................................................................................................115 Underlying Demand .................................................................................................................116
ECONOMICS: BUSINESS CASE FOR INTERNET TELEVISION..........................................................116 Consumer Electronics ..............................................................................................................117 Marginal Revenues...................................................................................................................118
Advertising Revenues.......................................................................................................................................... 118 Ad Fill per Hour .............................................................................................................................................. 119 Percentage Ad Inventory Filled....................................................................................................................... 120 Revenue Share................................................................................................................................................. 120
Subscription and Pay-per View Revenue............................................................................................................. 120 Marginal Costs.........................................................................................................................121
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generator Hosting ................................................................................................................................................................ 121 Delivery ............................................................................................................................................................... 121
Summary...................................................................................................................................123 CONTENT......................................................................................................................................123
Mainstream Shows and Exclusive Deals..................................................................................123 Long Tail Content ....................................................................................................................124
APPLICATIONS..............................................................................................................................127 Emergence of Web 2.0..............................................................................................................127 Emergence of Client Applications............................................................................................129
GOOGLE .......................................................................................................................................131 Why Google is Interested in Television....................................................................................131 Impact on Market Structure .....................................................................................................136
Historic Situation................................................................................................................................................. 136 Phase 1: Arrival of Over-the-top (OTT) IPTV Services ...................................................................................... 136 Phase 2: Introduction of Google TV.................................................................................................................... 136
MARKET FORECASTS ..............................................................................................................140
INTERNET TELEVISION AND FILM................................................................................................140 Worldwide User Base...............................................................................................................140 Regional User Base..................................................................................................................140 Viewing Hours..........................................................................................................................141 Monetisation Models ................................................................................................................144 Traffic Consumption.................................................................................................................145 Service Revenues......................................................................................................................146
TV HOUSEHOLDS.........................................................................................................................148 FIXED BROADBAND .....................................................................................................................149 CABLE TV....................................................................................................................................150 SATELLITE TV..............................................................................................................................151 TELCO TV ....................................................................................................................................152 INTERNET VIDEO..........................................................................................................................153 GLOBAL IP TRAFFIC.....................................................................................................................154
Global IP Traffic by Type ........................................................................................................154 Global IP Traffic by Segment...................................................................................................156 Global IP Traffic by Region .....................................................................................................157
EXECUTIVE INTERVIEW TRANSCRIPTS ...........................................................................159
EXECUTIVE INTERVIEW TRANSCRIPTS ...........................................................................159
FIVE TELEVISION: KIERAN CLIFTON, HEAD OF STRATEGY........................................................159 Where are you with internet television right now? How engaged are you? ......................................................... 159 Do you see internet television as being the future of television? ......................................................................... 160 What do you understand about the sorts of people who are consuming internet television, the users? ............... 160 Thinking ahead, about the long term, do you think that internet television will result in an increase in total viewing time? ...................................................................................................................................................... 161 What risks do you see? challenging facing the development of a mass market for internet television? .............. 162 Do you think the industry needs a standardised way to measure and monetise online video with ads, something that works regardless of device or delivery method? ........................................................................................... 162 Thinking about incremental ad revenue per viewer hour, how does terrestrial television compare with online at present?................................................................................................................................................................ 163 To clarify, you’re not taking purely about revenue here? .................................................................................... 164 How are you dealing with this from a business perspective? Seems like a bit of a disaster?............................... 164 So returning to the 25 number, the contribution number, is the problem that the CDN costs for internet video are high, or that you’ve taken a hit on online CPMs? Or has something else changed? ............................................ 164 But why would 1 hour of television programming delivered over a broadband line to a TV set carry fewer ads than the same programme delivered to the same TV set via a conventional broadcast network? ........................ 165 Could you expand on this – the economic value of one person watching one programme? ................................ 165 But is this a policy division at your end? Meaning you don’t think that it’s acceptable for the viewer to watch the same proportional number of minutes per hour on a PC as they currently do on their TV set when watching broadcast TV?...................................................................................................................................................... 165 Can you charge more for those ads? .................................................................................................................... 166
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generator I’m a bit confused about this. Let’s imagine two families – Smith and Jones – in two different homes who are watching TV at the same time. The Smith family is watching Greys Anatomy on linear broadcast on FIVE on their TV set. The Smiths are getting the full 12 mins of ads per hour. But the Jones family is watching the previous week’s episode of Greys Anatomy, again on their TV set – exactly the same programme content, one hour let’s say – but in this case the content is coming from a some other service is being delivered over the internet via a broadband connection. Now the important question here is whether the Jones family is also willing to watch 12 mins of ads?...................................................................................................................................... 166 Let’s talk about the long tail. Imagine a future when all of the long-tail television content in existence has been indexed and is accessible using an internet–connected TV set. Do you see the viewing hours for this ‘long tail’ content as being significant proportion of the total viewing time for internet television? ................................... 168 We talked earlier about whether internet television would enable some amount of incremental viewing time, do you think long tail viewing might account for some of that?............................................................................... 169 Returning to targeted advertising, is it really credible that you will be able to charge more for targeted inventory? Do advertisers really pay more for targeted versus non-targeted? ....................................................................... 169 We are talking here about bring two worlds together here – an internet world which is free, open, and horizontal and a television world which is structured around closed vertical platforms which are fiercely protected. Do you think that internet television in the future is going to end up being more like the internet – which is mostly open – or more like the television industry – which is mostly closed?............................................................................ 170
SONY: TIM PAGE, TECHNICAL MANAGER, TELEVISION ..............................................................171 Can you summarise where you are with your internet television strategy? ......................................................... 171 So things have moved on since you were talking about TV widgets a couple of years ago?............................... 171 How do you see Sony Internet video fitting in with Google TV?........................................................................ 172 How much content is currently available on Sony Internet TV? ......................................................................... 172 What sort of service delivery infrastructure lies behind Sony Internet Video?.................................................... 172 So in effect it’s a front end, a way of aggregating content from many sources sand then presenting it all to the used in one interface? .......................................................................................................................................... 172 Is all the content free?.......................................................................................................................................... 172 And on the revenue side, is Sony taking a share of the revenue?......................................................................... 173 So what does a content provider need to do to get their content on the Sony Internet TV platform? What’s the To Do list, at a high level? ........................................................................................................................................ 173 What about the meta data associated with the content; programme title, rights and so on?................................. 173 What about the technical aspects of the TV? Who supplies the browser technology?......................................... 173 How do you see Sony Internet Video panning out now that Google TV has been announced, bearing in mind that Sony is one of Google’s launch partners for Google TV? ................................................................................... 173 Do you have an associated developer programme? ............................................................................................. 174 So effectively there are two levels of aggregation there?..................................................................................... 174 Can you compare Internet Television with 3D Television, in terms of market potential? Market uptake? ......... 174 Do you see Sony Internet TV, and other similar initiatives, as something that is fundamentally about delivering a superior television experience? Or do you see all this as a way of allowing people to access the general internet using their TV sets? ............................................................................................................................................. 174 What about the connection between the television and the streaming server itself? Is this independent of Sony Bravia Internet Video?......................................................................................................................................... 175 Can you talk more about the upscaling functionality you mentioned earlier? ..................................................... 175 How does the user interface work? ...................................................................................................................... 176 This is based on the content owner’s license requirements?................................................................................ 176 So, how would a user access and control the service? ......................................................................................... 176 Do you envisage in the future that the Sony Internet Video platform will incorporate an automated monetisation mechanism that might encourage smaller content providers to publish their content to the platform?................ 177 Is the revenue share limited to pay-per-view content or does it also encompass in-video ads where in situations where they are served?......................................................................................................................................... 177 How does the pay-per-view model work? ........................................................................................................... 177 Do you have any data on deployment of the service so far? ................................................................................ 177 How sustainable is the walled garden approach to Internet Video? Is the market going to develop into a number of closed platforms, like TV broadcast today, or is it going to turn out to be a lot more open, like the web today?............................................................................................................................................................................. 178 Do you think that restricting the search functionality to content that has been designed to work with the Sony Internet TV platform, will be a source of frustration to users? ............................................................................ 178 What about social features? For instance, including features that allow viewers of a given show to discuss the program in real time, interact with others, provide a recommendation to another user which would then appear of their TV set as a notification and so on. Rather similar to what people currently do online, but on their TV?.... 179 What about the remote control? What is the user experience like there?............................................................. 179 What about controlling Sony Internet TV using a Smartphone? Is that possible? ............................................... 179 Do you see any major barriers to growth? ........................................................................................................... 180 What do you think will happen to total television viewing time as this internet television market develops?..... 180 What about PVRs? Do you see a role for the PVR in the future?........................................................................ 180
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generator But wouldn’t it be possible to make Sky’s content available on Sony Internet Video, but only to Sky subscribers?............................................................................................................................................................................. 180
AKAMAI: STUART CLEARY, PRODUCT MARKETING DIRECTOR..................................................181 Who are you customers when it comes to internet television?............................................................................. 181 Can you expand on the trends you’re seeing?...................................................................................................... 181 But doesn’t that mean compromising on quality, at least for some people? ........................................................ 182 Can you explain more about what been happening to connection speeds? .......................................................... 182 Can you take us through an example of a recent deployment? ............................................................................ 183 How does Adaptive Bit Rate Streaming work? ................................................................................................... 183 Do you actually measure the connection speed of the link? ................................................................................ 183 Does the adaptive streaming work in fixed bands or on a sliding basis? ............................................................. 184 Does Akamai provide tools that allow content providers to do this? ................................................................... 185 What feedback have you had from consumers?................................................................................................... 185 Is this functionality is delivered by the network, as opposed to the consumer’s device?..................................... 186 Does Akamai offer any other network-level interactivity features?..................................................................... 186 So what do consumers think of these features? What usage patterns are you seeing? ......................................... 187 Do you have any thoughts for even more advanced network level features, for example adding a cloud-based personal media library where users can record games? ....................................................................................... 187 Are you aware of upcoming features? Things that content providers are talking about?..................................... 188 Anything else you’re planning? ........................................................................................................................... 188 Are you seeing any other key trends in the market right now? ............................................................................ 189 What would you define as ‘broadcast scale’? 10 million consecutive streams, 50 million consecutive streams? 189
APPENDIX ....................................................................................................................................190
METHODOLOGY ...........................................................................................................................190 Framework Model ....................................................................................................................190
Potential Users (Pool 0) ....................................................................................................................................... 191 First-time Users (Pool 2)...................................................................................................................................... 193 Experienced Users (Pool 3) ................................................................................................................................. 193 Committed Users (Pool 4) ................................................................................................................................... 194
Key Considerations ..................................................................................................................194 Value Proposition ................................................................................................................................................ 195 Starting Conditions .............................................................................................................................................. 195 Current Market Development Trajectory............................................................................................................. 195 Adoption Dynamics ............................................................................................................................................. 195 Saturation Levels and Addressable Market.......................................................................................................... 195 Growth Drivers and Inhibitors ............................................................................................................................. 196 Benchmarking using Relevant Markets ............................................................................................................... 196 Industry Data and Insight..................................................................................................................................... 196
Constituent Markets: Worldwide and Regional Forecasts ......................................................196 Tracker Markets................................................................................................................................................... 196 Other Markets ...................................................................................................................................................... 197
ABOUT THE AUTHORS..................................................................................................................199
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Executive Summary
Definitions
Internet Television is one of three main types of IPTV, which involves the delivery of television and
film content over IP‐based networks. There are three different types of IPTV:
IPTV #1 (Internet Video)
The majority of Internet Video content consists of short‐form, user‐generated video clips. Example
sites include YouTube and Youku (a Chinese YouTube clone). Many branded television and film
producers have created ‘channels’ on the major Online Video sharing sites where users can watch
short clips. Internet Video is mainly an Internet proposition and Internet Video services are mainly
consumed by PC users.
We estimate that by 2014 730 million users around the world will regularly consume Internet
Video, up over 55% from 467 million in 2009. The primary source of revenue for Internet Video
sites is advertising. We estimate that worldwide service revenues for Internet Video sites in 2009
was a little over USD 4 billion. By 2014 we project that Internet Video revenues will increase to
over USD 7.6 billion, a 90% increase.
IPTV #2 (Telco TV)
A Telco TV service is where an incumbent telecoms provider, like AT&T or China Telecom, offers a
television service over an xDSL connection. The content on offer is primarily professionally‐
produced material that is licensed from third parties. Telcos use TV services mainly as a marketing
tool to persuade users to take out broadband subscriptions: while the TV service itself is generally
not especially profitable, when combined with a broadband service, or a third service such as a
fixed line phone service (triple play) or a fourth service such as a mobile phone (quad play) then
the overall bundle is profitable. Telco TV services are almost exclusively consumed on the user’s
television set using a special set‐top box (STB).
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We estimate that by 2014 121 million users around the world will subscribe to Telco TV services,
up over 77% from 27 million in 2009. Monthly subscriptions constitute the primary source of
revenue for Telco TV services although advertising is an important source of ancillary revenue.
We estimate that worldwide service revenues for Telco TV services in 2009 was a little over USD
11 billion. By 2014 we project that Telco TV service revenues will increase to over USD 60 billion,
an increase of over 400%.
IPTV #3 (Internet Television)
Internet Television services have much in common with Telco TV services, but they are not offered
by Telcos. Instead, Internet Television services are mostly being offered by companies that have
their origins in the internet or software worlds and others who occupy the consumer electronics
arena. Examples of Internet Television services include Hulu, BBC iPlayer, Roku and Sony Internet
Television. Internet Television services are quite diverse in terms of the service, product and
market strategy adopted, which reflects the very early stage nature of the market. Internet
Television services are currently consumed mainly on PCs, or PCs that are connected to TV sets
using a simple cable where the TV set is used as a second display but increasingly, as the market
develops, Internet Television services will migrate to the TV set where viewers will use a special
set top box (STB) or a special TV set that includes the hardware and software needed to access
Internet Television services.
We estimate that by 2014 298 million users around the world will regularly use Internet Television
services, up over 400% from just 58 million in 2009. Internet Television service providers currently
derive most of their revenue from advertising, but we expect subscription and pay‐per view
revenue models to become increasingly common because of the low comparative ad revenue and
high marginal costs of video delivery, compared with other forms so ad‐funded television. We
estimate that worldwide service revenues for Internet Television services in 2009 were USD 227
million. By 2014 we project that Internet Television service revenues will exceed USD 6 billion, an
increase of over 2,500%.
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Internet Television: A Closer Look
We see Internet Television as something that will in the end be integrated into every television
set. At this time, users that have a broadband internet connection will have access to Internet
Television services, whether they use them or not. We think that in 20 years time, it will be as
natural for people to use Internet Television services as they currently use cable TV and satellite
TV services.
Internet Television will not, however, be a replacement for existing forms of television. Instead,
Internet Television will develop alongside cable, satellite and terrestrial television. Indeed,
because some of the main players in the Internet Television market are currently the incumbent
television service providers, we see these companies increasingly incorporating Internet Television
services within their main service offers.
Internet Television will not be successful if it turns out to be little more than another way of
delivering television programming that viewers are already accustomed to. The television market
is already mature and there is in our opinion little or no room for another ’me too’ digital
television service.
Instead, Internet Television is mainly about delivering a new type of television proposition. Freed
from the capacity restrictions inherent within a broadcast delivery network, an Internet Television
service provider can simultaneously deliver a different programme to every viewer. What is more,
because Internet Television services are delivered over a broadband internet connection, the very
latest internet software, service delivery strategies and business models – in other words ‘Web
2.0’ – can be ‘cherry picked’ to create a new, fresh, ‘lean forward’ television experience. Internet
Television is about new features, new functionality and giving far higher degree of control to the
viewer. Internet Television is not Web TV. Rather, Internet Television is about how to use the best
of the modern web to create a superior television experience, rather than simply porting the
general internet to the TV set.
Here are some examples of the sort of features that will become possible with Internet Television:
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• Improved On‐demand Viewing: Users could have an online media library where they
could store and organise their favourite TV programmes and movies. This library could be
accessed from their TV set, PC or mobile device. Users could register with third‐party
content discovery services that would add content to their media library based on user‐
defined preferences (e..g director, genre, language etc.);
• Dramatically More Content: Eventually, it will become be possible for all the television
and film content ever produced to be published to an Internet Television platform.
Standard metadata would allow the content to be indexed and discoverable by TV‐
focused search, discovery and recommendation services;
• Advanced Content Discovery Tools: If a viewer was watching a programme about seafood
cookery that was being presented by a particular chef, this it is clear to us that the same
viewer might be interested in using a service that allowed him to ‘see more shows like
this’ or ‘see more shows featuring this presenter’. Third‐party services could fulfil this role;
• Social and Community Features: Social and community tools and services have become
immensely popular on the web. Today, practically every website now includes community
features or a social networking function. Many websites have become less like places to
go to read pages and more of place to interact with others who have common interests.
Partly because TV is fundamentally a social phenomenon and partly because social
networking and community‐based service concepts are now deeply embedded right
across the web, we think that the Internet Television proposition of the future will include
strong social and community aspects. Currently, these features are entirely absent from
existing television propositions, such as terrestrial, cable and satellite TV;
• Unified User Interface: To avoid the problem of having to have different remote controls
to control different television services, Internet Television provides the possibility for
users to be presented with a unified on‐screen interface that could work across 10s of
thousands of Internet Television services available on a global basis. This would be
analogous to how people today use a web browser to navigate the web;
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• Second Screen Controllers: One potential advantage of using a second screen device such
as a Smartphone or Media Tablet as a TV controller would be that text entry would be
better facilitated. Instead of the user having to use up/down, left/right cursors to navigate
a giant keypad that is displayed on the TV set, the user could look down and enter text on
their second screen device. this would better enable home shopping, interactive
advertising, search & discovery features and social functionality;
• Third‐party Developers (Applications): Internet Television could enable a whole layer of
value‐added services that sit between the user and the content. Currently, with traditional
forms of television, terrestrial, cable, satellite and Telco TV companies provide the
services that sit between the source content and the user. However, mobile applications
(e.g. iPhone and Android apps) indicate what might be possible with Internet Television.
We believe that the result of this will be that those broadband households that adopt Internet
Television services will spend more time watching television than they do currently.
Market Analysis
Comparison with Digital Music
Consumers for the most part do not have easy access to the source television and film content so
they cannot force industry change in the way they did for music. This means that the Internet
Television market will develop more slowly than was the case for digital music. Television content
producers are very aware of what happened with music and they are fiercely protective of their
content. Also, legal precedents that have been established for music now make it clear to
entrepreneurs what will happen if they set up a business whose strategy is based on profiting
from the monetisation of copyright‐protected material that they do not own and are not
authorised to commercialise.
Internet Television is not going to replace existing forms of television because it is a not a
substitutional format, like the CD which replaced vinyl, for example. The best way to view Internet
Television is as a new television channel that will, in the end, be available on every TV set as a
standard feature.
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generatorImpact on Viewing Hours
In the future, we see most broadband households using Internet Television for some, but not all,
of their viewing. Our projections indicate that by 2014, 38% of broadband households will use
Internet Television services and that, for these households, Internet Television will account for
19% of their total television viewing. However, the vast majority of the source content will come
from existing television and movie producers.
We think that the introduction of Internet Television will result in a modest increase in total
viewing hours. This will be because it will become easier to view familiar content at a time and on
a device that suits the user and, in addition, it will become easier to find and view unfamiliar
content that the viewer finds interesting. The result will be that, for the average broadband
household that has adopted Internet Television, total television viewing hours will increase from
21 hours per week in 2009 to 24 hours per week in 2014.
Value Proposition
The key user benefits that will be delivered by Internet Television can be summed up as:
• More convenient access to familiar content: when the user wants, on the device the use
wants;
• A wider choice in content: new material that allows deeper coverage of favourite genres
and material that opens new doors;
• Value‐added services: third‐party service providers will be able to enter the market to
offer new features and functionality that will add a new dimension to the television
experience.
When it comes to viewing video on the web, and especially when the content is being viewed on a
TV set that is connected to the web, users demand:
‐ Fast Start‐up: minimal or no noticeable buffering;
‐ Fast Downloads;
‐ Reliable Streaming (no jitter or picture break‐up);
‐ High Picture Quality (e.g. HD, 3D and full‐screen format on whatever device or TV set is
being used).
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While online video in the past has fallen short of these requirements, our research strongly
suggests that the market is well on the way to addressing these problems and that as the Internet
Television market develops to the mature phase, the vast majority of broadband users will be able
to enjoy a level of picture quality that is at least as good as why they can experience with cable
and satellite TV services.
Underling Demand
We believe that the television industry up to now has done a good job of serving users but we also
believe that Internet Television will offer incremental benefits and that, when users begin to
understand the value of those benefits, they will strongly adopt Internet Television services for the
long term. We strongly believe that there is substantial pent‐up demand for the new type of
television proposition outlined above.
Economics: Business Case for Internet Television
Internet Television will need to surmount three major economic barriers if the market is to move
from its current formative stage into a mass market, sustainable category:
Address Consumer Electronics Issue
Users need a new STB or TV set in order to view Internet Television services. However, this was an
oft‐cited problem in the early days of cable TV and, more recently, with satellite TV – both of
which went on to be hugely successful. The ‘STB problem’ is not, in fact, the need for a new STB,
but the business strategy used to recover its cost from the user. This suggests that Internet
Television service providers need to think in terms subsidising the STB, bundling the Internet
Television service with other services and extracting direct payment from the user on a monthly
basis. Companies, like Apple, who run a hardware business will find it challenging if they simply
think in terms of making money on the sale of the STB.
Increase Marginal Revenues
Ad‐funded Internet Television service providers are disadvantaged for four reasons:
• Internet Television CPM rates are lower, although not massively lower, than for other
forms of television. This problem will be alleviated as Internet Television matures and
advertisers gain confidence with the medium. The introduction of targeted advertising will
also help increase CPMs;
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• Users are currently less tolerant of ads in Internet Television programming than they are
for other forms of television. This means less revenue per viewing hour for Internet
Television than for other forms of television. This problem will be alleviated as Internet
Television moves to the TV set to become more ‘TV like’ and as the category matures
generally;
• Because of the immature nature of the market, which many advertisers do not
understand, many ad‐funded Internet Television services providers cannot fill their
available inventory. We are aware of fill rates as low as 60%;
• Partly because Internet Television service providers do not produce their own content and
partly because most of them they cannot afford to pay for exclusive distribution rights (at
least not for content for which there is going to be mass demand) then they must share
their ad revenue with content providers.
This reduces the available ad revenue by between 70% and 80%, depending on whether
an intermediary (e.g. aggregator) is involved in the revenue pay‐out.
For these reasons we again think that Internet Television services providers need to think in terms
of (a) taking direct payment from users in the form of a monthly subscription or pay‐per‐view
revenue stream, and (b) in terms of bundling with other products and services;
Decrease Marginal Costs
The marginal costs of video delivery need to be reduced from where they are today. This means
that the hosting and delivery prices charges by Content Delivery Networks (CDN) service providers
will need to decrease significantly.
The cost structures of cable and satellite TV providers can be summarised as ‘high capital cost, low
marginal cost’ whereas the cost structure of an Internet Television service provider is ‘low capital
cost, high marginal cost.’ This is primarily because the cable and satellite TV providers have had to
build their own distribution networks and so, having built those networks, the marginal cost of
delivery is low.
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Internet Television service providers have not have to go to the capital markets to raise the huge
amount of money needed to build a mass‐scale distribution network. Instead, they use the local
access lines and associated broadband infrastructure that has been created by others, the cost of
which is mostly covered by users via their broadband subscriptions.
But they cannot escape completely and incur on‐going marginal costs to use those networks.
These costs can be seen as fees paid to Content Delivery Network (CDN) service providers like
Akamai (Hulu’s CDN partner is Akamai).
This fundamental difference is why so many Internet Video service providers are currently
struggling to make money out of online video, including Internet Television: the marginal cost of
delivering a given TV programme to one extra viewer on a terrestrial broadcast network is zero,
whereas the equivalent cost is very significant for a Internet Television service provider.
Content
Some Internet Television service providers1 have discovered to their cost that they have no real
business unless they can offer truly great content, preferably on an exclusive basis.
It will be many years before the distribution infrastructure for Internet Television is large enough
and mature enough for it to offer a genuine alternative to what currently exists with network TV,
cable TV or satellite TV.
This means that the Internet Television services market will for some time be dominated by
incumbent providers who will create their own Internet Television services that will be used to
distribute their own content.
Later on, as these services start to become connected, probably using third‐party search and
discovery services that are based on platforms like Google TV, then the market will begin to open
up but, even then, there will be no shortcuts that will allow start‐ups to gain access to highly‐
valuable content which will remain fiercely guarded by the producers and higher sought after by
major, incumbent television broadcasters.
1 For example, Joost, which collapsed in 2009.
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generatorLong Tail Content
At this stage of the market it is unclear whether there will be strong demand for so‐called ‘long
tail’ content, meaning long‐format, professionally‐produced content that is of high quality but not
well known to a given domestic audience. Some people think that the vast majority of viewer
hours will continue to be directed towards a relatively small number of hit shows, as is the case
today.
However, having talked to many people, we think that there will be a significant – although not
dramatic – change in viewer behaviour when the sort of Internet Television service proposition
described earlier in this report finally arrives. We do see people spending time ‘surfing’ for
television content and responding to content recommendations.
Google TV is a highly significant development, although it will be years before the product gains
any meaningful traction. Of the 26 internet television service propositions reviewed in this report
we think that Google TV has by far the greatest long‐term potential to enable the sort of service
propositions that we outlined above.
95% of Google’s revenues come from contextual ads that are served on Google’s websites (e.g.
Search, Google Mail etc.) and on third party publisher websites under the Google AdSense
programme. Google’s online ad revenues in 2009 were USD 23.2 billion but the total worldwide
online ad market was only worth USD 57.5 billion, which implies that Google controls about 40%
of total worldwide online advertising market.
The television advertising market is attractive to Google because it represents a clearly
incremental business opportunity which, when viewed at a high level, is far larger that the
company’s existing market: worldwide expenditure on television advertising in 2009 was USD 156
billion, compared with USD 57.5 billion for online advertising.
If Google can be successful in catalysing a large, growing market for internet television, then the
company could in principle serve targeted advertisements to any television set that is connected
to the internet.
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On 20 May 2010, Google announced2 ’Google TV’ which is an open platform that the company
hopes will “change the future of television.” The initiative was simultaneously announced by six
launch partners (see Table 5).
In contrast to similar initiatives in the past (e.g. Microsoft WebTV and Yahoo TV Widgets) It is
worth pointing out that Google is positioning Google TV as an initiative that is mainly about
leveraging the power of the internet in order to enable a superior TV experience as opposed to a
way of delivering the internet to the TV set. In the words of Google3 “The Google TV platform will
allow developers to navigate TV content.
However, while this is the intention, Google TV is not too prescriptive about this and it remains to
be seen what sort of services developers will create and which of those will become the most
popular.
We believe that it will be the TV‐focussed apps that will prevail in the end, as opposed to TV
versions of Facebook or the Washington Post, for example.
Google TV is based on Android, which is the company’s open source operating system for mobile
phones. With Google TV, existing Android developers will not only have access to most of the
Android APIs currently available but also to Google TV‐specific API extensions that tap into the TV.
The significance of this is that, in principle, developers will be able to create their own search,
recommendation and discovery services. As well as a range of other services. Therefore, in the
future, a user’s primary interface with Internet Television content might be via company xyz, not
Google and not their existing PayTV provider.
Google is positioning Google TV to the developer community as a way to gain access to 4 billion
users.
2 See: http://www.google.com/intl/en/press/pressrel/20100520_googletv.html 3 See: http://www.google.com/tv/faq/
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There is no doubt in our minds that Google TV represents by far the most significant development
in the Internet Television market so far.
The product is very young, so young in fact that some readers might be surprised that we can be
so opinionated about the platform’s prospects at such an early juncture.
Our view is based on two reasons:
• When viewed from at a product level, it is clear to us that the Google TV platform has by
far the highest potential to enable the type of service proposition and business benefits
set out above.
• Google TV is strongly linked to Google’s wider business strategy which is based on
advertising and scale. To us, it was inevitable that Google would try to enter the TV
industry at some point and we think that the platform has the potential to transform the
TV ad market to a broadly comparable extent to how Google AdWords transformed the
online ad market.
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Introduction
There are currently four methods of delivering commercial television programming:
• Terrestrial Television
• Cable Television
• Satellite Television (also known as Direct to Home, or DTH).
• IPTV
o Telco TV
o Online Video
o Internet Television and Film (the main subject of this report).
2009 2010 2011 2012 2013 2014
Terrestrial Television 1,325 1,358 1,391 1,424 1,456 1,487 2.3%Cable Television 395 398 403 406 408 410 0.8%Satellite Television 106 109 115 117 119 120 2.6%IPTV (Telco TV) 27 41 55 76 98 121 35.IPTV (Internet Video) 467 518 570 622 676 730 9.3%IPTV (Internet Television) 58 95 137 185 239 298 38.9%
Source: Generator Research
Users, Millions Worldwide Users (Note 1)
CAGR
0%
Note 1: Individual television categories are not mutually exclusive: one user might consume a range of television services. 'User' in this context is most commonly a household or a subscription. In the case of Internet Video and Internet Television and Film' the term 'User' mostly refers to an individual.
Table 1: Comparison of Worldwide User Bases for Main Television Delivery Methods (Terrestrial
TV, Cable TV, Satellite TV, Telco TV, Internet Video and Internet Television and Film (2009 to 2014)
Terrestrial Television
Broadcast Architecture
Terrestrial television programming is delivered using a network of land‐based wireless
transmitters which each broadcast the same television signal across their respective coverage
areas. The broadcast range of television transmitter varies from a few km, for short‐range
repeater stations, to several hundred km in situations the transmitter can be mounted on high
terrain. Each television household requires a television antenna which needs to be pointed
towards the most favourable television transmitter.
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2009 2010 2011 2012 2013 2014
Terrestrial Television (Note 2) $159,815 $164,758 $171,513 $175,458 $181,599 $186,684 3.2%Cable Television 136,137$ 147,803$ 156,319$ 164,420$ 172,332$ 179,974$ 5.7%Satellite Television 56,821$ 60,360$ 65,249$ 67,867$ 70,772$ 74,923$ 5.7%IPTV (Telco TV) 11,048$ 17,535$ 24,539$ 35,313$ 47,346$ 60,694$ 40.6%IPTV (Internet Video) 4,082$ 4,630$ 5,263$ 5,980$ 6,776$ 7,641$ 13.4%IPTV (Internet Television) 227$ 550$ 1,132$ 2,117$ 3,700$ 6,137$ 93.3%
Total: 368,131$ 395,635$ 424,015$ 451,156$ 482,524$ 516,052$ 7.0%
Source: Generator Research
USD, Millions Worldwide Revenues (Note 1)
CAGR
Note 1: Individual television categories are not mutually exclusive: one 'User' might consume a range of television services. 'User' in this context is most commonly a household or a subscription. In the case of Internet Video and Internet Television and Film' the term 'User' mostly refers to an individual.
Table 2: Comparison of Worldwide Revenues for Main Television Delivery Methods (Terrestrial TV,
Cable TV, Satellite TV, Telco TV, Internet Video and Internet Television and Film (2009 to 2014)
Public Service Broadcasters (PSBs) across the globe have traditionally distributed their
programming to their national audiences using terrestrial networks although many PSBs, such as
the BBC in the UK and TV1 in France, are now also distributing their content over the internet (see
below).
Transition from Analogue to Digital
Terrestrial television is currently undergoing a major transition from analogue to digital
technology. Digital technology can allow the same number of television channels to be broadcast
using 30% of radio spectrum needed by analogue technology. As far as users are concerned, the
potential benefits of digital technology are superior picture and sound quality as well as more
channels. Meanwhile, the national bodies who regulate and/or administer the use of wireless
spectrum benefit because they can re‐allocate the radio spectrum that will be freed‐up for other
purposes, for example for mobile communications.
Importance of Broadband Connectivity
Looking ahead, even when the migration to digital technology has been completed, terrestrial
television services will be fundamentally disadvantaged when compared with the competing
modes of delivering television programming (cable, satellite and IPTV) if they lack an associated
broadband connection.
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Modern pay‐TV digital television services delivered using cable, satellite and IP are offering
advanced functionality such as catch‐up TV, content downloads, personalised programming
recommendations based on viewer behaviour, search functionality that extends across multiple
television services and targeted advertising.
Features such as these not only require an associated set‐top box (STB) but one that is connected
to the internet using a broadband connection.
Business Models
Public Service Broadcasters: Terrestrial Television
Public Service Broadcasters receive direct funding from the state. In turn, the state finances its
public television service by collecting payment from users in the form of an annual license fee (tax)
and/or in the form of a sales tax which is levied on the sale of new television sets.
Because PSBs do not collect direct payment from users in their national jurisdictions, PSB‐provided
television services are free to watch (‘free to air’).
Commercial Broadcasters: Terrestrial Television
By far the most prevalent funding model for terrestrial television is advertising. Users do pay
Cable TV
Infrastructure
Like terrestrial television, cable TV services were initially based on analogue technology. But
around 1995 cable operators began upgrading their networks to digital, mainly in order to
increase the number of channels so they could charge subscribers more for their services. Today,
depending on the market, between 20% and 40% of cable TV subscribers enjoy the benefits of a
digital service.
Another important technology shift has been the introduction of technology that allows the user
to send signals back to the cable TV operator. Apart from improving the core cable TV service, for
example by offering an enhanced electronic programme guide, two‐way functionality also allows
the cable operator to offer other services, such as basic telephony and broadband internet. Two‐
way functionality was first implemented using the users existing telephone line and a dial‐up
modem.
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Cable network operators then began offering other solutions, such as an integrated cable that
carried within it an associated 2‐wire twisted pair that could be used for the return path. In other
situations, cable operator installed two‐way wireless modems throughout their network which
allows the return signal to be carried upstream using the same approach as the television signals
were being delivered downstream.
Looking ahead, the two most common ways of implementing two‐way functionality will be to
either use a set‐top box that is connected to the user’s broadband connection or, mainly in the
relatively limited number of households that have an optical fibre connection, two‐way
functionality can easily be offered using an upstream optical channel on the fibre itself.
With the exception of technology approaches that have been developed by the cable industry
(e.g. Tru2way)4, every cable TV household requires a set top box which provides a physical and
electronic interface between the coaxial cable5 which comes in from the street and the user’s
television set.
Business Model
Cable TV network operators derive their revenue from a combination of monthly subscription
revenue, ad‐hoc pay‐per‐view revenue for on‐demand viewing and advertising. In general
advertising accounts for between 10% and 20% of a cable operator’s revenue.
In order to increase revenue per subscriber, reduce churn and maintain competitiveness with
rivals, such as satellite TV providers and Telco TV providers, most cable operators are now offering
bundled services that include television and film, broadband internet and telephony (so‐called
‘triple play’) while some are also adding mobile service to the package (‘quad play’).
4 This technology allows the cable operator to connect directly to a special television set but it has not been widely adopted. 5 A limited number of households are connected with optical fibre.
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generatorSatellite TV
Satellite TV operators have a lot in common with cable TV operators:
• They have both incurred large capital costs creating their networks;
• They both have a large installed base of set‐top boxes which can create challenges when
the service provider wants to introduce new features and services;
• They are both migrating towards the same solution for delivering the new generation of
digital television and bundled services, which is a set‐top box that is connected to the
internet using a broadband connection;
• They are both funded by a combination of subscription revenue, ad‐hoc revenue (less
common with satellite TV providers) and advertising;
• They are both aggressively offering bundled services, including triple and quad‐play
offerings.
IPTV
Defining IPTV
IPTV involves the delivery of television and film content over an IP‐based network.
The widespread deployment of consumer broadband internet connections, which now exceed
over 500 million globally, as well as the increasing speed of those broadband connections, has
made it technically feasible to deliver high‐quality television and film content over the internet.
By 2014, we project that there will be 785 million broadband connections across the globe, which
will mean that over 50% of TV households will have broadband by 2014.
Distribution Infrastructure
As noted above, terrestrial, cable and satellite television service providers use different
distribution networks to connect their service centres to individual homes. A terrestrial
broadcaster uses a land‐based network of wireless transmitters. A cable provider uses a network
of cables. A satellite provider uses geostationary satellite which then broadcasts the signal over a
large coverage area.
The delivery network for IPTV includes three elements:
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1. A broadband connection which connects the user’s homes to their chosen ISP;
2. An intermediate layer of content delivery infrastructure which an IPTV service provider
has to use in order to ensure an acceptable quality of service for the user. This network
provides a connection between the IPTV service provider’s Network Operations Centre
(NOC) and the user’s ISP6.
3. In the situation where an IPTV service is delivered directly to the user’s TV set then a third
infrastructure element is required: an electronics and software function which can either
be realised as a separate box (set top box, or STB) or it can be integrated into the user’s TV
set.
These three infrastructure elements are shown in Figure 1.
Marginal Cost of Video Delivery
IPTV is fundamentally different from terrestrial, cable and satellite television in that the delivery of
the video signal incurs a marginal cost which must ultimately be paid by the service provider. This
means that the cost structure for IPTV is fundamentally different to that for terrestrial, cable and
satellite, especially because at the current stage of the market, the costs are highly significant on a
per MB basis.
Customer Premises Equipment
Referring to Figure 1, the requirement for the user to have a STB (item 2) is no different to the
case for cable or satellite. Also, the fixed costs needed to run the network operations centre, or
even the marginal costs needed to inject content from the NOC into the CDN are no different to
the case for terrestrial, cable or satellite, which all incur similar costs.
Access Network
The first major difference for IPTV is the requirement for the user to have a broadband
connection.
6 This assumes that the CDN provider and the user’s ISP are both large enough in scale. If they are, then their respective internet
networks will be directly connected together at several points. If there is no direct connection then the video content will have to travel
through one of more transit networks in order to reach the user’s ISP. Depending on the relative traffic flows between the CDN and the
transit network this transport may or may not be provided for free under a peering relationship.
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Because the user is paying for a high‐speed connection through which the IPTV service provider
will be delivering their service then, in effect, the user is paying for part of the IPTV access
network.
This would be analogous to the user paying for the cost of installing and operating the cable
connecting a cable head end to the user’s home.
Of course, the user’s broadband connection is not just used for the IPTV but it is nevertheless
important to realise that the IPTV service provider has, in effect, delegated responsibility for
creating and operating the IPTV access network to others7.
This is important because if the user’s broadband traffic in the future becomes dominated by IPTV
traffic, and the current trends suggest that this is going to be the case, then the ISPs costs will
increase. This increase will either have to be compensated for by charging users more – and we
are already seeing this as ISPs introduce higher‐priced broadband services that offer ‘unlimited’
data consumption and where ISPs have decided to introduce a tiered level of service to prevent
users abusing their broadband connection – or we will see ISPs telling the IPTV service providers
that they will have to pay, and we are again seeing the emergence of this trend with deals having
been done between several companies, most recently between Verizon and Google.
When cable TV and satellite TV service providers wanted to create their access networks they had
to go to the capital markets to raise the required money, which in the case of cable was
approximately $2,000 per home passed. By way of comparison, required start‐up capital required
to enter the IPTV market is dramatically much lower than is the case for cable and satellite TV.
Content Delivery Network (CDN)
If an IPTV service provider wants to offer a visual quality that is competitive with that available
with cable and satellite TV services, then it is not feasible to simply set up a video server and pay
for a simple connection to the internet and hope that the connection between the service
provider’s internet connection point and the user’s PC or TV set is good enough. This approach
simply does not work.
7 The exception to this is where the IPTV service is provided by the incumbent telecoms provider who of course was the one that
created the access network in the first place (albeit with public funding).
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Router/M
odem
Hom
e Network
IPTV
Service
Provider
Internet Service Provide
rThis is th
e company
who
provides the user’s
broadb
and conn
ectio
n
Conten
t Provide
rsTelevision
and
Film
Produ
cers
Network Ope
ratio
ns
Centre
Conten
t (digital format)
Conten
t Injectio
n Po
int (CIP)
For xDSL
this
wou
ld be the local
exchange.
Transit Network/s
The vide
o conten
t will have
to travel throu
gh a transit
network/s if the CD
N doe
s no
t have a direct con
nection
to the user’s ISP.
Other Internet
Conten
t
User’s H
ome
Set Top
Box
(STB)
In th
e case whe
re the IPTV
service Provider is offe
ring a direct connection to
the user’s TV set (i.e. w
ithout the
need for a
PC) then
this will requ
ire so
me
electronics h
ardw
are to be installed at the consum
er’s premises. This could be
a separate box
(e.g. Roku) or it cou
ld be integrated
with
in the TV
set (e.g.
some Sony
BraviaTV
mod
els for th
e Sony Internet Video
service). The
other
option
is to
rely on a platform
, like Goo
gle TV, w
here the requisite
STB
will
already exist.
Source: G
enerator Research
12
3
Conten
t Delivery Network
(CDN)
This is a network of se
rvers and
associated
software and op
erational
staff that p
rovide
a quality‐assured
path from
the Co
ntent Injection
Point (CIP) to
, hopefully, the
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Some IPTV
service providers m
ay
create th
eir own CD
N. Burt m
ost w
ill
use third‐party CD
N se
rvice providers
(e.g. Akamai, M
ove Networks).
Broadb
and Co
nnectio
nFor xDSL
this is a tw
o‐wire
copper line that co
nnects the
subscribers h
ome to th
e local exchange.
Figure 1: Network Infrastructure Required to Deliver IPTV
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As more and more video content is appearing on the web, users are becoming increasingly
intolerant of long start‐up times, in‐show re‐buffering and wildly fluctuating pixilation where one
moment the picture looks good and the next it seems to be breaking up. Whe4n ITPV services try
to deliver a television service ot a television set, or even just deliver it to PCs, but position it as
‘internet television’ then user’s expectations are such that the above shortcomings are completely
unacceptable.
If the IPTV service provider expects the users to pay to access the service, say by means of a
monthly subscription, then it is even more important that quality issues like these do not damage
the viewing experience.
In order to address these problems, the IPTV service provider needs to define and control the path
between the NOC and the user’s home.
In the case of a large‐scale IPTV deployment this means that a global network of content deliver
servicers need to be installed to minimise the network path length between the service provider’s
network and the user’s ISP. Ideally, the service provider’s network will be directly connected to
the user’s ISP, probably at several physical; locations. Secondly, the connections between the
content deliver servers need to be managed IP connections. Finally, a layer of performance
management software is needed so that the service provider can measure network performance
on a per‐connection basis and, if needed, debug problems.
Because this is a non‐trial job, most IPTV service providers turn to a third party who has already
created such a network, which is commonly referred to as a Content Delivery Network (CDN). One
of the better known CDN network operators is Akamai.
This is highly significant because each video stream incurs a cost. This means that the IPTV service
provider’s variable cost base increases with every major growth vector:
1. More Users: Each new user means more bandwidth is needed and, therefore, more cost;
2. More Usage per User: More viewing hours per user per night means more cost;
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3. More Bandwidth per Stream: With the move from SD to HD or 2D to 3D the PTV service
provider’s costs will increase.
Because these costs increase linearly (unlike terrestrial, cable and satellite where the costs
increase in quantum jumps as a new network capacity threshold is reached), the IPTV service
provider’s cost structure is low capital cost, high marginal cost. Whereas, by comparison, a cable
TV or satellite TV service provider’s business model is high capital cost, low marginal cost.
While CDN costs are decreasing steadily, they will never decrease to zero. This fact affects the
business case for ad‐supported IPTV services. With a commercial terrestrial broadcaster, there is
no difference in cost whether 1 million viewers view a show or 10 million. But the ad revenue will
scale. With IPTV, assuming the same cost per impression ad rates (say $10 per CPM) then the
marginal cost of serving 1 million viewers will be 10% of the cost of serving 10 million.
This is currently why online video providers are having problems making a business case out of
delivering ad‐supported video content.
Peer to Peer Networks
Because of this some IPTV service providers, for example Vudu, are using a P2P‐based network
architecture where each user’s STB can act as a source of content for other users who are, in
network cost terms, nearby. the impact is that instead of a new user being served from a remote
Vudu content delivery server, the same user can be served using the broadband uplink of another
user.
While this can certainly save a lot of cost, perhaps as much as 75% in some deployments, it does
not really solve the quality challenges noted above and, in addition, while Vudu might have
avoided paying the content delivery cost, someone else is having to pay. In most cases this is the
ISP whose broadband connection is being used for the re‐distribution. To us, it seems unlikely that
P2P‐based delivery of video content will be viable in the long term (which means truly scalable
and of a sufficient quality) without proper agreements being in place between ISPs8.
We look at P2P content deliver in more detail later in this section.
8 Work is underway to define arrangements that will facilitate comm3rrcial‐grade P2P content distribution (e.g. P2P Next and P4P) but
these projects are still at a fairly early stage.
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In the previous section we explained what IPTV is and how it differs from traditional forms of
television. In this section we will look at the three different types of IPTV which we have called:
• Online Video
• Telco TV
• Internet Television
Online Video Telco TV Internet Television
Content Mixture of professionally‐produced and amateur content.
Professionally‐produced content only. Branded content is essential.
Professionally‐produced content only. Branded content is essential.
Primary Consumption Devices
PC and mobile device. Also TV set with apps and widgets, but this is less important.
TV set. (i) PC; (i) PC connected to a TV set (with suitable cable); (iii) STB + TV set, or, (iv) a special TV set.
Business Model Invariably ad‐supported. Subscription similar to cable TV and satellite TV. Bundling with broadband is essential to make a business case. Indeed, TV proposition is used to sell a broadband subscription to homes that would not have bought the broadband subscription as a standalone offer.
Combination of ad‐supported, pay‐per‐view and subscription. Currently a marginal business case owing to high marginal costs.
Primary Competition
Other online video sites and online activities (e.g. Social networking).
Terrestrial, cable and satellite TV.
Terrestrial, cable and satellite TV.
Visual Quality Lowest: a general trend to HD and 3D, but generally lowest quality. Not QoS‐assured.
Highest: Telco providers own the access network and can, in principle, provide the best quality.
High: Delivering high quality requires careful attention to the CDN solution. Quality can be as high, or higher, than Telco TV.
Paradigm Mainly an internet proposition.
Mainly a TV proposition. Mainly a TV proposition.
Source: Generator Research
Category of IPTV
Table 3: Comparison of the Three Different Categories of IPTV – Online Video, Telco TV and
Internet Television (Comparison Metrics: Content, Consumption Devices, Business Model, Primary
Competition, Visual Quality and Paradigm)
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generatorOnline Video
As far as this report is concerned, online video consists of short‐format video clips that are mostly
created by ordinary users. Most clips are uploaded onto the site intended for public viewing
although, in some cases, a user can choose to restrict distribution of their content ot a network of
friends.
Most or all of these sites contain a mixture of user‐generated and professionally‐produced
content. Branded providers can set up their own ‘channel’ on the site within which they can
control the look and feel of their offering.
The best‐known example of an online video site is YouTube. Other examples include:
Break.com
This a male‐oriented site aimed at 18 – 34 year old men.
Heavy.com
Another male‐oriented video sharing an community site. Also includes a movie review aspect
including trailers, but users cannot stream or download movie content.
Metacafe
This site claims to use a panel of 80,000 volunteers to review new videos that are uploaded onto
the site.
CollegeHumour.com
This is a comedy site which is a source of humorous original videos, pictures articles, contests, plus
some original material created by CollegeHumour staff.
Craveonline.com
A youth‐orientated UK community site offering user‐uploaded video, comics TV reviews and
commentary and movie reviews with occasion clips and trailers.
RuTube.com
First launched in 2006, RuTube is a Russian video sharing site similar to YouTube. The company
was acquired by the Russian media concern, Gaz‐Prom Media, for USD 15 million in March 2008.
At the time, the site stated that it had 400,000 daily users and was serving 40 million video views
per month.
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generatorTudo.com
Tudo is another YouTube clone, this time focused on the Chinese market where it claims to be the
largest online video sharing platform. The service was launched in April 2005 and now serves 300
million video views daily, according to the company. To date, the company has raised a total of
USD 85 million in venture capital.
Youku.com
This is another YouTube clone, also based in China which was launched in December 2006. The
company claims to have raised USD 110 million from a range of investors that include Sutter Hill
Ventures and Bain Capital (Brookside). Content includes a mixture of user‐generated material and
professionally‐produced material. Tudo is Youku’s main competitor.
Online video content is mostly consumed on PCs (desktop computer and portables) and
smartphones but we expect most online video services to also become available on the main
Internet Television platforms, most notably Google TV.
Telco TV
A Telco TV service is where an incumbent telecoms provider, like AT&T or China Telecom, offers
an IPTV service over an xDSL connection. Telco TV services offer non‐exclusive content that is
sourced from third parties – we are not aware of any examples where a Telco TV service provider
has invested in producing exclusive content (e.g. producing an episodic TV show or creating a
news channel).
Control of Distribution
Because the incumbent telco owns and controls the xDSL access network and also probably has a
content delivery network (which would form the basis of a CDN service that the telco sells to other
digital content service providers), then the telco has direct or semi‐direct control of the assets
required to cost‐effectively distribute the video content.
However strict regulatory rules in many markets have been put in place in an effort to prevent
incumbent telcos from cross‐subsidising different business units in the manner suggested above.
This is why most Telco TV services – when viewed on a standalone basis – would be no more
profitable than Internet Television service (below).
The real reason why telcos are offering Telco TV service is that it is an excellent way to increase
sales of residential broadband, which is highly profitable.
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generatorImportance of Broadband
Within the residential market, the primary growth market for incumbent telecoms providers –
companies like AT&T in the US, SingTel in Singapore, Telstra in Australia, BT in the UK and France
Telecom in France – is residential broadband. Each broadband customer represents an annual
revenue stream of approximately USD 30 x 12 =360 USD per year.
Triple and Quad Play: Bundling
Telcos have traditionally been selling broadband as a standalone product in its own right but the
appeal of the offer is minimal to many households who do not understand what advantage a
broadband connection will provide. It is a far easier sell to offer a television service, which comes
with a broadband connection. It is even better when the telco can bundle a normal phone service
with the offer, to create a so‐called ‘triple play’ offer. Because the telco makes money on the
broadband connection, and hopefully on voice calls made using a telephone service, then it is
feasible to run the Telco TV part of the business at very low margin.
The other reason why incumbent telcos are interested in offering television and other services is
to try to move away from being a simple access provider where competition is based mainly on
price for a commodity service that is hard to differentiate.
The strategy towards bundled services is of course not restricted to telecoms players: cable TV
and satellite TV service providers are now offering similar bundles (at least in markets where they
can obtain wholesale access to the incumbent broadband access product). These competitive
dynamics are at work in every market around the globe with the result that, in each market, a
relatively small number of cable, satellite and telecoms players are competing with each other
using ‘service bundles’ that include broadband, television & movies, phone service and, in some
cases, mobile phone as well.
Telco TV is growing, with operators such as AT&T U‐Verse, Verizon Fios and China Telecom
enjoying strong growth.
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generatorInternet Television
Definition
As suggested in Table 3, an ‘Internet Television’ service has a lot in common with a Telco TV
service, except that there are some very important differences, the first of which being that
according to our segmentation of the market, telcos do not offer Internet Television service per se.
Internet Television services are mostly being offered by companies that have their origins in the
internet or software worlds and others who occupy the consumer electronics arena, as opposed
to the telecoms domain, which is the case for telco TV providers. Internet Television is not being
driven by the telcos, but by others who have different objectives, different strategies and a
mindset.
Companies coming at IPTV from the internet are interested in internet television because of the
huge scale of the market, both in terms of the number of TV screens and the potential advertising
revenue. In 2009 the worldwide expenditure on TV advertising was USD 160 billion, while
worldwide expenditure on internet advertising was just USD 57 billion. Consumer electronics
companies meanwhile forsee a large incremental market for consumer electronics, either in the
form of STBs or new television sets that include internet television functionality.
Internet Television is today about taking the very best software technologies, design and
development approaches and business strategies that are already well‐established on the internet
to create a totally new type of television experience.
It is here that we see another major difference between Telco TV and Internet Television which
we will now look at in a little more detail
Comparing Internet Television and Telco TV
Telco TV services are basically closed vertical platforms owned and operated by companies that
have traditionally taken a closed, vertically‐integrated approach when it comes to the introduction
of new services, including Telco TV.
We would argue that Telco TV services are relatively poorly differentiated when compared with
existing cable and satellite TV services.
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They may be attractive to users, when viewed as part of an overall package, but there is little that
is genuinely new in the core television service, certainly not to the extent that will attract the
younger generation of users who are growing up well‐versed in the web and with technology
generally.
The acid test would be how well the average Telco TV service would do it in its respective market
if it is was promoted on its own right as a standalone service, and not as part of a service bundle
that includes broadband, telephone and even a mobile service. We think that many Telco TV
services would struggle to win market share from satellite and cable TV service providers.
If Telco TV is primarily a vertically‐focussed phenomenon, we see the future of Internet Television
as being far more horizontal in nature. Here are some examples of what we mean by this:
• Cross‐service Features: Users will be able to search for and play content that is offered by
a range of competing service providers;
• Third‐party Developers: Third party developers will be able to create applications and
services that make it easy for content owners to publish their content to Internet
Television platforms and then for users to discover and access that content;
• Social and Community Features: Television is a strongly social media. Many viewers find
the latest developments on talent shows and episodic shows totally engrossing and they
talk incessantly to friends about television, both in the workplace and elsewhere. When
combined with the sort of social features that have been pioneered o the web (e.g. social
networking sites) Internet Television, will allow users to self‐organise into communities
that are focused around specific shows and movies;
• Global Publishing: Because Telco TV services are being created by individual Telcos using
their own technological approach, they are fundamentally incompatible with each other.
Telco TV services are focused on individual national markets. For example, the technology
solution used by France Telecom is different to that used by AT&T. This means that
technological barriers will prevent content providers from publishing their content to a
global ‘Telco TV’ platform, as they can today with the web.
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Licensing restrictions aside, Internet Television promises to enable the distribution of
television and film content on a global scale, although this will require an underlying
enabling platform, the most significant of which so far is, in our judgement, Google TV.
The above service concepts are far from the minds of Telco TV service providers who are mainly
using Telco TV as part of a ‘Trojan Horse’ strategy to sell through lucrative broadband
subscriptions.
Before we discuss Internet Television in more detail it is worth noting what Internet Television is
not:
Internet Television is not Web TV
Internet television is very different to what used to be termed ‘Web TV’ which was first proposed
in the late 1990’s. At this time, many companies thought that people would want to access
internet websites from the comfort of their living room armchair, using a special keyboard and on‐
screen interface, rather than sitting in from of a PC. Those proposing Web TV saw the TV set as
simply another channel to access the general internet.
There were four main problems with the Web TV strategy:
The first was that Web TV would have been that every website would have needed to be re‐
purposed in order to be viewed on a TV set. In effect, those proposing Web TV foresaw a second,
parallel version of the internet – one that was designed especially for the TV.
Secondly, the dramatically increased performance of modern notebook computers combined with
simple and easy to set‐up Wi‐Fi broadband connectivity has meant that people who want to work
in their living room can do so by sitting down and using their notebook computer.
Thirdly, website owners were resistant to develop special ‘TV versions’ of their websites just so
people could access those (reduced‐functionality) ’TV websites’ using a TV set, especially when
there was such a small deployed base of compatible hardware.
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Finally, Web TV was simply years ahead of its time and the software technology, design
methodologies and business models, simply did not exist in the late 1990’s for Web TV to be
executed properly. In essence, because Web TV was pre‐Web 2.0 it was complex and expensive to
implement and the resulting user interface was clunky and generally uninteresting.
In summary, Internet Television is about how to use the best of the modern web to create a
superior TV experience, rather than simply porting the general interne to the TV set.
We will now take a closer look at what Internet Television is.
Internet Television
Benefits: Service Proposition
Our analysis is that the Internet Television market will fail to develop to the mature phase if turns
out to be little more than another way of delivering the same sort of television programming to
the television viewers.
We see Internet Television as something that will in the end be integrated into every television set
so that users have access to Internet Television, whether they want it or not. We think in 20 years
time, it will be as natural for people to use Internet Television as it is to use a cable TV or satellite
TV service today.
In this section we have tried to explain why users’ will be interested in Internet Television. Later in
the report we will explain more about the business aspects that underpin the delivery of Internet
Television services where we note that the worries and concerns of the incumbent players within
the television industry, both on the content side and the network side, will act as a brake on the
rate at which the Internet Television market will develop.
It is clearly impossible to be precise about a service proposition that we think is 20 years aware
from reaching maturity. Nevertheless, in order to give a flavour for the sort of service proposition
we see when we look into the future, we have identified [five] aspects f the Internet Television
service proposition that we think will be very interesting to the average television viewer:
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• Improved On‐demand Viewing
• Dramatically More Content
• Advanced Content Discovery Tools
• Social and Community Features
• Unified User Interface
• Second Screen Controllers
• Third‐party Developers: Applications
Improved On-Demand Viewing
Personal Video Recorders (PVRs) reached a mass market stage over five years ago. These devices
are connected online between the STB and the TV set and allow the user to record TV shows for
playback at a later time.
These devices have been immensely popular and have catalysed the introduction of so‐called
‘Catch‐up TV’ services, such as BBC iPlayer, which offer similar functionality without the need for a
PVR box.
Internet Television has the potential to improve the ‘catch‐up TV proposition is at least the
following ways:
• Users could have an online media library where they could store and organise shows. This
library could be accessed from their TV set, PC or mobile device;
• Users could add shows to their media library simply by clicking on a link;
• Users could register with third‐party content discovery services that would add content to
their media library based on user‐defined preferences (e..g director, genre, language etc.);
• When this service was available within the context of a ‘horizontal’ Internet Television
platform, like Google TV, then the content universe could extend to a very large volume of
content, as opposed to that offered by one service provider.
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generatorDramatically More Content
In principle, and assuming that viable monetisation methods exist, it would be possible for all
television and film content ever produced to be published to an Internet Television platform.
Standard metadata would allow the content to be indexed and discoverable by TV‐focused search,
discovery and recommendation services.
Television production companies, television broadcasters, film producers and intermediaries that
owns the distribution rights to television programmes and movies would be able to monetise their
content using a new channel – Internet Television – that has no capacity limit, unlike existing
broadcast channels.
This explosion in the volume of content would be dramatically more than any previous
development in television, including the introduction of multi‐channel digital television. Instead of
a browsing 200 or even 500 channels, and finding nothing interesting to watch, in an Internet
Television setting users would have access to 10s of millions of content items, which would in our
opinion have the effect of increasing total television viewing hours, increasing viewer engagement
and increasing total service revenues.
Advanced Content Discovery Tools
We think that the content discovery tools available to TV viewers today are very basic, certainly
compared with what currently exists online.
TV viewers are currently used to a search service that is limited to content offered by a particular
service provider. So if, for example, a viewer wants to search for ‘basketball’ on Sky then the
results will be limited to content that Sky offers.
In addition to these virtually‐focused search functions, third party listing services exist, such as TV
Guide and the IMDB, which provide information on content spanning multiple service providers.
However, in these cases, it is not possible to actually view shows – one can only read about a
show, or buy a DVD.
On the other hand, web users have easy access to a range of content discovery solutions including
general‐purpose search engines (e.g. Bing, Google), content recommendation services (e.g. iLike
or Spotify for music), social networks (e.g. Facebook.com) and genre‐based community sites (e.g.
Dogster.com) as well as several ‘push’ technologies, such as RSS feeds and feed readers.
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Because some of these content discovery tools are relevant for television and film content we
think that they will become an important component of the Internet Television proposition.
If a viewer was watching a programme about seafood cookery that iwas being presented by a
particular chef, this it is clear to us that the same viewer might be interested in using a service that
allowed him to ‘see more shows like this’ or ‘see more shows featuring this presenter’.
Again, if a person is watching a nature programme about the Rocky Mountains, then it seems
likely that this person would be interested in a service which allow him to type a search query into
a third party service such as, for example, ‘Life Cycle Atlantic Salmon’, or ‘Holidays Rocky
Mountains’. This sort of contextual recommendation and search functionality is widespread on
the web, but is it currently completely absent from the TV industry.
One could argue that TV viewers will not be interested in changing their viewing behaviour from a
deeply‐engrained, ‘lean back’ pattern to more of a ‘lean forward’ or ‘web‐like’ pattern. However,
when the tools exist and they are easy to use we think that this is exactly what they will do – and
on a mass scale.
Social and Community Features
TV is a very social phenomena, especially when it comes to talent shows, celebrity‐focused
content, episodic blockbusters, like LOST, and a range o other content that people find interesting
and topical. People enjoy talking about TV to their friends, in their families and in the workplace.
Social and community tools and services have become immensely popular on the web. Today,
practically every website now includes community features or a social networking function. The
website has become less of a place to go to read pages and more of a place to interact with others
who have a common interest.
Partly because TV is fundamentally a social phenomenon and partly because social networking
and community‐based service concepts are now deeply embedded right across the web, we think
that the Internet Television proposition of the future will include a strong social and community
aspects. Currently, these features are entirely absent from existing television propositions, such as
terrestrial, cable and satellite TV.
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generatorUnified User Interface
Most viewers have to choose between a Pay‐TV provider (e.g. cable TV, satellite TV or Telco TV)
which then complements their free‐to‐air, network TV viewing.
In most cases, therefore, the viewing experience involves changing between two remote controls,
one for network TV and the other for the Pay‐TV service. There is no, or minimal, integration
between the two remote controls or services. The exception to this is with companies like
Logitech who have tried to solve this problem by developing a universal remote control.
The ‘non‐unified user interface’ problem also currently applies to Internet Television services.
Taking the UK as an example, there are six Internet Television services available to UK viewers,
each of which is provided by one of the incumbent television service providers:
1. BBC iPlayer: offered by the BBC, the UKs main Public Service Broadcaster, a terrestrial TV
broadcaster;
2. FIVE OnDemand: offered by FIVE Television, a commercial, free‐to‐air terrestrial TV
broadcaster;
3. 4OD: offered by Channel 4, a commercial, free‐to‐air terrestrial TV broadcaster;
4. ITV Player: offered by ITV, a commercial, free‐to‐air terrestrial TV broadcaster;
5. Sky Player: offered by Sky, a commercial, Pay‐TV satellite TV broadcaster;
6. Virgin Media Player: offered by Virgin Media, a commercial, Pay‐TV cable TV broadcaster.
In addition, there are a few other service providers catering for niche markets, such as LiveStation,
and a couple of aggregators that allow viewers to access content provided by a number of
providers (e.g. SeeSaw TV).
The result is that if a viewer wants to watch Internet Television then he has to visit each service in
turn and use their proprietary content indexing and search functions to find interesting content.
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Although this is very frustrating, the same problems can be currently observed in all television
markets where Internet Television has emerged.
We think that the Internet Television market is not stable in this condition: because it is
technically feasible for users to be presented with a unified interface – one that does not just work
across all of the services mentioned above, but potentially 10s of thousands of Internet Television
services available on a global basis – and there is a clear user benefit then we think that is a matter
of time before a standard user interface emerges, perhaps not on a global basis but certain
So far, the Google TV platform appears to have the highest potential to implement a truly unified
viewing interface.
We note that the BBC has recently stated that it intends to ‘open up’ its iPlayer platform in order
to allow iPlayer content stream through third party services, at least in the UK.
Second Screen Controllers
Smartphones and Media Tablets, along with the associated applications strategy that is applicable
to both, suggests that it is likely that in the future the user’s preferred personal device will be
integrated within a living room Internet Television experience, at least for those users who want
this.
Indeed, later in this report we will see that the Google TV platform already provides the ability for
developers to create applications that can be downloaded to an iPhone or iPad in order to control
the Google TV experience.
One potential advantage of using a second screen device as a controller would be that text entry
would be better facilitated. Instead of the user having to use up/down, left/right cursors to
navigate a giant keypad that is displayed on the TV set, the user could look down and enter text on
their second screen device.
Here are a few examples of how we see second screen controllers being used within an Internet
Television experience. Users could:
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• More easily enter routine search queries;
• More easily enter contact details if the user had seen an ad for a product that offered to
send a sample of brochure.
• Post comments about a TV show or movie;
• Enter their registration details if they wanted to view premium content
• Enter their credit card details in order to subscribe rot a service.
Third-party Developers: Applications
Internet Television could enable a whole layer of value‐added services that sit between the user
and the content. Currently, with traditional forms of television, terrestrial, cable, satellite and
Telco TV companies provide the services that sit between the source content and the user.
For these companies, the value‐add primarily lies within the content itself, where the objective is
to obtain exclusive content for which there will be mass demand, as well as any other services that
are bundled in with the TV offer (e.g. where a Telco TV provider also offers a broadband
subscription as part of the deal).
However, as has happened with mobile applications and, more recently, Media Tablet
applications, the existence of a properly‐engineered and operated platform that is open on a
level‐playing field basis to developers across the globe can usher in a completely new class of
value‐added services.
We think that the success of the mobile applications, and the visually stunning results that are
possible with applications that have been developed for the iPad indicate what could be possible if
an equivalent applications development platform existed for Internet Television.
Applications are a very important element of the Google TV offer. This means that every brand
that wants to be on the TV has a route to market that does not require any discussions with
existing broadcasters. It also means that all of the Internet Video and Internet Television services
that are currently restricted to the PC can be ported to the Google TV platform.
It is hard to be definitive about the soft of applications and services that will be possible, but we
think that looking at platform like the iPhone and iPad at least suggest the potential.
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We think that when it comes to the proportion of time the viewers spend engaged with Internet
Television, several servicers will emerge which, like Google today, act as ;entry points; into the
works of Internet Television. We think that it is unlike that any of the incumbent television
services will be able to adequately fulfil this role.
Benefits: Commercial
Targeted Ads
In general, advertisers will pay a premium for the ability to target advertisements on specific
market segments. For example, a broadcaster can sell an audience that comprises 18 to 24 year
old males at a higher price that an audience where the view profile is for more general. This is
because, generally speaking, the higher the relevance, the more effective the advertising.
So far in television, audience targeting has been based on:
Targeting based on Content
A programme such as a music talent content will attract a different audience that a home
improvement series. Independent audience analysis services provide the broadcaster with
statistics that define the profile of the audience that is watching their shows. This then allows the
broadcaster’s ad sales team to sell the ad inventory relating to a specific show to an advertiser
who wants to reach that audience. The same concept applies for other forms of a ad media, for
examples, newspapers, magazines, radio and online.
Geographic Targeting
Cable operators have for a long time sold advertising based not only on content (above) but also
on the geographic location where the ads will be served. Because the cable operator’s network
connects individual households, it is possible to define audiences based on individual states, cities,
towns and even the affluence of individual neighbourhoods, as well as content. Terrestrial
broadcasters have more of a problem offering targeting but they neverthle4ss routines offer
advertisers solutions that allow them to target individual transmitters so that at least regional‐
level ad campaigns can be planned.
Internet Television, and also Telco TV, allows television advertising to be targeted with far higher
granularity than before, in principle down to the level of individual households.
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Some senior executives in the television advertising business regard this as the ‘holy grail’ of
television advertising.
Internet Television: Example Ad‐targeting Scenarios
Here are some examples of what will become technically possible:
Contextual Targeting for On‐demand Viewing
Contextual targeting has become commonplace in online advertising. The most well‐known
example is Google’s approach where text ads are served on a range of Google properties (e.g.
Search and Google Mail) based on the content of the requested page. The same principle can be
used with Internet Television. So, as an example, because the Internet Television service provider
will know what each household is watching at a given time, ads can be served based on the
content that is actually being viewed.
Viewing Profiles
If the Internet Television service provider knows what each household is watching at a given time,
then it is possible to create a profile of a viewer based on what sort of television programming
they are watching. Each show would need to be tagged with meta data that the service provider
would then be able to use to create a database of users and what they like to watch. Quite apart
from this information being useful as a basis to recommend other relevant content that viewers
might be interested in watching, the same data could be used as a basis to deliver targeted ads.
Targeting Based on Optional ad‐profile
Viewers could be invited to voluntarily complete an ad profile that entitles them to receive some
service benefits. This allows the Internet Television service provider to understand more about the
household’s situation: how many children, what ages, family income, where and when the family
went for their last holiday, favourite movies, birthdays etc. Even basic information such as this is
highly interesting to advertisers.
These advantages have not been lost on satellite and cable RTV operators many of whom have
announced trials of similar ad‐targeting solutions for households that have a broadband‐
connected STB.
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However, when it comes to ad‐targeting, there is a line between what constitutes great marketing
and what consumers might regard as an abuse of their privacy. There have already been
examples of problems in this area, for example with several filed Facebook ad‐targeting initiates
(e.g. the ill‐conceived Beacon) and on‐going problems at Phorm, which is a UK‐based company
that allows partners to deliver target online ads based on the browsing behaviour of users.
Global Publishing
Telco TV services are for the most part geographically bounded, which means that a given Telco
TV service is solely intended for consumption in that telco’s national market. This is because each
telco’s residential access network (e.g. the broadband xDSL network) that is being used to deliver
the Telco TV service is restricted to one market only. For example, France Telecom does not have
any residential access lines in Japan.
One consequence of this national‐focus is that each Telco TV service is based on a technological
approach that suits that telco. For example, the technology solution used by France Telecom is
different to that used by AT&T.
The implication is that that Telco TV services are fundamentally incompatible with each other
from a technology standpoint.
This means that technological barriers will prevent content providers from publishing their
content to a global ‘Telco TV’ platform, as they can today with the web platforms which are
inherently global in nature.
However, with Internet Television, we see that the global nature of the back‐end deliver
infrastructure will allow content owners to public their content to a global audience, should they
wish.
Of course, television is currently not licensed on a global basis. The historical restriction of
nationally‐bounbded broadcast platforms – whether they be terrestrial, cable or satellite, have
naturally forces content owners to think in terms of licensing each content item in terms of
specific markets and then, within each market, to specific platforms.
This can be a laborious and resource‐expensive process.
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If a company developed an Internet Television platform that allowed any user anywhere in the
works to access the service, as is currently the case with the web, then a specific content producer
– say a TV production company – that wanted to publish their content to that platform could use a
simple online interface to define the markets where they wanted their content to be licensed. This
would, of course, mean that the underlying platform would have an associated monetisation
model that allows the TV production company to be adequately remunerated for when their
content was streamed or downloaded.
The important points are that:
• This is currently not feasible with any existing television distribution platform (terrestrial,
cable or satellite)
• This is also not possible with Telco TV services.
Licensing restrictions aside, Internet Television promises to enable the distribution of television
and film content on a global scale, although this will require an underlying enabling platform, the
most significant of which so far is, in our judgement, Google TV.
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Peer to Peer (P2P) Content Distribution
Earlier in this section we noted that a P2P‐based architecture can be used to reduce the content
delivery costs incurred by IPTV service providers. This section looks at this point in a bit more
detail.
Why P2P?
Content delivery networks like that operated by Akamai have emerged as the defacto network
solution for delivering digital content on a large scale.
Because these services are for the most part proven, robust and secure, it is natural to ask
whether there is a sustainable place in the market for P2P‐based content distribution solutions?
P2P content delivery network operators commonly maintain that their solutions offer two unique
benefits9 when compared with a standard CDN that is based on edge servers:
Very Low Cost
Because the broadband connections of ordinary users are being used to redistribute the content
the service provider does not have to pay for as much network‐end bandwidth as would be the
case if a standard CDN was used. And it is true that the cost savings can be dramatic;
Global Reach
A P2P‐based CDN allows the service provider to offer their service on a global basis. Even Akamai,
the world’s largest content delivery network operator, does not currently have any network
presence in China and many of the smaller providers are far more restricted than Akamai. This can
mean that the content service provider’s costs are low in some markets and high in others. Also,
the global audience for U.S. Baseball might be less than that for cricket. However there is currently
no easy way for the owners of the television rights to live cricket matches to distribute that
content to a global audience without negotiating maybe 100 separate broadcast contracts.
9 The key disadvantages are quality (e.g. visual quality in the case of streaming video content), scalability (some P2P network providers
think that 100,000 simultaneous users is a big audience when TV people are used to talking in terms of 10s of millions of simultaneous
viewers), rights management and general immaturity (i.e. reporting, support for different business models). However, ongoing
enhancements to the world’s broadband infrastructure and the quality of P2P content distribution solutions will serve to lessen the
seriousness of these issues over time.
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While we agree that P2P CDN’s offer a reach benefit, we are less sure about any ‘dramatic cost
benefit’ or, more exactly, about the sustainability of any cost benefit.
In our report Content Delivery Networks: A Detailed Analysis of Different Strategies, we presented
a detailed explanation as to why the cost benefit offered by P2P‐based CDNs is short term.
Our rationale is that any solution that offers an 80% cost saving is not sustainable if that cost
saving has been achieved simply by pushing the cost onto unwilling third parties. In this case the
unwilling third parties are ISPs or, in situations where users have to pay for the bandwidth they
use the end consumers themselves.
In effect, P2P network operators have found an arbitrage opportunity which their clients are
happy to exploit right now, and for as long as the arbitrage opportunity lasts. But, as is the case
when investors and traders find an arbitrage opportunity in the capital markets, market forces
always work to eliminate the opportunity in the end. However, in spite of this, we still think that
P2P will emerge to have a viable role in the content distribution marketplace for two key reasons:
• Efficient Utilisation of Network Resources
• Natural Architectural Development
Optimising Use of Network Resources
It seems fairly clear that when averaged across a whole network, the optimum content
distribution solution would, on average, be the one that minimized the amount of network
infrastructure used to achieve a particular content‐distribution objective. We’ve prepared an
example that illustrates this point.
Figure 2 shows a very simple network consisting to three nodes (1, 2 and 3) which are connected
together by three equivalent links. For the purposes of this example, the nodes can be thought of
as routers while the links resemble fibre optic cables. Six computers (A to F) are connected to the
nodes. The objective is to distribute a 1GB file to all six computers.
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generator
1
2 3
Content Distribution
(Server)
c_link
A
B C
D
EF
c_inject
Infrastructure Utilisation = (6 x c_server)+ (6 x c_inject) + (4 x c_link)+ (10 x c_router)
Source: Generator Research
c_link
c_link
c_router c_router
c_router
c_server
(A) Edge Server
(A) Reference Model: A content server is used to distribute the content to all six computers
Figure 2
Figure 2 models the amount of network infrastructure used by including four elements: the
number of times the server is required to stream the 1GB file (c_server), the number times the
1GB file needs to be injected into the network (c_inject), the number of times the 1GB file must
transit a network link (i.e. to travel between two nodes, c_link) and the number of times a router
is required to process the file (c_router).
We have then shown how this infrastructure‐intensive approach compares with a P2P approach.
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However, as Figure 3 shows there are two options for how the P2P protocol could be
implemented. In one case (Option B: non‐localised), the P2P protocol does not take into account
where the peers are located. In this example, the content is distributed once to computer (A),
which then re‐distributes it to all others. This would be OK if the network could be regarded as a
zero‐cost ‘cloud’ where the physical location of the various peers was unimportant.
The P2P protocol used in Option C (localised), assumes that network resources are precious and so
the protocol tries to minimise the amount of infrastructure used for each re‐distribution process.
Table 4 summarizes the results where for extra clarity we have added some cost numbers which
are intended to model the underlying operational costs of each network element plus
depreciation.
We think the differences in cost are pretty dramatic. Five important statements can be made:
• A non‐localised P2P network might have NO EFFECT on the total volume of network
traffic, even though it would massively reduce the cost of injecting (i.e. seeding) the
content into the network. Ironically, even though P2P is commonly seen as a network‐
efficient means to distribute digital content, the reality is that unintelligent P2P protocols
are nothing of the sort and may do little more than modify existing traffic flows;
• A localised P2P network can reduce the total volume of network traffic load by more than
50%, compared with a server‐based content distribution network. A localised P2P network
can therefore be regarded as a means of reducing the volume of traffic flowing around the
network or, alternatively, as a means to free up network resources for other services;
• A localised P2P network approach has the potential to reduce the total amount of router
and link capacity by 50% or even more, depending on the actual costs, for a given content‐
delivery task;
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1
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Figure 3
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• Because of the dramatic reduction in core network capacity needed (i.e. router capacity,
number of switch ports, capacity of optical switches), if localised P2P emerged as
mainstream content‐delivery strategy, the equipment forecasts of optical networking and
router vendors could be dramatically reduced (which could be bad news, depending on
what assumptions have been made);
• Likewise, the capital expenditure programs of ISPs and network operators could be
substantially reduced (core network side) because a high volume of traffic could be
supported without much in the way of incremental infrastructure expenditure (which
could be good news, again depending on what assumptions have been made).
Therefore, even when the arbitrage opportunity that is currently being exploited by many P2P‐
based CDN vendors has disappeared (see earlier in this section), we still think that there will be a
strong case for localised P2P networks in the content distribution market because they can:
1. Increase the amount of traffic that the world’s current internet infrastructure can support;
2. Reduce the amount of investment needed to support new types of traffic (e.g. internet
television).
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Review of Internet Television Services
In this section we review a diverse range of Internet Television services. It will be clear that the
diversity of the range of services, both in terms of the underlying user proposition and the
associated business strategy clearly indicates that the Internet Television market is at an
extremely early stage.
Sony Internet TV
Service Outline
Apart from being a partner in Google TV, Sony has announced its own proprietary internet
television offering, which the company calls, Sony internet TV, in March 2010.
Figure 4: Sony Internet TV – Appearance of YouTube and LoveFilm ‘Channels’
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generatorMajor System Components
Sony Internet TV is a proprietary, ‘walled garden’ solution that consists of five major system
components:
Compatible TV Sets
An on‐screen content discovery system and user interface that allows used to find and view
selected internet television content and use selected online services.
Upscaling Technology
The Bravia TV sets that support Sony Internet TV incorporate ‘upscaling’ software and hardware
that allows internet video content, which is normally viewed on a PC screen, to be viewed on the
television screen with a higher quality that would otherwise be the case.
Content Authoring Toolsets
Content providers and online brands need to use proprietary software tools and authoring
processes to distribute their content available to Sony Internet TV users.
Rights Management Software
Server‐based software that allows content items to be presented to the user without infringing
territorial licensing restrictions. For example, if the user is located in Turkey, then YouTube will not
even appear in the EPG.
Premium Content and Revenue Sharing
A means for users to view content that is only available on a pay‐per‐view or subscription basis.
For example, if a user already has a subscription to a service provider’s content then they can go
to the service provider’s website and enter their details (e.g. name, address and account number)
in order to obtain a PIN which is then entered into the Sony Internet TV platform via an on‐screen
keypad. This will allow the user to view the content via Sony Internet TV. NOTE: Sony shares the
revenue with the service provider.
Viewing Modes
Sony Internet TV can be viewed in two modes:
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generatorBravia Internet Video (TV mode)
Sony has signed up a number of content partners who have chosen to make their content
available on about 80% of Sony Bravia models. All users can access the content subject to
territorial licensing restrictions.
Bravia Internet Widgets (Web mode)
In addition to television content, selected online services can be accessed using ‘widgets.’ Example
of services that are currently supported are Flckr, Facebook, Twitter and ebay.
Sony Internet TV is a closed, proprietary platform where, for example, a user’s search query will
be limited to content available on the platform.
There is no associated developer community and no way to obtain or download third party
applications. Sony does not host any of the TV content, which is streamed directly from the
content providers servers, and the company is not involved in and of the technical aspects
concerned with getting the content from the streaming server to the TV set (e.g. the content
delivery network, or CDN) which is the responsibility of the content provider.
User Experience
Using their remote, the user first navigates across the XcrossMediaBar (XMB) to select the ‘Video’
icon (see Figure 5). The user can then select a content provider (e.g. YouTube, LoveFilm or
Demand FIVE – see Figure 6). The user then navigates to a content item (i.e. a clip on YouTube or a
programme on DemandFIVE) and selects it to view a preview (play picture‐in‐picture mode – see
Figure 9). The user can then select the clip again to view it in Full Screen mode.
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Figure 5:
Sony Internet TV
To access Sony
Internet TV, the user
uses their remote
control to scroll
across the Media
XcrossBar to select
the ‘video’ icon.
Figure 6:
Sony Internet TV
Having selected
‘Video’ the user can
see a list of content
‘channels’ which can
then be selected
individually.
Figure 7:
Sony Internet TV
In this example, the
user has selected the
YouTube channel. The
menu can be
customised by the
content partner.
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Figure 8:
Sony Internet TV
Having selected
‘featured’, the user can
scroll down a list of
available content items.
Figure 9:
Sony Internet TV
User selects a content
item and previews that
item (picture in picture).
Figure 10:
Sony Internet TV
User views the content
in full‐screen mode.
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generatorOur Take
Sony internet Video is this is a good implementation of a vertical platform by a TV set vendor. The
service is similar to rival services that are (or soon will be) offered by other TV set vendors, such as
Samsung, LG, Panasonic etc.
However, we think that the entire class of internet TV services being offered by TV set vendors will
not make it to the mature phase of the market in their current guise. The main reasons for this is
that they site in vertical silos and lack critical elements, such as an applications strategy and a
developer programme.
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Google TV
Service Outline
On 20 May 2010, Google announced10 ’Google TV’ which is an open platform that the company
hopes will “change the future of television.” The initiative was simultaneously announced by six
launch partners (see Table 5).
In contrast to similar initiatives in the past (e.g. Microsoft WebTV and Yahoo TV Widgets) It is
worth pointing out that Google is positioning Google TV as an initiative that is mainly about
leveraging the power of the internet in order to enable a superior TV experience as opposed to a
way of delivering the internet to the TV set. However, while this is the intention, Google TV is not
to prescriptive about this and it remains to be seen what sort of services developers will create
and which of those will become the most popular. We believe that it will be the TV‐focussed apps
that will prevail in the end, as opposed to TV versions of Facebook or the Washington Post, for
example.
Google’s Open Media Project: VB8 Codec and WebM
Through its $120million acquisition of On2 Technologies in February 2010, Google obtained access
to a high‐specification video codec, VP8. Google has packaged an open source version of the VP8
video codec with the well‐regarded open source audio codec, Vorbis, to produce WebM, which is
the company’s flagship open source web media offer. WebM is now available to developers across
the globe on a royalty‐free basis via Google’s open web media project “The WebM Project” (see
www.webmproject.org).
YouTube, a site which currently serves over 2 billion video views per day, is in the process of
converting its entire video catalogue int6o to WebM, format. This initiative will be offered to users
under a new Google TV service called YouTube lean‐back which allows users to access their
normal YouTube account in a way that is optimised for the TV set.
Importantly, Adobe, one of the launch partners for Google TV, has decided to incorporate the VB8
codec in the company’s Flash player. Google TV will use Flash and, therefore, support VB8.
10 See: http://www.google.com/intl/en/press/pressrel/20100520_googletv.html
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Google TV will be available commencing autumn 2010. Apart from TV sets that will incorporate
Google TV and standalone set top boxes (STBs) called ‘companion boxes,’ CE vendors, such as
Sony and Logitech, will offer wireless handheld QWERTY controllers that will allow user to enter
search queries and limited amounts of text (e.g. to complete a registration form, enter an email
address, or engage with other users via a social apps). The handheld controllers are not intended
to be used to create documents, but only to provide text entry functions that are directly
associated with a TV experience.
System Components
Refer to Figure 11.
Hardware and Software Elements
Consumer Electronics
Google TV incorporates the following consumer electronics elements:
TV sets that incorporate Google TV (see Jones Family ‐ Figure 11);
Blu‐ray players;
Companion set‐top boxes, which work with the user’s existing cable or satellite Pay‐TV box,
regardless of the operator (see Smith Family ‐ Figure 11). Users can connect their existing cable or
satellite TV set to box (STB) to the Google TV companion box using a regular HDMI cable;
Broadband connectivity (Wi‐Fi and Ethernet);
Whether incorporated inside the Companion Box or integrated within a TV set, Google TV includes
a more advanced microprocessor than that typically found in TV sets as well as a dedicated DSP
that can process video in HD and audio in surround sound;
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Company Contribution
Intel Intel’s role is to deliver chips that allow CE vendors to introduce internet‐type
performance into a CE product (e.g. a TV set of set top box). Specifically the company
is providing:
Atom processor (Netbook/low‐end notebook performance)
Support chips (HD video, encoders and decoders, high‐performance graphics
processing)
However, none of the products Intel is offering have been specifically designed for
Smart TV, which is just one application area.
Adobe Adobe is contributing Flash 10.1 technology which the company claims is more
optimised for lower power, CE‐type devices.
Sony Sony will introduce a range of TV sets that incorporate Google TV.
Sony’s first Google TV‐enabled TV sets, will be launched in the U.S. during the Autumn
of 2010 and in Europe during 2011 (see Exe
Logitech Logitech is developing a companion box and a handheld controller which will be
launched in the U.S. in Autumn 2010.
More broadly, Logitech hopes to develop a whole range of peripherals based on
Google TV.
DISH Network DISH Network, a direct competitor to DirectTV, is a satellite‐based pay‐TV service
provider operating in the U.S. and Mexico.
The company has announced a plan to integrate Google TV‐based within its Pay‐TV
offer.
This will allow viewers to switch from viewing linear TV to web‐based television within
the DISH user experience.
Best Buy The US‐based electronics retailer, who also has international retail interests, will
provide a retail footprint for Google TV.
However, the company will also perform an important role in educating customers. At
the launch event for Google TV, Best Buy CEO, Brian Dunn said that “When Google TV
is properly explained and demonstrated, customers will see that it solves real
problems that they face today. I think there is going to be an enormous consumer
appetite to do this. I think this is not just a new aisle, it is a completely new category.”
Table 5: Google TV – Summary of Main Launch Partners and an Explanation of their Contributions
to the Initiative.
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Google TV input devices, all of which include a QWERTY keyboard and a pointing device so the
user can navigate web pages. However, users will mostly navigate using a directional pad, such as
that on a TV remote control, where on‐screen navigation is limited to up, down, left, right, and
enter;
Software
Google TV is based on Android 2.1, but it will be possible to downloads updates when these
become available. Existing Android apps will work on Google TV, unless they use device hardware
and software features that are not supported on the TV set. Google expects that developers will
want to create new apps that are designed for the TV set;
The Google Chrome browser (version 5.0) is also used which allows users to navigate any web site.
However, for the reasons noted below, we do not think that this will be a major user case;
The use of Flash 10.1 will allow Google TV to play 720p and 1080p Flash videos (h.264). This does
not mean that users will be able to navigate to websites that make heavy use of Flash and
experience those sites with the same quality as they would on a PC. This is mainly because the TV
Set/Companion Box has reduced processing power compared with a PC. Again, Google hopes that
developers will create content specifically designed for Google TV.
Content: TV and Movies
Internet Websites
Users can view conventional internet websites using the Chrome web browser that is incorporate
within their Google TV set or Google TV Companion Box. To do this, the user can enter a search
query into the Google TV search box and search the web in the normal way, or the user can type
in a web address.
However, as mentioned above, while this will be possible, it is very unlikely in our opinion that
many users will use the TV set to browse standard webpages. Quite apart from whether users
would want to use their TV set to browse the web, displaying pages that have been designed for a
PC on a TV set presents some issues. For example:
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Even after text size enhancement, the text size on many webpages will be too small to be readable
from two to 3 metres: Typical font sizes for TV are between 18pt and 21pt;
Large blocks of text that look fine on a PC, will be difficult to read on a TV set: paragraphs will
need to be limited to about 100 words and the number of words per line needs to be limited;
As noted above, advanced Flash‐based websites may appear slow or they may not even load
properly on the TV, which has more limited processing power than a PC;
Colours that work well on a PC may not look right on a TV set: pure white can cause image
ghosting on a TV and bright orange and red can cause image distortion;
Sounds effects that work well on a PC, which typically has poor speakers, may be obtrusive on a
TV set that has an associated high‐end surround sound system.
Google TV Content
Google TV is really intended to be used with content that has been specifically designed for the TV
or, more exactly, Google TV.
As Google TV gains increasing market traction, we expect that most television service providers –
brands that are familiar to the TV user base in a given market ‐ will write apps specifically for
Google TV.
Accordingly, users will also be able to increasingly access ‘websites’ (TV content) that has been
optimised for viewing with Google TV.
Users will also be able to download ‘applications’ to their TV set or Companion Box, that have the
potential to provide a richer experience than what is possible by designing a website that has been
optimised for the TV (see below).
Developer Community
The most notable difference between Google TV and, as far as we are aware, any other Internet
TV initiative so far announced is the associated developer programme which means that third‐
parties will be able to write applications that can be downloaded directly by users via a TV version
of the Android Market.
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In the words of Google11 “The Google TV platform will allow developers to navigate TV content.
Android developers will not only have access to most of the Android APIs currently available but
also to Google TV‐specific API extensions that tap into the power of TV.” The significance of this is
that, in principle, developers will be able to create their own search, recommendation and
discovery services. Therefore, in the future, a user’s primary interface with Internet Television
content might be via company xyz, not Google and not their existing PayTV provider.
Google is presenting Google TV to the developer community as a way to gain access to 4 billion
users. During 2010 I/O Developers Summit, when Google TV was announced, Rishi Chandra noted
that there are 4 billion TV users in the works, compared with 2 billion mobile users and 1 billion PC
users. Mr Chandra stated12 that “For a developer, there is no bigger market than the TV market.”
While this is true, it is equally true that of the 4 billion TV users that Mr Chandra refers to,
developers can access 0% of those users today. Even if Google TV is a spectacular success, it will
be many, many years, perhaps decades, before the number of Google TV sets available to
developers is comparable with the number of PCs or mobile devices.
While many developers will be film producers, television broadcasters and brands who want to
connect with user via their TV set – essentially large well‐know branded players who are already
involved it the TV business – it will be possible for anyone to write apps on a level playing field
basis, as is the case with Android (mobile version).
However, the usefulness of these applications will depend on the richness of the API and, most
important of all, the sort of relationship that Google TV allows between developers and branded
content providers.
For example, consider these points:
Content Indexing and Meta Data
Assume that at some Pont in the future ABC creates a site specifically for Google TV, either for
direct viewing via the Google TV Chrome browser or via an application.
11 See: http://www.google.com/tv/faq/
12 See: http://www.youtube.com/googledevelopers#p/c/CF01A789E62F2454
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Then would Google TV make it easy for a third party developers to know about that site, obtain
meta data about the shows and movies available on the site and then present that content to
other Google TV users, via a value‐added service provided by the developer?
Content Discoverability: Prevention of Unwanted Syndication within the Google TV Platform
Would ABC be able to prevent such a scenario? For example, by setting a flag (equivalent to
robots.txt) that informed third party developers that the content was not to be indexed?
Sharing Advertising and Other Revenue
Assuming that ABC was happy for its content to be indexed and syndicated by potentially
unknown parties, then we think that it would be very unlikely that any associated revenue
resulting from in‐stream video ads that were served by ABC would be shared between ABC and
the third party. We think that ABC would collect all the ad revenue while the third party would be
responsible for making money using their own business model.
The same considerations apply to other forms of ad revenue that might be being earned by ABC
on Google TV. For example, the company might choose to operate a Pay‐per‐view model, or sell
subscriptions to content that is exclusively available on Google TV.
Implementation of Geographic Licensing Restrictions
Within the Google TV API, there would need to be a way for ABC to expose the geographic license
rights for each video content item. So that, for example, a show that is not licensed for
distribution in Belgium, is not visible to Google TV users in Belgium.
Ad Targeting: Geographic, Demographic and Contextual Criteria
In the event that ABC was happy its content to be indexed and syndicated by third parties who
were part of the Google TV platform, then would there be any way for ABC to know where (i.e.
state, country) the a video item was about to be served, who to (TV set, any data provided by the
users) and what the context was (what show they were watching previously, what the viewing
history was, what the local time it was etc.) so that an appropriate advertisement might be served.
We think that this sort of targeting data will be make available to advertisers under any future
‘Ads for Google TV’ programme, but we are less sure that Google would be freely provide it to
players like ABC who wanted to serve their own ads.
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Google would clearly prefer that ABC used its ad platform, which would mean sharing ad revenue
with Google. ABC would prefer to serve its own ads, and just have Google provide the targeting
data.
Revenue Models for Third Party Developers
Assuming that any ad revenue, pay‐per‐view revenue, subscription revenue or ancillary revenue
streams earned by ABC for serving content (e.g. money taken directly for users via an direct billing
relationship) was not shared with third party service providers (perhaps a search or content
discovery service) then it is unclear how such companies would make money.
Therefore, Google TV will, need to incorporate tools, processes and other enablers that will help
such third parties make money. Apart from being able to sell their apps via Android Market (TV
version), Google might integrate Google Checkout into Google TV so that cash can be collected
directly from users, adding a form of AdSense for Video into Google TV so developers can share in
the ad revenue earned by serving ads with the content (potentially alongside any in‐stream video
ads served by the source content provider).
Depending on how Google has decided to address these questions (not publicly announced),
Google TV may provide an unprecedented opportunity for third party service providers to develop
relationships with users in a way that is not possible with any other television platform so far
announced.
While we do not yet know the answers to the above questions, here is a summary of what we do
know about the developer programme:
• Google will provide an Android SDK add‐on with Google TV‐specific extensions a few
months after first product availability (i.e. Q1 2011, or sooner);
• Google plans to publish the source code for Google TV during 2011 so that anyone can
download the software for free (open source approach);
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• The Chrome browser which will be incorporated as part of Google TV is almost exactly the
same as that used on the PC, with some minor changes to take into account the different
screen size of the TV set. Updates will be provided automatically;
• Android version 2.1 will be used in the launch version of Google TV but it will be possible
to upgrade this to future versions of Android;
• When the Android Market for TV is available, existing Android apps will work on Google
TV, unless the developer of the app has used hardware or software features that are not
supported on the TV (e.g. video camera, address book);
Applications: Example API Features
Rather like the app strategy that is becoming very popular with mobile and, we believe, Media
Tablets, Google TV incorporates the concept of applications.
Google TV is the first attempt to extend the concept of apps to the TV set. Prior attempts, like
WebTV, Microsoft Media Centre PC and Yahoo! TV Widgets have either meant that developers
have had to create another version of their internet website or they have been able to create a
small app that runs on a T%V set but which just contains a snapshot of content that is already on
the main internet website.,
We think that Google TV apps have the potential to be very different because many of the API
features that are part of Android will be available as part of Google TV, which is based on Android.
Here are some examples of API features that we think are very likely to be available to developers:
Sharing Data between Applications
Android provides a structured way to share data between applications.
Therefore, a TV recommendation application could interface directly with a Netflix app on the TV.
However, as all Google TV sets will be connected to the internet, there is no reason y why one
application on one TV set (service provider x) could not share data with another application
(service provider y)on another TV set that is, potentially, in another country.
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Equally, one service provider could create an app that is based on the heavy use of social features
where users can interface directly with each other, with one app sharing data directly with the
other.
Event‐triggered Applications
Android allows applications to be triggered by external events such as:
The status of a web resource had reached a defined state (i.e. new content has just been
published on a site);
• A specific time/date has been reached;
• An incoming call or text message has been received (one obvious application area for
Google TV is video calling and the inclusion of social features will make it possible to
interact with other who are viewing the same show, or who have commented on that
show, for example);
• The status of another application on another Android TV set has reached a defined state
(i.e. a friend is watching a programme that is within a category that a user has expressed
an interest in).
Location Manger API
Location does not have the same meaning in a TV setting as it does in a mobile setting: a TV user’s
position does not change, but a mobile user’s position is constantly changing
In Android mobile, the location manager API provides two basic capabilities:
• The geographic location of an Android device can be queried;
• An application can be notified when any Android device arrives at a specific geographical
location.
In Android (mobile version) location is based on GPS or a third party service whereas n TV it could
be based on IP address or user‐entered data (perhaps at registration).
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By way of illustration, these features could be used in the following ways:
• Based on geographic licensing restrictions, a user’s location could be used to determine if
a show could be streamed or not;
• The user’s location could be used to help decide which advertisement to serve within a
given app;
• A social TV app could query the location of other users to find other viewers who have
similar viewing interests and who live in the same city or town.
XMPP Service API
XMPP provides and easy way for an Android application to send data to any other Android
application, or combination of applications – where the recipient application/s are not on the
originating device.
In effect, XMPP allows applications to communicate with each other without the developer
needing to design and install network‐end messaging infrastructure, which would be complex and
problematical or embed established internet protocols inside their applications which would be
more complex than using XMPP.
This not only allow applications to send messages to other applications it also allows users to user
an app to send a message to another user. This means that, for example, a Google TV user could
send text messages to a friend or group of friends while they are watching a TV show.
Notification Manager API
On Google Android, this allows any application to insert notifications into the status bar at the top
of the phone. We can see the same sort of feature being interesting to users and developers on
Google TV.
The notification Manager API could be used to alert the user when a new message had arrived, or
when the status of an Android application on another user’s device had reached a pre‐defined
state.
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The Notification Manager could be used by social TV services to inform users about events such as
friend requests or new posts on a friend’s profile page on a social TV service (for Google TV) that is
focused on a special TV genre, say westerns or movies by a specific director.
It seems that equivalent services, which already exist online would be interested in extending their
offer to Google TV.
It is worthwhile pointing out that the XMPP and Notification Manager APIs could be used in
combination to create new messaging services – services the could rival those offered by mobile
service providers.
User Experience
Usage Modes
Google TV has three usage modes:
Linear Mode
The user watches regular linear programming (cable satellite or terrestrial);
App Mode
The user views television content that has been specially designed for Google TV using an
application. This would be where a content producer wants to distribute TV content on the web
and had decided to develop an application for Google TV;
Web Mode
The user switches to web mode – say the user is viewing the movie Alexander and wants to learn
more about the history of Alexander the Great. In this case, while the movie is playing in the
background, the user could assess the web and pull up the Wikipedia page about Alexander the
Great. The user could pause the movie while he is reading.
The challenge foe the TV set makers and service providers will be to integrate these three
experiences into a simple user interface.
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generator
Re
gular
Web
sites
HDMI
Goo
gle TV
Companion
Bo
x
Any
HD TV Set with an
HDMI con
nection
TV Set th
at
Incorporates
Goo
gle TV
Goo
gle TV
Re
mote TV
Con
troller
(Cou
ld be a Sm
artphone
or
med
ia tablet app
)
Wireless Link
(e.g. W
i‐Fi)
Goo
gle TV
Web
sites
Conten
t
+ CE
Ven
dors
+ CE
Ven
dors
+Device Ven
dors
+ Device Ven
dors
Smith Family:
Wan
ts to
Use Existing HD TV
(Have to buy
a Com
panion
Box)
Jone
s Fam
ily:
Willing to Buy
New
TV
(TV Nee
ds to
Sup
port Goo
gle TV)
Wireless Link
(e.g. W
i‐Fi)
Goo
gle TV
Re
mote TV
Con
troller
(Cou
ld be a Sm
artphone
or
med
ia tablet app
)
Apps
Goo
gle Network Assets
Develop
er Com
mun
ity
APIs
App
s
APIs
Standard File
Format & Meta Data
(Con
tent Discoverability)
APIs
Source: G
enerator Research
Figure 11: Goo
gle TV
– Illustratio
n of Con
nectivity
Options in
the Hom
e
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generator
2001
2002
2003
2004
2005
2006
2007
2008
2009
85$
430
$
1,437
$
3,125
$
6,016
$
10,393
$
16,262
$
21,359
$
23,177
$
Ann
ual Cha
nge:
n/a
407.5%
233.9%
117.5%
92.5%
72.7%
56.5%
31.3%
8.5%
8,816
$
10,026
$
12,177
$
15,290
$
21,887
$
30,045
$
40,585
$
49,139
$
57,495
$
Ann
ual Cha
nge:
n/a
13.7%
21.5%
25.6%
43.1%
37.3%
35.1%
21.1%
17.0%
109,993
$
112,566
$
118,534
$
127,144
$
131,861
$
137,579
$
142,351
$
152,719
$
156,044
$
Ann
ual Cha
nge:
n/a
2.3%
5.3%
7.3%
3.7%
4.3%
3.5%
7.3%
2.2%
Source: Com
pany
Rep
orts and
Gen
erator Resea
rch
Worldwide Co
mparison
USD
, millions
Television
Advertising
Expen
diture:
Internet Advertising
Expen
diture:
Goo
gle Re
venu
es from
Advertising:
Table 6: Com
parison be
tween Goo
gle’s Worldwide Re
venu
es from
Advertising and To
tal W
orldwide Expe
nditu
re on Online Advertising and Television
Advertising
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generatorConnectivity Options: Companion Box or Integrated TV
Google TV will be available to any user who has an HDMI‐capable TV set, of which there are about
60 million installed in the U.S. today. In this case the user will have to purchase a Google TV
Companion Box (see Figure 12). However, some TV set vendors, such as Sony, will be
incorporating Google TV into their some of their TV sets commencing in the U.S. during the
Autumn of 2010 and in these cases a separate Companion Box is not required (see Figure 11).
Figure 12: Logitech’s Companion Box supporting Google TV
Smartphone Controller
Although not an essential part of Google TV, the Logitech Companion box for Google TV (see
Figure 12) is based on the company’s Harmony13 technology and allows the user to control an
entire A/V set‐up (including Google TV) with a single, universal remote controller.
13 See: http://www.logitech.com/en‐us/remotes/universal_remotes
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However, with the arrival of Google TV, Logitech have taken the Harmony concept one step
further: users can now control their home A/V set‐up (including Google TV) using their
smartphone. To do this, the user can go to either the Apple App Store or the Android Market and
download a free Logitech app which can then be used to control a games console (the in‐game
control would still be via the dedicated controller which is designed for that purpose), PVR, cable
TV service as well as Google TV. A Wi‐Fi connection is used between the Smartphone and the
Companion Box.
Figure 13: Illustrations of how Smartphone Apps (iPhone and Nexus 1) that can be used to control
Google TV
If the user wanted to search for television content then he could use the touch screen keypad on
the Smartphone to select ‘Watch TV’ and then ‘Google TV’ and then he would be able enter the
search query.
The user could also use the
Smartphone keypad to enter a
PIN in order to gain access to
premium television content. If
the user was viewing an
interactive video ad then he
could also use the Smartphone
to enter his contact details, in
order to receive a few sample of
enter a prize draw, for example.
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generatorSearch
The search functionality incorporated within Google TV allows the user to search:
• Live TV: Content that is already available to the user via their normal television service/s
(e.g. cable, satellite, telco TV or terrestrial);
• Google TV: Online television and movie content that is intended to be viewed via Google
TV;
• Recorded TV: Shows and Movies that the user has recorded on a PVR;
• The Web: The user can view any web page with the Chrome browser.
The Google TV search box can be requested at any time and, when the user is already watching a
show, the search box appears on top of the show (see Figure 16).
Figure 14: Google
TV Search
Applications
Applications can be accessed from the home page of Google TV, which is where the user can also
access Google TV channels, favourite shows and bookmarked content.
Figure 15: Google
TV Home Page
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generator
Step
2: User requ
ests Search. Search bo
x starts to
app
ear.
Step
4: User selects Search option (Goo
gle TV
is one
option).
Step 1: The
user is watching a TV
Sho
w.
Step
3: Search bo
x appe
ars on
top
of the TV
sho
w. User en
ters
search que
ry.
Figure 16: Illustratio
n of how
the Goo
gle TV
Search Feature App
ears whe
n the users is watching a TV
Sho
w
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Our Take
There is no doubt in our minds that Google TV represents by far the most significant development
in the internet television market so far.
The product is very young, so young in fact that some readers might be surprised that we can be
so opinionated about the platform’s prospects at such an early juncture.
Our view is based on two reasons:
• When viewed form at a product level, it is clear to us that the Google TV platform has by
far the highest potential to enable the type of service proposition and business benefits
set out in the previous section become a reality.
• Google TV is strongly linked to Google’s wider business strategy which is based on
advertising and scale. To us, it was inevitable that Google would try to enter the TV
industry at some point and we think that the Google TV platform has the potential to
transform the TV ad market to a broadly comparable extent to how Google AdWords
transformed the online ad market.
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Apple TV
Service Outline
In spite of an original attempt to allow users to access selected third‐party content, for example
HD YouTube content which is still available (see screenshot below), Apple TV is today positioned
primarily as a way to view HD movies that have been purchased or rented from the iTunes Store.
The last update t the product occurred on October 29 2009 when Apple introduced version 3.0
which improved support for wide‐screen displays, improved integration with iTunes, and allowed
users to stream internet radio content.
“...I think the whole category
[internet TV] is still a hobby
right now. I don't think anybody
has succeeded at it. And
actually the experimentation
has slowed down. A lot of the
early companies that were
trying things have faded away.”
Steve Jobs, October 2008
Apple TV first went on sale in March 2007 at a price of $299. The product is a Wi‐Fi media hub that
works in combination with a PC or Mac and allows the user to wirelessly play movies and
television shows on a widescreen television. The device incorporates a 160GB hard drive that can
store 200 hours of video, 36,000 songs and 25,000 photos. Connectivity options include HDMI.
The Apple TV media hub can play content that the user has already obtained, or it can play
content that has been downloaded from the iTunes Store. Apple TV also allows the user to view
pictures on a flat screen TV set and listen to music via a home audio set‐up.
Users can also download an application for their iPhone or iPod Touch which can be used to
control their Apple TV, instead of using a dedicated wireless controller.
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The product has not been a great success and in spite of comments by Apple CEO, Tim Cook, in
October 2008 that quarterly sales of Apple TV were 300% up on the previous year’s quarter, and
comments he later made that 2009/10 that sales were up 30% on the 2008/09 fiscal year, we
estimate that sales to dateof Apple TV are less than 5 million units, implying hardware revenues
of less than USD 1.5 billion. After three years, for Apple, this is clearly a big disappointment and
explains why Jobs refers to the product as little more than ’hobby’.
Table 7: Apple TV Media Hub
Our Take
We think that internet television is one example – perhaps the only example – in digital media
today where a simple vertical strategy is not the best one for a new entrant.
It seems that Apple has one way of entering new digital media markets, such as music, mobile,
applications and now – with the iPad – portable computing. In every case so far company’s success
has had a lot to do with having taken a vertical approach. But there are fundamental reasons why
Internet Television requires a different structural approach and we think Google’s ‘open’ platform
strategy is far more likely to be successful in the end. We discuss this in more detail later in this
report.
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BBC iPlayer
Overview
This is a publicly‐funded internet television initiative which is being driven by the BBC in the UK.
Commercial rivals, notably rival broadcasters including Sky and ITV, have been fiercely critical of
the project which they say is beyond the BBC’s ‘public service’ remit and is having the effect of
distorting the market. Meanwhile, a range of UK ISPs have complained that the large increase in
internet video traffic which iPlayer has catalysed14 has resulted in their costs increasing markedly.
Nevertheless, we note that the arrival of iPlayer has subsequently resulted in the introduction of
SkyPlayer (Sky) and ITVPlayer (ITV) and we have also seen the comparatively recent introduction
of higher‐priced, guaranteed bandwidth broadband internet tariffs specifically aimed at users who
enjoy watching internet television (e.g. Virgin Media). These premium broadband services allow
users to watch iPlayer and similar services without their traffic consumption necessarily affecting
other users or damaging the commercial interests of the ISPs involved in delivering the video
streams.
Other Public Service Broadcasters around the globe are driving similar initiatives, for example, in
Germany (Deutche Welle), Norway (NRK) and Canada (CBC).
Figure 17: iPlayer as it appears on a 1080p TV set (simply connecting a Notebook computer to the
TV set which is used as a display)
14 In May 2009, the BBC reported that the total bandwidth needed to serve users (in the UK) peaks at about 60Gbit/s while the traffic
delivered during a typical month is about 7PB (e.g. 7,000 GB).
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generatorService Outline
iPlayer is an internet television service15 that is available to users who access the internet from
within the UK16. The service allows users to access practically all television and radio content
broadcast by the BBC for the last seven days. Some content remains available for a lot longer.
The BBC’s license agreements with content partners allow content to become available as soon as
1min after it airs on the BBC linear channels. However it takes the operations team about 15
minutes, and sometimes a lot more, to publish the content to the iPlayer platform.
Users can also download many programmes, which are protected with Windows Media DRM.
However, downloads only account for 10 percent of total bandwidth consumption. Each week, an
average of 400 hours of new video programming becomes available.
A growing amount of video content on iPlayer is now available in high definition, or HD, (H.264
encoding at 3.2Mbit/s and 192kbit/s audio).
For streaming content, the BBC uses a number of Content Delivery Network (CDN) partners,
including Akamai, Level3, Limelight. RealNetworks is used for mobile devices. For downloads, the
BBC uses its own servers which are hosted by Siemens.
Based on Flash, the service itself is currently only available in the UK and is mainly delivered to PC
users but it also becoming available on a range of other platforms, including Virgin Media (where
it appears as a Cable TV ‘channel’), Nintendo Wii, and iPhone17 and an expanding range of others.
We expect that iPlayer will also become available on iPad and Google TV when these platforms
become available. The BBC appear to be on a mission to turn iPlayer into a global brand that will
be syndicated across multiple digigital platforms in a similar way to how linear television
programming is syndicated. We understands that the BBC is also interested in licensing the
technology platform, specifically to other television broadcasters around the globe who want to
offer their users a leading‐edge internet television experience, but who do not have the time,
expertise of budget to develop their own platform. 15 The iPlayer service also includes radio programming and podcasts but it is the television aspect for which the service is best know. 16 The BBC has acquired on demand rights that are currently limited to the UK. 17 The BBC have had to develop a special (non‐Flash) version of the streaming service to allow iPhone users to view streaming iPlayer
content. We expect the company will do the same to allow iPad users to access iPlayer.
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Looking ahead, the BBC is in the process of developing and introducing a range of features that are
well aligned with what we have described earlier in this report (see Benefits: Service Proposition):
• Content recommendation are delivered to uses to their preferred device based on user‐
defined preferences and past viewing behaviour;
• Users would be able to subscribe to services and programmes in return for receiving
updates and accessing value‐added features;
• Users will be able to store content in an online media library which would in effect be a
cloud‐based PVR;
• It may become possible to customise the appearance of iPlayer to remove content genres
that are not interesting and to allow users to more quickly access their favourite content
categories and online media library.
We also understand that the BBC is developing an international version of iPlayer that will allow
users from outside the UK, who are not required to pay the television license tax which funds the
BBC, to access iPlayer on a paid‐for basis.
Our Take
iPlayer has become something of a benchmark for Internet Television: this is a serious service that
works well and, in HD mode, can be impressive on an HD TV set – assuming the user has at least
4MBit/s available on their broadband connection. In our experience, the visual quality of iPlayer
HD is at least as good as what is available on HD channels of satellite or cable TV in the UK.
If the BBC continues to improve iPlayer by adding more features, internationalising the product
and syndicating it across more devices and platforms then the service will remain a central part of
the Internet Television landscape in the UK, where, for obvious funding reasons it will always be
best known.
However, looking into the future, iPlayer will find a match in Google TV which we think has the
potential to ultimately offer more content and richer features. Therefore, we see iPlayer being
developed to incorporate Google‐like features such as, for example, an app strategy and
associated developer programme.
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generatorProject Canvas
Overview
Project Canvas is UK‐focused initiative based on a proposed partnership between Arqiva, the
BBC18, BT, C4, Five, ITV and Talk Talk. At first sight, Canvas might appear broadly similar to Google
TV but the project is in fact a completely different and it is not directly related to internet
television at all.
Instead, Canvas is focused on the UK Freeview19 market, where viewers can gain free access to a
range channels that are marketed under the ‘Freeview’ brand name and available on a
combination of free to air and pay‐TV platforms. The Freeview market has been very successful in
the UK but it is starting to suffer because it does not have an upgrade path for more advanced
features and functionality, and this is because of its commercial structure and the rival interests of
the companies who run and operate Freeview (and who provide) the programming content for
the service.
Essentially, because Freeview will not finance any technology development of its own the
platform is falling being the market – for instance there is no VoD capability, no PVR functionality
and no HD offer. In contrast, Sky and Virgin Media already have these features. Therefore, over
the next few years as consumers start using the advanced digital features now available ion Pay TV
platforms and begin using internet television services they will start losing interest in Freeview.
Canvas is intended to take Freeview to the next level by putting in place a technical and
commercial framework that consumer electronics and others can use to develop a new, all‐in‐one,
internet‐connected STB and associated service aspects that will bring Freeview up to date.
18 The BBC’s proposal to the BBC Trust to take part in Canvas was approved on 25 June 2010. 19 Freeview is a free‐to‐air service that is available to UK customers who purchase a compatible STB or who already have a Pay TV
subscription that incorporates FreeView. Freeview is the trading name for DTV Services, which is a company equally owned by UK
television broadcasters Sky, ITV, and Channel 4 as well the television infrastructure operating company, Arqiva . The Freeview model
has subsequently been copied and is now offe4ed in France, Italy, New Zealand and Australia.
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generatorOur Take
Because Canvas is not driven by a strong commercial imperative20 we think that it is unlikely to
have a material impact on the internet television market in the UK, let alone internationally.
Hulu
Service Description
Founded in March 2007, Hulu is an ad‐supported streaming internet television service that is
offered for free for PC users or under a subscription, Hulu Plus, which provides access to more
content on more devices. The majority of the company’s share capital is owned by NBC Universal,
News Corp., The Walt Disney Company and Providence Equity Partners (who has so far invested a
total of USD 100 million).
Hulu is currently only available in the U.S. mainly because of licensing restrictions although a UK
version of the service was expected to be launched in 2009. However, this failed to materialise
because of a disagreement between hulu and ITV, Channel 4 and Five Television over who would
sell the associated ad inventory, what the revenue share would be and what ads would be served
within a given steam.
The company’s most recent announcement came on 29 June 2010, when ‘Hulu Plus’ was
announced21, which is an ad‐supported, subscription service costing $10 per month that will be
offered alongside the existing free, ad‐supported service which is now aimed at PC‐only users.
Hulu Plus, allows users to access all historic episodes of almost all of the network TV shows
currently available on Hulu – for the current season. For some shows, for example The X‐Files,
Hulu Plus subscribers will be able to gain access to back‐seasons as well.
Another aspect of Hulu Plus is the ability to play content on a range of devices, rather than being
limited to a PC or Mac, as currently.
20 For example, one of the project’s sponsors, FIVE Television, has been recently put up for sale by its owner, the pan‐European
broadcaster, RTL. RTL has told FIVE to pull out of Canvas, implying that the project is not contributing to FIVE’s enterprise value.
21 See: http://blog.hulu.com/2010/06/29/introducing‐hulu‐plus‐more‐wherever‐more‐whenever‐than‐ever/
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Hulu Plus subscribers who own select Samsung Internet‐connected TVs and Blu‐ray players will be
able to download a Hulu Plus application from the Samsung app store and start streaming Hulu
Plus directly to their HDTV.
Hulu Plus will also be able to download a free iPad app which allows Hulu to be enjoyed over a Wi‐
Fi or 3G wireless connection. Hulu have also created an app that is compatible with the iPhone
3GS, iPhone 4 and the 3rd generation iPod Touch.
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Our Take
In many ways Hulu has become a gold
standard for Internet Television. The company
is backed by heavyweight industry players and,
to the surprise of some, has consistently
introduced services that have impressed users,
both in terms of UI, visual quality, service
reliability, content, and, most recently,
support for viewing on multiple devices (Hulu
Plus).
Nielsen online viewing data shows that in
September 2008, just six months after the
public launch, Hulu has become the 6th most
popular video streaming site on the web in the
U.S. with 142 million streams delivered to 6.3
million unique users. For comparison, YouTube
had 5.5 billion streams and 81.9 million unique
users while ABC.com had 45 million streams
and 5.2 million unique users.
By October 2009, according to ComScore’s
Video Metrix, hulu was the 5th most popular
video streaming site on the web in the U.S.
with 42.3 million unique viewers (YouTube and
MySpace were 1st and 2nd with 126.1 million
and 53.4 million respectively).
There is no doubt that hulu’s user base is growing strongly but the introduction of hulu Plus
suggests that the company was struggling to make a business out of ad revenue alone and
therefore felt compelled to introduce a subscription model.
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generatorBoxee
Service Outline
This service is accessed via a 40MB application for Windows, Mac and Linux computers as well as
Apple TV. However, it is clear that Boxee is really intended to be used on a TV set, which means
the user will have to configure their TV set as a second monitor.
Users can also access video content, such as TV shows and movies that are already stored on their
computers. This pre‐existing content can then be accessed under ’movies’ and ‘TV Shows’ in the
Boxee main menu. The service also allows users to play music via apps like Last.fm and Pandora.
Users can access branded content via BOXEE apps.
CNN content is limited to short clips.
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BBC iPlayer: Boxee (TV Version)
Our Take
Boxee is a reasonable implementation of an internet television aggregator service and the user
interface works well on a TV set. Apart from a relative lack of content in the wider sense, and in
common with other aggregator services, such as SeeSaw for example, Boxee currently has two
major deficiencies:
• No off‐site search functionality: content is limited to what is already within the service;
• Not integrated with the TV set: the requirement to connect to the TV with a cable will be
too complex for many people.
However, both of these limitations are in many respects a natural consequence of the early‐stage
nature of the market and we think that Boxee will work to address these problems as soon as
market conditions allow.
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SeeSaw TV
This is a UK‐based streaming internet television service that aggregates a range of television
content already available online at websites and services offered by the UK’s leading television
broadcasters22. SeeSaw, which does not currently host any content, consists of a unified user
interface that allows users to access content already available at a number of online locations.
SeeSaw is delivered using the technology that was jointly developed by the BBC, ITV, Channel 4
and FIVE Television for their own video on demand service which was being developed under the
project name ‘Kangaroo.’ However, Kangaroo was blocked by the UK Competition Commission in
February 2009 which said it would adversely affect the development of a healthy competitive
market for online video in the UK23. Subsequent to the collapse of Kangaroo, Arqiva24 purchased
Project Kangaroo’s assets for around £8m in July 2009 and Arqiva now owns and operates the
SeeSaw service.
The SeeSaw service, which launched in February 2010, does not currently offer movies and is
limited to PC users. Users can either watch SeeSaw directly using their PC’s web browser or they
can connect their PC to a TV set using a standard VGA or HDMI connector. Most of the content
available on SeeSaw is free but some, for example material provided by FIVE and Channel 4,
incorporates advertisements.
22 Because of recent change of management at ITV, which is conducting a strategic review, SeeSaw does not currently include any content offered by ITV. 23 Peter Freeman, chairman of the Competition Commission, said in its final report on Project Kangaroo that "After detailed and careful consideration, we have decided that this joint venture would be too much of a threat to competition in this developing market and has to be stopped." 24 Arqiva is also one of the shareholders in the UK’s Freeview service, a free‐to‐air digital, terrestrial broadcast television service available throughout the UK.
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Amazon Video on Demand
Launched in the summer of 2008, Amazon Video on Demand initially allowed PC and Mac users to
buy and rent 50,000 commercial‐free movies and TV shows. More recently, the service has been
improved so that it can also be accessed using a range of compatible non‐PC devices including:
• 68 HDTV sets produced by Panasonic, Samsung and Sony;
• Nine Blu‐ray players offered by Panasonic and Sony;
• Five models of Digital Video Recorders (DVR) produced by TiVo;
• Four dedicated Set Top Boxes (STBs) produced by, Roku (see
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generatorRoku and Sony (via the Bravia Internet Video Link)).
Users can stream Amazon VoD to their PC, Mac or compatible device (above). In the case of PC
and Mac users this requires the download of a client application which Amazon has called the
Ubox Video Player. Users can also transfer download movie content (which is DRM protected) to a
limited number of compatible portable devices produced by Archos, Nokia and Creative.
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Roku
Founded by the former President and CEO of ReplayTV, Roku is an internet television service that
was launched in 2008 and currently offers users a choice of around 50,000 content items
(company data) including movies, TV shows, sports and news.
The service, which is broadly similar to Vudu, is
primarily positioned as a streaming movie service
that works with any TV set. Users need to buy a
Roku Digital Video Player in order to access the
service (three Digital Video Player box options are
available ranging in price from USD 69.99 to USD
99.99).
Users can then stream moves from Netflix and Amazon Video On Demand as well as content from
MLB.com (U.S. Major Baseball League) and other providers. In the case of Netflix and MBL
content, users will need a subscription with these services (e.g. Netflix online movie subscriptions
start from USD 8.99 per month).
Select content Provider: Amazon VoD
Select Movie: Harry Potter
Decide whether to watch trailer or full movie
Wait for movie to start playing (Roku claims 30secs)
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ZoweeTV (formerly Zillion TV)
Service Outline
In March 2009, Zillion TV announced a plan to launch an internet television service for TV sets that
was based on a set‐top box which the company called a Z‐bar. At the time, Zilllion claimed to have
signed distribution agreements with a range of branded content providers, including Warner Bros.
Digital Distribution Disney, Sony Pictures, 20th Century Fox Television, NBC Universal and Sony
Pictures. However, the service was never actually launched.
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Following changes to the senior management team, resolution of ongoing legal woes and a USD
10 million investment by Qwest Communications and a change of name to ZoweeTV, the company
has most recently said that it plans to start beta testing during 2010. We understand that Qwest
made its investment in return for exclusive rights to offer the resulting service in any of Qwest’s
service areas.
Our Take
Services like this will find it very hard to build a sustainable position in the marketplace purely on
the basis of offering a standalone internet television service. There are four reasons for this:
• In cases where such services are offered by new entrants who are not already in the
consumer electronics business, then they will not have the scale or operational expertise
needed to make money by selling set top boxes, which are in any case usually sold by
rivals on a cost‐covered basis and who are shipping in much higher volumes;
• Venture capital‐funded companies are commonly cash‐constrained which means that it is
unfeasible to self‐produce high‐quality content and unfeasible to pay for exclusive rights
to content that has been produced by others and for which there will be mass demand;
• Even if the service provider was very well‐funded and did have a lot of cash to obtain
exclusive content that had mass appeal, companies like Zillion do not have the brand
equity or access to mass distribution that would allow the same ROI on a major
investment in content as larger, more established rivals could achieve;
• Unlike telcos who offer IPTV as a way to persuade users to take out lucrative fixed
broadband subscriptions, companies like Zillion only have one aspect to their service
offering which has to be monetised by serving ads or persuading users to pay to gain
access to the content (either on a per‐view or subscription basis). In essence, companies
like Zillion are disadvantaged because they cannot offer a bundle of services (e.g. ‘triple
play’ or ‘quad play’) in the same way that telco TV service providers, such as AT&T, BRT or
France Telecom routinely do.
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We think that Zillion was well aware of these shortcomings, which is why the company decided
that its route to market needed to be via broadband providers. However we also think the
company came to the table with a relatively weak after most broadband providers were already
well under way developing their own IPTV services.
In summary, we think that this category is service is very hard to make work, as was discovered by
the now defunct Akimbo Video on Demand service which launched in October 2004 but was
closed in 2008 having failed to attract sufficient number of customers.
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Clicker.com
This is an online television guide which aggregates links to a large volume of web video spanning
all popular genres of television, film, music video native web video. In the company’s words, the
content offer in includes “more than 650,000 episodes, from over 10,000 shows, from over 2,000
networks, 30,000 movies, and 80,000 music videos from 20,000 artists.”
Clicker: TV version
Clicker: PC version
Clicker was re‐launched in June 2010 as
tv.clicker.com which the company hopes
will encourage users to view clicker on
their TV set, instead of a PC.
Some content is hosted by Clicker but the
majority is hosted by from parent sites
like Amazon VOD, iTunes and ABC.com.
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generatorLiveStation
Livestation is a news‐focused internet television service founded by news veterans which is
focussed on the UK market. The service offers a range of news content drawn from across the
globe including, for example, Al Jazerra (Arabic and English), BBC Persian TV (Persian), CNN, CBNC,
Deutsche Welle TV and Radio (English and German), France 24 and a range of related news
content.
All Livestation channels can be viewed using a standard web browser but if users want to
download programs then they first need to download an application to their PC (Windows, Mac
and Linux are supported).
Livestation also offers a premium version of the service for GBP 2.99 per month which allows
users to access additional channels and also allows users to view content in HD.
Vudu
This is an on‐demand, HD streaming movie service that uses Peer to Peer (P2P) technology to
minimise Vudu’s streaming costs. This means that one user’s device might be a source of content
for another user’s viewing. The company has filed in excess of 30 patent applications for the P2P
technology used to deliver the service. According to the company, Vudu currently offers 2,000 HD
movie titles.
Vudu’s business model is based on a dual pay‐to‐own and pay‐to‐rent approach which is offered
on a movie‐by‐movie basis. As an example, Avatar costs USD 3.99 to rent and USD 19.99 to own.
Vudu recommends that user have at least 2.2.5Mbit/s available to view HD movies.
Vudu is firmly positioned at the top end of the market and its download‐to‐own model puts it in
direct competition with Blu‐ray discs.
The Vudu service is incorporated into selected television sets, Blu‐ray players and Home Theatre
Systems offered by LG, two TV sets offered by Mitsubishi, and a range other devices offered by
Samsung, Sanyo, Toshiba and VIZIO. If users do not have a one of these devices then they need to
purchase a VUDU Box which the company refers to as an ‘Internet Movie Player’.
In February 2010, Walmart announced that it had reached a definitive agreement to acquire Vudu.
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Veoh.com
Veoh is really more of a video sharing site that an internet television service. However, the
company has recently added a TV aspect which allows users to view their favourite videos on non‐
PC, web‐enabled devices, including television sets, via a simplified user interface.
Following a long‐running and costly copyright infringement lawsuit filed against Veoh by Universal
Music Group in 2007, which bankrupted the company, Veoh was acquired by a Los Angeles‐based
social media start up, Qlipso in February 2010. The fact that Veoh was at the time attracting 14
million visitors per month (ComScore) was presumably the reason for this unusual acquisition
which was intended to accelerate the development of an audience for Qlipso’s video‐sharing
service which is based around avatars.
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Crackle
Crackle was founded in 2004 as a video sharing site called Grouper. The company was acquired by
Sony Pictures Entertainment for USD 65 million in August 2006.
Crackle (Sony Pictures Television): ‘Dilbert’ animated show
Crackle (Sony Pictures Television): ‘The Bride’ starring Sting
The company was
subsequently renamed Crackle
and is now offers a range of
on ad‐supported content
including full‐length movies
and television shows owned
by Sony Pictures Television as
well as original web video
content.
Crackle is currently aimed at
PC users and is not, as far as
we are aware, integrated into
any of Sony’s internet
television projects (e.g. see
Sony Internet TV) although
aspects of the underlying
technology platform may be.
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FEARnet
Launched in 2006, FEARnet is a community and online video site focused on horror, thriller and
suspense. The service offers FREE on demand, streaming movies every Wednesday. FEARnet also
includes some exclusive content (for example original series, directors interviews), movie trailers,
and exclusive scenes and from upcoming films. FEARnet distributes it content via a number of
online services including Crackle and Veoh. and Metacafe.
FEARnet is jointly owned by jointly owned by Lionsgate, Comcast, Sony Pictures Entertainment
and Comcast and is available as a VOD channel in about 28 million jhomes throughout the U.S. via
distribution partnerships with on a number cable and DSL operators including FiOS TV (Verizon),
U‐verse TV (AT&T), Insight Communications and Cox Communications. However, Time Warner
Cable dropped FEARnet from its content offering in July 2009.
Most recently, in June 2010, FEARnet announced a plan to launch a linear network focused on
horror. However, this will compete directly with an equivalent linear TV channel, Chiller, that was
announced by NBC Universal in January 2007. Apart from material owned by NBC Universal Chiller
also includes content from other studios including 20th Centrury Fox, Warner Bros, Sony and
Lionsgate.
MUZU TV
This is a community site focused on music television. Users can watch, upload and share music
video playlists. Apart from music videos the site also offers music‐related documentaries, TV
shows, interviews, behind the scenes footage, music production tutorials and, according to MUZU
TV, exclusive and rare footage.
Artists, bands and DJs can upload music videos which art then syndicated across a number of
online sites including Facebook and MySpace, plus also the content provider’s own site.
MUZU TV serves advertisements within the stream and shares revenues with rights owners.
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generatorTVCatchup
TVCatchup25 is a UK‐based re‐streaming internet television service that aggregates a range of
free‐to‐air content. The service involves aggregating internet television content already available
in the UK and then re‐skinning and re‐streaming that content within a single, unified user
interface. Originally launched in 2007 as a cloud‐based streaming PVR service focused around UK
television content, the service was soon suspended following action taken by the broadcasters.
TVCatchup was relaunched in 2009, without PVR functionality. However, despite attempting to
differentiate its service by adding feature in advance of those features being offered on the sites
offered by its content provide4rs – for example iPhone and iPad apps ‐ the site ran into more
problems in June 2010 when the FT reported that ITV, Five Television and Channel 4 were taking
legal action against the site. It also emerged that the site was “in correspondence with the BBC”
who is apparently concerned that the site is service pre‐roll ads before programming that is
funded by British license fee payers.
TVCatchup’s revenue model is based on serving video ads on start‐up. Based on our tests of the
service in July 2010, the ads services are identical with ads running on network television.
25 In spite of its name, TVCatchup does not currentlyallow users to pause and rewind programmes.
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Having first emerged in December 2004 and now well‐known in China and among Chinese living
abroad, PPLive is a P2P‐based internet television service offered by Shanghai SynaCast Media Tech
Co.,Ltd. (SynaCast). The service offers live streaming of familiar television content and includes
over 600 channels encompassing news, sport, music and movies.
According to SynaCast, 82% of PPLive users are between 18 and 34 and the average user spends
13hours per week on the site. In 2009, SynaCast claimed that an average 30 million users were
using PPLive every month, out of a total installed base of over 120 million.
The service is supported by 30‐sec video advertisements while the content, 90 percent of which is
Chinese, is mostly st6ate‐owned and PPLive claims to have agreements in place with most fo the
large start‐owned television content producers/broadcasters. The company does not have any
agreements to offer Hollywood movies, for instance, but these are offered anyway.
PPLLive is managed by Vincent Tao, a prior Microsoft executive, who – before PPLive – was CEO of
GeoTango, the company that developed the 3D earth mapping technology that was acquired by
Microsoft in 2005 shortly after Google launched Google Earth. Synacast has in excess of 200
employees.
The service competes directly with PPstream, QQlive and UUSee.
SopCast
This is another P2P streaming television service that was launched in 2004 and is mainly known in
China and Asia as a means to access to over 100 television channels including. Compared with
PPLive, SopCast is aimed more at tech savvy internet users who have the time and expertise
needed to configure their P2P client, as opposed to mainstream television viewers who just want
to watch TV online.
SopCast allows users to stream Chinese, Korean and Japanese television channels and watch
videos on an on‐demand basis. Content originated from other SopCast users who pint their clients
to media streams and video files which are then available to other SopCast users.
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Another former P2P service that was shut down in 2005 due to legal action taken by rights
holders, the underlying technology was sold to the internet streaming technology development
company, Roxbeam Media Network Corporation, in 2005. Roxbeam provides the technology used
as a part of Yahoo Japan’s IPTV service which was launched in 2006.
Zattoo
Swiss‐based Zatoo’s primary market focus is continental Europe, especially Switzerland and
Germany26. Zatoo is a re‐streaming service, similar to TVCatchup, which involves aggregating
internet television content drawn from more than 80 internet television services, most notably
services offered by national broadcasters, and then re‐skinning and re‐streaming that content
within a single, unified user interface.
Zattoo is based on a P2P architecture which requires each user to download a client application
which converts their PC into a source of content for other Zattoo users. This has the effect of
dramatically reducing Zattoo’s distribution costs. In 2008, the company claimed that its P2P
approach allowed it to reduce distribution costs by 90%, compared with Akamai.
The company claims to be delivering over 35 million streams per months to 4.4 million registered
users in eight countries where rights clearance has been sought. In 2009, Zattoo reported that the
average user was using the service for 10 hours per month, with some markets experiencing usage
levels up to 12 hours per month. By contrast, users typically watch linear television for between
80 and 90 hours per month.
Although most of the content included within Zattoo is offered on an authorised basis, the
company has run into problems in cases where it had decided to include content without the
permission of the source rights holders27.
26 At the end of 2009 Zattoo was available in Switzerland, Denmark, Spain, Germany, Belgium, Norway, UK and France with launch
planning taking place in a further 10 European markets. 27 We understand that Zattoo has signed syndication agreements with more than 15 content providers in the UK, with the notable
exceptions of the UK’s major television broadcasters.
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For example, in April 2010 Zattoo had to remove programming sourced from the BBC’s iPlayer
following an objection by the BBC that Zattoo was acting without permission. Similar objections
have been raised by the German broadcasters ARD and ZDF which resulted in a court ruling in May
2009 forcing Zatoo to remove their programming as well.
Zattoo has also encountered legal problems in Belgium, when there company has been on the
receiving end of legal action taken by Universal and Warner Bros.
Zattoo makes money by serving geo‐targeted advertisements during start up, during rebuffing
periods and also when the user changes channel. However, the company has been experimenting
with premium services and has said that paid‐for content will become an important aspect of the
Zattoo service in the future.
Joost
Joost was launched in October 2007 as a free, on‐demand video streaming service based on
Adobe Flash that mostly offered a range of so‐called ‘long tail’ television content. In order to use
the service, users first needed to download a client application to their PC. The technological
approach was based on a P2P architecture which meant that one user’s PC could become a source
of content for another user who wanted to watch the same show.
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The company raised a total of $45 million mainly from Sequoia Capital, Index Ventures, Viacom
and CBS. The sole source of revenues was from in‐stream advertisements.
The client‐based strategy was dropped in December 2008 when the company introduced a
streaming (i.e. non P2P), browser‐based version of the service.
In June 2009, barely 18 months after the initial launch, the company’s CEO Mike Volpi had stepped
down and most of the company’s 130 employees were laid off. Today, the service
(www.joost.com) remains usable but has dearth of content.
We think that Joost ran into problems for at least three reasons:
Content and Marketing
Joost was always about ‘long tail’ content and that was apparent from the material on offer when
the service first launched in October 2007. For example, the service included sports like cycling
which are of limited appeal, at least when compared with mainstream sports which can attract
broadcast scale audiences. While it might in the future be possible to create a sustainable internet
television model based around content like this it was certainly not when Joost was launched:
while the internet is the perfect vehicle to reaching a niche audience it is not possible without
advanced marketing so ensure that the target audience knows about the service.
Joost was, in effect, trying to create a large‐scale audience by aggregating hundreds of niche
audiences. The content discovery and search infrastructure required to do this did not exist in
2007/8, and this remains the case today.
Execution
We were very surprised when we learned that the company’s headcount had exceeded 100
employees just 12 months after launch. With employees concentrated in three locations (New
York, London and the Netherlands), we estimate that the company would have been burning cash
at the rate of over USD 1 million per month.
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Assuming that 130 employees would have been enough to manage a platform that was serving an
active user base of 870,000 users per day then, our analysis is that Joost could have been earning
about USD 1.1 million per month in ad revenue (assuming that the company actually sold all of its
ad inventory, which is debatable). Therefore, the company would appear to have been able to at
least cover its costs.
However, this fails to take into account the cost of delivering the videos (streaming scenario, not
P2P), which raises a serious question about the economics of all ad‐funded internet television
services.
Akimbo
Akimbo was a video on‐demand video service delivered over the internet to a set top box (STB).
Users would browse content items using an on‐screen programme guide, which was limited to
Akimbo‐supplied content. Having found an interesting item, the user would then pay for the show
which could then be downloaded to the Akimbo STB. All Akimbo content was encoded using
Windows Media and protected using Windows Media DRM. The Akimbo service was first launched
in October 2004. The company was funded by a combination of venture capital and a trade
investment by AT&T.
18 months after launch the company’s customer based was extremely low and reportedly
numbered just 250, a significant percentage of which were employees and investors. Akimbo went
out of business in 2008.
We think that Akimbo ran into problems for several reasons:
Price of STB
The Akimbo set top box was priced at $300. This must have been a major barrier to adoption,
especially considering that Akimbo was unable to offer any compelling, exclusive content. Rival
cable and satellite TV services, subsidise their STBs, which are sometimes provides for free.
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Although Akimbo claimed to have around 200 content partnerships, the company’s content
offering was focused around second and third‐tier content for which there was no meaningful
demand. For instance, shows sourced from Turkish broadcasters were being offered in the U.S.
This is the problem faced by all new internet television services: in order to create strong demand
for the service, the service provider needs to be able to offer top‐quality content. However, the
only way to gain access to top‐quality content – which is very expensive – is to be able to
demonstrate strong demand for the service. The result is that the service provider is forced to
build their service around a range of lower‐tier content, for which there is substantially less
demand.
Marketing
Unlike Telco TV services, where the service provider can cross‐promote their service to potentially
10s of millions of telephony customers (e.g. by including promotional material in the monthly
statement, conducting direct mail or email campaigns aimed at the existing customer base or
including ads on the company’s internet website etc.) a new service provider faces real problems
and large costs in making potential customers aware of the service.
No Bundling
Akimbo was competing with entrenched cable and satellite TV service providers who had spent
years perfecting their business models, which are fundamentally based on quality content. Such
companies make money from subscriptions and, to a lesser extent, from advertising. The STB is
often given away or sold under a 12‐month contract on a cost‐covered basis.
As mentioned above (Content: Catch 22) It is exceptionally hard for a new entrant to compete
with incumbent Pay TV television service providers using this business model, unless the new
entrant can bundle a rival Pay TV service with other services and/or hardware.
For example, Telco TV services can be successful when viewed as a triple‐play play (where one
service provider offers broadband internet, Pay TV and fixed telephony) or quad‐play (where one
service provider offers broadband internet, Pay TV, fixed telephony and mobile service).
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In these cases, the total business can be profitable, even if the Pay TV element – when viewed by
itself on a standalone basis – is unprofitable.
Akimbo did not have the option to bundle the Pay‐TV element with anything else and so was
forced to use the business model used by rival cable and satellite TV providers which, as we have
just explained, does not work unless you can offer top‐quality content for which there is already
mass demand.
Pricing Model
With Akimbo, content providers could set their own prices for content items which resulted in a
wide range of prices, which were sometimes as high a $9 for a single show. This must have
confused customers and been a source of annoyance.
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Market Analysis
Based on the definition used in this report, Internet Television is very different to any other form
of television, including the two other forms of IPTV (Internet Video and Telco TV). Although the
introduction of Internet Television cannot be compared with the introduction of Digital Music the
two categories are nevertheless comparable in the sense that major industry change is involved.
Comparison with the Introduction of Digital Music
The primary difference between Internet Television and Digital Music is the pace and degree of
industry change. In 2000, practically no digital music was being sold in digital format whereas
today, just 10 years later, over 70% of the value of recorded music sales come from the digital
format. This spectacular transformation was largely possible because consumers had easy access
to the source content where anyone could copy a CD and upload the resulting songs onto
unauthorised file‐sharing services. The music industry was, in effect, forced to change by a mass‐
scale shift in consumer behaviour.
There are two main reasons why this will not happen with the Internet Television:
Minimal Access to Content
Consumers for the most part do not have easy access to the source content so they cannot force
industry change in the way they did for music. Content producers are very aware of what
happened with music and they are fiercely protective of their content. Also, legal precedents that
have been established for music now make it clear to entrepreneurs what will happen if they set
up a business whose strategy is based on profiting from the monetisation of copyright‐protected
material that they do not own and are not authorised to commercialise.
Not a Replacement Format
Internet Television is not going to replace existing forms of television because it is a not a
substitutional format, like the DVD for example. The best way to view Internet Television is as a
new television channel that will, in the end, be available on every TV set as a standard feature.
Not every broadband household will use their Internet Television ‘channel’ and even those who
do use will not use it exclusively. Terrestrial, cable, satellite and Telco TV services will be used
much as they are today.
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Impact on Viewing Hours
In the future, we see most broadband households using Internet Television for some, but not all,
of their viewing. Our projections indicate that by 2014, 38% of broadband households will use
Internet Television services and that, for these households, Internet Television will account for
19% of their total television viewing. While we expect that Internet Television will eventually be
accessible in nearly 100% of broadband households, the usage per household will not rise to much
more than 30% of total viewing time.
We think that the introduction of Internet Television will result in a modest increase in total
viewing hours. This will be because it will become easier to view familiar content at a time and on
a device that suits the user and, in addition, it will become easier to find and view unfamiliar
content. The result will be that, for the average broadband household that has access to Internet
Television, total television viewing hours will increase from 21 hours per week in 2009 to 24 hours
per week in 2014.
In the rest of this section we will discuss the key business and strategic aspects that mark Internet
Television out as being different from all existing forms of television.
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Stage 1:
Single touchp
oints
Exam
ple: all television
con
tent is
constraine
d to th
e provider’s
internet web
site.
These touchp
ointsoccur w
ithin shared
channe
ls (e.g. w
here a W
iiis used to access
conten
t offered
by differen
t proividers, or
whe
re huluand iPlayerare distributed
on a
cable ne
twork or whe
re an iPlayerand hu
luem
bed appe
ar side by
side in th
e profile
page
of a M
ySpace
user.
These touchp
ointsare whe
re
the service provider has cho
sen
make the conten
t available on
ly
platform
s controlled by
the
service provider.
Stage 2:
Multip
le touchp
oints. Example: individu
al
providers d
istribute their con
tent on
multip
le devices and
scree
ns.
Separatio
n be
twee
n each
provide
r’s
conten
t.
Stage 3:
Multip
le touchp
oints
Providers share so
me channe
ls and
conten
t with
other provide
rs.
Source: G
enerator Research
Stage 4:
Multip
le touchpoints
Providers share so
me channels with
others.
Third‐party services becom
e established
Content ProducersThe Service Provider has a direct relationship with
the user: e
ither via
a property owned and controlled by the
provider, or via a carefully
selected, known channel partner.
PC
TVSmartpho
ne
Gam
e
Third‐party Services
Provide search, recom
men
datio
n and
discovery and aggregation functio
ns, as
well as user e
xperience be
nefits. Also
provide a means of m
onetising conten
t and therefore have
a means of collecting
paym
ent from users (p
ay‐per‐view or
subscriptio
n) and
/or advertising revenu
e.
The Service Provider still has direct relationship with
user: eith
er via a property
owned and controlled by th
e provider, or via a designated
channel partner.
But, in addition, and
in parallel, a range of third‐party services that work across
multip
le providers and
provide
users with
increm
ental benefits have the service
relatio
nship with
the user
It is th
e em
ergence of th
ird party services,
provided
by companies like
Goo
gle that
most con
cern broadcasters, but which
are
most likely to truly en
able the vision
of
Internet Television we have
set out in
this
repo
rt.
This user is
using a service
that aggregates
conten
t that has
been
sourced
from
a variety
of location
s on
the web
.
This user is viewing
conten
t from one
provider
and is viewing that
conten
t by visitin
g the
provider’s website.
Med
ia Ta
blet
Figure 18: Evolutio
n of th
e Internet Television Distribution from
Single Digita
l Tou
chpo
ints to
Develop
er Program
mes and
APIs
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Sustainability of Value Proposition
Internet Television is never going to make it as a sustainable mass market service unless it offers
strong and sustainable benefits to ordinary users.
Key Benefits
Earlier in this report (see Benefits: Service Proposition) we provided some examples of the user
benefits that will be delivered by Internet Television. These can be summed up as:
• More convenient access to familiar content: when the user wants, on the device the use
wants;
• A wider choice in content: new material that allows deeper coverage of favourite genres
and topics and new material that opens new doors
• Value‐added services: third‐party service providers will be able to enter the market to
offer new features and functionality that will add a new dimension to the television
experience.
We think that this will be a powerful cocktail of user benefits that will sustain demand of the long
term.
Intrinsic Quality
One problem area with IPTV in the past has been visual quality where technical limitations28 have
made it hard to deliver DVD‐like visual quality. The introduction of high definition (HD) television
and, more recently, 3D television has raised the technical bar even higher and it is still a major
challenge to reliably deliver the sort of visual quality that mass market consumers will demand,
especially on a large‐screen TV set: few users will be interested in internet Television unless it
offers a level of visual quality that is comparable with what is on offer with satellite and cable TV
services.
In particular, users demand:
28 The underlying speed of the broadband connection itself, video compression as well as network and device‐end software that can
improve picture quality and adapt to changing broadband connection speeds.
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‐ Fast Start‐up: minimal or no noticeable buffering;
‐ Fast Downloads
‐ Reliable Streaming (no jitter or picture break‐up)
‐ High Picture Quality (e.g. HD, 3D and full‐screen format on whatever device or TV set is
being used).
Our research strongly suggests that the market is well on the way to addressing these issues and
that as the Internet Television market develops to the mature phase, the vast majority of
broadband users will be able to enjoy a level of picture quality that is at least as good as why they
can experience with cable and satellite TV services.
Underlying Demand
We think that there is a strong level of underlying demand for the sort of Internet Television
proposition summarised out above and explained in more detail earlier in this report (see
Benefits: Service Proposition).
We believe that the television industry up to now has done a good job of serving users but we also
believe that Internet Television will offer incremental benefits and that, when users begin to
understand the value of those benefits, they will strongly adopt Internet Television services for the
long term.
Many services either fail to deliver the originally‐envisaged user benefits or, where they do, the
benefits are not really important enough to keep consumers coming back again and again. We do
not see this as a problem with Internet Television.
Economics: Business Case for Internet Television
Internet Television will need to surmount three major economic barriers if the market is to move
from its current formative stage into a mass market, sustainable category:
• Consumer Electronics: Users need a new STB or TV set in order to view Internet Television
services;
• Marginal Revenues: The revenue per viewer hour needs to be increased from the level it is
today;
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• Marginal Costs: The marginal costs of video delivery need to be reduced from where they
are today
Consumer Electronics
Some observers have made the point that Internet Television is never going to become successful
because of the need for a new set‐top box (STB), which consumers are strongly resistant to
purchase.
Existing satellite and cable TV services subsidise their STBs so that the consumer does not have to
hand over, say, $200 in order to adopt the service. The satellite/cable provider locks the
subscriber into a minimum‐term contract that allows the cost of the STB to be recovered. This is
the same as case for mobile service where mobile operators subsidise the cost of the mobile
phone.
This creates a problem for new entrants who do have the financial resources to subsidise the STB
or to acquire exclusive content for which there is mass demand. The result can be a service
proposition where the user is has to pay, say, $250 to access a service that includes poorly‐
differentiated, relatively uninteresting content.
It is better when the hardware and software functionality needed to offer Internet Television is
incorporated within the STB but even in this case the result will be a more expensive TV set.
This is one reason why Apple has failed to make a success out of Apple TV: Apple is primarily a
hardware company where consumers pay up front to receive interesting products, like an iPod or
Mac computer. The only way the company could offer subsidised hardware would be for it to use
a partner which is prepared to do so (and this is precisely the model that is used for the iPhone) or
if Apple radically changed the its business model so that, for example, Apple TV was sold with a
minimum‐term subscription. However this would also require a major change to how Apple pays
content providers for shows that are part of Apple TV, which are currently offered a pay‐as‐you‐go
basis.
There are two ways to look at this problem. The first is to conclude – as it seems Steve Jobs has –
that this is a fundamental show‐stopper and that all attempts at innovation in television will be
doomed to fail – including Google TV.
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The other way of looking at this is to observe that similar problems were apparent in the early
days of pay‐TV:
• Why would any pay for a STB in order to watch a limited number of channels when there
was already such a lot of choice on TV?
• Why would anyone pay a monthly fee to watch a television service when there was
already a wide choice of content on network television?
At first few people were interested in Pay‐TV. But some were. And then more were. This gave
service providers the confidence to invest more in content, which attracted more users. This
process continued until, today, the PayTV market is worth over USD 300 billion.
Ultimately, the most important factor in television is content: people want to watch great content.
Because people also value choice and ease of access to content, and we know they value value‐
added features and services, then when all of these aspects are combined into one service
proposition we think that people will be prepared to pay to obtain access to Internet Television,
whether that be via a subsidised STB or via a TV set that costs a bit more.
However, as we note elsewhere in this report, we do not see Internet Television service providers
limiting themselves to a direct relationship with users. Instead, we see many of them being
incorporated within the subscription‐based offers of existing Pay‐TV providers.
Marginal Revenues
Internet Television service providers are in the same position as other Pay‐TV providers in that
they can either earn revenue from selling advertising or by taking direct payment from users in the
form of a monthly subscription or on a Pay‐per‐View basis.
Advertising Revenues
It will in our opinion be hard for small‐scale Internet Television service providers to make enough
money from advertising to pay the bills unless they can ‘piggy back’ on top of a third‐party service
delivery platform that incorporates an advertising‐based monetisation model. Google TV could in
the future be developed into such a platform but, today, service providers are pretty much on
their own.
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The ad‐supported Internet Television business model faces four main hurdles:
CPM Rates
The CPM rates for Internet Television are between 10% and 30% lower than the comparable rates
for other Pay‐TV platforms. This is partly because the ads are seen by advertisers to be less
engaging (the average run‐length is less than that for mainstream television) and partly because
Internet Television is something of an experimental medium that lack the independently‐provided
audience measurement tools that have been developed for mainstream television.,
Another problem is that Internet Television ad inventory is primarily seen as part of the online ad
world. This is understandable because most Internet Television content is still viewed on a PC,
even though that PC might be connected to a TV set using a cable. As an example, if a television
broadcaster has developed an Internet Television service then the broadcaster’s main ad sales
team, who is focused on selling 30‐sec spots on network TV, will not be selling the ad inventory for
the Internet Television service. The broadcaster will either have to hire people who are
experienced at selling online ad media or hire a company that can sell the ad media on the
broadcaster’s behalf. 30‐sec spots are sold by different people, to different buyers using different
processes than online ads. What’s more the post‐campaign reporting is completely different.
Unfortunately for Internet Television service providers, the pricing in the online channel has set
the CPM rates for their ad media at a lower level than they would have preferred.
This picture will improve as Internet Television matures as an ad media, especially as the format
starts migrating to the TV set where it will become ‘more TV‐like’. In addition, the development of
ad‐targeting technologies will have the effect of increasing CPM rates.
But, today, CPMs are lower than they are for satellite, cable and network television.
Ad Fill per Hour
All other things being equal, online users have less tolerance for ads on internet TV than they do
on network TV. This means that if it is OK for a network TV provider to insert, say, 10 minutes of
ads into every 1 hour of programming then an Internet Television service provider might only be
able to insert 2 minutes.
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As Internet Television migrates to the TV set this will change but, like CPM rates, Internet
Television service providers cannot serve as many ads per hour of television programming as their
competitors can.
Percentage Ad Inventory Filled
Another hurdle faced by Internet Television service providers is that not all the available inventory
is filled. For example, we understand that Hulu has been not infrequently been running at a fill
rate of 60%. However, we are also aware of some online video providers who claim to be
oversubscribed.
Revenue Share
Partly because Internet Television service providers do not produce their own content and partly
because they cannot afford to pay for exclusive distribution rights (at least not for content for
which there is going to be mass demand) then they must share their ad revenue with content
providers.
The pay‐out rates are currently broadly as follows:
• Service provider (e.g. hulu, BBC iPlayer29): 20% to 30%
• Content provider: 70%
• Third party (e.g. search site/aggregator): 10%
Subscription and Pay‐per View Revenue
For the above reasons we think that it will be hard to rely on advertising as the sole source of
revenue for an Internet Television service. In the long term, this picture will improve, especially if
and when we see the arrival of Internet Television platforms that incorporate a monetisation
function that will allow content providers and service providers to make money.
But certainly for the next several years, we think that many Internet Television services will need
to supplement their ad revenue by taking direct payment from users, either in the form of a
monthly subscription or on a pay‐per‐view basis. However, this will be easier said than done
without being able to offer top‐quality content or a truly compelling service proposition.
29 In a future situation where the BBC chose to monetise iPlayer content consumer outside the UK using advertisements.
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We noted earlier in this report that the cost structures of cable and satellite TV can be
summarised as ‘high capital cost, low marginal cost’ whereas the cost structure of Internet
Television is ‘low capital cost, high marginal cost’
This is primarily because the cable and satellite TV providers have had to build their own
distribution networks and so, having built those networks, the marginal cost of delivery is low.
Internet Television service providers have not have to go to the capital markets to raise the huge
amount of money needed to build a mass‐scale distribution network. Instead, they use the local
access lines and associated broadband infrastructure that has been created by others, the cost of
which is mostly covered by users via their broadband subscriptions.
But they incur on‐going marginal costs to use those networks. These costs can be seen as fees paid
to Content Delivery Network (CDN) service providers like Akamai (Hulu’s CDN partner is Akamai).
This fundamental difference is why so many Internet Video service providers are currently
struggling to make money out of online video, including Internet Television.
There are two cost elements:
Hosting
For live content there is probably no storage element and the CDN partner will pick the content up
from the point of origin and then deliver to the requesting device using its delivery network.
Where required, hosting is priced on a per GB per month basis.
Delivery
This is where the CDN network provider picks the content up from the point of origination (which
may be the customer’s server farm) and then delivers to to the requesting device via the CDN.
Delivery pricing depends very heavily on the total committed volume (e.g. GB per month), the
length of the commitment (i.e. a single event versus. an ongoing requirement that might extend
for months or even years) and what other services the customer might be purchasing.
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Content delivery charges vary so wildly and are so scenario‐dependent that it is impractical to
offer any numbers that are meaningful.
However, our research strongly indicates that today’s CDN charges have yet to reach their
minimum level and that the next five and more years will see prices come down dramatically.
FLASH chips, optical switches, microprocessors and connectivity priced are all falling in the
wholesale market with the huge explosion in internet traffic, which is mainly driven by huge
increases in video traffic on the internet.
$827.4
$239.4
$112.5
$65.9
$26.2
$12.4
$6.2
$3.0
$1.7 $1.5
$1
$10
$100
$1,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Average
Retail P
rice per GB of Hard Disk Storange
(USD
per GB)
Annual Reduction in the Cost of Hard Disk Storage
Figure 19: Average Retail Price in USD per GB of Hard Disk Storage: 1995 to 2004
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Mainly because of the above challenges we think that many standalone Internet Television
services will struggle and only the best funded services will succeed on their own.
Our projections for the service revenues for Internet Television, which we project to be over USD
6 billion by 2014, include a mixture of advertising revenue, subscription revenue and pay‐per‐view
revenue.
In addition we project that many Internet Television services will be incorporated within the
service offerings of existing Pay TV service providers.
Content
Mainstream Shows and Exclusive Deals
At this early stage of the market, some Internet Television service providers30 have discovered to
their cost that they have no real business unless they can offer truly great content, preferably on
an exclusive basis.
Unfortunately, it is impractical for a new entrant into the Internet Television market to realistically
think about being able to obtain exclusive distribution rights to a major TV series or sporting
event. Quite apart from the cost, which would be very considerable, the respective content
owners would be very unlikely at this early stage in the market to terminate their existing
distribution relationships, many of which have been in place for years – decades even – and sign
up with a new company whose distribution footprint is a fraction of what terrestrial, cable and
satellite partners can offer.
This problem is summarised in Figure 20 where we show that the existence of a large distribution
infrastructure for mainstream television programming means that the best content, for which
there is highest demand, will naturally be distributed using the existing networks. At the present
time there is quite simply no business case for anyone to distribute a top‐quality show, like Greys
Anatomy on a little‐known Internet Television channel.
30 For example, Joost, which collapsed in 2009.
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It will be many years before the distribution infrastructure for Internet Television is large enough
and mature enough for it to offer a genuine alternative to what currently exists with network TV,
cable TV or satellite TV.
This means that the Internet Television services market will for some time be dominated by
incumbent providers who will create their own Internet Television services that will be used to
distribute their own content.
Later on, as these services start to become connected – using third‐party search and discovery
services that are based on platforms like Google TV, then the market will begin to open up but,
even then, there will be no shortcuts that will allow start‐ups to gain access to highly‐valuable
content which will remain fiercely guarded by the producers and higher sought after by major
broadcasters.
Long Tail Content
At this stage of the market it is unclear whether there will be strong demand for so‐called ‘long
tail’ content, meaning content that is of high quality but not well known to a given domestic
audience.
For instance, imagine the hypothetical service where all of the television programming that has
ever produced anywhere in the world was instantly accessible on a TV set via a simple user
interface.
• Would a person whose life passion is gardening really spend hours and hours viewing
gardening programmes?
• Would a person who is fascinated by Madonna, spend long periods of their TV viewing
time watching programmes about Madonna, of which there much be hundreds?
• And even if initially the above two individuals did shift their viewing behaviour, then
would these changes be permanent?
Some broadcasters think that these so‐called long‐tail viewing scenarios are imaginary and will
never materialise because consumers do not consumer television like they do content on the web.
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However, we are less sure about this and, having talked to many people, we think that there will
be a significant change in viewer behaviour when the sort of Internet Television service
proposition described earlier in this report finally arrives.
However, even then, we still see mainstream television programming being delivered and
consumed in much the same way as it is today.
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Quality Co
nten
t(i.e. Premier League, W
imbled
on, Formula
One
, Augusta M
asters, O
lympics)
Exclusive Distribution
Rights: Live coverage,
First‐run series, m
ovies
etc.
User B
ase
Distribution : Typ
e #2
Internet Television
Distribution Platform
s (e.g. G
oogle TV
)
Toda
yFuture: 10 ‐2
0 years
Toda
y
Future
Direct distribution
deals w
ith large
Internet Television
service providers and
platform
s be
come
econ
omically viable
because they
have
reache
d ‘broadcast
scale’.
Vertical Distribution Platform: Linear Broadcast ModelPlatform
ope
rators have ways of collecting paym
ent
whe
n user views conten
t on any digital d
evice.
The platform
provide
r may the
n be
able to afford to pay
the conten
t owne
r for exclusive distribu
tion rights.
Internet TV
User B
ase
Internet TV
User B
ase
Exclusive Co
ntent D
eals Becom
e Viable
Rate of g
rowth and
ultim
ate market size
ultim
ately lim
ited by
ho
w fast techn
olog
ical
barriers can
be
overcome.
Defensibility of th
e broa
dcast m
odel
depend
s on ho
w
much the
broa
dcaster can
afford to
pay
for
exclusive
distrib
ution rig
hts.
Source: G
enerator Research$$$$
$$$$
$$
Distribution
(Terrestrial networks, C
able TV
Networks, Satellite TV
Networks)
Broa
dcast Television Mod
elInternet Television Mod
el
Distribution: Typ
e#1
Internet Television
Service Providers
Today
Internet Television
service providers
cann
ot afford to pay fo
r exclusive rights because
their d
istribution
footprint is too sm
all.
Distribution: Typ
e#1
Internet Television
Service Providers
Figure 20: Develop
men
t of a
Parallel M
odel fo
r Television
Distribution (Com
paring
Broadcast M
odel with
Internet Television Mod
el)
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One of the most interesting possibilities offered by Internet Television is the potential for
application that would be similar to the applications that we are now seeing on smartphones and,
on Media Tablets. We look at this point in more detail in this section.
Emergence of Web 2.0
Around 2003 to 2006 the web mostly resembled a giant magazine with publishers producing
content which was subject to strict editorial control and then loaded onto a web server where it
could be read by users. The user’s experience of the web involved using a web browser to ‘surf’
from one website to the next while passively viewing pages that had been created by others.
The market has now moved past this ‘lean back’, passive usage paradigm to a ‘lean forward’,
engaged usage paradigm, where consumers seek interaction with websites, often by contributing
their own content and engaging and interacting with communities of other consumers who self‐
organise around web services they find appealing.
The balance of power has shifted away from website owners towards the users.
One result is that for many social sites it is hard to know who is actually in control: Facebook, the
world’s largest website, has had difficulty making changes to its core service because Facebook
users, who no doubt feel that they have made Facebook that success it is, do not agree with
changes the company has made to its privacy policy and even the way that Facebook goes about
making money. This would have been unthinkable in the Web 1.0 era.
This change has occurred in parallel with other changes, one of which is a major change in the role
of the web browser. Once a simple tool for downloading and drawing pages that consisted mostly
of text, the web browser has morphed into dynamic programming environment which has allowed
entrepreneurs to create web services that allow users self‐organize into engaged communities
where most of the content is contributed by the users themselves.
We have moved from one paradigm where user engagement was static and on the terms of the
publisher to a new paradigm where users are deeply engaged, not just with the site or service, but
with other users. This change has been well documented and Table 8 summarises some of the
main differences between Web 1.0 and Web 2.0.
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Web 1.0 Model
Mindset: Websites and Pages
Web 2.0 Model
Mindset: Webservices and APIs
• Website owner creates pages – just
like pages in a magazine;
• User’s browser connects to website
and request pages;
• Pages are sent to browser over
internet;
• Some page content (i.e. pictures,
streaming video) is drawn from
other websites, some page content
(e.g. text) is sent to the user’s
browser directly. The user’s browser
is told by how to format the page
(i.e. text size, colour etc.);
• Browser builds and displays page.
• User views page
• Websites make selected assets available to third‐
parties by publishing an Application Programming
Interface (API) which providers those third parties
with programmatic access to valuable information
and data (e.g. Google Maps API);
• User requests service (e.g. clicks on a link). User
device could a mobile phone, PC or TV set. The
media containing the link could be a ‘normal’
website, a link on a blog or a widget in the profile
page of a social networking site or a link in an add
that has been embedded in a video clip, for
example;
• User’s browser then downloads a program that
contains instructions for what to do next. The
browser might visit a range of web locations
perhaps to download a codec update, download
additional programs, request information from
site/s using APIs;
• Meanwhile, some processing and analysis can be
down locally by the browser using AJAX;
• The execution of the programme downloaded by
the browser may result in multiple API calls being
made by intermediate services that are not visible
to the user;
• The end result is the browser provides the desired
entertainment or information content to the user;
• The resulting ‘page’ (if there is one) is not simply
hosted on a server as was the case with the Web
1.0 model.
Table 8: Major Differences between Web 1.0 Model and Web 2.0 Model
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It is logical that this huge shift in how the web works must at some point have an impact on the
television industry. Indeed, to us, it is inconceivable that the television industry will be able to
carry on as if nothing has fundamentally changed.
Emergence of Client Applications
We think that the applications that run on the smartphones like the iPhone and Android devices
represent a new development in portable computing. We are now seeing the introduction of the
same trend in the new category of Media Tablets, most notably on the iPad.
When we think of the web today, we imagine the process of ‘browsing’ websites using a program
called a web browser (e.g. Explorer, Chrome, Firefox, Opera or Safari). The browser acts as a
window or control panel through which the user experiences the web. The browser ‘connects’ to a
website using standard web protocols and then allows the user to experience the content
available on the website, upload content to the site and interact with other users who may be
connected to the same website via their own web browsers.
As far as the user is concerned, the key difference between an application and a browser is that an
application can enable a far richer and more immersive user experience than what is possible with
a browser (see Table 8 and Table 9).
The application needs to be developed by the same company that operates and controls the
website (e.g. Guardian, Facebook, Der Spiegel). Although this means extra work for the publisher,
the key benefits are that the publisher’s brand can be deeply embedded into user’s device while
offering a deeper and more customised experience than what is possible with a web browser.
Critically, because the Application can ‘talk to’ a number of other key programs on the user’s
device as well as key hardware components it is possible to create a user experience that is very
different to what the user would experience if they viewed the company’s standard internet
website using a Notebook or Desktop PC or, for that matter, a Media Tablet’s standard web
browser. Combined with a second screen controller, this extra level of abstraction allows the
brand or service provider to create a deeply embedded, more richly‐defined and higher‐quality
experience than what is possible using existing web design techniques, let along with existing
television technology.
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Web 1.0 The browser is used to access, download and view static pages. Companies build isolated websites.
Web 2.0 The browser becomes a dynamic programming environment (e.g. AJAX, XML, Microformats, XFN, OAUTH etc) . Companies build webservices that are based on programmatic connections to other websites and webservices.
Application Model
The browser, which remains a dynamic programming environment, now sits in the background. Companies can now deeply embed their service into the user's device while offering a richer, higher‐quality experience. Companies also have to develop client applications according to rules that are defined by the company that controls the device platform or, in the case of a vertically‐integrated platform (e.g. Apple), the wider platform.
Source: Generator Research
Role of Browser: Web 1.0, Web 2.0 and Application Model
Table 9: Role of Browser: Web 1.0, Web 2.0 and Application Model
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Our analysis is that Google TV is a highly significant development, although it will be years before
Google TV gains any meaningful traction. Of all the internet television service propositions
reviewed earlier in this report we think that Google TV has the greatest long‐term potential to
enable the sort of service propositions that we outlined earlier.
Why Google is Interested in Television
There are in excess of 3 billion TV users worldwide, compared with about two billion mobile users
or roughly one billion PC users. Google is an advertising company currently focused on the PC
market. Therefore, it seems very sensible for the company to think about entering the television
market. Also, Google’s success as a company is becoming increasingly dependent on the efforts of
third parties (e.g. AdWords partners, AdSesne partners and application developers). For a
developer, there is no bigger market than the TV market.
95% of Google’s revenues come from contextual text ads that are served on Google’s websites
(e.g. Search, Google Mail etc.) and on third party publisher websites under the Google AdSense
programme. Google’s online ad revenues in 2009 were USD 23.2 billion but the total worldwide
online ad market was only worth USD 57.5 billion, which implies that Google accounts for about
40% of total worldwide advertising expenditures (see Figure 21 and Figure 22). While the overall
online advertising market is still growing (see Figure 21), Google will find it increasingly hard to
maintain is historic performance of strong proportionate revenue growth if it restricts itself to the
online ad market, where its 40% market share is uncomfortably high.
Quite apart from the execution challenges of continuing to find ways to extend the AdWords
franchise strategy still further, for example by introducing Google AdWords for Video, developing
the mobile advertising market etc.), antitrust regulators, some of whom are already concerned
about the company’s growing dominance of the market, might decide that intervention is
necessary.
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$‐
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2001 2002 2003 2004 2005 2006 2007 2008 2009
Worldwide Expe
nditure on
Online Advertising
(USD
, millions)
( Include
s alll ad
form
ats e.g. Search, Display etc.)
Proportion of Worldwide Expenditure on Online Advertising Accounted for by Google
Worldwide Online Ad Expenditure: Other Platforms
Worldwide Online Ad Expenditure: Google Platforms
Figure 21: Proportion of Worldwide Expenditure on Online Advertising – Google Platform and all
Other Platforms (2001 to 2009)
The television advertising market is attractive to Google because it represents a new business
opportunity which, when viewed at a high level, is far larger that the company’s existing market:
worldwide expenditure on television advertising in 2009 was USD 156 billion, compared with USD
57.5 billion for online advertising.
However the strategies that have been so successful in the online arena will not work in the TV ad
market because the vast majority of television programming is delivered via broadcast networks,
not over the internet.
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2001 2002 2003 2004 2005 2006 2007 2008 2009
1%
4%
12%
20%
27%
35%
40%
43%
40%Pe
rentage of W
orldwide Expe
nditure on
Online Advertising
that is Spe
nt on
Goo
gle Platform
s (e.g. Search Ads, A
dWords, A
dSesne
, Gmail etc.)
Google's Share of the Worldwide Online Advertising Market
Figure 22: Google's Share of the Worldwide Online Advertising Market (2010 to 2009)
However, if Google can be successful in catalysing a large, growing market for internet television,
then the company could in principle serve targeted advertisements to any television set that is
connected to the internet.
In the long term, when TV sets in the majority of broadband households are connected to the
internet, then this market will become very large.
This is why Google has introduced Google TV. The first several years of Google TV’s development
in our judgement needs to be viewed as a ‘market development’ phase where the company is
focused primarily on enabling the Google TV eco system and doing what is necessary to get the
market growing strongly. Then, at that point, we think that the company will announce a range of
ad programmes that we think will look quite similar those that have proven so successful online:
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• Leverage the efforts of third parties to develop the market: developers and third‐party
publishers
• Creation of an automated online exchanges where buyers and sellers of ‘internet
television’ ad inventory can meet and do business
• Introduction of ad targeting using contextual and behavioural techniques
• Development of PPC‐style revenue models
Of course, at this early stage in the market’s development, such developments are purely
theoretical. However, we think that people who
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$‐
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2001 2002 2003 2004 2005 2006 2007 2008 2009
Worldwide Ad Expe
nditure and Worldwide Re
venu
es for Goo
gle
(USD
, millionS)
Comparison between Google's Advertising Revenues and Expenditure on Worldwide Television Advertising
Google Worldwide Revenues from Online AdvertisingExpenditure on Worldwide Television Advertising
Sources: Company Reports and Generator Projections
Figure 23: Comparison between Google's Advertising Revenues and Expenditure on Worldwide
Television Advertising (2001 to 2009)
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Impact on Market Structure
In Figure 24, Figure 25 and Figure 26 we summarise our analysis of how Google TV will affect the
structure and operation of the television industry.
Historic Situation
Figure 24 shows the way things are now. Content producers license content to broadcasters who
then use their distribution networks to make the content available to users.
Phase 1: Arrival of Over‐the‐top (OTT) IPTV Services
In Figure 25 we show the introduction of Internet Television (top of figure) and Telco TV (bottom
of figure), both of which can be regarded as OTT’ services because they allow new entrants to
deliver television programming over the top of existing television service providers.
Phase 2: Introduction of Google TV
Google TV is in our opinion more than another OTT IPTV service. Instead, it is a platform that will
be mainly used by third parties – most notably we think by incumbent television service providers
who are already involved in the Internet Television market – to improve the quality of their
services. Here are some key points that are apparent from Figure 26:
• Services delivered using Google TV are complementary to those delivered by incumbent
broadcasters. That is, they are consumer on the same TV set, in the same household;
• Google TV allows for the introduction of second screen controllers that users can use to
enhance their television experience. Devices such as Android‐enabled smartphones, and a
future Android Media Tablet will allow users to enter text in order to enhance their TV
viewing experience.
• Content owners can voluntarily expose their content to the Google TV platform by using a
standardised meta data format;
• Content owners can also define the rights for their content using an online interface that
will allow them to control where the content is consumed;
• Just like branded television broadcasters already have ‘channels’ on YouTube, we expect
to see the arrival of branded channels on Google TV;
• Instead of Internet Television service providers being limited to distributing their content
using their internet websites, providers they will be able to deliver their content on
Google TV.
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Traditional Television Broadcast N
etworks
Terrestrial, Satellite, Cable
Existing
Television and Film
Co
nten
t Providers
‐TV Prod
uction
Com
panies
‐Television Broadcasters (tho
se
who
produ
ce th
eir own content)
‐Hollywoo
d Studios and
Movie
Prod
ucers
Content
Producers
Distribution
Companies:
Broadcasters
Conten
tTerrestrial Television Services
Cable and
Satellite
Television
Services
Source: G
enerator Research
Figure 24: Changes in
the Structure of Television Distribution Market [Ph
ase 1: (H
istoric Market S
tructure])
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generator
Regular W
ebsites (e.g.
ACB.com, ESPN.com
, bb
c.co.uk)
Traditional Television Broadcast N
etworks
Terrestrial, Satellite, Cable
Existing
Television and Film
Co
nten
t Providers
‐TV Prod
uction
Com
panies
‐Television Broadcasters (tho
se
who
produ
ce th
eir own content)
‐Hollywoo
d Studios and
Movie
Prod
ucers
Content
Producers
Distribution
Companies:
Broadcasters
Conten
tTerrestrial Television Services
Set Top
Boxes (STBs)
Cable and
Satellite
Television
Services
Conten
t
PCs
Desktop
s and
Noteb
ooks
Regular w
ebsites that include
video
can
be accessed
via
the TV
set u
sing
the Ch
rome web
browser.
This is th
e existin
g use case where the users h
as to
use th
eir
PC to
view internet television
and
web
video
content.
Source: G
enerator Research
1
Distribution
Companies: Telcos
Telecoms P
layers
Exam
ples: France Telecom, BT, AT&
T)
IPTV
or ‘Telco TV
’ Services
2
Figure 25: Changes in
the Structure of Television Distribution Market [Ph
ase 1: Arrival of O
ver‐the‐top (OTT) T
elevision Services]
Page 139
generator
Google TV Platform
Regular Websites (e.g. ACB.com, ESPN.com,
bbc.co.uk)
Google TV Websites (e.g. ‘Channels’ accessible using Google TV
Developers
Traditional Television Broadcast NetworksTerrestrial, Satellite, CableExisting Television and Film
Content Providers‐TV Production Companies
‐Television Broadcasters (those who produce their own content)‐Hollywood Studios and Movie
Producers
Content Producers
Distribution Companies: Broadcasters
ContentTerrestrial Television Services
Set Top Boxes (STBs)
Cable and Satellite
Television Services
Content
Content and Meta Data
PCsDesktops and Notebooks
Personal DevicesSmartphones and Media Tablets
Regular websites that include video can be accessed via the TV set using the Chrome web browser.
This is the existing use case where the users has to use their PC to view internet television and web video content.
Users can use their personal devices to control their TV set.
Source: Generator Research
1 Applications
Applications
3 3
3 4 4
Distribution Companies: Third Party Service Providers Android
Market(TV Apps)
API: Access to device assets (e.g. Browser, address book, favourite shows, PVR content etc.) over an API.
API
Applications
Decisions that allow content to be findable by third parties
Distribution Companies: Telcos
Telecoms PlayersExamples: France Telecom, BT, AT&T)
IPTV or ‘Telco TV’ Services
Google Network Assets
2
Figure 26: Changes in
the Structure of Television Distribution Market [Ph
ase 2: Introd
uctio
n of Goo
gle TV
]
Page 140
generator
Market Forecasts
Internet Television and Film
Worldwide User Base
2009 2010 2011 2012 2013 2014
Users 58 95 137 185 239 298 38.9%
Annual Growth: 63.9% 44.8% 35.1% 29.1% 24.8%
Source: Generator Research
Millions Worldwide Internet Television Users (1)
CAGR
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing television and film content on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and FilmServices" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that is connected to the internet, either directly or via a set top box (STB). Excludes users who view television and film content onmobile devices.
Table 10: Worldwide Internet Television Users (2009 to 2014)
Regional User Base
2009 2010 2011 2012 2013 2014
North America 12.6 19.9 27.7 35.9 44.5 53.1 33.4Western Europe 12.8 20.4 28.7 37.6 46.9 56.7 34.6Central and Eastern Europe 5.3 9.0 13.6 19.2 25.8 33.4 44.8%Asia Pacific 22.9 38.1 55.8 76.3 99.7 125.9 40.6%Latin America 3.2 5.5 8.5 12.1 16.4 21.5 46.6%Middle East and Africa 1.0 1.8 2.8 4.1 5.8 7.8 51.2%
Total: 58 95 137 185 239 298
Source: Generator Research
Millions Regional Internet Television Users (1)
CAGR
%%
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing television and filmcontent on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and Film Services" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that is connected to the internet, either directly or via a set top box (STB). Excludes users who view television and film content onmobile devices.
Table 11: Internet Television and Film Users for North America, Western Europe, Central and
Eastern Europe, Asia Pacific, Latin America and Middle East and Africa (2009 to 2014)
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generatorViewing Hours
2009 2010 2011 2012 2013 2014
Average Worldwide User 2.5 2.9 3.3 3.7 4.1 4.6 12.6%
Annual Growth: 14.9% 13.5% 12.4% 11.5% 10.7%
Source: Generator Research
Hours per week
Average Weekly Viewing Hours per User for Internet Television (1) CAGR
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing television and film content on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and FilmServices" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that is connected to the internet, either directly or via a set top box (STB). Excludes users who view television and film content onmobile devices.
Table 12: Average Weekly Viewing Hours for Internet Television Services (2009 to 2014)
2009 2010 2011 2012 2013 2014
Worldwide Viewing Hours 7,568 14,248 23,418 35,566 51,185 70,733 56.4%Annual Growth: 88.3% 64.4% 51.9% 43.9% 38.2%
Source: Generator Research
Millions Worldwide Viewing Hours for Internet Television (1)
CAGR
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing television and film content on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and FilmServices" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that is connected to the internet, either directly or via a set top box (STB). Excludes users who view television and film content onmobile devices.
Table 13: Worldwide Total Viewing Hours for ’Internet Television and Film’ Services (2009 to 2014)
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2009 2010 2011 2012 2013 2014
North America 1,650 2,992 4,730 6,900 9,520 12,590 50.2%Western Europe 1,680 3,072 4,899 7,213 10,053 13,439 51.6%Central and Eastern Europe 689 1,356 2,328 3,685 5,518 7,922 63.0%Asia Pacific 3,004 5,728 9,531 14,653 21,344 29,849 58.3%Latin America 416 832 1,447 2,319 3,511 5,093 65.0%Middle East and Africa 129 268 482 797 1,239 1,839 70.2%
Total: 7,568 14,248 23,418 35,566 51,185 70,733
Source: Generator Research
Viewing Hours, Millions Regional Viewing Hours for Internet Television (1)
CAGR
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing television and film content on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and FilmServices" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that is connected to the internet, either directly or via a set top box (STB). Excludes users who view television and film content onmobile devices.
Table 14: Viewing Hours for Internet Television and Film Services for North America, Western
Europe, Central and Eastern Europe, Asia Pacific, Latin America and Middle East and Africa (2009
to 2014)
2009 2010 2011 2012 2013 2014'Internet Television' Services 7,568 14,248 23,418 35,566 51,185 70,733All Other Television Services (Note 1) 1,439,660 1,511,490 1,582,696 1,652,459 1,720,139 1,784,453
Total Television Viewing Hours: 1,447,228 1,525,738 1,606,114 1,688,025 1,771,324 1,855,186
Note 1: Includes Cable Television Services, Satellite Television Services, Telco TV Services and Terrestrial Services.
Source: Generator Research
Viewing Hours, Millions Proportion of Worldwide Viewing Hours for all Television that is
'Internet Television'
Table 15: Worldwide Viewing Hours for ‘Internet Television and Film Services’ and ‘All Other
Television Services’ (2009 to 2014)
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generator
0.5% 0.9% 1.5% 2.1% 2.9% 3.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014Percen
tage
of Total w
orldwide Television
Viewing Hou
rs
Segmentation of Worldwide Viewing Hours for Television into 'Internet Television and Film Services' and
'All Other Television Services'
All Other Television Services (Note 1)
'Internet Television' Services
Figure 27: Segmentation of Worldwide Television Viewing Hours into ‘Internet Television Services’
and ‘All Other Television’ Services (2009 to 2014)
Page 144
generatorMonetisation Models
2009 2010 2011 2012 2013 2014
Public Service 'Broadcast' (PSB) ‐ Note 1 37% 35% 32% 29% 27% 24%Advertising ‐ Note 2 51% 51% 52% 52% 52% 53% Paid‐for ‐ Note 3 12% 14% 16% 19% 21% 24%
Total: 100% 100% 100% 100% 100% 100%
Source: Generator Research
Percent
Segmentation of Worldwide Viewing Hours for 'Internet Television' Services by Monetisation Model
Note 1: Refers to services that are provided by publicly‐funded broadcasters and which are provided free of charge to viewers in the broadcaster's national market.Note 2: Includes future situations where PSBs provide access to viewers beyond their national jurisdiction on an ad‐supported basis.Note 3: Includes ad‐hoc revenue for 'on‐demand' viewing and subscription revenue. Also includes future situations where PSBs provide access to viewers beyond their national jurisdiction on a paid‐for basis.
Table 16: Relative Contributions of Different Monetisation Models for ‘Internet Television and
Film’ Services [(i) Public Service‐funded; (ii) Advertising‐funded and; (iii) Paid‐for Services], (2009
to 2014)
2009 2010 2011 2012 2013 2014
Public Service 'Broadcast' (PSB) ‐ Note 1 2,830 4,942 7,486 10,403 13,581 16,846 42.9%Advertising ‐ Note 2 3,867 7,321 12,099 18,477 26,735 37,147 57.2% Paid‐for ‐ Note 3 870 1,985 3,833 6,686 10,868 16,740 80.6%
Total: 7,568 14,248 23,418 35,566 51,185 70,733 56.4%
Source: Generator Research
Hours, Millions
Segmentation of Worldwide Viewing Hours for 'Internet Television' Services by Monetisation Model CAGR
Note 1: Refers to services that are provided by publicly‐funded broadcasters and which are provided free of charge to viewers in the broadcaster's national market.Note 2: Includes future situations where PSBs provide access to viewers beyond their national jurisdiction on an ad‐supported basis.Note 3: Includes ad‐hoc revenue for 'on‐demand' viewing and subscription revenue. Also includes future situations where PSBs provide access to viewers beyond their national jurisdiction on a paid‐for basis.
Table 17: Segmentation of Worldwide Viewing Hours for ‘Internet Television and Film’ Services by
Monetisation Model [(i) Public Service‐funded; (ii) Advertising‐funded and; (iii) Paid‐for Services],
(2009 to 2014)
Page 145
generatorTraffic Consumption
2009 2010 2011 2012 2013 2014
Data Consumption 5,789 12,823 24,238 40,012 62,189 95,489 75.2%Annual Growth: 121.5% 89.0% 65.1% 55.4% 53.5%
Source: Generator Research
Peta Bytes (PB) ‐ Note 1
Worldwide Traffic Consumption for Internet Television Services (2) CAGR
Note 1: 1Peta Byte (PB) = 10^15 Bytes or 8 x 10^15 bits.
Note 2: This includes users who have broadband internet connections and who regularly spend time viewing television and film content on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and FilmServices" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that is connected to the internet, either directly or via a set top box (STB). Excludes users who view television and film content onmobile devices.
Table 18: Worldwide Traffic Consumption for ‘Internet Television and Film’ Services in Peta Bytes
(2009 to 2014)
2009 2010 2011 2012 2013 2014
North America 1,112 2,383 4,353 6,938 10,398 15,374 69.1%Western Europe 1,337 2,860 5,211 8,283 12,376 18,238 68.6%Central and Eastern Europe 567 1,318 2,608 4,497 7,289 11,650 83.0%Asia Pacific 2,374 5,304 10,112 16,837 26,393 40,869 76.7%Latin America 289 690 1,396 2,457 4,055 6,589 86.8%Middle East and Africa 110 269 557 1,000 1,679 2,769 90.6%
Total: 5,789 12,823 24,238 40,012 62,189 95,489
Source: Generator Research
Peta Bytes (PB) ‐ Note 1
Regional Traffic Consumption for Internet Television & Film (2) CAGR
Note 1: 1Peta Byte (PB) = 10^15 Bytes or 8 x 10^15 bits.
Note 2: This includes users who have broadband internet connections and who regularly spend time viewing television and film content on the web via services like Roku, hulu, BBC iPlayer etc. (See the section "Review of Internet Television and FilmServices" in this report which provides examples of internet television and film services. Includes use cases where the user views content on a (i) Desktop or Notebook PC; (ii) A Desktop or Notebook PC that is connected to a TV set; (iii) A TV set that
Table 19: Traffic Consumption for ‘Internet Television and Film’ Services in Peta Bytes (PB) for
North America, Western Europe, Central and Eastern Europe, Asia Pacific, Latin America and
Middle East and Africa (2009 to 2014)
Page 146
generatorService Revenues
2009 2010 2011 2012 2013 2014 Service Revenue (Note 1) 227$ 550$ 1,132$ 2,117$ 3,700$ 6,137$ 93.3%Annual Growth: 141.8% 106.0% 87.0% 74.7% 65.9%
Note 1: Includes revenues from ad‐supported services, subscriptions and on‐demand (pay‐per‐view) services.
Source: Generator Research
USD, millions Worldwide Service Revenue for 'Interent Television'
Services CAGR
Table 20: Worldwide Revenues for ‘Internet Television and Film’ Services (2009 to 2014)
2009 2010 2011 2012 2013 2014
Service Revenue for Ad‐supported Services
186£ 422£ 813£ 1,419£ 2,310£ 3,566£ 80.6%
Annual Growth: n/a 127% 93% 75% 63% 54% Service Revenue for Paid‐for Services (Note 1)
42£ 128£ 319£ 698£ 1,390£ 2,571£ 128.0%
Annual Growth: n/a 207% 149% 119% 99% 85%
Total Service Revenue: 227$ 550$ 1,132$ 2,117$ 3,700$ 6,137$ 93.3%
Source: Generator Research
USD, millions
Worldwide Service Revenue for 'Interent Television' Services
CAGR
Note 1: Includes revenues from subscription‐based services and on‐demand viewing, where users pay to watch individual content items such movies or TV shows.
Table 21: Segmentation of Worldwide Revenues for ‘Internet Television and Film’ Services into (i)
Revenues from Ad‐supported Services and; (ii) Revenues from Paid‐for Services (2009 to 2014)
Page 147
generator
2009 2010 2011 2012 2013 2014
Service Revenue from Ad‐supported Services
81.6% 76.7% 71.8% 67.0% 62.4% 58.1%
Service Revenue from Paid‐for Services (Note 1)
18.4% 23.3% 28.2% 33.0% 37.6% 41.9%
Total: 100% 100% 100% 100% 100% 100%
Source: Generator Research
Percent
Proportional Spilt in Worldwide Service Revenue from 'Internet Television' Services between 'Ad‐supported'
and 'Paid‐for'
Note 1: Includes revenues from subscription‐based services and on‐demand viewing, where users pay to watch individual content items such movies or TV shows.
Table 22: Proportions of Worldwide Revenue for ‘Internet Television and Film’ Services Arising
from (i) Ad‐supported Services and (ii) Paid‐for Services (2009 to 2014)
81.6%76.7%
71.8%67.0%
62.4% 58.1%
18.4%23.3%
28.2%33.0%
37.6% 41.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014
Proportions of Worldwide Service Revenue from 'Internet Television and Film' Services that arise from
'Ad‐supported' Services and 'Paid‐for' Services
Service Revenue from Paid‐for Services (Note 1)
Service Revenue from Ad‐supported Services
Figure 28: Proportions of Worldwide Revenue for ‘Internet Television and Film’ Services Arising
from (i) Ad‐supported Services and (ii) Paid‐for Services (2009 to 2014)
Page 148
generator
TV Households
2009 2010 2011 2012 2013 2014Worldwide TV Households 1,325 1,358 1,391 1,424 1,456 1,487 2.3%Annual Growth: 2.5% 2.4% 2.3% 2.2% 2.1%
Source: Generator Research
MillionsWorldwide TV Households
CAGR
Table 23: Worldwide TV Households (2009 to 2014)
2009 2010 2011 2012 2013 2014
North America 115 116 117 118 119 119 0.7%Western Europe 164 166 167 169 170 171 0.9%Central and Eastern Europe 86 88 91 93 96 98 2.7%Asia Pacific 705 727 749 771 792 814 2.9%Latin America 140 145 149 154 158 163 3.0%Middle East and Africa 115 117 118 120 121 122 1.1%
Total: 1,325 1,358 1,391 1,424 1,456 1,487
Source: Generator Research
MillionsRegional TV Households
CAGR
Table 24: Number of TV Households in North America, Western Europe, Central and Eastern
Europe, Asia Pacific, Latin America and Middle East and Africa (2009 to 2014)
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Fixed Broadband
2009 2010 2011 2012 2013 2014
North America 113 119 125 129 133 136 3.8%Western Europe 114 122 128 134 139 144 4.8%Central and Eastern Europe 47 54 61 69 78 86 13.1%Asia Pacific 207 231 255 279 305 330 9.7%Latin America 32 38 43 49 55 62 14.Middle East and Africa 12 14 17 20 23 27 18.2%
Total: 525 577 629 681 733 785 8.4%
Note 1: Includes xDSL, Cable and Fibre.
Source: Generator Research
Subscribers, millions Fixed Broadband Subscribers (Note 1)
CAGR
1%
Table 25: Worldwide Fixed Broadband Users (2009 to 2014)
2009 2010 2011 2012 2013 2014
North America 32,373$ 32,901$ 33,062$ 32,882$ 32,391$ 31,615$ ‐0.5%Western Europe 24,859$ 25,918$ 26,762$ 27,400$ 27,843$ 28,252$ 2.6%Central and Eastern Europe 10,934$ 11,938$ 12,866$ 13,700$ 14,425$ 15,025$ 6.6%Asia Pacific 53,005$ 56,223$ 58,999$ 61,315$ 63,303$ 64,489$ 4.0%Latin America 6,495$ 7,350$ 8,061$ 8,862$ 9,564$ 10,270$ 9.6%Middle East and Africa 3,132$ 3,717$ 4,329$ 4,963$ 5,615$ 6,277$ 14.9%
Total: 130,797$ 138,047$ 144,078$ 149,121$ 153,139$ 155,929$ 3.6%
Note 1: Includes xDSL, Cable and Fibre.
Source: Generator Research
USD, millions Fixed Broadband Revenue (Note 1)
CAGR
Table 26: Number of Fixed Broadband Users in North America, Western Europe, Central and
Eastern Europe, Asia Pacific, Latin America and Middle East and Africa (2009 to 2014)
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generator
Cable TV
2009 2010 2011 2012 2013 2014
Subscribers 395 398 403 406 408 410 0.8%Annual Growth: 1.0% 1.1% 0.8% 0.6% 0.4%
Source: Generator Research
Subscribers, millions Worldwide Cable TV Users
CAGR
Table 27: Worldwide Cable TV Users (2009 to 2014)
2009 2010 2011 2012 2013 2014
Service Revenue 136,137$ 147,803$ 156,319$ 164,420$ 172,332$ 179,974$ 5.7%Annual Growth: 8.6% 5.8% 5.2% 4.8% 4.4%
Source: Generator Research
USD, millions Worldwide Cable TV Service Revenues
CAGR
Table 28: Worldwide Cable TV Service Revenue (2009 to 2014)
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generator
Satellite TV
2009 2010 2011 2012 2013 2014
Subscribers 106 109 115 117 119 120 2.6%Annual Growth: 5.4% 1.5% 1.8% 0.8%
Source: Generator Research
Subscribers, millions Worldwide Satellite TV Users
CAGR
Table 29: Worldwide Satellite TV Users (2009 to 2014)
2009 2010 2011 2012 2013 2014
Service Revenue 56,821$ 60,360$ 65,249$ 67,867$ 70,772$ 74,923$ 5.7%Annual Growth: 6.2% 8.1% 4.0% 4.3% 5.9%
Source: Generator Research
USD, millions Worldwide Satellite TV Service Revenues
CAGR
Table 30: Worldwide Satellite TV Service Revenues (2009 to 2014)
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generator
Telco TV
2009 2010 2011 2012 2013 2014
Subscribers 27 41 55 76 98 121 35.0%Annual Growth: 51.9% 34.1% 38.2% 28.9% 23.5%
Source: Generator Research
Millions Worldwide Telco TV Users
CAGR
Note 1: A ‘Telco TV’ service is where a telecoms provider such as AT&T, France Telecom or BT offers an IP‐based television service over a broadband connection, which might be xDSL or Fibre.
Table 31: Worldwide Telco TV Users (2009 to 2014)
2009 2010 2011 2012 2013 2014
Service Revenue 11,048$ 17,535$ 24,539$ 35,313$ 47,346$ 60,694$ 40.6%Annual Growth: 58.7% 39.9% 43.9% 34.1% 28.2%
Source: Generator Research
Note 1: A ‘Telco TV’ service is where a telecoms provider such as AT&T, France Telecom or BT offers an IP‐based television service over a broadband connection, which might be xDSL or Fibre.
USD, millions Worldwide Telco TV Service Revenue
CAGR
Table 32: Worldwide Revenues from Telco TV Services (2009 to 2014)
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Internet Video
2009 2010 2011 2012 2013 2014
Users: 467 518 570 622 676 730 9.3%Annual Growth: 10.9% 9.9% 9.2% 8.6% 8.0%
Source: Generator Research
Millions Worldwide Internet Video Users (1)
CAGR
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing short‐form video content on the web, which is typically less than 5 minutes in duration. ‘Internet Video’ excludes 'Internet Television and Film' services and all Mobile Video. Also excludes users who just watch video ads.
Table 33: Worldwide Internet Video Users (2009 to 2014)
2009 2010 2011 2012 2013 2014North America 109.3 116.2 122.1 127.3 131.7 135.1 4.3%Western Europe 103.3 111.4 119.1 126.3 133.2 139.4 6.2%Central and Eastern E 48.1 54.4 61.0 67.8 75.0 82.5 11.4%Asia Pacific 168.7 191.2 214.5 239.2 265.1 292.0 11.6%Latin America 29.0 34.3 40.1 46.4 53.3 60.6 15.9%Middle East and Afric 8.9 10.8 12.9 15.2 17.7 20.4 18.2%
Total: 467 518 570 622 676 730
Source: Generator Research
Millions Regional Internet Video Users (1)
CAGR
Note 1: This includes users who have broadband internet connections and who regularly spend time viewing short‐form video content on the web, which is typically less than 5 minutes in duration. ‘Internet Video’ excludes 'Internet Television and Film' services and all Mobile Video. Also excludes users who just watch video ads.
Table 34: Internet Video Users for North America, Western Europe, Central and Eastern Europe,
Asia Pacific, Latin America and Middle East and Africa
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generator
2009 2010 2011 2012 2013 2014
Revenue $ 4,081.9 $ 4,629.5 $ 5,262.7 $ 5,980.5 $ 6,776.3 $ 7,640.8 13.4%Annual Growth: 13.4% 13.7% 13.6% 13.3% 12.8%
Source: Generator Research
USD, Millions Worldwide Associated Revenues for Internet Video (1)
CAGR
Note 1: This refers to advertising revenue earned by the site that serves the video. Includes companion ads (e.g. Banner ads, Sky‐scraper ads etc.) as well as PPA ad revenue earned be serving contextual text overlay ads with the video content.
Table 35: Worldwide Associated Revenues for Internet Video
Global IP Traffic
Global IP Traffic by Type
2009 2010 2011 2012 2013 2014Internet (2) 10,942 15,205 21,181 28,232 36,709 47,176 34%Managed IP (3) 3,652 4,963 6,771 8,851 11,078 13,199 29%Mobile Data (4) 91 228 538 1,158 2,132 3,528 108%
Total: 14,685 20,396 28,490 38,241 49,919 63,903 34%
Annual Growth: 39% 40% 34% 31% 28%
Note 1: 1 PB (Peta Byte) is 10^6 GB, or (10^15) Bytes or (8 x 10^15) Bits
Note 2: Denotes all IP traffic that crosses an Internet backbone
Note 3: Includes corporate IP WAN traffic, IP transport of TV/VoD
Note 4: Includes mobile data and Internet traffic generated by handsets, notebook cards, and mobile broadband gateways
Source: Cisco VNI, 2010
CAGRGlobal IP Traffic by Type
PB per month (1)
Table 36: Global IP Traffic from 2009 to 2014 in Peta Bytes per Mont Separated into Internet,
Managed IP and Mobile Data
Page 155
generator
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014
Global IP Traffic: Split between Type
Mobile Data
Managed IP
Internet
Source: Cisco VNI, 2010
Figure 29: Global IP Traffic separated by Traffic Type
Page 156
generatorGlobal IP Traffic by Segment
2009 2010 2011 2012 2013 2014Consumer (2) 11,602 16,534 23,750 32,546 43,118 55,800 37%Annual Growth: 43% 44% 37% 32% 29% n/aBusiness (3) 3,083 3,862 4,740 5,697 6,801 8,103 21%Annual Growth: 25% 23% 20% 19% 19% n/a
Total: 14,685 20,396 28,490 38,243 49,919 63,903 34%
Annual Growth: 39% 40% 34% 31% 28%
Note 1: 1PB (Peta Byte) is 10^6 GB, or (10^15) Bytes or (8 x 10^15) Bits
Note 2: Includes fixed IP traffic generated by households, university populations, and Internet cafés
Note 3: Includes fixed IP WAN or Internet traffic generated by businesses and governments
Source: Cisco VNI, 2010
PB per month (1)Global IP Traffic by Segment
CAGR
Table 37: Global IP Traffic in Peta Bytes per Month Shown Separately for Consumer and Business
from 2009 to 2014
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014
Global IP Traffic: Split between Consumer and Business
Business
Consumer
Source: Cisco VNI, 2010
Figure 30: Global IP Traffic – Relative Contributions of Consumer and Business Segments from
2009 to 2014
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Global IP Traffic by Region
2009 2010 2011 2012 2013 2014North America 5,115 7,091 10,051 12,988 16,136 19,019 30%Western Europe 3,495 4,818 6,712 9,261 12,417 16,158 36%Asia Pacific 4,988 6,906 9,444 12,670 16,576 21,721 34%Central and Eastern Europe 493 678 938 1,306 1,815 2,510 38%Middle East and Africa 157 223 319 490 700 1,018 45%Latin America 438 680 1,027 1,527 2,275 3,479 51%
Total: 14,686 20,396 28,491 38,242 49,919 63,905 34%
Annual Growth: 39% 40% 34% 31% 28%
Note 1: 1 PB (Peta Byte) is 10^6 GB, or (10^15) Bytes or (8 x 10^15) Bits
Source: Cisco VNI, 2010
PB per month (1)Global IP Traffic by Region
CAGR
Table 38: Global IP Traffic in Peta Bytes per Month Shown for Geographic Regions from 2009 to
2014 (North America, Western Europe, Asia Pacific, Central and Eastern Europe, Middle East and
Africa and Latin America)
2009 2010 2011 2012 2013 2014North America 34.8% 34.8% 35.3% 34.0% 32.3% 29.8%Western Europe 23.8% 23.6% 23.6% 24.2% 24.9% 25.3%Asia Pacific 34.0% 33.9% 33.1% 33.1% 33.2% 34.0%Central and Eastern Europe 3.4% 3.3% 3.3% 3.4% 3.6% 3.9%Middle East and Africa 1.1% 1.1% 1.1% 1.3% 1.4% 1.6%Latin America 3.0% 3.3% 3.6% 4.0% 4.6% 5.4%
Total: 100% 100% 100% 100% 100% 100%
Source: Cisco VNI, 2010
Percentage of Total Global IP Traffic
Global IP Traffic by Region
Table 39: Global IP Traffic – Relative Contributions of Geographic Regions from 2009 to 2014
(North America, Western Europe, Asia Pacific, Central and Eastern Europe, Middle East and Africa
and Latin America)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014
Global IP Traffic separated by Geographic Region
Latin America
Middle East and Africa
Central and Eastern Europe
Asia Pacific
Western Europe
North America
Source: Cisco VNI, 2010
Figure 31: Global IP Traffic – Relative Contributions of Geographic Regions from 2009 to 2014
(North America, Western Europe, Asia Pacific, Central and Eastern Europe, Middle East and Africa
and Latin America)
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FIVE Television: Kieran Clifton, Head of Strategy
Date of Interview: 17 June 2010
FIVE is one of the UKs five terrestrial television broadcasters. The company
is 100% owned by Europe’s largest broadcaster RTL, based in Luxembourg.
RTL is in turn majority owned by Bertelsmann, a German media
conglomerate. RTL has recently announced its intention to sell FIVE.
Although FIVE is a Public Service Broadcaster, the company is 100% funded
commercially and derives the vast majority of its revenue from television
advertising. The company’s business operations are subject to the terms of
a UK Public Service Broadcast license which defines a list of special
requirements. For example, FIVE has to comply with quotas that have
been defined for commissioning content and the company is also subject
to restrictions as the amount of advertising mins that can be inserted into
each programme hour.
Where are you with internet television right now? How engaged are you?
I’d say we’re fully engaged but the industry has a long way to go and there are difficulties at the
moment because there are so many different people you have to deal with, so many different
formats, so many types and ways of delivering the programming; whether it’s at our end, whether
it’s linear, on‐demand or whatever, or whether it is at their end – different technologies, different
distribution methods. It’s a complicated environment.
And also there are uncertain returns and, potentially, some risks to our core business. We can’t
just scatter gun and put our content everywhere all at once so we are looking to prioritise the
most valuable deals.
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We are great supporters of all forms of distribution of television. We want our viewers to be able
to watch our programmes wherever they want to watch them and whenever they want to watch
them. The internet provides a great opportunity to add incremental viewing, to add more
convenient viewing and to add functionality to allow people to view differently. People can share
viewing, they can catch up on viewing and they can do all sorts of new things.
So we’re extremely excited about the possibilities that internet television provides but those
possibilities have in most cases yet to be realised. We are at a very, very early stage – as you know
– in actually executing internet television propositions.
Some very forward thinking equipment manufacturers are looking to put internet capability and
functionality into their televisions. Sony Bravia has launched and there are competing propositions
from Panasonic and Samsung, and we are very keen to be part of those. We have done a deal with
Sony on the Bravia and so, DemandFIVE, our web portal ‐ our iPlayer equivalent if you like ‐ is on
Sony Bravia and we are looking to do deals with other equipment manufacturers as well.
There is also, separately, but still connected, some more closed IPTV opportunities. BT Vision is
internet protocol television, but clearly it does not work like the open web. We have a deal with
BT Vision to provide our content to them.
Then there are linear channels that are sometimes provided over the internet. So Tiscali, what
used to be HomeChoice and is now owned by TalkTalk, is now provided via the internet.
And again, we are supporters of providing linear TV as well as on‐demand TV over the internet.
So just by mentioning all those names and all those ways of delivering television over the internet
– anyone listening would get a strong picture of how fragmented and immature the market really
is.
What do you understand about the sorts of people who are consuming internet television, the
users?
We know that the people that are buying these televisions, internet‐enabled televisions – the
Bravia’s of this world – are buying them as a status symbol purchase. People are buying them
because they are big, attractive televisions.
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But we do not know if they are buying them because of the new functions that allow them to
watch DemandFIVE or iPlayer. More importantly, we don’t know whether when they get them
home and they watch them, how much content they are actually watching on the internet. It’s too
early to say.
Thinking ahead, about the long term, do you think that internet television will result in an
increase in total viewing time?
That is a good question with a relatively complicated answer. I think that people are using more
media and spending more time with media than they did 10 years ago and I think that will
increase from now on.
And I think a couple of factors are driving this. One is the availability of mobile media which means
that you are able to watch things and interact with things – I’m talking about media in a wider
sense here – whether you’re watching television, playing games or engaging with social media and
that will increase because there are more opportunities to view.
In addition, because of the nature of the devices there is an opportunity to multi‐task and to
consume more than one media at the same time. Now whether that leads to the same
engagement with viewing is a different question, but it does mean more overall hours spent with
media.
But it does not necessarily mean that you watch less television. In fact, there are a couple of
reasons why it is more likely that in the future there will be more television viewing. One reason
for this is the devices, so you do not have to be stuck in the living room or bedroom to watch
television. Also, because of people’s increased familiarity with multi‐tasking ‐ of playing a game
while you’re watching television ‐ there is less need in the future for one to substitute the other,
and again, with the caveats around engagement.
Television’s total viewing hours has largely remained the same over the last 30 to 40 years. It
doesn’t matter whether there are two channels, three channels, four channels or 50 channels –
it’s about 25 hours per week. It has been at this level and will continue to be. I think it is likely to
drop a little because there is more opportunity to watch television in a more mobile environment
but I think that other media, as I say, are unlikely to substitute for it.
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In fact, if you look at the numbers then what you see is that all of those people who use a lot of
’non television’ media are also the sort of people who watch television media as well. They are
absolutely correlated, so you don’t tend to see that sort of substitution, you tend to see people
using more media and using those media together.
So I think media use will increase markedly and continue to increase as it has over the last 10
years. I think that television watching will increase slightly.
What risks do you see? challenging facing the development of a mass market for internet
television?
The main risk is that this is a content‐driven market. This is about delivering good content and the
presumption is that we develop the business models that will allow us to fund the development of
new content, and that is something which is massively under threat, as you know.
For every dollar that you receive from someone watching linear TV then if they are watching it by
PVR then they are fast‐forwarding through two thirds of the ads and if they are watching over the
internet then there are far fewer ads and so we get even less money than we do from PVR at the
moment. Although these effects are small, they do indicate a threat to our business model and the
more difficulty we have in finding a sustainable business model for this then the more risk there
will be in funding the development of content and, therefore, to those things that I was talking
about earlier.
Do you think the industry needs a standardised way to measure and monetise online video with
ads, something that works regardless of device or delivery method?
I think that’s right. What I think we need is some sort of currency market to be developed in a
robust and consistent manner. We have a currency at the moment in TV air time which is neatly
facilitated in the UK by BARB.
But online advertising is sold very differently to this. The way currently that ads are measured on
the online channel is sub‐optimal. Obviously you can tell which ads are served and which aren’t
but fundamentally most of the television that is watched now and for the next ten years will be
linear TV. Even in technophile homes, say in Sky+ homes, only 16 to 17 percent of viewing is time‐
shifted.
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So even in these forward‐thinking homes linear TV still predominates and so there is absolutely a
need that when linear TV is pushed out to mobile phones, or pushed out via the internet – to
different technologies and different platforms – then we need to be capturing that advertising in
the same way that BARB does for traditional TV. It all needs to be passed through the same
system.
Looking at it purely as source of revenue, how attractive is the online channel for you right now?
We simply need to find a way of making more money out of on demand ads
At the moment, a linear pound of ad revenue compares with pennies of time‐shifted ad revenue
and that is going to put us into difficulties, and it is ultimately going to be bad for the viewer who
is not going to get the content they are accustomed to.
The answer to that is better quality of advertising, and the internet can help here, and internet
television can absolutely can. Whether it’s geographic, whether it’s demographic or whether it’s
behavioural, or a combination, targeted advertising would allow advertisers to be very efficient
about how they place their messages.
And this seems to me to be a combination of raising revenues in that direction and cutting costs in
the other direction by making sure that bandwidth is cheap, that you have standards that mean
that single types of ads are delivered, captured and measured in a single way, so there is a
consistency between platforms and technologies.
These are the things that are going to have to mature alongside the growing internet television
market in order to make sure that internet television does not damage the traditional business
model.
Thinking about incremental ad revenue per viewer hour, how does terrestrial television compare
with online at present?
This is a very interesting analysis. But there is another factor at work here which is that there is
marginal cost associated with serving video online, so it’s not just a revenue calculation it is a
profit calculation as well.
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So the interesting piece of analysis is to work out from one viewing of the F‐Word, for example,
what contribution is made to variable costs from someone watching that programme in a
broadcast environment, on a PVR and by watching it on‐demand on the web. And that is a really,
really interesting thing. So if you index linear at 100, then PVR will be about 33 and on‐demand on
the web at the moment will be somewhere between 20 and 30. Now that is unsustainable
economics.
To clarify, you’re not taking purely about revenue here?
I’m taking about contribution, which is revenue minus costs. Or, more accurately, marginal
revenue minus marginal costs. This is the money we get from the ads minus the cost of delivering
the programme.
How are you dealing with this from a business perspective? Seems like a bit of a disaster?
It’s not a disaster provided internet television is not substitutional. And obviously there is an
element that is incremental contribution and an element that’s not. So if you watched the F‐word
on the web there is a chance you would not have watched it on linear, simply because you might
not have had the opportunity. So to the extent that it’s incremental then this is not a disaster but
it is mainly substitutional and, to the extent that we can get that 25 up, either by cutting our costs
on distribution ‐ which are going in the right direction – or by using targeted advertising ‐ which is
something in the future ‐ then it’s is not necessarily a disaster because at the moment it’s very,
very small.
So the 100 that we’re getting from linear still remains the bulk of viewing and that will continue.
The danger is that if the 25 becomes a much bigger part of our business [which would mean our
overall profitability would drop].
So returning to the 25 number, the contribution number, is the problem that the CDN costs for
internet video are high, or that you’ve taken a hit on online CPMs? Or has something else
changed?
The answer to your question is that it’s both the revenue and the cost side. But it’s less the CPMs.
The CPMs are good and they’re actually holding up quite well. They’re quite healthy really.
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As for the cost line, well, we’re paying more for online, and we don’t pay anything at all for linear.
So any cost above zero is going to be a problem, but the online costs are going down.
But as far as the revenue line goes, the main problem is the fact that you don’t actually serve that
many ads. If you look at how many ads you have in the F‐Word during a linear show, then you’ve
got 12 mins of ads – let’s say – max – which is a max of 24 30‐sec spots. Now you can’t compare
that with two pre‐rolls and maybe a mid‐roll or two in on on‐demand stream. Even though the
CPMs are high, it’s that there aren’t that many ads.
But why would 1 hour of television programming delivered over a broadband line to a TV set
carry fewer ads than the same programme delivered to the same TV set via a conventional
broadcast network?
The distinction here is not between broadband and broadcast. The distinction I’m making is
between linear and on demand. And on‐demand, which tends to be delivered via broadband, is
where the problem lines. If you’re watching scheduled TV that just happens to be delivered over
the internet, then provided it’s captured by BARB I don’t mind. But currently it’s not and that’s the
problem.
Could you expand on this – the economic value of one person watching one programme?
There are a number of factors contributing to this , both in terms of revenues and cost and one of
those is the number of ads that the viewer will watch.
And necessarily one person watching Greys Anatomy online verses by linear TV just watches fewer
ads.
But is this a policy division at your end? Meaning you don’t think that it’s acceptable for the
viewer to watch the same proportional number of minutes per hour on a PC as they currently do
on their TV set when watching broadcast TV?
I’m not sure it’s quite policy. I mean, it’s definitely what we do and therefore it is policy because of
that, but it’s not necessarily the market’s preference. It’s that we are being driven by the market
and currently that is what is considered acceptable.
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There has been quite a lot of consumer research around what viewers will put up with. And we
know how many ads viewers are inclined to watch during linear TV bearing in mind that viewers
are [trying to avoid the ads by] using PVRs to fast forward, or they just go to make a cup of tea. So
you know when you watch a programme what the score is and that’s not the case for online.
People sitting watching online streams are less used to and less willing to put up with advertising.
Now I think that is steadily growing and necessarily it will increase – it will have to increase – but it
will never increase to what you have on linear TV where you have 3‐min commercial breaks of 6
averts. That won’t happen within online streams even in the medium term and therefore you are
restricted to some extent by the number of ads you are being served.
Can you charge more for those ads?
Yes you can because of the engagement you have and the fact you can’t fast forward through
them because they are sold in an internet market. But in addition there is a third counter balance
for that and that is that there is only ever in most cases one person watching, where as on TV you
generally think that there is maybe two or three or four impacts that you’re generating per ad. So
again there are a number of balancing factors on either side.
But when you add it all up, you are left with the conclusion that online substitutes in a negative
way for linear.
I’m a bit confused about this. Let’s imagine two families – Smith and Jones – in two different
homes who are watching TV at the same time. The Smith family is watching Greys Anatomy on
linear broadcast on FIVE on their TV set. The Smiths are getting the full 12 mins of ads per hour.
But the Jones family is watching the previous week’s episode of Greys Anatomy, again on their
TV set – exactly the same programme content, one hour let’s say – but in this case the content is
coming from a some other service is being delivered over the internet via a broadband
connection. Now the important question here is whether the Jones family is also willing to watch
12 mins of ads?
I think you’re right, I don’t think in that case there is a difference. In the case of that at scenario
you have melded two different markets. We tend to sell advertising in two different ways, one
linear via the BARB currency in which we can tell how many people are watching, and it’s your
standard linear airtime ad market.
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In the online world we sell advertising quite differently. So you sell specific campaigns to specific
advertisers, and you pay based on the number of times that the ad viewed and it is always
assumed that the ad is viewed by one person.
Now in a world where you’re taking one technology and one ad sales process and migrating that
onto a TV then, you’re absolutely right, as far as the consumer is concerned there is no reason
why they wouldn’t be prepared to watch as many ads.
It’s just that it’s not done like that today and the reason why is that there is no way, yet, and I
stress yet, to measure that.
This is all about measurement, and it’s what we talked earlier about BARB catching up. If there
was a way to sell those online ads in the same way and make them part of the overall BARB
currency then we could put in all those ads and you’d get one price and so, yes, that would be a
way of doing it.
But there are reasons why it is not done like that. They [the ads] are sold often by two different
set of people – your online team and your airtime team – they are sold in different ways. The
airtime sales market in this country (the UK] is sold on the basis of share of adverting budget
where as online is sold usually directly to advertisers or agencies and so they are fundamentally
sold and measured differently.
Now in time these two ad media will come together, but at the moment the overlap is very, very
small, in terms of audience size.
So your world of the Jones family is just a very uncommon experience.
Therefore the infrastructure aspect, in terms of measurement and sales processes etc. has not
been set up to support that yet, but in the future you may be right and the two things may well
come together.
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Let’s talk about the long tail. Imagine a future when all of the long‐tail television content in
existence has been indexed and is accessible using an internet–connected TV set. Do you see the
viewing hours for this ‘long tail’ content as being significant proportion of the total viewing time
for internet television?
No, no I don’t. I absolutely don’t. I think that the internet provides a fantastic opportunity for
those who are interested in triathlon or gardening or whatever to view content that they would
not otherwise have able to view. But it’s just that not many people do that and so this long tail
viewing would form a very small part of their viewing.
It is not the case that the most popular shows are the most popular simply because they are the
most popular – it’s not a self‐fulfilling prophecy – the reason for the popularity is that a lot of
money spent on producing the content and, because of that, they are good. Only a small
percentage of shows can achieve the level of national consciousness that is required to make
something truly popular.
I actually think it is more likely that instead of having less of a concentration of people watching
the most high‐quality shows, you’re going to have a higher concentration. And the reason for that
is instead of having to wait to watch your favourite shows when they are scheduled, you can
watch them whenever you like, wherever you like and therefore it is much more likely that you’re
not going to compromise and watch your 10th or 11th most favourite show when you can watch
your most favourite show.
And therefore although the long tail provides a great opportunity for niche programming I don’t
think it necessarily implies a huge change to the commercial dynamic. In fact what this new
functionality and technology allows people to do is that it allows you to not to have to
compromise on quality.
And don’t forget the way that TV is watched and the way TV is then talked about. People like to
watch the TV shows that other people are watching and they then like to talk about those shows.
The social media around television is incredibly important and so the big, popular shows are, I
think, are always going to be big and popular.
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We can see just by looking at our website the huge concentration of traffic around material that
was on TV last week and the most popular and the best shows on TV.
Yes, we have provided people with the ability to view of archive of content and, yes, people do it
but they don’t do it very much. And I think [this pattern] will be the case for some time.
People like the new, they like what other people are talking about and they like the best content.
What’s more, given all this new technology, it’s going to be even easier to find it.
So although the long tail is interesting I don’t think it’s a game changer as far as commercial reality
goes.
We talked earlier about whether internet television would enable some amount of incremental
viewing time, do you think long tail viewing might account for some of that?
That’s actually not a bad hypothesis.
Returning to targeted advertising, is it really credible that you will be able to charge more for
targeted inventory? Do advertisers really pay more for targeted versus non‐targeted?
I think that there absolutely evidence that they do that, and I think the thing to look at would be
the current airtime ad sales market.
We charge more for 16 to 34s than we do for adults. That is targeted advertising. As soon as you
get into the very small [segments], housewives with kids or kids, which we do on a BARB basis,
then you can charge more. All we mean by targeted advertising is taking that to the next level and
saying, actually, ‘no, only can I target 16 to 34s but I can target 16 to 34s who like cars.’ I think,
absolutely you can charge more.
Look at the success that has happened in the online world of people selling verticals. Look at the
amount of interest that car or holiday websites get, for example. The reason is because
advertisers know that these are targeted around people’s interests. So I think both in terms of the
online display ad market and the airtime sales market there is evidence that is what advertisers
will pay for as soon as it can be proven to them that it can be delivered on sustainable basis.
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We are talking here about bring two worlds together here – an internet world which is free,
open, and horizontal and a television world which is structured around closed vertical platforms
which are fiercely protected. Do you think that internet television in the future is going to end up
being more like the internet – which is mostly open – or more like the television industry – which
is mostly closed?
I think that is a terrific question. I think that the answer is that it’s all to play for. What I would say
though is that the people that are playing hardest and fastest in this market are those in the
vertical world and therefore it’s hard for that free, open world to rally itself as a collective body.
And so just simply for a structural point of view you would expect that a vertical world will
emerge, although that vertical world will have to incorporate an element of openness about it.
The other point about this is that some of this technology is very expensive and so the vertical
player has an advantage because they have and ability subside that initial outlay and get money
back later on and that is a very powerful tool in world of web 2.0 internet technology. So whether
it is Sky being able discount their box or whether it is BT offering you a Canvas box in return for an
internet line, that vertical world of having a low initial outlay in order to be able to able to live
inside someone’s vertical world is very powerful.
Having said that I think that people will want a world within which they can find a variety of
different content and have access to that and I think people appreciate stuff like iPhone apps, but
of course iPhone apps are still within a vertical world within the iPhone.
So I think probably the answer is going to be a small number of successful vertical players who
operator who operate somewhat open platforms.
Thank you, Kieran.
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Sony: Tim Page, Technical Manager, Television
Date of Interview: 22 June 2010
Founded in 1946, Sony is a global consumer electronics manufacturer
whose main products span audio, video, television, gaming and PCs. The
company also manufacturers electronics components and some
semiconductors.
In March 2010, Sony had 167,000 employees while the company’s
operating revenue for the fiscal year ending 31 March 2009 was JPY 7,214
billion (USD 82.5 billion).
In March 2001, Sony announced an internet television offering called
‘Sony Internet Video’ which is now available on the majority of Bravia TVs,
Blu‐ray players and some audio systems.
Can you summarise where you are with your internet television strategy?
As you know, we’ve launched this Bravia internet video platform on TVs, Blu‐ray players and some
audio systems. This means that the majority of the Bravia line‐up has internet connectivity and an
internet TV function. We’re pursuing a two‐pronged approached. One is for your internet based
content – YouTube, Flicker, Facebook and social applications like that and the other aspect is more
catch‐up TV where we have partnerships with leading broadcasters such as Channel 5 [a.k.a. FIVE
Television – see previous interview), iPlayer and BBC. We are talking with leading broadcasters in
many countries to try to get their content on our platform.
This dual offer is on most of our Bravia TVs, all of the Blue ray players and a selection of a
surround sound audio systems have this internet function built in as well.
So things have moved on since you were talking about TV widgets a couple of years ago?
Yes, they have. That was our first attempt at some sort of internet connectivity but it was quite
restricted. We’re now extended this to include pretty much any type of internet content.
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Sony Internet Video was introduced before Google TV and so Sony Internet Video is our offering
today. Google TV is coming in the States in the Autumn and we’re looking at it coming to Europe
sometime next year. Sony Internet Video uses our own infrastructure; we have servers in San
Diageo and a range of content providers already lined up.
How much content is currently available on Sony Internet TV?
We’ve got about 50 different contents online at the moment. Daily Motion, LoveFilm Video on
Demand, and we’ve got the Berlin Philharmonic Orchestra on the music side of things, Sony
Pictures Television is coming soon with content.
In addition to that you’ve got key broadcasters like Antenna 3 in Spain, TF1 in France, iPlayer is on
Blu‐ray players currently, and will be coming to Bravia TVs very soon. FIVE OnDemand on Channel
5 is available. This is the current status on the content side, but we’re talking to all the major
broadcasters on an ongoing basis so you’ll see more and more content on a weekly basis. So in a
couple of weeks time you’ll see an iPlayer logo appearing on the Bravia TVs. So a lot’s happening
on a weekly basis.
What sort of service delivery infrastructure lies behind Sony Internet Video?
We are, in effect, almost like a service that directs traffic down different roads and each of these
roads takes you to a different content provider. So when you turn on the TVs they access our
servers they say ‘Ok, you’re in the UK’ And then they send back a list of UK–related content that’s
been approved for viewing in the UK and when you click on iPlayer of Channel 5 or any of the
other icons the it goes directly to the broadcaster’s website then they stream the content from
their site into our interface.
So we don’t host any content – that is all done by the content providers.
So in effect it’s a front end, a way of aggregating content from many sources sand then
presenting it all to the used in one interface?
Yes, that‘s right – we’re really providing an aggregator function.
Is all the content free?
Good point. It’s worth mentioning that most of the content is free to air but there are two things
that are pay per view.
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One is LoveFilm, the UK movie rental service, and also Berlin Philharmonic Orchestra where you
can get access to 10 concerts on a pay‐per‐view basis. So there is the potential to move forma free
to air model to a pay‐per‐view, on demand or subscription model.
And on the revenue side, is Sony taking a share of the revenue?
I can’t comment too much about that, but there is some revenue sharing going on. But it varies
according to the content provider.
So what does a content provider need to do to get their content on the Sony Internet TV
platform? What’s the To Do list, at a high level?
The content needs to be in the right format to be playable, but it’s more focused on the
commercial aspects – in terms of which content, how many hours of content, how often it is going
to be refreshed, are there any in‐stream advertising models built around the content. But I’m
probably not the best person to speak to on this topic.
What about the meta data associated with the content; programme title, rights and so on?
There is nothing exclusive to Bravia because the meta data is generic and it can work across a
range of platforms so as long as there is data embedded in the content then it will come up on any
searches. For example if you type in ‘F‐Word‘ then it should appear on Bravia Internet Video
assuming that content provider is already on the platform.
What about the technical aspects of the TV? Who supplies the browser technology?
We have developed a proprietary system for accessing content, as opposed to using a browser per
se. We don’t have open access to the internet – so you cannot type in bbbc.co.uk for example; you
are within a closed environment. We aggregate a range of content and present this in a simple,
easy‐to use TV menu.
How do you see Sony Internet Video panning out now that Google TV has been announced,
bearing in mind that Sony is one of Google’s launch partners for Google TV?
You can consider that Bravia Internet Video is one source of content within Google TV which is
kind of and umbrella over all sorts of things; broadcast content, locally‐stored content and Bravia
Internet video. So if you are typing a search into Google TV then it will search across BBC, satellite
channels if you have a satellite box, Bravia Internet Video if you have a compatible Bravia set and
your PVR if you have any recorded content so you can see all the results.
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So Google TV is more an umbrella across all the content that you have access to. So this really
means that the consumer need not be worried about where the content comes from, i.e. which
channel, which platform or broadcaster, it’s just displayed nicely in the TV menu.
Do you have an associated developer programme?
The current Bravia system is closed so you can’t write apps for it. But Google is a possibility but we
don’t see that Google TV as replacing Bravia Internet Video, we see Google TV as being more of an
added value on top with Bravia Internet Video being just be one source of content that feeds into
the Google system.
So effectively there are two levels of aggregation there?
Yes, this is our current view. But to be honest we don’t know enough about the exact details of
how Google TV will be implemented on next year’s TV models. It’s too early to say.
Can you compare Internet Television with 3D Television, in terms of market potential? Market
uptake?
In terms of 3D, then yes, this is very exciting at the moment But there’s still not a lot of content
out there. Yes 3D is good for the content industry, the movie and television production side, but
for the home use then it’s still very early days. But for internet TV we feel that it is probably going
to be used more than 3D, certainly in the short term. That’s really because everyone wants to
watch familiar TV providers on their TV – iPlayer, YouTube and so on – but on an on‐demand basis.
3D and Internet TV are two completely different markets, but although we are focused heavily on
3D at the moment in our current model launches, certainly the internet side of things will be more
used than 3D.
Do you see Sony Internet TV, and other similar initiatives, as something that is fundamentally
about delivering a superior television experience? Or do you see all this as a way of allowing
people to access the general internet using their TV sets?
Well I remember WebTV back in the 90s and it was nice idea but it was not particularly well taken
up. I personally feel that internet TV is going to give you access to much more content, than you
have access to on your terrestrial or satellite platforms. Personally, at home, if you want see
what’s going on with the tennis or the golf then I look on Eurosport to catch up with the headlines
and in a couple of mins you’ve got access to all the latest information.
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Eurosport is actually a good example of this because it’s not on Freeview, so if you’re sports fan
and you want all the latest headlines then, yes, you can go online with a PC and look on the BBC
News website. But with Sony Internet Video, you can press the ‘internet TV’ button on your
remote control and then you get access within a couple of clicks to the latest sports news and
headlines on Eurosport. And there is obviously video there as well. In the case of Europsport there
are about 15 different categories for different sports and when you go into ‘golf’ it tells you all
about the PGA tour, the US Open and the US Masters and a range of other tournaments that are
taking place, and there are video reports, almost like news items, or 1min news clips, about what
is going on; news about Tight Woods, or whatever. So it is all video‐based but it is delivered by the
internet.
The challenge is trying to get good quality video over the internet. We have some technology
inside the TV set to try an upscale and improve internet content to make it a lot better especially
when you are watching it full screen. But we’ve found that even with 1 or 2 Mbit/s –quite low data
rates – you can get quite high quality full screen video being streamed to the TV.
What about the connection between the television and the streaming server itself? Is this
independent of Sony Bravia Internet Video?
Yes, it is. We recommend 1 Mbit/s to 1.5 Mbit/s. Ideally 2.5Mbit/s would be better. But with any
kind of streaming service you do some handshaking and if the server realises that you cannot cope
with the higher bandwidth because your ADSL is limited where you live then it will send you a
lower resolution version of the stream so at least you can watch something so you do not have to
watch a high resolution picture that breaks up of experiences stutter and so on.
Can you talk more about the upscaling functionality you mentioned earlier?
There is upscaling from HDMI sources to SD and HD but also try to remove some of the
compression noise in order to improve the picture quality from what you would experience if you
just connected a PC to the TV set.
It’s the same concept as upscaling from standard definition (SD) to high definition (HD), or from
2D to 3D. I think that next year’s models will focus more on this aspect although there is a degree
of picture processing in there at the moment. But next year we will be able to offer a much better
visual experience on Sony Internet Video.
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generatorHow does the user interface work?
First you have to connect to the internet. This could be using an Ethernet cable or, in the case of
some models, you can use Wi‐Fi by connecting a USB Wi‐Fi dongle so people do not have to have
their router right beside the TV. So it’s quite easy for people to get connected. A few years ago this
was a problem because we we did not have Wi‐Fi.
So having connected the TV, you turn it on and tune it in for the first time. Then you have to go to
the network settings to choose the type of network. If it’s wireless then you will see a list of all the
wireless networks in your region, the same as if you wanted to connect a laptop to the internet.
You then type in your WEP key. Then you click a button that says ‘Refresh Content’ and what
happens here is that the device accesses our servers and returns a list of contents based on the IP
address; essentially whether you are in the U.S., Spain, France or Portugal or wherever.
This is based on the content owner’s license requirements?
Yes, that’s right. So as an example, YouTube is not allowed in Turkey for legal reasons so therefore
this content would be hidden from the list of content that comes back. But if you were in Greece
then you would see YouTube appearing in the list of available content.
So we just send the list of content to the user’s TV set and then he can access those services
individually. So it’s fairly straightforward to set up and it only takes a couple of minutes.
So, how would a user access and control the service?
In the TV set, you will use the Xcoss Media Bar menu, just like on the Playstation where you have a
photo icon, a musical note and a video clip. Under the video clip icon you would see all the
streaming internet TV channels listed. And then under the music icon you would have any music
services that are listed and under the TV icon you would have all the terrestrial TV channels.
So what you do is you either go into the menu and scroll up and down and select Film4 or
whatever and click on that or you press the Bravia Internet Video button on the remote control
which immediately takes you to that list of content where you can again scroll down and select
the content you want.
And then if you want to go back then you just press the ‘input’ button and it switches back to the
last input you were watching; Sky, BBC2 or whatever it was.
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Do you envisage in the future that the Sony Internet Video platform will incorporate an
automated monetisation mechanism that might encourage smaller content providers to publish
their content to the platform?
It depends on the content provider but there is already some revenue sharing between Sony and
the content provider. We can track exactly who is watching what is in a given country, and what is
the most popular service and so on. And on the basis of that then you can make some sort of
financial arrangement with the different providers but in terms of more detail then that is not
something that we are in a position to discuss. It varies so much between different content
providers.
Is the revenue share limited to pay‐per‐view content or does it also encompass in‐video ads
where in situations where they are served?
It could be both. I’ve seen a demonstration of what is happening on the U.S. models and in the
case of some series, like NBC, at the end of each programme then you can have a 30‐sec advert
and then it goes to the next episode on that series and this can be a good way of obtaining
revenue. And then we have the pay‐per‐view models which how we are operating LoveFilm and
the Berlin Philharmonic Orchestra.
How does the pay‐per‐view model work?
Well in the case of the Berlin Philharmonic Orchestra, you would subscribe to their service on their
internet website using your PC and then, on the TV, when you go to access their content, which is
only available on a paid‐for basis, then it asks you for a PIN which you’d get from the BPO website.
This allows us to control usage and work out the revenue share payout.
Do you have any data on deployment of the service so far?
Bravia Internet Video is only available on selected 2010 Bravia TV models. Out of all the Bravia
internet TV models we’ve announced this year, about 25% are 3D‐enabled but Internet Video is
available on about 80% of the Bravia line up, really just excluding the lower‐end models.
Compared with internet video capability, 3D is quite an expensive step up in terms of technology;
the panel, the cost the glasses etc, so it’s quite a big jump on the cost side. But internet TV is fairly
easy to incorporate onto a TV set.
In total, for the 2010 Bravia models, Sony Internet Video is on about 30 individual models,
including all the different screen sizes and spanning 4 series.
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How sustainable is the walled garden approach to Internet Video? Is the market going to
develop into a number of closed platforms, like TV broadcast today, or is it going to turn out to
be a lot more open, like the web today?
Longer term, I think you will see web browsers built into the TV sets. We’ve been talking for a long
time about having a browser so you can browse the web but up to this point TVs have not been
suitable for web browsing because processor power has not been good enough, rendering of
content has not been good and there’s been no storage inside the sets so certainly Google TV will
help address some of these issues.
Looking into the future, maybe we will become much more open so people can create their own
apps for the TV. I think that’s on the cards.
In think that in the near term we will carry on with the Bravia Internet Video strategy that we have
today, partly because of the deployed base of compatible devices, but we also see this service
carrying on and the Google TV being an umbrella that links this content with other content
sources, like local sources of content, other online content, broadcast content and so on via
harmonised user interface.
Do you think that restricting the search functionality to content that has been designed to work
with the Sony Internet TV platform, will be a source of frustration to users?
Well at the moment of course if you click on the YouTube channel, and you do a search in
YouTube then you only get YouTube results and then if you change channel and do a search in
iPlayer or Channel 5 then you only get the same thing, content that is available on those channels.
We do have a generic search function built into the TV that does look across some of these
different sources of content. But I think this is one of the main benefits of Google TV; so when you
search for ‘Top Gear’ it comes up back with Top Gear, it comes up content from iPlayer, it comes
up with HD and it comes up with YouTube results for Top Gear programmes. So it’s more
searching across all the different types of content visible to Google TV, as well as local storage as
well to make it a lot easier for people to find things to watch.
I think it is going to get easier to access more content.
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What about social features? For instance, including features that allow viewers of a given show
to discuss the program in real time, interact with others, provide a recommendation to another
user which would then appear of their TV set as a notification and so on. Rather similar to what
people currently do online, but on their TV?
Those are quite interesting concepts, an interesting area. Currently we have widgets built into the
TV for Facebook, Flickr but we do not have the features you mentioned yet.
What about the remote control? What is the user experience like there?
At the moment we have a mobile‐phone style, predictive text data entry function. When you click
in the search box then an on‐screen keyboard pops up. So, as an example, if you wanted to search
for Top Gear thee you would press 867 – space – 4327, just as you would if it was a mobile phone.
But in the future this will probably be made easier, so you might have a slide out keypad on the
remote, but this is not available today.
What about controlling Sony Internet TV using a Smartphone? Is that possible?
We do have some compatibility with the iPhone at present for the Blu‐ray player. You can
download a Sony app from the Apple App Store which then allows you to control your Blue‐ray
player using your iPhone. We will probably introduce a similar app that will allow you to control a
Bravia Internet TV‐enabled TV set next year.
So then you start seeing the emergence of a second screen where you can access the TV’s menu
structure using a touch screen interface. A Smartphone, maybe an iPhone, maybe an Android
device or a Sony Ericsson device would allow you to use the Smartphone’s touch screen as a text
entry panel. You would also have a way to display secondary content about programs you are
watching. I think having two displays in the living room could become quite interesting.
So if you are watching a movie on a Blu‐ray then because the Blu‐ray player is connected to the
internet it could download a lot of information about the film, such as actor bios, screen shots,
trailers, reviews, supplementary meta data if you like, and you could then display this information
on your TV screen or on the user’s Smartphone.
And then you could use the touch screen interface on the Smartphone to control the TV –
start/stop/pause etc. You could navigate the menu structure, enter search queries and so on. This
functionality is available today on the lowest‐end Blu‐ray player.
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generatorDo you see any major barriers to growth?
I think internet TV is becoming a lot more accessible and there is a lot of content coming. Last year
we had only a few channels but now we have over 30 channels and the number is increasing every
week. I think that in the end Internet TV will be a standard feature that you will see on all TV sets,
so even if you went to a superstore to buy low‐end TV set then that set would incorporate
internet TV functionality, even if the user did not want it.
I think the main barriers are making sure you have the content, which is key for everything. So
making sure that the content is rich enough, refreshed regularly enough and updated regularly. I
also think that the limitation of people’s internet connections at home could be an issue. But this
is less of an issue that it used to be as most people now have 1 or 2 Mbit/s. And then it’s a case of
making the actual visual quality of the video as high as possible.
What do you think will happen to total television viewing time as this internet television market
develops?
That’s a good question. I think that overall it could increase to more viewing time. Personally I am
finding that certainly over that last few weeks I’m watching more TV than I used to, simply
because it is a lot easier to watch the content. So if I have missed something on BBC then I’ll
immediately go to iPlayer and watch it there. So making the content more accessible is helping
people watch TV for longer
What about PVRs? Do you see a role for the PVR in the future?
Well you could ask whether you really need a PVR when you have an internet connected TV set
and all these catch‐up TV services. Maybe you don’t. But of course it depends on the platform. So
if you have Sky at home, then you’re never going to get the 500 channels on Sky on internet TV,
but if you’ve only got Freeview, and you’ve missed Top Gear or the tennis then you can go
immediately to the internet to watch that.
But wouldn’t it be possible to make Sky’s content available on Sony Internet Video, but only to
Sky subscribers?
Well, yes, with SkyPlayer that would be possible. I do not know if we are talking to Sky about doing
this at present but this could be interesting. There are nearly 10 million Sky subscribers in the UK
at present and you could have a version of SkyPlayer inside every Bravia TV so that could be
interesting.
Thank you, Tim.
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Akamai: Stuart Cleary, Product Marketing Director
Date of Interview: 8 June 2010
Akamai is in the Content Delivery Network (CDN) business. The company
owns and operates an infrastructure platform including tens of thousands
of servers deployed around the world that allows client organisations to
better deliver digital content and content‐based services to end users
around the globe.
Having been in the CDN business since 1999, Akamai’s revenues for the 12
months ending December 2009 were $ 859 million.
In 2009, Akamai launched their HD Network, which enables clients to offer
live and on‐demand HD video. Akamai’s HD Network incorporates
adaptive bitrate streaming which allows clients to deliver the best quality
to each individual user.
Who are you customers when it comes to internet television?
We’re in a unique position because we work with a very diverse group of content providers;
including folks like Hulu as well as large broadcasters who are typically the largest players in their
respective regions. For example the BBC, Channel 4 [in the UK] and here in North America we’re
talking about companies like NBC – typically large brand names or Tier 1 content providers.
Because of our broad and diverse customer base we’ve been able to identify a number of key
trends that are beginning to specifically for online video or internet television.
Can you expand on the trends you’re seeing?
First and foremost is certainly an increase in the quality of video that is being offered, and this is
not specific to Asia, the U.S. or EMEA, but it’s a trend that we are seeing worldwide. So what we
are seeing is that content providers are no longer encoding their content at the lowest common
denominator. You know, going back a number of years content providers were encoding at
anywhere between 400 to 600 kbits/sec, because they did not want to exclude people who were
not able to stream higher‐quality video content. But today, if you look globally across Asia, Europe
and here in North America, consumers are connecting to the internet at a wide range of speeds.
So you have people connecting at relatively low speeds and some are connecting at very high
speeds for that last mile in [internet] connectivity.
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So content providers have been looking at this and saying “I don’t want to encode my content too
high because that will exclude some of my audience.” So they have been encoding at lower rates
to ensure the majority of the audience will be able to get access to the content.
But doesn’t that mean compromising on quality, at least for some people?
That’s right. But the negative impact of this approach is that you are giving the same experience to
everyone, so someone who is capable of streaming very, very high quality, high definition video
has to watch the same video quality as people who are on the very low speed connections.
Can you explain more about what been happening to connection speeds?
Over the last four years the average connection speed has been increasing. So in Korea we are
seeing consumers connecting at an average connection speed of 12Mbit/s. And we’re also seeing
consumers connecting at higher connections speeds in Europe and North America. So we are
definitely seeing a trend towards higher and higher connection speeds and encoding rates.
Average MaximumUnited States 4.684 16.206United Kingdom 3.812 12.346South Korea 12.021 32.708
Source: Akamai
MarketConnection Speeds (Mbit/s)
Figure 32: Average and Maximum Internet Connection Speeds (United States, United Kingdom
and South Korea)
One reason for this is that the last mile connectivity which has been increasing and the second is
the proliferation today of devices that are actually capable of actually rendering high quality video;
of course devices like a PC or a laptop, but now also devices like a gaming console, like a PS3 for
example, or a Nintendo device or an Xbox.
So the environment for devices is in a much healthier position that it was four or five years ago in
that there are many more devices available that are IP enabled and capable of rendering high‐
quality video. These devices have the hard drive, software and other capabilities required to
download and store this sort of high quality media.
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generatorCan you take us through an example of a recent deployment?
A good example is what we did with NBC Sports and the NFL last season where we streamed
Sunday night football, which is a live event. This typically draws a large audience on traditional
television so they made this available on the internet as well. The encode rate they were using for
the live game was 3.5Mbits/s at 720p so this is very high quality for a live stream. The interesting
thing about this deployment was that it used a feature that Akamai offers called Adaptive Bit Rate
Streaming.
How does Adaptive Bit Rate Streaming work?
The content provider will encode their content feed at several different bit rates; let’s say from
low quality to high quality.
Now, the consumer’s device – the player they’re using to watch the game – incorporates a
heuristics engine, which is a decision‐making engine. When the consumer clicks ‘play’ the player
connects to the streaming server to request a stream. This server is part of the Akamai network
that the event is being streamed from.
The server then sends back something called a manifest file. This file tells the player that is has,
say, five different bit rates available; perhaps one at 400kbit/s plus others that go all the way up to
3.5Mbit/s. What the heuristics engine does is it looks at the bit rates that are available and it also
estimates the speed that the user’s device is connecting to the service. It will also look at
instrumentation data like the rendering capability of the device – in other words, is this device
actually capable of rendering high‐quality video? And it will take all these factors into
consideration.
Do you actually measure the connection speed of the link?
It’s is a little bit of an involved process, but periodically the player will ask the server to burst data
and it will view that burst to estimate the speed the player is connecting to the server at. And this
is one component of what it would use to determine what bit rate to stream.
Best practises today suggest that when you connect to the player initially you automatically
configure the player to connect at the lowest bit rate possible. By doing that you get a faster video
start‐up time, than you would if you trying to request the 3.5Mbit/s file straight away, which is a
much bigger file. A big file means that it will take longer for the buffer [in the user’s device] to fill
and as a result it will take longer for the video to actually start playing.
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Now the unique aspect about adaptive streaming and how it works is that it does not just decide
on what bit rate to use based on the initial request. Instead, it constantly monitors these
conditions on an ongoing basis during the playback as they change – and they always do.
Whenever we demo this we actually expose the bandwidth monitoring and bit rate switching and
they always go up and down. So what happens is that as these conditions change, the heuristics
engine is constantly communicating with the server [to request different bit rates.]
The goal with this is to eliminate the frustration of buffering, which is the number #1 frustration
that consumers have indicated with online video; they have a strong desire for a smooth playback
experience.
Does the adaptive streaming work in fixed bands or on a sliding basis?
That’s a great question and the real answer is that it is configurable and a lot of it has to do with
how the content is encoded in the first place, which will determine how often bit rate switching
will occur.
So say you have, for example, four bit rates available for the same video, say, 400kbits/s,
800kbits/s, 1Mbits/s and 2Mbits/s. Typically with Flash, each of those bit rates are encoded into
segments called ‘key frame intervals’.
Our recommendation is 2‐sec segments, so each of the four files is broken up into 2‐sec segments.
But the content provider might decide to encode in 1‐sec or 4‐sec segments; this is a decision for
the content provider. What we have seen that has worked the best is to encode at 2‐sec per bit
rate. If you look at Silverlight then Microsoft has another term that refers to the same thing.
There are a couple of variables that determine how fast you can switch between bit rates. One is
the segment length and the other is the buffer length which is again up to the content provider.
Let’s say your target buffer is 4‐secs and your key frame interval is 2‐secs. Then the fastest you’re
going to be able to change [encoding rates] is 6‐secs; you have to wait 4‐secs for the buffer to fill
up and then you have to wait another 2 secs playback before it can jump to the next bit rate.
So the buffer plus the key frame interval will determine how fast you can switch between the two
different bit rates.
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generatorDoes Akamai provide tools that allow content providers to do this?
We do not do the encoding but work with partners who can do that. For example, for iPhone and
iPad, a good example of a partner, would be Inlet Technologies.
With the iPhone and IPad – just like Flash or Silverlight – you have to repackage your content into
a segmented format that can be delivered to the iPhone. Inlet Technologies have a hardware
appliance called a Spinnaker Box, which does the segmenting or ‘chunking’ of the content and
package it into a format that can be delivered to the iPhone. This will then be delivered to an entry
point server in the Akamai network and we would take care of the rest.
What feedback have you had from consumers?
Based on some research we’ve done, when you ask a consumer how they define a high‐quality
online video experience online they cite four key areas. The #1 aspect is smooth playback, and
we’ve just been talking about how Adaptive Bit Rate Streaming helps with that.
The second point is resolution, or clarity of content. This means that if I have a broadband
connection and I can access the highest‐quality video available and I also have a device that is
capable of rendering the highest‐quality video possible then I should be able to experience the
highest quality video: I should be able to obtain level of quality that matches my environment: my
bandwidth and my device.
The interesting thing about smooth playback and resolution is that consumers are willing to
compromise on resolution if they can get smooth playback.
The third key area that consumers are concerned about is video size. This means that I do not
want to be limited to a very small video on my device. If my environment allows me to watch in
full screen then I should be able to watch in full screen.
The final area is start‐up time. So when I click ‘play’ consumers expect the video to start quickly.
Consumers do not want to see that buffering symbol that we all find so frustrating. And one of the
ways we can get around this is by Adaptive Bitrate Streaming. If you always configure the playback
so that the video starts up at the lowest bit rate then you get very, very fast start up time and
then, as we talked about earlier, you move to a higher bit rate.
We are constantly running comparisons against our competitors in these four different areas.
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What about features that relate to the service experiencing itself? Interactivity for example?
Consumers are expecting more from their online video experience that they have ever before.
Consumers are watching traditional television and they are looking at the experience they are
getting there.
On TV, consumers do not experience buffering – either for live or on‐demand content – and the
experience is full screen and high definition. Then there are other features, interactive features,
like PVR – so the ability to pause or rewind live video which is particularly applicable to live
sporting events and is and area where we’re seeing the highest demand.
We have done a number or deployments earlier where we have deployed PVR the feature. One
example is the Sunday night football we talked about earlier. So if you’re watching a live football
game then you can pause the game jump back to different points within the game.
Is this functionality is delivered by the network, as opposed to the consumer’s device?
This is a capability that we support today on the Akamai network. Take the situation where
someone wants to jump back to watch a particular sequence in the game again. To enable that
from a network perspective, what we do is record the live streams as they come into our network
to another server which handles the PVR requests. So we treat this almost as on‐demand content.
If the consumer pauses a live game and then resumes viewing later on, then the origin for what is
now ‘historical content’ is actually the server that we are recording the live stream to.
This is done at the network level versus any of the stream being written to the disc on the
consumer’s device and being cached there.
We have done this for a number of different customers to date on our HD network.
Does Akamai offer any other network‐level interactivity features?
One of the other features that we’ve enabled and this is something that has really not been done
on traditional television is multi camera angles. This is really where IP‐enabled video can really
excel beyond what you can do with traditional television.
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Let’s say you’re watching a football game, say England versus the U.S. The broadcaster would have
a number of different cameras in the stadium and would allow you to jump between those
cameras during the game.
Some of our customers have taken those individual camera angles as individual streams of the
game and they have thumbnail views of each camera angle. So let’s say you have a goalie cam, a
midfield cam and you also have a player cam, one that’s focused on Wayne Rooney, for example,
throughout the entire game.
So you what you have now is PVR functionality, very high quality content that is being streamed at
3.5Mbit/s, adaptive bit rate streaming so there are multiple code rates available and in addition
you also have this other feature that allows you to click on any of these camera angles so you can
seamlessly jump between any of the views. So you can click on the goalie cam and then that view
will be presented in full screen.
So what do consumers think of these features? What usage patterns are you seeing?
What we’ve seen where multi camera angle has been enabled is that 9 out of 10 consumers use
the function, so 90% of the audience will actually jump between the different camera angles so
this feature has a really high adoption rate.
Do you have any thoughts for even more advanced network level features, for example adding a
cloud‐based personal media library where users can record games?
It’s not something that we here at Akamai has been thinking about specifically. All of those
requirements would typically come from the content provider. Just like these interactive features
we’ve been talking about today. Typically these features emerge from the content providers and
then we build those features into our network. The features you refer to have not been prevalent
in the conversations we’ve had with our content providers yet, although that’s not to say they
won’t in the future.
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Are you aware of upcoming features? Things that content providers are talking about?
Right now, what content providers are concerned about is delivering the best quality experience
possible ‐ and that falls into a number of different categories, which we’ve talked about. So there’s
the quality component and then there’s being able to deliver that kind of experience at massive
scale, what we call broadcast audience scale.
So that’s where our emphasis and out roadmap is focused on today.
Anything else you’re planning?
On the back end, from a roadmap perspective, if you look at the growth of devices that are out
there in the market that are now capable of streaming and rendering high quality video there’s a
challenge for content providers. So what we’re trying to do now is to help simplify getting content
onto as many devices as possible. In the old world of streaming you had many, many different
proprietary networks and also different proprietary formats for specific devices. So that would
require content provider to encode their content into many, many different formats for the
different devices that they wanted to deliver their content to.
What our strategy is as a company is to get to a point where we can dramatically simplify this to
the point where the content provider does not need to encode in multiple formats, so we will
actually be able to repackage content in our network and then deliver it to multiple devices.
So if you picture this visually, then on the left hand side you have the content provider with their
existing content and their existing format, then you have the Akamai network in the middle and
then on the right hand side you have all these different devices. Where we’re going with this is
that a content provider will just send us their existing content in whatever format they have, we
will repackage it in our network and then deliver that to multiple devices. And we’re doing this to
some extent today.
We are actually delivering Flash‐based content over standard HTTP servers. So what we’re actually
doing it taking in a customer’s existing Flash content and then repackaging and translating that to
another format in our network that can be delivered over HTTP and then delivered out to the
consumer device.
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Are you seeing any other key trends in the market right now?
The other key trend is being able to deliver everything we’ve just talked about at massive scale,
what we call broadcast scale.
What would you define as ‘broadcast scale’? 10 million consecutive streams, 50 million
consecutive streams?
When we talk about broadcast audience scale we are typically talking about audiences that can
measured by the equivalent of Nielsen’s TV measurement system here in the U.S. We delivered 7
million streams for one event last year, and we’ve never really seen these volumes before.
This trend actually began quite a long time ago. If you go all the way back to 1999 then there was
a Victoria’s Secret event which was an advertised during the SuperBowl. This was for fashion show
that they were going to stream online. The result was they had over one half million visitors go to
the Victoria’s Secret site which actually caused the site to crash. This was a very small amount of
traffic, less than 1Gbit/s in fact. Today, 1Gbit/s would almost be considered a laughably small
amount of data when you compare it with something like the Obama inauguration, where we are
looking at pushing 1 to 1.5Tbit/s over our network. That’s what we mean by broadcast scale.
Thank you, Stuart.
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Appendix
Methodology
Regarding methodology for our standard reports we use five techniques:
1. Desk‐based research: This is used to source a wide range of relevant facts, data points and
information from public domain sources (e.g. company reports, trade associations, press
release services, RSS feeds etc.);
2. In‐house vertical search service: We have developed our own software‐based tool that
allows us to quickly extract relevant numeric information from over 3 million tech articles
that we cache on a daily basis;
3. Premium online research resources: Additional data points are sourced from premium
online databases and research resources that we have access to (e.g. Factiva, Hoovers,
DialogPro);
4. Executive interviews: We also draw heavily in the results of a number of in‐depth
executive interviews with people working in the sector (the 3D TV report you've just
purchased contains some good examples of these);
5. Proprietary spreadsheet‐based model: For our market forecasts, we build a dedicated
model that draws heavily on a very large data set that we've developed over the last
seven years for a wide range of tech markets and also makes use of our own forecasting
methodology for emerging tech markets.
Generator’s market forecasts are prepared using a standard approach which is outlined in this
section:
Framework Model
Generator has been forecasting technology‐based markets on a professional basis since 2003.
Over a period of many years, we have developed a proprietary, macro‐based spreadsheet model
and modelling approach that can accommodate any technology market and which we use in every
forecasting situation.
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Our overall approach is summarised in below in Figure 33: Adoption Model Used by Generator to
Forecast Technology‐based Markets). This model is essentially one where we divide the total
addressable market for the product or service into five ‘pools’ of users (Pool 0 to Pool 4).
The process of viewing the market through the ‘lens’ of the Framework Model allows us to obtain
deep insight into the adoption dynamics of the market and its ultimate growth potential.
The following paragraphs summarise the essence of the Generator’s Framework Model:
Potential Users (Pool 0)
Pool 0 comprises users who have no awareness of the product or service. That is, before any
marketing activities have commenced or before news about the product has leaked out.
However, everyone in Pool 0 is a potential user and so Pool 0 contains the addressable market.
When we talk about an addressable market, we are no just talking about the addressable market
as it stands in the first year, when products tend to be clunky and expensive and services tend to
lacks sophistication and functionality. Instead, we are talking about the total addressable market
when viewed over a 5 to 10 year horizon, taking into account the natural enhancements and
improvements that the vendors will make to their product, and also as a result of the arrival of
competition.
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STAGE 2
Desirability
STAGE 3
Practicality
STAGE 4
Indispen
sability
MAINLY
QUALITATIVE
MAINLY
QUAN
TITATIVE
Pool 0
Pool 0
Pool 0
STAGE 1
Awaren
ess
Pool 0
Pool 0
Potential
Users
Reinforcing
Loop
R1a
Reinforcing
Loop
R1b
Reinforcing
Loop
R1c
Reinforcing Loop R2
Source: G
enerator Research
QUALITATIVE
AND
QUAN
TITATIVE
Total add
ressable
market is d
istributed
be
twee
n Po
ol 0 to
Po
ol 4
Flow of Users
Time
Pool 1
Prospective
Users
Curiosity;
Interest;
Imagination;
Percep
tion.
Pool 2
First ‐time
Users
Euph
oria;
Novelty;
Status.
Pool 4
Committed
Users
Acceptance;
Consistent Use;
Familiarity;
Certainty.
Pool 3
Experienced
Users
Und
erstanding;
Acceptance;
Harvest value
.
User Uptake Rate (Consumers per month)
Figure 33: Adoption Model Used by Generator to Forecast Technology‐based Markets
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generatorProspective Users (Pool 1)
Users t hen move from pool 0 to pool 1 at a rate that is dependant on the level of pre‐launch
marketing, hype and buzz as well as any below‐the‐line marketing that may be carried out, or
quietly encouraged by the supplier (such as deliberate or unauthorised leaks of snippets of
information that can feed the rumour mill). Users in pool 1 are not yet customers, but they are
aware of the product or service. The rate at which users move from pool 0 to pool 1 is determined
largely by their perception of the product or service’s relevance as well as its desirability and
utility.
There is also a negative flow of users from Pool 1 back to Pool 0: some users, upon learning more
about the product (for example, bad reviews or bad word or mouth from friends) may loose
interest in the product or service and then fall back into Pool 0. They are still aware of the product,
but they no longer have any aspiration to adopt the product.
First‐time Users (Pool 2)
Once the product becomes available, users then begin to flow from Pool 1 to Pool 2. Pool 2
consists of users who have actually purchased the product or service. There is a big difference
between someone who is merely aware of a product or service (Pool 1) and someone who has
actually purchased it (Pool 2). The rate at which users flow from Pool 1 to Pool is defined by a
range of factors, including what friends think, the desirability of the brand, what the popular and
trade media has to say about the product as well as the marketing efforts of the company offering
the product or service. And other factors such as price and how easy it is to actually purchase also
play a vital role.
Again, there is a negative flow of users from Pool 2 to Pool 1: some people, having purchased the
product or service, may decide that it is not really what they thought it was or that the benefits
they thought they were going to enjoy were not realised in practice. These people then stop using
the product and, at this point, revert to being potential users.
Experienced Users (Pool 3)
These users comprise those who have bought the product or service and have used it for a
prolonged period of time. These people are happy with the benefits, be they tangible, intangible
or a combination of the two, and they are probably willing to recommend the product or service
to others. Importantly these people have an ongoing need for the product.
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For example, if we are talking about an online service, than an experienced user would be
someone who uses the service regularly. For a hardware product, an experienced user would have
found a need for the product on an on‐going basis. It would not be one of those products that is
purchased on a whim, used a few times and then discarded, eventually being thrown away and
never replaced.
The rate at which users flow from Pool 2 to Pool 3 is mainly determined by how practical the
product or service is – which means whether it delivers lasting benefits that can be enjoyed again
and again. The benefits may be tangible or intangible.
Committed Users (Pool 4)
These users have reached the point where they realise that they cannot be without the product. A
mobile phone or a television is an example of a product where the buyers are committed: once
one has enjoyed the benefits of a mobile phone, one cannot bear the thought of living without
one. Internet search engines would be another example. Fixed broadband access is another. These
products and services have all attracted large pools of committed users. In the end these products
are included within the cost of living.
Many successful products and services never make it to the ‘committed user stage’ or, if they do,
then it is only for a specific demographic.
The truly big technology markets are those where the value proposition is generic (meaning it
applies for ‘everyone’) which in turn means that, in the end, ‘everyone’ can become a committed
user.
Key Considerations
Having a framework model that can handle any technology market is a good starting point is a
necessary first step, but any model is only as good as the input assumptions and so we also
analyse each market using a structured approach that includes in‐depth analysis of factors such as:
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generatorValue Proposition
One of the most important aspects to consider when analysing any new technology market is the
underlying value delivered to the end user, and this is also true for B2B markets that ultimately
rely on consumer adoption. For example, some products a have a novelty, or fad appeal which will
not be enough to sustain repeat purchases. In such a market one user may be interested in buying
the product – perhaps because he knows that a friend has purchased it – but then, because the
underlying utility is not strong enough – he is not interested din buying again. In other markets,
the underlying utility is so strong – for example, where major quality or convenience benefits are
being delivered – that the user wants to be able to enjoy those benefits permanently. For a
hardware product, this will mean that the user will be interesting in spending again, perhaps in a
year’s time, when a new model is introduced that offers smaller size, new features etc. In the case
of a service, the user may be willing to pay a monthly subscription in order to keep on enjoying
these benefits.
Starting Conditions
We will look at the current penetration level and also the year which represents ‘year 1’
Current Market Development Trajectory
In the case of markets where there is prior growth data we would look a the previous few years to
define the current market development trajectory in units of, for example, new customers per
year, products per year, or cumulative penetration per year
Adoption Dynamics
This concerns the mechanics that define how easy it is to increase market penetration by one unit.
For example, one new customer, one new product shipped. This is very important in
understanding how quickly a market can grow.
Saturation Levels and Addressable Market
We view saturation along two dimensions. The first is how generic the value proposition is. For
example, is this something that everybody will eventually want? Or are the benefits limited to a
specific market segment (e.g. teenage boys)? The other dimension relates to what will happen
with everyone in the target market have adopted the product? We therefore also have to think
about replacement purchases and replacement rates.
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Growth Drivers and Inhibitors
Examples of a growth driver would be a situation where the powerbrokers in the industry are
united in bringing about change in order to introduce a new product or service (e.g. High
Definition (HD) television and 3D television). An example of a growth inhibitor would be where the
industry powerbrokers are not interested in working together to facilitate the introduction of the
new product or service (e.g. internet television). Other factors can include standards, technology
maturity and underling utility.
Benchmarking using Relevant Markets
Especially in the case of a brand new market, where there are no directly comparable markets, it is
vitally important to carry out a benchmarking exercise to ‘sanity’ check the results. We will be
looking closely at factors such as implied selling price, implied incremental expenditure
(consumer, advertising, infrastructure investment etc.), market growth rate and total market size.
Industry Data and Insight
Regardless of the apparent sophistication of a modelling approach there is absolutely no
substitute for talking to people who are working at the coal face – people who are working hard
day in, day out to create the market. This insight is primarily captured by reaching out to our
network of contacts and you can see the results of some of that in the verbatim executive
interview transcripts which are included in our reports.
Constituent Markets: Worldwide and Regional Forecasts
When we talk of a ‘worldwide’ forecast we are really talking about 76 markets which together
account for over 97% of global GDP (see Table 40: Constituent Markets for Worldwide and
Regional Analysis and Forecasts). These 76 markets are then divided into two groups: 31 Tracker
Markets which we track on an individual basis and also analyse on a project‐by‐project basis and
45 other markets which we analyse on a consolidated basis.
Tracker Markets
The 31 ‘tracker’ markets account for 85% of global GDP. Individual analyses are prepared for each
‘tracker’ market. Factors taken into account here depend very strongly on the actual product or
service being analysed but would typically include the presence of retail and distribution
infrastructure, the distribution of wealth amount the population, the rate of uptake of related
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of the envisaged target market.
Other Markets
The 45 other markets are added into the forecast using a number of scaling techniques which
again depend on the market being analysed. We avoid using macro‐level scaling techniques (e.g.
population and GDP) but instead use factors that are relevant to the product or service that we
are forecasting. For example, we might look at expenditure trends in online advertising, consumer
expenditure on digital music or PC sales etc.). Oftentimes we used a combination of these factors.
Region Constituent MarketsTracket Markets: Those Where Local
Factors are ConsideredNorth America Canada Canada
USA USAWestern Europe Austria
BelgiumDenmark DenmarkFinlandFrance FranceGermany GermanyIrelandItaly ItalyNetherlands NetherlandsNorwayPortugalSpain SpainSweden SwedenSwitzerlandUK UK
Central & Eastern Europe BelarusBosnia & HerzegovinaBulgariaCroatiaCzech Republic Czech RepublicEstoniaGeorgiaGreece GreeceHungary HungaryLatviaLithuaniaMoldovaPoland PolandRomaniaRussia RussiaSerbiaSlovakiaSloveniaTurkey TurkeyUkraine
Cont/
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Region Constituent MarketsTracket Markets: Those Where Local
Factors are ConsideredAsia Pacific Australia Australia
China ChinaHong KongIndia IndiaIndonesia IndonesiaJapan JapanMalaysiaNew ZealandPakistanPhilippinesSingaporeSouth Korea South KoreaTaiwan TaiwanThailandVietnam
Latin America Argentina ArgentinaBrazil BrazilChile ChileColombia ColombiaCosta RicaEcuadorMexico MexicoPanamaPeruPuerto RicoUruguayVenezuela Venezuela
Middle East and Africa ArmeniaAzerbaijanBahrainEgypt EgyptIsrael IsraelKazakhstanKuwaitOmanQatarSaudi Arabia Saudi ArabiaSouth Africa South AfricaUAE UAEUzbekistan
Total Markets: 76 31
Table 40: Constituent Markets for Worldwide and Regional Analysis and Forecasts
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About the Authors
This report was written by Andrew Sheehy in association with a number of support analysts.
Andrew Sheehy is one of the founders of Generator Research. Before Generator he was a partner
in a management consultancy which focused primarily on venture‐funded technology companies
in the telecoms, media and digital space.
Drawing upon 20 years operational experience in the technology sector, Mr Sheehy's professional
repertoire is unusually broad and encompasses business strategy, product management,
marketing, market research, corporate development, sales management and technology
development.
In former years, Mr Sheehy has held the position of Director of Product Management at the
WiMax vendor, PipingHot Networks, which became Orthogon Systems and was acquired by
Motorola in 2007. He has also held the position of General Manager of Marketing at Telstra New
Zealand and Head of Product Development for the customer premise product range comprising
Nortel's Proximity‐I range of fixed wireless access products.
Mr Sheehy is a named inventor on two patents and holds a B.Sc. (Hons) degree in Electronics from
Salford University. He also holds an MBA degree from London Business School.
