IPTV Industry Potential and Limitations - Gerson Lehrman Group

IPTV Industry Potential and Limitations

Thursday, May 3, 2007Penn Club, New York

James Meyers, Chief Executive Officer, Alpha Media

© 2007 Gerson Lehrman Group Inc., All Rights Reserved

Council Member Biography

James Meyers is the Chief Executive Officer at Alpha Media, an entertainment media company with international sales and distribution operations, US sales and distribution operations, cable television assets, plus international production operations. He is responsible for managing corporate strategy development, new alliances within the entertainment and investment communities, and overall operations. He has over 20 years of experience in the entertainment, media and telecommunication industries. Previously, he was the Chief Executive Officer at Cinema Entertainment, an interactive television channel producer; and the President and United States Resident Officer at DIRECTV International, where he was responsible for managing investment, development and operations.


Table of Contents

► Everyone Bundles

► An Introduction To IPTV

► The Ever Expanding Bundle

► The Many Pieces Of A Successful Service…It’s Not Just The Bundle

► Broadband Video: Not To Be Confused With IPTV

► Japan / A Case Study


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John AronsohnVice PresidentGerson Lehrman Group850 Third Avenue, 9th FloorNew York, NY [email protected]

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7

Big Dish Early 1980s

1920sPOTS

1993

Cable

1950s

DTV launched

1994

1984 1947

1920s 1930s 1940s 1980s 1990 1995 2000 2005 2010

Cable

Satellite

Mobile Cellular

Broadband

Broadband1997

Telephone1997

2006Television

POTS

History of the Bundle…

James J. Meyers CEO, Alpha Media

8

IPTV: A DefinitionInternet Protocol Television (IPTV):

• IPTV (Internet Protocol television): the delivery of programming by video stream encoded as a series of IP packets.

• IPTV can be free or fee-based and can deliver either live TV or stored video to the Television one addressed program at a time

• Traditional Pay-Television: all programming is broadcast simultaneously and is available by tuning to the channel.


Super Headend

Hub Office Serving OfficeSplitter

-Fiber

-Cable

-Twisted Pair

Leg

end

9

Verizon / AT&T: The BundleOfferings U-Verse

(AT &T)

FiOS (Verizon)

Basic + Premium Channels X X

International

Channels /Packages

X X

High Definition TV X X

Dual-Tuner DVR X X

VOD X X

Internet X X

Phone Service X X

Mobile X X

Bundled line churn is 50% lower than voice-only linesJames J. Meyers CEO, Alpha Media

Source: Company Reports

10

Verizon / Fios and AT&T / U-verse

0

5

10

15

20

25

Investment 23 4.6

FiOS - Verizon U-Verse -AT&T

35mbs/dwn5mbs/up

6mbs/dwn1mbs/up


AT&T / U-Verse• $4.6B investment• 6mbs/DOWN_1mbps/UP• Up To 6Mbps• Fiber-to-the-Node• MPEG-4• 18 Million homes by end of 2008

Verizon / FiOS• $23B investment• 35mbs/DOWN_6mbps/UP• Up to 100Mbps• Fiber-to-the-Home• MPEG-2• 18 million homes by end of 2010

US

D$

Bill

ions

Source: Company Press Releases

11

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

POTS 84,500,000 45,100,000 13,800,000 N/A

Mobile 61,000,000 59,100,000 801,000 53,100,000

Broadband 12,100,000 7,000,000 2,140,000 N/A

TV 635,000 747,000 366,000 N/A

AT&T* Verizon** Qwest*** Sprint

Telco Landscape

* AT&T TV via U-Verse (18,000), Bellsouth/ DIRECTV, SBC/Dish Network

** Verizon TV via FiOS (207,000), DIRECTV(540,000)

***Qwest TV via DIRECTV


Sub

scrib

ers

Source: Company Reports, Leichtman Research Group

12

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Television 24,161,000 15,950,000 13,402,000 13,205,000 5,430,000 5,433,300 3,127,000

BroadBand 11,487,000 N/A 6,644,000 N/A 3,300,000 2,402,200 2,039,000

Telephone 1,900,000 N/A 1,900,000 N/A 2,000,000 445,800 1,200,000

Comcast DIRECTV Time Warner Dish Network

Cox Charter Cablevision

Satellite / Cable Landscape


Sub

scrib

ers Tel

evis

ion

Bro

adba

nd

Source: Company Reports, Leichtman Research Group

13

500

550

600

650

700

750

2004 721 725 633 656 617

2005 716 708 631 664 617

2006 675 651 598 632 586

DIRECTV Dish Network ComcastTime Warner

CableCharter

Customer Satisfaction Satellite / Cable


1,000 point scale based on seven categories: Overall Satisfaction, Performance and Reliability, Cost of Service, Billing, Image, Offerings and Promotions,and Customer Service.

As communications companies venture into new arenas (like cable into voice, and telcos into video), customer satisfaction can become more difficult to achieve because they are peddling products in which they have had no prior experience selling.

Source: J.D. Power and Associates

14

0%

5%

10%

15%

20%

25%

Customer Service 25%

Performance and Relability 19%

Image 16%

Billing 15%

Cost of Service 14%

Offerings and Promos 11%

Importance to Customer

Customer Satisfaction Satellite / Cable

James J. Meyers CEO, Alpha MediaSource: J.D. Power and Associates

15

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2004 3.5 1.59 3.2 1.64 N/A N/A 2.7 1.9

2005 3.2 1.7 3 1.65 N/A N/A 2.65 1.8

2006 3 1.57 3.2 1.62 1.5 4 2.55 1.8

Comcast DIRECTV Time WarnerDish

NetworkVerizon* AT&T** Cox CableVision

%


Average Monthly Churn

Sources: Company Annual report, SEC filing, MultiChannel News

*Churn represents Verizon FiOS television service**Churn represents AT&T U-verse television service, U-Verse Churn over 4%

+

16

5,000

15,000

25,000

35,000

45,000

55,000

65,000

75,000

DBS Subs 19,359 21,638 24,845 27,173 29,055 30,343 31,487 32,511 33,433 Cable Subs 69,390 69,477 69,139 68,839 69,145 69,928 70,820 71,727 72,635

2002 2003 2004 2005 2006 2007* 2008* 2009* 2010*

DBS / Satellite - Past, Present, Future

James J. Meyers CEO, Alpha MediaThe biggest year-end surprise within the multiplatform business was satellite TV with

better-than-expected subscriber gains achieved by the two big DBS companies.

Sub

scrib

ers

(100

0s)

Sources: Banc of America Securities

(10

00

s)(10

00

s)

17James J. Meyers CEO, Alpha Media

DVR / HD BundleHD-DVR Multi-room

DVRProgramming DVR via Web

Programming DVR via

cellphones

Comcast X O O O

Time Warner

X X O O

Cox X O O O

AT&T X O X X

Verizon X X O O

EchoStar X X O TBA

DirecTV X O O O

Tivo X X X X

X = Implemented

O = Planned to Implement

Legend

DVR and HD services are becoming two additional weapons wielded by Satellite, Cable, and Telephone companies whom are vying for customers and increasing

ARPU

Source: The companies

18

30

40

50

60

70

80

90

100

110

120

2004 77 66.95 72 55 77.1 70.5 88.332005 83 69.61 81 58.04 51.67 48.86 87.2 76.27 100.462006 95 73.74 90 62.47 53.6 49.29 86.32 115.3

Comcast DirectTVTime

WarnerDish

NetworkVerizon* AT&T* Cox Charter CableVision


Average Revenue Per User (ARPU)

*POTS only

US

D$

Source: Company Annual Reports


Pay-TV Subscription Distribution

Cable69% DBS

30%

Other1%

Cable 61% DBS

29%

Telco 9%

Other .5%

Source: Kagan Research

2006 2015

20

010,000,00020,000,00030,000,00040,000,00050,000,00060,000,00070,000,00080,000,000

Other 1,090,000 1,464,000 1,808,000 2,233,000

Cable 25,457,000 30,293,000 34,447,000 37,732,000

DSL 17,164,000 22,397,000 26,695,000 30,045,000

2005 2006 2007 2008


Broadband Subscriber GrowthS

ubsc

riber

s

Source: Banc of America Securities

21

Not to be Confused with Broadband Media

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Offers Major Studio content

on pay-per-view basis

Download-to-own service for feature films.

VOD-HD

Offers Burn-to-DVD

Download-to-own service

MAJOR studio films

Netflix

Cinema Now

Apple - itunes (Music)

Movie Link

Vongo

Joost

“Watch Now” Streaming

movies and DVD

Apple - itunes (Music / VIDEO)March: Apple TV released

Apr. 11, 07 Sold : 2.5b music tracks, 50m TV shows, 2.5m movies

P2P, by founders of Skype and

Kazaa

Pay-per-view / VOD


Film and Video Distribution

Theatrical23.1%

IVOD0.1%

Free TV3.0%

Video Rental12.3%

Video Sell-Thru46.9%

Pay TV11.7%

PPV/NVOD0.9%VOD

1.9%

Theatrical Video Rental Video Sell-Thru Pay TV Free TV PPV/NVOD VOD IVOD

Internet Video Represents .1% of the $35 Billion generated Studio revenue in 2006

Source: Adams Media Research

23

Audio

0

200

400

600

800

1,000

1,200

Subscription 45.5 118.4 247.7

Downloads 29.6 204.5 782.7

2003 2004 2005


Internet Audio and Video SpendingU

SD

$ M

illio

ns

US

D$

Mill

ions


Video

0

5

10

15

20

25

30

35

Subs 1.4 1.8 3.5

Rental 2 3.8 6.2

Purchase 1 1.4 22.4

2004 2005 2006

24

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Purchase Spending Rental Spending Subscription Spending

Purchase Spending 0.0014 0.0224 0.1329 0.5 1.2 2.1

Rental Spending 0.0038 0.0062 0.0215 0.1 0.2 0.5

Subscription Spending 0.0018 0.0035 0.0115 0 0.1 0.2

2005 2006 2007 2008 2009 2010


Consumer Spending on Internet VideoU

SD

$ B

illio

ns


25

1.2 1.52

3.24.2

0.20.5

1.1

1.8

3.5

0

1

2

3

4

5

6

7

8

9

2006 2007 2008 2009 2010

UserPaid Services AD Supported Services

Expect shift toward greater parity between revenue sources. User Paid Services are expected to be 45% of total revenues by 2010

Online Video’s Future


US

D$

Bill

ions

Source: Parks Associates

26

0

10

20

30

40

50

60

70

80

TV-Connected 0.0 0.2 0.7 1.6 3.8 6.3

PC-Only 10.4 16.7 23.6 31.7 40.1 49 56.2 61.9 65.3 67.1

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10


High-Speed HouseholdsU

nits

(M

illio

ns)

Source: Video-On-Demand: The Future of Media Networks, 2nd Ed.

Cable - 55% of market, DSL - 45% of market (2006)

27

7.2

3.3

1.3

0

2

4

6

8

Country 7.2 3.3 1.3

Japan Korea US

Subscribers as of March 2007

Japan• 100 MBPS/ $23• Digital Living Room, Mathushita, Sony, Toshiba, Sharp, Hitachi

• Integrating w/ All New TVs

Korea• 51 MBPS/ $40 • Digital Living Room Samsung• Integrated Home Networking

USA• 30 MBPS / $39• Digital Living Room MICROSOFT

Japan and Korea Policy: Fiber to Every HH by 2010

FTTHSubscribers

(Millions)

15% of all HHs

23% of all HHs

1.3% of all HHs

M M M

Source: Asahi Shimbun, Chosun Ilbo, Company Data


Thoughts

Bundling is becoming essential for long-term survival

Consumer-focused industry innovations are key to success

Being first mover is important. Execution is crucial

Video capabilities of Telco, Cable and Satellite providers are mirroring the increase in HDTV households

Options for broadband video are growing at a rapid pace. Apple TV, Joost, and other services present the future of video/media content via

broadband

Asian providers should be followed closely as they are pushing the envelope of speed and applications over broadband and fiber

Documents

IPTV Industry Potential and Limitations - Gerson Lehrman Group