February 14, 2011 – With Comcast and Time Warner Cable leading the way, the cable industry’s move into IP-based television became official last month amid signs that the emergence of broadband subscription TV could eventually lead to cross-border competition among big SPs.
Until now TV Everywhere strategies have focused on providing subscription content in on-demand mode, leaving live broadcast service delivery to the traditional domain of MPEG-2 and analog TV. But at last month’s Consumer Electronics Show, Time Warner Cable announced it had begun streaming live broadcast channels over IP to Samsung’s Android-based tablets with live streaming to the manufacturer’s “smart TVs” and to Sony’s Bravia TVs to follow later this year.
In an appearance at a Samsung press conference, TWC chairman and CEO Glenn Britt said, “What I’m really excited about is I can access live TV with this tablet and without a set-top box. Ultimately customers will have access to their entire channel lineup on the [Galaxy] Tab” Later this year, Britt added, TWC and Samsung will make the same IPTV service available on the smart TV. “Just like on the Tab, our customers will access all our channels,” he said.
Comcast chairman and CEO Brian Roberts, appearing at the same press conference, focused on how users can now access the company’s Xfinity TVE on-demand service from the Galaxy Tab now and on the smart TV later this year. But he also noted that “soon Xfinity customers will be able to watch live television on the tablet as well.”
As often reported here, cable companies are pursuing development of network migration strategies that will allow them to simulcast TV channels and on-demand content over their broadband networks with the goal of eventually eliminating the legacy transport mode altogether. The bonding of broadband channels via DOCSIS 3.0 technology is a key part of the TV streaming plans, and, apparently, TWC and Comcast feel they have put enough channel capacity behind broadband to begin offering unicast IP streaming of live subscription content to the relatively small proportion of users who purchase connected TVs and tablets from their consumer electronics affiliates.
Both companies made clear more deals with other manufacturers are in the works, which means the volume of unicast streaming is destined to rise but not so fast as to create capacity problems at this early stage of migration to IPTV. “The Xfinity TV experience will be available later this year on the Samsung Smart TVs and on the application store for the Galaxy products and is just one of many enhancements and app releases we’re planning to introduce this year,” said Comcast CTO Tony Werner in a recent blog.
As ever more manufacturers team up with various SPs to enable broadband delivery of premium content to connected TVs and other devices, the question arises, just how long will it be before these providers unleash themselves from in-territory restrictions in order to compete all-out with the same economies of scale and reach that non-network-based OTT providers like Netflix, Hulu, Google TV and a multitude of others enjoy? To some observers this would be unthinkable.
‘It starts World War III,” said Laura Martin, managing director and senior analyst at Needham & Co., in an interview at CES.
But in another interview Eric Bruno, vice president of product management for Verizon Telecom, acknowledged his company was seriously considering making its FiOS TV service available as a subscription service to broadband users nationwide, regardless of who their local service provider might be. “That is absolutely one of the things we’re looking at,” Bruno said, affirming similar comments made last year by Terry Denson, Verizon’s vice president of programming and marketing (see July issue, p. 1).
Such a ubiquitous OTT-offered version of FiOS TV would be an extension of the capabilities Verizon has implemented in support of its Flex View TV Everywhere service, which, in November, began delivering on-demand premium content to devices other than the PC, starting with Android-based handhelds and tablets.”When we built the technology platform,” Bruno said, “we built it so it could provide service nationally.”
That national reach begins with providing in-territory FiOS TV customers access to their content wherever they are, which means, Bruno said, “we have to be broadband agnostic, and we are.” A next step would be to extend availability of Flex View to Verizon broadband customers who don’t have fiber connections. “And then, as we look into the future, we still have a decision to make as to whether we want to make that available to everybody on a more over-the-top basis,” he said. “That’s still under evaluation.”
But Bruno made clear that Verizon will do what it thinks makes most sense in the increasingly competitive OTT environment. “As we work through making sure we can deliver in the highest possible fidelity [over broadband networks], the market is going to go where the market is going to go,” he said. “I think we’re already beginning to see a proliferation of over-the-top. From a Verizon perspective, we recognize that it’s coming.”
Asked whether she believes Verizon will go to the OTT subscription model for consumers everywhere, Needham’s Martin said, “I’d be shocked. In my view what I think they should do and what I think they will do – at least for the next five years, which is an investment timeframe – they will stick to their core business. They will try to use these services to prop up or sustain or keep new would-be disruptors out of their business and support their existing customers. But when you start going after Comcast customers, this is like nuclear war, because Comcast is coming right after you.”
But apparently such possibilities are not far out of mind among the cable providers. In a blog written right after Samsung’s deal with TWC was announced, Jeff Simmenmon, the MSO’s director of digital communications, commented, “I’ve heard a lot of talk about TV over IP, and this is the first step. This is the beginning of the elimination of the set-top box, a movement towards a world where you can connect anyone’s hardware to the network — or anyone else’s network — and enjoy television the way you like it, simple and easy.”
The reference to “anyone else’s network” prompted a query from GigaOm reporter Ryan Lawler, to which Simmenmon replied, as reported by Lawler, “To use this service, a customer technically only would need a video (cable TV) subscription from Time Warner Cable. While they would need to have a cable modem and wireless network in the home, they theoretically would not have to subscribe to our HSD (broadband) service. This is all in development, however — and may change during the year. However, that’s where we are right now.”
The emergence of broadband mobile could be another force for change as SPs weigh future business models and what it will take to compete. Verizon, for example, would have every reason to make its FiOS TV content available to subscribers of its 4G LTE (Long-Term Evolution) service no matter where they live. Under such circumstances, that might be all the broadband connection subscribers need, but, if they’re also taking fixed broadband, why would Verizon not want to make the FiOS TV service available through those conduits as well?
Already Comcast is offering its Xfinity2go service at 4G speeds in markets where it operates the WiMAX service enabled by the Clearwire infrastructure, with a national extension of the service that uses Sprint’s 3G network outside the 4G footprint. With tablets now in play as mobile devices, video service access becomes a much more important component of the mobile experience than it once was.
So far, when it comes to offering the full scope of premium content to tablets, both Comcast and Time Warner make clear the complete TV lineup will be limited to access over fixed broadband connections in the home. Indeed, as noted by Rick Brovedani, senior director for the Americas in Alcatel-Lucent’s multimedia integration services division, the move to premium TV over mobile is much slower in general in the U.S. than it has been in Japan and Europe.
“Everybody sees a play for video on mobile,” Brovedani said, noting that Alcatel-Lucent customer Orange in Europe has been especially aggressive in that part of the world. AT&T, another Alcatel-Lucent customer, has taken a big step toward integration between fixed and mobile with the introduction of DVR content playback on mobile devices, which allows users to pick up watching a video wherever they left off on their TV.
Given the inevitable growth of mobile viewing via tablets and smartphones, the idea of retaining boundary-specific limitations on offering of premium content begins to lose steam, Brovedani noted. “Once you have adaptive streaming in place with the ability to manage quality levels over unmanaged networks, technically there’s no boundary to your service,” he said. “It really becomes a licensing issue.”
And it’s no small issue. Even with regard to licensing content for on-demand availability in the early stages of TVE, things have gone slower than SPs would like, said Dan York, president of content for AT&T. “It’s hard to build the industry-wide collaboration on TVE,” he said. “I would have hoped we would have seen more progress at this point. There are a lot of players and a lot of technology and a lot of shifting agendas all the time trying to get this done. But we are seeing progress.”
Licensing terms under existing contracts do complicate matters, agreed Verizon’s Bruno. But he noted that as contracts are renewed and Verizon’s TVE strategy is built into the licensing terms, those problems are going to recede. In fact, Verizon is building the whole idea of making content available nationally on all devices into its new contracts, he added.
“The good news is when you look at Flex View, we’re securing national rights,” Bruno said. “Obviously anything we do beyond Flex View we circle back with our content partners and make sure everybody is on the same page, which is easy for us to do. And then what we have to do is make a business decision [on the OTT question]. But as we looked at Flex View, recognizing that we’ve got a company that’s part of Verizon [Verizon Wireless] that already has a national purview, we wanted to make sure that anybody can take advantage of it.”
Needham’s Martin pushed back on the idea of 4G being a fixed services boundary buster, given the separation in the consumer’s mind between mobile subscriptions and the fixed-service bundle. “You know,” she said, “Wall Street keeps pushing this concept of doing a quadruple play, and all the research shows consumers want to be flexible to buy an iPhone and two years later when your contract ends buy a Razr or whatever. They don’t really think of those smartphones as wanting to be bundled in with the longevity that you have in your triple-play bundle in your house, where that may change every decade or when you move homes every 15 years. So the quadruple play hasn’t really proved very enticing for consumers when you add that smartphone, because that replacement cycle is much faster.”
Ultimately, the mutual benefits that keep content owners linked to subscription TV distributors and prevent cable operators from competing with each other will prevent the threat of OTT from causing destructive disruption to the existing model, Martin said. “The content guys see the ability to go direct to consumer is potentially opening up new monetization possibilities,” she noted. “Yet they don’t want to irritate their existing ecosystem, which is paying them $75 billion a year, with the cable, satellite and telephone guys all included in that number.
“What they’re finding so far,” she continued, “is the consumer is unwilling to pay for content over the Internet on a subscription or a la carte basis, but, in addition, the consumer isn’t willing to put up with 16 minutes of advertising, which is what the consumer has on the TV platform. He’s willing to put up with two or three minutes, but not 16 minutes. So the economics on these digital platforms so far is about 75 percent lower than on the TV platform.”
As long as this state of affairs keeps the pure OTT suppliers in check as a threat to the network-based suppliers, there’s more to be gained among the network SPs in sticking with established practices than attacking each other as national providers. “I like the way the industry is very aligned even with their competitors,” Martin said. “I think telco, satellite and cable totally get that it’s united they stand and divided they fall.”
Perhaps, but the service providers are clearly nervous as they watch the machinations of content owners in their deal-making on the OTT front. “Taken one at a time, there’s not necessarily a big impact from some of the over-the-top deals that have happened,” York said, “but I’m surprised to see the continued flow. The content providers should just step back and think about where this is all going and the impact this could have on their golden goose, which is the pay TV business.”
Recent deals involving some of these players “have had me scratching my head,” he added.