IPTV not only offers a new distribution avenue for program providers like television stations and networks, it holds the potential to reshuffle the deck in the way revenue is generated and viewers are served.
Interactivity holds the key for allowing marketers to target their commercials to viewers in ways previously unimaginable. It’s a good thing, says Sun Microsystems executive director Andy Sheldon, because fledgling IPTV operators should be able to sell that service at a premium if they play their cards right.
According to Sheldon, new approaches to advertising and revenue don’t stop there. IPTV offers a fresh start of content providers and system operators to redefine their relationship and share revenue, he says. IPTV Update spoke with Sheldon to learn more about how he sees the future of IPTV.
IPTV Update: You were quoted in a recent magazine article saying that IPTV is about merchandizing to somebody who is watching television, not just about television delivery and a lot more than just a cable guide system. Could you elaborate on the unique advantages of IPTV in this regard?
Andy Sheldon: Discovery Channel spent 20 years figuring out how to get a consumer to tune in at a certain day or time. Promoting the program is key; as consumers, our brand affinity is with the program first, then with the channel and rarely with the company that delivers us television. We rush home to watch the San Diego Padres game or “Seinfeld”, not the service provider's service.
Right now, there is almost no opportunity for content owners to create a branded user environment in order to build affinity to their programming. This is going to be an important component in the future.
Beyond program content, there are so many things that can be sold as part of a brand. Watch a video on demand; get a recipe from Emeril Lagasse and have a text message of the ingredients sent to your cell phone. Those are simple things that conventional distribution channels don’t do.
Imagine when consumers can purchase a screen saver for Shark Week while watching the program. This kind of merchandising associated with a program’s brand is key to bridging the gap to successful TV merchandising to target consumers.
As an IPTV service provider, you will likely be paying more for content then your incumbent competitors due to a lower bargaining power, i.e., fewer subscribers. To gain market share, you’ll probably be offering your service for less money than your competitors. This is why it is even more important to develop a sound business model around the merchandising of content.
IPTVU: PVRs, cable VOD and IPTV are transforming TV viewing from appointment television to anytime television. What demands does this shift place on those companies involved with media distribution and management, and how has Sun responded?
AS: I think that the PVR is the single most important application since the wireless remote. It has fundamentally changed television, but there is a significant down side. While the consumer thinks it is great, advertisers don’t. Studies show that 70 percent of consumers think a PVR’s most valuable attribute is its ability to skip ads. So something has to be done in that space.
Sun has been working to fundamentally change the economics of TV distribution. There has been no product announcement yet, but later this year we will be rolling out a series of innovations in IP-based video delivery.
For IPTV operators, one of the highest costs is consumer premises equipment, particularly when they need to put a PVR into multiple rooms in a household. A PVR has a hard drive that contributes about $50 to its cost. Being able to move that storage into the network reduces the cost of consumer premise equipment and also creates an opportunity for service providers to offer even more differentiated services to consumers. There’s stickiness to the system. As consumers, we don’t delete things. You store it until you reach your capacity. It is an obvious opportunity for an IPTV operator to offer another 40 hours of storage for $5 per month. “Just click here.” The operator also can offer things beyond TV, such as secure storage. Using identity management combined with Sun’s digital rights initiative DReamM, service providers will be able to offer their subscribers to “Store you computer data, photos, and music securely on our network”.
IPTVU: How do you think IPTV can play to the desires of content producers to maximize their revenue?
AS: First by creating a branded environment and a method of merchandizing and splitting incremental revenue with the operator for eyeballs. Second is in the area of advertising.
Advertising is potentially the next killer app for the service provider. One of the things we are looking at is ‘upstream revenue’ where the service provider receives revenue from the advertising via their content provider. With a TV channel, you could position a network to provide geographic targeting, interactivity, and commercial telescoping of ads, i.e., going from the programmed 30 second commercials to a two minute video stored on the VOD or PVR subsystem. These are all value-added features for advertisers. Advertisers will pay more for incrementally more valuable ways to create a meaningful relationship with their target audience. In the advertising fulfillment model, the service provider splits this incremental revenue with the programmer partner that delivered the content.
For programmers, it reinforces the relationship between them and the advertiser and, through the service provider network creates a direct relationship with consumers for their marketers through their sponsorship of the programming.
IPTVU: You’ve previously identified a different advertising model for IPTV when compared to cable in which profiling and direct response become critical elements in the ad buy. Could you elaborate?
AS: The industry needs a unicast model to stream personalized programming and targeted ads to specific set top boxes –in other words combining identity management with content distribution. We are not talking about using personal data but rather a way of defining a more specific profile of people who live within a zip code area. Provide a more valuable ad to the consumer, and they’re more likely to interact. And if they do, they’re more likely to add permission to deliver even more valuable information. To enable this, you need an underlying operating system or middleware. Sun advocates open industry standards such as OCAP and MHP. Both standards are based on Sun’s Java technology platform. Embedding identity, security and a permission-based marketing model to client-side software will enable these new advanced advertising paradigms.
For example, you see an ad for a product you are interested in on TV; you could be prompted to set a reminder to buy the product when you’re next in the store. Using identity management in the set-top box lined to identity management running on your cell phone and the active RFID technology employed in the store for inventory checking, your cell phone could be notified of the reminder when you’re next in the store. Using MMS, you could receive a coupon discount for the product and use this at the checkout which in turn will provide feedback to the marketer of the effectiveness of their campaign.
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