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National and Global, United States

Thursday, August 20, 2009

IPTV Market Driver Analysis

The primary reason for a telco to invest in an IPTV deployment is the ability to offer converged network services. From an operators’ point of view, a next-generation IP-based network will offer the most cost-effective and future-proof platform for delivering robust carrier-grade multi-services to their customers. It will also provide significant competitive and technical advantages when compared to building and maintaining parallel and overlay networks to provide multiple services to their customers.

The ability to offer voice, data, and video services will ultimately help operators win more market share – but only if they execute well. New telco service offers will initially include triple-play services, with new and premium services brought to market incrementally. Consumers who sign up for these services will enjoy the benefits of getting better programming choices and services at extremely competitive price points. This in turn will increase spending by individual customers thereby increasing the operator’s ARPUu (Annual Revenue Per User).

Without a doubt, this is big business. According to a report from Strategy Analytics, over the next five years IPTV subscribers will grow to a staggering 80 million worldwide from just under 6 million IPTV households today. Additionally, the number of households worldwide that pay directly for IPTV service will rise from 3.3 million in late 2006 to 40.9 million in 2011. And according to a study by Infonetics Research, sales of IPTV equipment are expected to skyrocket from $371 million in 2005 to $6.8 billion in 2009.

To be sure, telecom operators are deeply committed to this business with an eye to offsetting the video stronghold that cable MSOs and satellite operators have enjoyed for several decades. According to another study by Infonetics, participating service providers spent 40 percent of their capital expenditures (capex) on triple play network equipment in 2005 driven by increased broadband revenue per user and new revenue streams. What’s more, these service providers expect up to 48 percent of their revenue to come from triple play services in 2007.

The majority of them plan to further increase their capex spending in the next year on IPTV equipment, broadband CPE, broadband aggregation equipment and voice over broadband equipment. VoIP is certainly a big draw, but IPTV is where all the action is.Consumers are looking for content that resonates with their lifestyle, and operators who deliver such services will benefit from this venture. Internet video portals like YouTube.com have trained today’s Web surfers to expect massive amounts of video-on-demand from their computer screens, and a recent report from Accenture finds that this expectation is shifting to the TV set.

Indeed, Isupply estimates that the worldwide market for video-on-demand services will exceed $13 billion by 2010. Consumers are also looking to consolidate their services currently offered from multiple providers. In effect, bundling multiple services dramatically improves an operators’ competitive advantage.

According to a recent study, it was shown that operators offering multiple services generally increase customers’ loyalty and dramatically reduce turnover, or churn. This is something that all telecom operators realize that they can monetize.Yet another study from RBC Capital Markets claims that about 48 percent of Americans who own or want to own a flat screen television would also be interested in buying cable TV from their telecom company. The pollsters informed the respondents that IPTV would allow them to get television, VOD and broadband access all through one telecom provider. Respondents qualified their interest in such a service by giving the top three reasons they would switch to IPTV: cheaper price than existing service, ability to watch what they want when they want, and the ability to watch content more specific to their interests.

Another market trend driving the shift to IPTV is the widespread adoption of broadband access. This broadband growth has provided a pleasant added benefit: customers are much more familiar with what the Internet is and how to best use it. This in effect will allow consumers to easily accept new interactive services into their television viewing experience as well. This behavior is a powerful precursor to the choices that customers now expect from in-home entertainment services. They are experiencing better television by interacting with it.

The proliferation of PVR time-shifting allows consumers to watch more content whenever they desire, and they feel empowered because they have complete control over their viewing experience. Offering rich and interactive services promotes customer loyalty and ultimately a more long-term and stable business for operators.

Another growing trend in the IPTV industry is recognition that unlike the public Internet, where content is “free,” the model of IPTV deployment is that of a closed system – sometimes referred to as a “walled garden.” The advantage of a closed system is that operators can offer premium content and services that differentiates them from others. Ffor example, the “long tail effect” notes that products that are generally low in demand or that experience a low sales volume can accumulatively outweigh and outpace the small high volume bestsellers in the long term. A perfect example of this is the success of online DVD sales/rentals.

Operators acknowledge this new shift and they are engaging with various independent content providers to deliver exclusive content to capitalize on this potentially lucrative business. Take note – this is a stark differentiator between IPTV and Internet TV.

1 comment:

  1. Interesting and thought material on the subject.

    ReplyDelete

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