Knowledge of ad-based business model will require IPTV partnerships

Selling time and earning revenue from commercial sales is so much a part of the television business that broadcasters couldn’t even imagine their business without it. However, for telecommunications companies entering the IPTV arena, the whole concept is unusual and new.

If IPTV service providers wish to compete with cable television operators in the video programming distribution business, they’ll need a crash course in this business model and all of its related issues. To succeed, they must form partnerships with the right businesses, says Beau Atwater, Telcordia executive director of the portfolio strategy.

IPTV Update: Where do we stand today in terms of IPTV deployment in the United States relative to Verizon, AT&T and smaller telecommunications companies, and what do you see as the major challenges facing them?

Beau Atwater: If you think about cable television, it's tough to compare IPTV with other kinds of TV. If we look at Verizon, it's kind of following the cable model. But if you look at where cable has gotten to, it's really by a purpose-built network to deliver a certain amount of bandwidth per television to your home.

What the service provider is trying to do is take an existing backbone network, upgrade the access portion of that and be able to deliver television as well as the communications services for the rest of the business, including private-line services and wireline services.

So they have the challenge of being able to use this multi-use network. Right now, the biggest technical challenge is still getting the nuts and bolts of IPTV working in the bandwidth over the access network they are planning. So most people are using a combination of bonded DSL or some ADSL2 to do something like that and then trying to get some extra juice out of it by using MPEG-4.

Fundamentally, being at the bleeding edge of squeezing bandwidth through a DSL pipe is one of the problems.

IPTVU: Where do you see video compression, like MPEG-4 AVC, headed? Is there room for added efficiency in compression?

BA: I think they're going to want to keep squeezing as much in as possible. MPEG-4, they really need to get their bugs ironed out of that. Of course, in the laboratory, it works fine. Then you have middleware issues of hooking your set-top boxes to your servers and making sure it's not only streaming your content but also being able to change channels and check authorization when you try to switch to a premium channel.

But I think definitely MPEG-4 would be good enough for at least the next couple of years. AT&T has already identified what customers are in the loop or can be upgraded easily to offer television to. They’ve already planned out that MPEG-4 is going to work. I think it's just an exercise in working the bugs out of that to get it working.

I think when people start saying they have a whole bunch of HDTVs or all my kids are watching on computers, they will need bandwidth for that. If you are looking at five or six HDTV channels, you're going to be past 20Mb/s.

You're definitely going to need some boosting there. Maybe they will go to something beyond DSL or get some other technologies to get that bandwidth down there. One or the other is going to be needed.

When they're planning out their product, they've taken that into account. They know what their market is and what portion has HDTVs. It could be that the customers with 10 HDTVs could go with another technology or another carrier. That is more of a business decision. When they say, “Hey, this has really taken off; we need to capture more the market” they will look at ways to increase their bandwidth.

A lot of this is a business decision. Right now, the MPEG-4 with the 20Mb limit using DSL looks like it's going to work.

IPTVU: IPTV brings together two distinct technology cultures — TV and telecommunication. Do you have any perspective on how their understanding of each other has progressed on issues such as quality of service?

BA: Certainly the telecommunications provider has a long history of understanding quality of service issues. They really understand their networks. They really understand the capabilities of their networks and how to squeeze some extra mileage out of them.

So, from one point of view, that's really terrific. The interesting thing about IPTV is tackling the aspects of IP — not so much IP as just a technology but more so its usage.

I think as long as people are thinking of IPTV as just a me-too cable technique or a technique for delivering programming to your television, they’re missing a lot of the value they could get out of IPTV.

IPTVU: What sort of value do you have in mind?

BA: The big value of multicasting or unicasting the stream is really that you understand exactly what your viewers are watching. Unlike the broadcast channels — where you're transmitting everything to the house and viewers select what they want and watch it with only a service like Nielsen collecting information to figure out what people are watching — with IPTV, you can actually understand who is watching what program.

If you look at how important the advertising business model has been recently in Google's purchase of YouTube, you can see the power of information you get from multicasting. It is phenomenal because you can do things like direct advertising specifically to households. You know your consumers; you know what they're watching. There is a danger here in that consumers wouldn't want that information out. But at least personally, while I don't like watching commercials, if the commercial was for products or services I want, I would like to see that.

Since there is so much more information available, by carefully looking at what I watch and what I like to do, a service provider could be a conduit for advertisers to reach me. The benefit to the service provider is that they would hold that information. The benefit to me is that I would see only the advertising I would want, and, of course, the benefit to the business community at large is huge because now their advertising dollars are well spent and highly targeted.

IPTVU: Are telecommunications companies equipped with the knowledge to succeed with a business model that will rely so heavily on successfully targeting advertising — and in a more general sense on advertising?

BA: When you get down to having an advertising-based business model, how are the service providers going to make money? That's where we will start seeing problems. I think the challenge is going to be either acquiring that knowledge, learning the knowledge or partnering with people who have the knowledge.

I think that's where service providers have not done well in the past. They’re actually pretty good at acquiring each other recently. But I don't know that partnerships have taken off the way I think they're going to have to to make this successful.

To succeed, a service provider, of course, will have the network part but will have to bring in some major communications content partners like a Disney or Viacom. I don't know how the phone company is actually going to acquire that kind of information. Think about it: Cable has been in the business for 30 years. How are service providers going to learn that kind of information or that kind of knowledge in a couple years the way they're talking about needing to do to roll out IPTV and make it successful?

I think it's really business issues that are going to be the problem.

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