PAY TV AND THE GROWING OVER-THE
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THE GROWING
OVER-THE-TOP VIDEO THREAT
AND PAY TV RESPONSE STRATEGIES
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Reproduction of this publication in any form without prior written permission is forbidden. The information contained in this report is from sources believed to be reliable. Trender Research disclaims all warranties as to the accuracy, completeness, or adequacy of such information. Trender Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for the interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve the intended results. The opinions expressed herein are subject to change without notice.
2010 Trender Research, Inc.
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Trender Research: The Growing Over the Top
Video Threat (June 2010)
Report Authors
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Principal Analyst: Brian Mahony
Trender Panel
“…teacher, songwriter/composer, writer/blogger, addicted to social networking. I like making connections and creating relationships with people around the world.”
Vikki Flawith
“…an attorney from Houston, Texas, now living in Chicago, Illinois. I played varsity tennis for the
University of North Carolina-Chapel Hill, but now spend my spare time… taking care of my two
Cavalier King Charles Spaniels.”
Chad Riley
Wendy Brown
“I'm an overworked and underappreciated volunteer to causes galore. In my spare time I enjoy my wonderful family which includes two daughters, two labradoodles and a patient husband...”
“… mother of four and a homeschooler. I previously worked as a high school guidance counselor and in college admissions… gratefully married to my best friend.”
Mary Pat
“… writer for Wise Bread, a personal finance, frugal living, and career blog… work appears in
‘10,001 Ways to Live Large on a Small Budget’”
Julie Rains
Dan Sylvestre
“…student at Boston University studying Bio-Medical Engineering (pre-med) interested in music and ice hockey.”
2010 Trender Research, Inc.
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Trender Research: The Growing Over the Top
Video Threat (June 2010)
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CONTENTS
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Trender Research: The Growing Over the Top
Video Threat (June 2010)
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Trender Research: The Growing Over the Top
Video Threat (June 2010)
0.
INTRODUCTION
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5
0.1.
STATEMENT OF PURPOSE AND REPORT METHODOLOGY
Thank you for purchasing this report from Trender Research. In it, we provide a perspective of how
Internet technologies are changing the business models for the television and video entertainment industries, especially as it relates to mainstream consumers. A few things to keep in mind before you begin reading:
This report is based on market research and analysis from the author, who has many years of experience observing or actively participating in this market. In addition, the author compliments his own experience with the insights from over 40 companies and organizations gained through interviews and questionnaires, and analysis of another 50 companies through public records. In some cases, to support a larger point, the author cites references to third party research or articles.
This report is not intended as a quantitative or market share analysis. While we take into account product shipments, customers and partners, and other facts that can support a company’s claims of market traction, this alone does not shape our findings. There are several reasons for this: 1) many of the companies mentioned in this report do not share this information; 2) the video entertainment market is changing so fast that past performance does not guarantee future success. Likewise, there are many up-and-coming companies that have a very good chance to enjoy market success due to the merits of their technology.
While we discuss many companies in this report, we don’t cover them all. Our goal is to highlight representative companies to illustrate examples of larger trends. We apologize in advance for any omissions or oversights and hope to cover even more deserving companies in a future version of this report.
As with everything we do at Trender Research, we have engaged the insights of our Trenders, ordinary people who represent a cross-section of consumers. We do this to keep our analysts grounded in the lives of everyday people. It is especially important for fast moving technology-based industries to listen to prospective customers. Experience has shown that is not always the best, fastest, most feature-rich products and services that break through to the mainstream market, but those that gain consumer mindshare and best fit with how normal people live their busy lives. The Trender Panel should be looked at as a focus group rather than a statistically relevant survey sample. In addition to providing feedback on key trends, the Trender Panel also provides input into the Trender Dashboards.
Finally, our goal in this report is not to heap kudos on innovating companies and technologies, but to help you the reader discern and predict where the market is going. Throughout the report, we point out the underlying trends for what is happening or in the works. We also note where promising new developments are being held back by some limiting factors and what might be required to overcome them. In the final section of the report, we provide a few strategic scenarios for determining the impact that over the top video will have on the Pay TV market.
We at Trender Research are committed to being transparent in what we do. Where there may be a conflict of interest based on stock ownership, past employment, or client work, we will point this out.
2010 Trender Research, Inc.
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Video Threat (June 2010)
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0.2.
LAYMAN’S GLOSSARY OF TERMS AND CONCEPTS
6
“Codec”: This term describes the many formats for encoding and decoding digital media. It also refers to the specific implementation of codec technology by a company to optimize quality playback of various forms of digital media. Engineers may say that “company X” has a good codec which could refer to both its quality and diversity.
“Digital rights management”: a range of technologies, standards, and techniques which protect the rights of content owners and dictate the terms of access and playback for users.
“Hybrid TV”: This term refers to any combination of pay TV (cable or satellite or IPTV), over-the-air/free-to-air
TV, and/or Internet TV.
“Internet TV” or “Internet Video”: While these terms have slightly nuanced and different uses, for the purposes of this document these terms are used interchangeably to describe all forms of video and television watching over the open Internet. This includes movies, TV programs, and live content and can be either streamed for realtime playback or downloaded.
“IPTV” versus “Over the top video”: Whereas both of these terms use Internet protocol in the delivery of
Internet video, they have come to mean different things in terms of their technical implementation and business models. “IPTV” is similar to cable and satellite Pay TV services in that it is delivered across a managed network
(which provides quality of service), is subscription-based (you need permission from the service provider to use it), and delivers a “walled garden” of content chosen by the service provider. The benefit of IPTV is a more cost efficient network and an architecture that is more adaptable for innovative and interactive applications. “Over the top” (OTT) video uses a broadband Internet connection to deliver Internet video on a best efforts basis
(which can actually be quite good in cases where there is high bandwidth available, adaptive streaming technologies are in use, and/or the service is delivered with the help of a content delivery network “CDN” that helps to improve video quality). The other aspect of OTT video is that users typically do not need permission from their Internet service provider to access it (although this could change with bandwidth caps in the absence of regulations on net neutrality). OTT video can deliver either a walled garden of content (e.g. Roku, AppleTV) or something open (PC with an open browser that can access any free Internet video site such as Hulu). In short,
OTT video puts the locus of decision-making and control in the hands of the consumer, whereas IPTV tries to keep the control in the hands of the service provider.
“Over-the-air” (OTA) and “Free-to-air” (FTA): These terms refer to usually free broadcast technologies for receiving television signals. OTA is more common in North America and refers to free TV that is broadcast unencrypted on UHF or VHF bands and received from transmitting towers up to tens of miles away via “rabbit ears” TV antennas or roof-top antennas. FTA is more common in Europe and refers to TV usually delivered via satellite. Before the advent of paid cable and satellite services, most TV was ad-supported or government supported based on OTA/FTA technologies.
“Streaming” versus “Downloading” and “Progressive Downloading”: “Streaming” is a method of delivery
Internet TV that involves instant playback of content, much like live TV, although some delay (latency) is usually involved. “Downloading” usually involves saving a video file to a local storage device (hard disk drive or flash memory) before playback. “Progressive downloading” is a hybrid approach in which the video file is divided into
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7 several separate files so that playback can begin as soon as the first segment is finished downloading, while the remaining segments continue to download in the background. The technical and financial trade-offs of these different approaches are many and are increasingly being blurred, but the major issues involve the cost of the video servers and local storage, latency and video quality, as well as concerns about digital rights and piracy.
“Walled garden”: This term implies a menu of content controlled by an entity other than the user. It could be dictated by the video web site source or the device. It could include free ad-supported content, pay-per-view, or subscription based content.
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1.
EXECUTIVE SUMMARY
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Snapshot of Pay TV Market
Contrary to what some pundits have predicted, the Pay TV and film industries are not at risk of imminent collapse. While experiencing flat or declining revenues, total revenues from the television, movie theater, DVD/Blu-ray, and service provider video on demand markets are over 100 billion dollars globally.
What’s more, the television component of the Pay TV industry, represented most commonly by cable multiservice operators (MSOs) and satellite companies and more recently by IPTV service providers, has completed a
30 year process of coaxing consumers to pay $50 to more than $100 a month for video-based entertainment, versus the free ad-supported content consumers obtained previously through TV antennas and over-the-air broadcasts. They did this by providing value for the money and a superior product— more TV channels, recently released movies, an ever increasing line-up of content options, and niche programming that would never have been produced in the days when there were just a few broadcast channels. Cable and satellite technologies have had a huge impact on the TV market, enabling not only national and international distribution of TV and film, sports, educational, and other programming, but also the creation of new revenue models. The dominant model for more than 30 years has been one of multiple revenue sources from distribution network licensing fees, subscription fees for Pay TV, while also sustaining the more traditional ad-supported model.
OTT Video Threat
But time and technology marches on. In recent years, it is becoming increasingly clear that the Pay TV business as we know it is in the early stages of a revolution caused by new Internet and interactive technologies and delivery platforms. The digitization of content and devices, advanced compression technologies, and the emergence of high-bandwidth broadband delivery platforms, among other key technological developments, have all contributed to this revolution.
The consumption of online video is now exploding. Online TV/movie streaming sites like Hulu are growing rapidly, backed by major broadcasters and Hollywood studios like Fox and NBC Universal and
Disney/ABC. Together with CBS and popular cable channels that are investing in their own online video content sites, the traditional TV and movie licensing houses are embracing the online world determined not to repeat the same mistakes of their counterparts in the music industry. As such, they are building extensive Internetbased program libraries and attracting a growing share of advertising dollars. While most consumers continue to look at Internet video content as supplementary to Pay TV, some consumers, especially younger and more techsavvy demographics, are being enticed to “cut the cord” from paying monthly fees to Pay TV service providers.
These “cord-cutters” are still only a very small percentage of the market, but with increasingly user-friendly solutions coming into the market every day, they point to a growing trend— one that has the potential to be highly disruptive to the entire Pay TV business model. Ironically the Pay TV industry, which worked so hard to coax consumers away from free over-the-air TV into accepting ever-increasing monthly fees for pay and premium channels, is now itself being threatened by a new form of “free TV”. Instead of over-the-air, the Pay TV industry is now struggling to deal with the threat caused by what is now commonly called “over-the-top” video
(OTT)— the consumption of video entertainment over a broadband Internet connection.
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Triple Play Wars
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Meanwhile, on parallel and colliding battlefields, service providers of all types continue to engage in the ongoing war for Pay TV revenues. After years of losing revenues to the encroachment of cable MSO’s broadband
Internet and voice services, telecom service providers have been fighting back successfully with their own IPbased video deployments, leveraging either advanced DSL, full fiber-optic, or fiber-hybrid networks that can supply sufficient bandwidth to transmit literally hundreds of high-definition and standard-definition channels, broadband Internet, and voice connections over one integrated wire. Both cable and telecom service providers are packaging this “triple play” of voice/video/Internet services, and in some cases a “quad play” including mobile services, as a way to increase revenues and lock-in total customer loyalty for the long term. Beyond the basic triple play package, service providers are also experimenting with various interactive applications, new types of user interfaces and remote controls, in addition to new forms of advertising and monetization of their services. All of this is an effort to compete with each other for their share of the Pay TV market.
Emerging OTT Battlefield
But there are many strains on the strategies of the traditional operators that provide a backdrop of concern despite the billions of investment in Telco IPTV networks and Cable MSO plant and equipment upgrades. First, there is the concern that the long-term costs of these deployments may not provide sufficient return on investment. Service provider set-top boxes have become mini computers, with expensive hardware and software components contributing to shorter shelf lives and costly replacement cycles. The demand for multiple high-definition channels has also increased the cost to operators to deliver the content consumers want. Second, while less than 1.5% of the $70 billion spent on TV advertising has moved online (source: eMarketer), there is a clear trend in that direction.
Beginning in 2009, mainstream consumers, not just teenagers or early adopters, began to embrace
Internet TV in a big way. Some have begun to question why they are paying for an expensive subscription service when a growing percentage of their favorite content is available online for free— increasingly more of it in high definition. In addition our Trender Panel focus groups indicates that some consumers enjoy the online TV experience and interactivity better than traditional TV, which in most cases is still limited by grid-like program guides and scheduled programming. Even service provider investments in new DVR-equipped set-top boxes is called into question in a world where the Internet can act as the “ultimate video on demand service” without the requirement to program recordings in advance or sit down at a certain time. New Internet video browsers such as Boxee and Zinc have made the task of accessing content from a myriad of web sites easy and have the potential to surpass the comparably rigid viewing experience of traditional TV and video on demand.
Meanwhile, to bridge the gap to the living room, more and more devices, and TVs themselves, are allowing people to watch OTT shows and movies from the comfort of the couch rather than the “lean forward” experience of sitting in front of a computer.
Traditional TV Defenses
While these OTT developments are alarming to the traditional TV providers, they have a few trump cards that could slow or mitigate the damage cause by this emerging trend. Foremost of these advantages is that they have the most, best, and freshest programming content of TV shows available. Besides TV shows from
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10 the major networks, over the years they have fostered the development of hundreds of channels of content that viewers enjoy, from the Discovery Channel, to the History Channel, to all the cable news outlets. Pay TV also has a tight hold on important live events, especially high-definition sports programming. A second major advantage is that cable and satellite TV providers already have a reliable method for distributing multiple channels of highdefinition content to all home’s TV via the existing coaxial wiring. This is in contrast to the fragmented OTT video market with its bewildering array of different devices and an equally dizzying list of protocols vying to be the primary means of connecting Internet video to the home’s TVs. Ethernet, WiFi-N, Wireless HD, WHDI, MoCA,
QAM/RF Modulation, HomePlug, Ultra-Wideband (wireless USB/VGA), each with different trade-offs and limitations, are all competing for mindshare with the end result being even more confusion for the mainstream market. Finally, service providers benefit from the inertia of consumer behavior that has grown comfortable with the traditional TV watching experience. Consumers know how to use the remote control and, while few love their program guides, they understand how to flip channels. They also have an established trust relationship for billing and some cases incentives to subscriber to multiple services from a single provider.
OTT Breaks Through
However, in the past two years, serious cracks have appeared in the walls of the traditional defenses of
Pay TV operator business models. In addition to the significant library of TV programming on sites such as Hulu, major pay download movie services such as Netlfix have enjoyed growing popularity, with similar video sites from Amazon, Blockbuster, and Apple and many other niche players joining the fray. Consumers are now faced with a very reasonable option to “cut the cord” on expensive traditional TV services. They can now watch shows on sites such as Hulu and pay around $10 per month for an online movie service from Netflix and other sites, getting perhaps 50%-75% of the shows they want to watch online; often they also find new enjoyable content to replace the programs they may leave behind. Even more damaging is the fact that a whole new host of devices and technologies are making it much easier to bridge the gap between Internet content sites and the big screen
TVs in the home. From the $79 Roku Netflix player on the low-end, to high-end video game consoles, a range of new boxes can now do some or all of what a traditional set-top box does for cable and satellite. As a final formidable threat, most of the leading HDTV manufacturers are ramping up production of Internet-connected
TVs that provide access to OTT video sites we well as interactive applications and slices of Internet information such as Yahoo Widgets. For mainstream consumers the barrier between the TV and the Internet may finally be irrevocably broken, as may also be the status quo for the Pay TV business model.
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2.
PAY TV MARKET OVERVIEW
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2.1.
TRIPLE PLAY WAR RECAP
Once separate realms, the cable and telco industries have been encroaching on each others’ turf for the better part of 15 years. Initially, the catalyst for competition was the rapidly growing market for Internet access.
The Telcos first deployed “Internet offload” solutions to minimize the impact to their networks of millions of dial-up customers using traditional telephone lines to access new Internet Service Provider (ISP) entities. Later they offered their own Internet access services using various forms of digital subscriber line (DSL) technology with 1.5 Mbps speeds, putting most of the dial-up ISPs out of business. The cable MSOs launched their own broadband services for Internet access with 6 Mbps speeds. While both services enjoyed rapid uptake in the early years, cable broadband eventually gained the upper hand, over the past two years adding Internet access subscribers by a rate of about 5 to 1 over telco DSL services.
In the past five years especially, the scope of the battle for new subscribers has expanded. Cable MSOs began aggressively marketing their own voice over Internet protocol (VoIP) telephone services as part of their
“triple play” bundle of communications and entertainment services. The major telcos responded in kind with their own version of the bundle. In the U.S. market the most prominent are Verizon’s FiOS TV and AT&T’s U-
Verse products, the latter based on DSL technology. Both companies are making multi-billion dollar investments in new Internet protocol TV (IPTV) networks using new fiber-to-the-home (FTTH) or hybrid fiber-RF network topologies. Hundreds of smaller independent operating companies (IOCs), many of which were pioneers in the early days of “video over DSL”, are also now upgrading their networks to support higher-speed broadband and expanded digital HD video channel line-ups.
AT&T’s U-Verse (fiber) and Verizon’s FiOS (hybrid fiber-RF) networks, when completed, will have invested upwards of $40 billion of risk capital on network infrastructure, customer premise equipment, software, network operation centers and programming in order to meet the cable and satellite providers on the
TV battlefield. The telcos justified these massive investments not only as a means of future-proofing their service platforms for delivering all IP-based services, including video, but also as a way to decrease maintenance and OPEX costs. Their network upgrades to Fiber to the Node (FTTN) and Fiber to the Home (FTTH) have also had the consequence of upping the ante for broadband Internet services, resulting in residential access speeds that range from 5 Mbps to 50 Mbps depending on carrier and service bundle.
So far, the telcos’ IPTV gamble working is working: both carriers recently reported the addition of between 250K to 300K of new subscribers each per quarter over the past several quarters, with about 60% of those switching from cable TV services. Both U-Verse and FiOS have networks that pass more than 10 million homes, a growing service footprint, but still small compared to the base of 110 million homes passed by of cable networks. Meanwhile, smaller telcos have struggled to develop their own IPTV plan or implement a more modest DSL-based triple play strategy, facing severe bandwidth limitations in a TV market moving to highdefinition content. Some, like Qwest, have avoided taking the IPTV route altogether.
All of this has caused speculation that the cable MSOs will have to eventually build their own FTTH networks to compete with U-Verse and FiOS as they expand. Not only can IPTV providers point to competitive
Internet speeds and voice quality, and equivalency in TV service, but increasingly they are demonstrating the
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For client review only— not for distribution. ability to offer Internet and interactive applications and content that are inherent to IP technologies (more on this later in our report). Adding to the pressure on cable operators is that their satellite foes are also chipping away at their subscriber base. While growth slowed in the latter half of the year, DirecTV added almost one million subscribers in 2010, with interim CEO Larry Hunter claiming that the bulk of DirecTV's additions are coming from cable.
Similar battles are being waged in markets from Europe, to Asia, to South America.
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Looming over the heads of the established triple play operators is the potential market disruption that may be caused by new 4G wireless broadband technologies. Wireless broadband services, such as LTE and
WiMAX, have the potential to deliver Internet speeds up to 150 Mbps downstream and 30 Mbps in aggregate.
While in real-world scenarios, and taking into consideration any number of factors, such as geography/ terrain, licensed or unlicensed spectrum, fixed or mobile, distance from a base station or node, indoor or outdoor CPE,
WiMAX is more likely to deliver closer to one-fifth or less of these advertised aggregate speeds— with sustained per-user speeds somewhere in the range of 1 to 5 Mbps. These actual speeds will still be comparable to cable and DSL broadband services. All of this is still undetermined at this point (and outside the scope of this report), as fixed and mobile broadband technologies still have significant technical hurdles to overcome, such as how operators will manage data networks in a way that does not impact mobile phone service, how video will impact network capacity, and how well these networks will scale. Nevertheless, wireless broadband is a wild card that could change the dynamics of the industry.
2.2.
WEAPONS OF TRIPLE PLAY WAR
To date, the weapons employed in the triple play wars have been fairly pedestrian, with few examples of real convergence or interactive applications delivered on a large scale to consumers. Despite the billions invested in triple play networks, most of the focus has been on price discounting and bundling a service offering that includes broadband Internet access, phone, and TV/VoD. A converged bill and packaged discounts in the range of $5 to $20 are common benefits marketed to consumers. The most commonly marketed benefits of triple play used in competitive positioning include:
Price/service bundling (including discounted or free installation in some cases)
Internet access speeds (in some cases with some consumer education about the difference between download and upload speeds)
Number of HD channels
DVR support
Quality of voice service
Quality of support
True convergence applications that take advantage of an integrated Internet/voice/video service offering are rarely the lead in consumer advertising, although this is slowly changing. IPTV providers such as
AT&T U-Verse and FiOS have been more aggressive than cable and satellite TV service providers in marketing advanced convergence and interactive applications. These include:
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Caller ID (and in some cases voicemail) on the TV screen
“Whole House DVR” that allows you to stop and restart programs from different TVs in the home
“Start-Over TV” which allows who to rewind a program if you missed the beginning
“Catch-Up TV” (a form of video on demand) which allows you to go backwards in the temporal electronic program guide, and quickly access older episodes of your favorite shows
13
With the exception of these examples, there are few if any applications that stand out as advanced television applications. Triple play marketing continues to be limited to variables such as Internet access speeds and HD channels, as well as the sheer volume and cleverness of advertising programs. What has been lacking is the wide-scale deployment and marketing of converged and interactive content and applications that take advantage of the bi-directional nature of Internet protocol networking.
2.3.
CHANGING VOD AND VIDEO RENTAL LANDSCAPE
2.3.1.
Service Provider Video on Demand
While still a $3B business, the service provider video on demand business has not lived up to its potential. In recent quarters, revenues have stagnated. Service provider VoD services have continued to be plagued by slow and clunky menus and weak content discovery. For the most part Pay TV VoD is an underutilized asset. Despite service providers’ progress in increasing the number of titles available, subscribers continue to claim that navigation is difficult, with program selections hidden under several layers of menus.
Some industry insiders claim that the reasons for this go beyond the technical limitations of middleware and settop boxes, but point to a mindset by operators that view VoD as a value-add to the subscription rather than a stand-alone service in and of itself. This would explain why service providers are content to push free VoD movies among their paid titles, as long as subscribers keep paying for their subscription.
2.3.2.
Blockbuster vs. Netflix vs. Redbox
Before trying to understand the impact of OTT video on the home video market, it is important to understand that the market has already been in the process of serious change for the past ten years. Traditional video rental outlets have seen flat or declining revenues, with many stores closing. Once flourishing, the vast majority of mom-and-pop video stores have exited the business. And the biggest retailers such as Blockbuster have been in a pitched battle with DVD-by-mail vendors such as Netflix, with the latter gaining the clear advantage. Blockbuster has seen its stock price drop precipitously over the past year and has stated that it might face bankruptcy if it cannot improve its balance sheet. Meanwhile, Netflix is only gaining momentum, offering
100,000+ movies titles leveraging a low overhead model. Netflix incorporates 600,000 U.S. Postal Service offices into its supply-chain versus the higher overhead of Blockbuster’s 5,000 stores (with over 1,000 more slated to be closed in 2010). Netflix announced it had exceeded 14 million subscribers to date. Netflix also said that its
Internet streaming service was getting increased uptake, a trend we discuss in detail later in this report.
Both Blockbuster and Netflix have seen a rising threat from an unlikely new competitor not utilizing retails stores, DVDs by mails, or even Internet video. Kiosk-based Redbox had three times the reach of
Blockbuster by the end of 2009, in the form of 22,000 video rental kiosks in 48 U.S. states (up 61% from 2008).
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14
Its parent company Coinstar says that revenue from the DVD rental operation could double this year to over
$1.5 billion, after doubling in 2009.
The problem for Hollywood studios is that Redbox only charges $1 for overnight rentals ($1.50 for Bluray), providing an attractive alternative to more expensive retail operations. For this reason, Redbox has found itself embroiled in lawsuits with movie studios such as 20th Century Fox and Universal Pictures. The studios are attempting to place Redbox in an inferior “windowing” position, an industry system which dictates the distribution pecking order for new movie titles. Typically, movie theaters would get first dibs on new movies, followed by retail, airlines/hotels, service provider VoD, and broadcast TV (not necessarily in that order). Redbox is fighting the studios’ attempts to restrict new movie distribution to them by 30 days after they go on sale, putting Redbox at a disadvantage.
2.4.
TRENDER PANEL FEEDBACK
Our Trender Panel of everyday TV consumers confirmed many of the benefits of traditional television, but also expressed a strong interest in the potential of Internet-based video, which we delve into in the next section. All except one are currently subscribed to some form of Pay TV service, including triple play. Some are active video rental consumers, and several expressed active use of service provider video on demand (VoD) services.
Trender Panel members listed several aspects of traditional Pay TV they enjoyed most:
Convenience and Familiarity of the experience.
Watching from the couch on the bigger TV screen (versus the smaller screen and chair in front of the computer).
The ability to easily locate their favorite shows and use the menu system to DVR upcoming programming. At the same time, some vented frustration with all the “junk” on TV and lost hours when channel surfing.
Getting a variety of reliable content including live sports and high definition programming.
One of the trends that emerged from the Trender Panel focus group is that they are more deliberate consumers of television and movies than they used to be. In other words, they are less likely to channel surf than they might have been in the past. They actively use DVR and VoD services, in some cases claiming this method as their primary means of consuming video entertainment. The reasons for this more deliberate viewing experience include:
Desire to overcome traditional TV schedules. Almost all Trender Panel members expressed some concern about the busy-ness of their lives, and the need to fit in TV watching when they have time.
Some even specifically quantified the efficiency of watching an hour-long TV program in 40 minutes by skipping commercials.
Concern about inappropriate content. All of the parents in the Trender Panel expressed some concern about violent, scary, or sexual content on traditional TV. They don’t trust it anymore. This applies to both TV programming, but surprisingly, even more so to the TV commercial advertisements. The
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15 thinking is that parents can control which channels they watch, but they often get blind-sided by inappropriate commercials that do not match the program they are watching. Parents voiced particular ire with Disney-type children’s channels which interrupt child-friendly shows with upcoming movie ads or show promos they feel are inappropriate for their younger children. Another complaint is picture-in picture VoD menus which, for example, show movie promos for “Texas Chainsaw Massacre” after a 20 minute Dora the Explorer video.
Other negative attributes of traditional TV expressed by the Trender Panel included:
Confusing electronic program guides and video on demand menus. One panelist described a particular frustration having to flip through channels that her subscription package does not give her access to.
Being forced to choose an expensive subscription bundle to get their favorite channels rather than being able to pick a la carte.
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3.
OVER-THE-TOP THREAT
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16
3.1.
OTT OVERVIEW
While traditional television service providers continue to do combat in the triple play wars, and also fight for their share of the home video business against threats from the likes of Netflix and Redbox, another battle is brewing. It is becoming increasingly clear that the Pay TV business is in the early stages of a revolution caused by new Internet and interactive technologies and delivery platforms. The consumption of online video is exploding. Online TV/movie streaming sites like Hulu are growing rapidly, backed by major broadcasters and
Hollywood studios like Fox and NBC Universal and more recently by Disney/ABC. Together with CBS and popular cable channels who are investing in their own online video content sites, the TV program and movie licensing houses are embracing the online world determined not to repeat the same mistakes of their brethren in the music world. They are building extensive Internet-based program libraries and attracting an increasingly larger share of advertising dollars. While most consumers continue to look at Internet video content as supplementary to Pay TV, some consumers, especially younger demographics, are being enticed to “cut the cord” from paying monthly fees to Pay TV service providers. While still only a very small percentage of the market, these “cordcutters” point to a growing trend— one that has the potential to be very disruptive to the entire Pay TV business model.
Beginning in 2009, mainstream consumers, not just teenagers or early adopters, began to embrace
Internet TV in a big way. Some have begun to question why they are spending $50-$100 a month for cable TV service when a growing percentage of their favorite content is available online for free— more and more of it in high definition. In addition there is some indication that consumers enjoy the online TV experience and interactivity better than traditional TV, which in most cases is still limited by grid-like program guides and scheduled programming. Meanwhile, more and more devices, and TVs themselves, are allowing people to watch
OTT TV and movies from the comfort of the couch rather than the “lean forward” experience of sitting in front of a computer.
3.2.
WHAT ARE THE STAKES?
They stakes are high for Pay TV service providers as they continue to do battle in the “triple play wars” and simultaneously map out strategies to deal with the threat of OTT video. The industry has already invested billions to upgrade plant and equipment and roll out new services in competitive markets. Despite this, there is rising concern that the long-term costs of these deployments may not provide sufficient return on investment.
Even service providers investments in popular DVR-equipped set-top boxes is called into question in a world where the Internet can act as the “ultimate video on demand service” without the requirement to program recordings in advance or sit down at a certain time. The demand for multiple high-definition channels has also increased the cost to operators to deliver the content consumers want. The growth of online video adds several risks to Pay TV providers’ business models, including:
Loss of Pay TV subscriptions. TV subscriptions account for about 60 percent of cable MSOs’ revenues. About a third of these funds go to the cable networks like ESPN and Discovery (which is about half of their
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17 revenue). While a Nielsen study estimated that only 1-2% of viewers have “cut the cord” from Pay TV, 15% of consumers stated an interest in doing so.
Reduced video rental and video on demand revenues. Since about 75% of studio film revenues from home video; including rentals, TV, premium TV, and video on demand; the trend towards OTT video will have a major impact on the economics of this business.
Reduced advertising revenues. While less than 1.5% of the $70 billion spent on TV advertising has moved online (source: eMarketer), there is a clear trend in that direction. And while some industry insiders claim that networks like ABC make just as much money from online viewers (because they watch more re-runs and find new shows to follow), they earn less per ad than traditional TV. For example, according to research firm Sanford C. Bernstein, a typical Fox can earn 54 cents per viewer (with 18 commercial interruptions) but only 18 cents per viewer online at a site like Hulu (which may have only three commercials for the same program). According to the Television Bureau of Advertising, total broadcast television ad revenues were down over 10% percent in 2009. Local broadcast TV revenues fell even further, dropping over 25% percent.
While much of this decline can be blamed on the economic downturn, some portion of it is also the result of
TV ad spending moving online.
As a result, Pay TV service providers suffer a potential “triple threat” of revenue loss from OTT video: 1) loss of subscriptions; 2) cannibalized advertising revenues; 3) stagnating or declining video on demand fees.
Equipment upgrade costs to support increased IP Video traffic. At the same time Pay TV providers are dealing with this revenue threat, many of these same companies are facing very real costs to upgrade their broadband Internet equipment to support an enormous increase in IP video traffic, which Cisco Systems predicts will represent 90% of all Internet traffic by 2013.
Increased customer acquisition and retention costs. Already spending heavily to attract and retain customers amidst the “triple play wars” (in the form of advertising, discounting, and other marketing programs), costs to retain customers to Pay TV or launch new Pay TV/OTT hybrid services will likely increase.
And viewers who do “cut the cord” from Pay TV may be harder to bring back. In the same way that while consumer inertia currently works in favor of Pay TV providers, word-of-mouth buzz created by the OTT trend may work against them.
3.3.
OTT TREND PROOF-POINTS
3.3.1.
Online Video Consumption
The biggest proof-point for the growing OTT video trend is the dramatic growth of online video watching, especially in the past year. Though still small compared to traditional TV, OTT video consumption has grown by more than 50% in the past year. Increasingly, viewers are moving beyond “video snacking” on sites like
YouTube to watching long-form content including full-length TV shows and movies. And both the quality and quantity of online video has improved recently, with more and more content available from the major
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18
Hollywood studios and TV programmers, including a growing library of high definition titles. Consider the following data-points:
In an online Trender Research poll of over 1,000 respondents, 40% responded that they watch some form
of online video every day. A full 75% watch online videos at least one per week. Only 24% responded that they either watch only once per month or never watch online videos. Slightly more than 1% professed to watching Internet videos as much as normal TV, suggesting they may already be “cord-cutters” from Pay TV.
A recent Nielsen global online study found that the time Americans spent watching online video jumped
339% since 2003, with online video minutes per user growing 49% in 2009. While a majority of viewing still takes place at the TV (7+ hours/day), the study found that 1-2% of households are already “cord cutters”, with that group skewed towards younger viewers.
An iSuppli study predicted that the number of devices supporting Internet video will increase from 80.5 million in 2008 to 376.5 million in 2013. This includes TVs, set-top boxes, Blu-ray and DVD players, game consoles, and dedicated video platforms.
According to comScore, US Internet users watched over 21 billion videos in July 2009, led by Google with 42 percent of the total. In second place was Hulu serving up over 450 million video views.
comScore also reported that 81.0 percent of the total U.S. Internet audience viewed online video with the average online video viewer watching 500 minutes of video, or 8.3 hours per viewer per month.
3.3.2.
Broadband Penetration
By all accounts, the penetration of broadband Internet access is now at critical mass. About two-thirds of American households have broadband and penetration is even higher in many European and Asian countries.
Even in the vast expanse of the United States, only a small percentage of households cannot get access to broadband. Since 15%-20% of households do not have a computer at home, one can assume that broadband adoption has already reached the majority of those that desire it. Broadband access is a prerequisite for OTT video adoption, so this bodes well for the growth of this trend.
3.3.3.
Home Networking
Another factor that aids the growth of OTT video is the implementation of home networks. According to
Cisco Systems, 39M (33%) of 120M American households had home networks, and the company expects this number to grow by another 50% in the next few years to exceed 50% of households. Though it is debatable whether WiFi-based home networks will be sufficient, a reliable and ubiquitous method for streaming high definition OTT video content throughout the home will need to emerge to bridge the gap between routers and computers and home TVs. We discuss this issue further in a later section.
3.3.4.
Digital TV Change-Over
Another recent event partially supporting the OTT trend is the recent government mandated changeover from analog to digital TV in the U.S. and European markets, and the massive consumer education campaign
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19 which accompanied it. It is difficult to quantify its impact, but anecdotal evidence suggests that it was a time for many consumers to take a second look at their TV services. Since many were forced to purchase analog adapters to make their TVs work, it caused some to rethink not only how their TVs were connected but also where their service came from. Many were surprised to find that they could get their local channels via over-the-air (OTA) antennas or free-to-air (FTA) signals in Europe. Equally surprising was that these free channels were delivered in a quality that rivaled or exceeded the high-definition resolutions provided by cable and satellite providers. This new consumer awareness raised the possibility of combining OTA/FTA channels with OTT TV and movie services to provide a lower cost alternative to Pay TV.
3.3.5.
Changing Consumer Behavior
There are a variety of other “softer” issues driven by changing consumer behavior that support the OTT trend. While a variety of recent studies have touched on this issue, it is obvious to the parents of teens and twenty-somethings that their generation consumes entertainment content differently than previous generations. The biggest difference is that younger demographics are proficient multi-taskers, balancing homework assignments with email, IM, texting, social networking, DVD watching, and online video. For this reason, they are more comfortable than their parents using their computers as universal communications and entertainment devices. While they still appreciate the quality of their home’s big screen HDTVs and the laid-back nature of channel surfing, they are equally comfortable searching for and watching short and long form video content from the privacy of their computers.
A recent study by Nielson suggests that this multi-tasking trend is more broad based. Nielsen said in a
September 2009 report that 57 percent of TV viewers in the U.S. who have Internet access use both mediums at the same time at least once a month. This is significant and shows the opportunity for both traditional Pay TV providers and OTT sites to provide more of a blended and interactive viewing experience.
Another lifestyle trend that all demographics can appreciate is the limitations of the busy world that we live in. The days of being able to consistently tune in at a specific time each week for our favorite TV shows are fading away. Modern people have multiple competing demands on their time. For this reason, the introduction of digital video record (DVR) technologies was seen as a major advancement. Now people can record in advance which programs they want to watch at a later time, or pause and start recording live TV. In a powerful way, OTT video is an extension of the benefit continuum represented by DVR. But now, instead of having to manage in advance which programs to record, people can feel increasingly confident that their programs are already
“recorded” on a variety of online video sites. In a way, OTT is the “ultimate video on demand or DVR service” since it eliminates the advanced planning step of setting up recording schedules, a process that is fraught with preference conflicts and hard disk space limits. In an on-demand world, OTT moves beyond DVR to further obviate the scheduling tethers of our busy world.
3.4.
BENEFITS OF OTT VIDE O
Before taking a closer look at the players and strategies behind OTT video, we can summarize the major benefits common to the trend:
Consumers:
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Saving money (anywhere from $50 by cutting back on premium package plans to over $100 for full “cordcutters”).
Getting some existing Pay TV content for free online.
Finding more/different/niche content options, as well as rediscovered content and re-runs.
The promise of better content discovery through web-based menus and search tools to surpass the gridbased EPG experience of Pay TV.
Interactive content and applications (e.g., social networking tools, sports content with integrated stats, gaming, more camera angles, related web information).
20
Programmers and Advertisers:
A more targeted/trackable experience with consumers (leveraging Internet tracking technologies)
Novel forms of advertising (interactive/clickable video)
Ability for more targeted advertising
Methods to ensure viewers are really watching
TV “T-Commerce” which allows viewers to click to buy products they see in videos or through interface menus/sidebars/widgets
3.5.
LIMITS TO OTT ADOPTION
We can also summarize some of the most prominent drawbacks of OTT video:
Limited content: consumers cannot find all the TV shows and movies they want to watch online. Though this is changing, the vast majority of online video is still clips, re-runs, and older movies.
Lack of HD content for HDTVs: the millions of households that invested in expensive HDTVs in the past few years want to watch HD programming on them with the quality of service issues common to “best effort”
Internet TV.
“Lean forward” experience: Another common complaint about Internet video is that it is a less relaxing experience than traditional TV. Though user interfaces and new Internet video remote controls are improving, the experience is still more of a “lean forward” one than traditional “lean back” TV watching.
Video consumed at the computer required keyboard and mouse navigation. Even when an OTT device is connected to the TV, it typically requires a hand-off to a different remote control and changing video inputs.
Fragmented market: Though online video consumption has grown rapidly at sites such as Hulu and Netflix, consumer awareness of what content is available where is still lacking, leaving most mainstream consumers confused. Likewise, the market for technologies and devices to extend Internet video content across home networks to TVs is still highly fragmented and the realm of techies.
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3.6.
TRENDER PANEL FEEDBACK
21
Our Trender Panel confirmed a very strong interest in Internet video but also why, for most consumers, it will not fully replace Pay TV in the near term. While our panel was growing in its awareness of new online video sites such as Hulu.com, most of them still see OTT video as incremental to the traditional television viewing experience. However, one of our panelists had already cut the cord and was an active Netflix and Hulu user. Among the major benefits cited by the Trender Panel were:
Using the online video sites of traditional programmers to watch missed episodes. In this way, online video is being used as a form of online back-up DVR that does require scheduling forethought. Several panelists noted that they had already disassociated the scheduling aspects of TVs by use of their DVRs, so online video seems like a natural outgrowth of this viewing behavior. This mode of watching is more complimentary to
Pay TV than substituting.
Enhancing their fan interest by engaging in online forums, interactive applications, or polls, and watching additional video clips such as “behind-the-scenes” videos.
Saving money watching free movies online versus renting movie from retail stores or paying for service provider VoD titles. Our cord-cutter went from paying $65 a month to the $19 Netflix service (3 DVDs by mail and streaming) which he complements with Hulu and other sites. However, a couple panelists pointed out that the savings may not be as great as expected when you consider the lost discount of triple play bundled pricing.
Better navigation experience. Several panelists mentioned that they liked to be able to search for shows using a variety of genres or keywords, rather than the traditional TV guide/menu system.
Discovering new sources of content at different online video sites, either through referral from friends and family or by “Googling it.”
Two panelists mentioned using online video regularly as an educational tool, such as tutorials for how to play and instrument, listening to lecturers, or researching a topic for school.
Remote access. More than one panelist mentioned that ability to extend their viewing experience to remote locations, such as watching “Colbert Report” during his lunch hour at work.
Several panel members once again mentioned their annoyance with traditional TV advertising, which they thought to be too long and intrusive and in some cases inappropriate (although there was the exception of one panelist who felt that traditional TV commercials were part of the normal rhythm of TV watching and gave her a break to get up for a snack or to do to the bathroom). Most voiced a preference for online ads such as the
15-30 second pre-roll videos common to many sites, and the less frequent commercial interruptions. Whether they understand it to be true or not, they also perceived that the ads they see online are more relevant to them.
More than one panel member called online video ads “informative”, and several also had a positive experience with interactive ads that allowed them to click to learn more about a product (e.g. Honda cars).
Though in general the Trender Panel has mostly positive things to say about their growing appreciation for online video, they also mentioned some notable negatives including:
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Inferiority of watching TV from a computer and a chair versus the better screen and comfort of a TV and a couch. Though most knew they could connect their laptops directly to the TV, almost all said they would not be willing to “tie up a computer” to do this on a regular basis. Some also had awareness of new devices to connect their computers to their TVs (e.g., ZvBox) or dedicated Internet video set-top boxes (e.g. Roku;
Vudu) but none presently use any of these devices.
Quality issues including lack of HD content, poor quality video, intermittent buffering delays when watching long-form shows and movies, and sound problems.
Lack of specific programs. Most Trender Panel members recognized that, while they might find much of their favorite content and even find new sources of video content, they will not be able to find full versions of all of their favorite shows online. The lack of live sports and popular cable channels such as ESPN,
Discovery and TLC were mentioned as drawbacks to OTT video.
Privacy issues. There was a perception by several Trender panelists that the privacy and security risks of online video are much greater than traditional TV. Several expressed concern that web sites can track what they watch and perhaps have this and other identifiable bits of information hacked by third parties. At the same time, the Trender Panel recognized that this is a double-edged sword since knowing their usage behavior allows online video sites to tailor their content recommendation and advertising to them “just like
Amazon.com does.”
Lack of awareness about Internet video enabling devices. Interestingly, all Trender Panel members expressed some limited awareness about devices that would enable Internet video viewing in the living room, but none could mention any specific devices such as Roku. Rather, most felt assured that “there must already be something out there to do that”, but only one had actually actively inquired—going to Best Buy only to be told by a sales person that these devices “were not on the market yet.” When told of some of the options available, all expressed a strong interest, with $100 being the most common response to the
“willingness to pay” question. This perceived price point applies to both dedicated device as well as the potential extra cost of an Internet-enabled HDTV (all panelists responded that this feature would be a strong consideration in their next TV purchase).
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4.
OTT VIDEO VENDORS AND STRATEGIES
23
4.1.
OTT CONTENT SITES
4.1.1.
YouTube
It would be difficult to begin any conversation about OTT video without first understanding the profound effect that YouTube has had on the culture. YouTube, still by far the number one video site on the
Internet, pioneered the idea of online video and the concept of “user generated content” (UGC). Google, with its
YouTube and other sites, continues to be the heavyweight in this category with almost 40% of the total market for online videos viewed.
Prior to YouTube, many questioned the feasibility of delivering any kind of video over the Internet.
YouTube quickly proved them wrong. Through its millions of UGC videos usually averaging a minute or two,
YouTube showed that online video could be a major draw for Internet surfers. While the strength of the site has been traditionally what is called “short form video” or “video snacking”, the company has been slowly building the capacity to serve up long-form TV shows and movies. It has also been trying to increase the quality if its video with an “HQ” (high quality) option for many of its videos, trying to move beyond the quality choppiness which has held it back from the full-screen experience enjoyed by new rivals such as Hulu.
YouTube has also launched YouTube XL. YouTube XL is what has become known as a “10-foot user interface” for big screen viewing in the living room. YouTube XL can be imbedded in Internet TVs or any set-top box whose purpose is to deliver YouTube content on a TV.
Recently YouTube has made a concerted effort to license content from major Hollywood studios and TV programmers. Since March of 2009, YouTube has announced deals with ABC, Warner Bros., and Turner
Broadcasting to host movie and TV clips that link to pay sites. For example, links for Warner Bros. shows point users to WBshop.com, where they can buy DVD of full-length versions of what they're watching. The content, which includes clips from HBO, CNN, Cartoon Network shows, and WB TV hits like "Gossip Girl", will be available on a number of different Warner-branded YouTube channels.
YouTube has also inked deals to stream full-length ad-supported content directly from its site with partners including CBS, Sony Pictures, and Starz, but this tends to be older, lower-value content. It is also in discussions with major movie studios about streaming movies on a rental basis, a test of its ability to persuade its users to pay for premium content. YouTube is talking to Lions Gate Entertainment, Sony, Metro-Goldwyn-
Mayer and Warner Bros. about charging for new titles on the existing YouTube site. In some cases, these titles might be available on the site on the same day that they come out on DVD. This development would be a major departure to the industry’s existing “windowing” structure, which prioritizes DVD sales ahead of Internet video, and a testament to the power of YouTube’s global reach. If the company succeeds with its plans, there are still many unanswered questions such as program pricing and how capable the site’s infrastructure will be in streaming long-form content to potentially millions of users.
Long plagued by rumors that the site would never reach profitability, YouTube’s owner Google has recently been more vocal and optimistic about the money-making potential of the site.
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Video Threat (June 2010)
Trender Research Coverage:
For client review only— not for distribution. http://www.trenderresearch.com/profiles/blogs/youtubes-10foot-user-interface
Trender Dashboard (see Appendix for explanation):
24
Trender Dashboard: YouTube
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 87
3 4 5 6 7 8 9 10
4.1.2.
Hulu.com
Within the past year, Hulu has taken the entertainment world by storm. It has built a coalition of the who’s who of leading programmers and Hollywood studios, and offers an array of content which appeals to many different demographics in an easy to use interface. Unlike early Internet video pioneer Joost, Hulu has been able to address problems with both playability and content availability. Unlike Joost’s proprietary P2P player, Hulu has figured out how to stream decent quality video using a standard browser. Compared to Joost’s hodge-podge of niche content such Star Trek re-runs, Hulu now has deals with many of the major programmers and Hollywood studios, including NBC Universal, News Corp/Fox, and more recently Disney/ABC, leaving only
CBS on the outside among the major programmers.
Hulu is the second most popular video site only to YouTube, serving up over 450 million video views to over 40 million users (source: comScore). While the vast majority of all online video is still characterized as
“short form”, averaging 3.7 minutes, Hulu viewers watched 12 videos for a total of 73 minutes for the month, averaging around 6 minutes. At Hulu one can find long-form TV shows like “Lost”, “House,” “The Office,” and
“Arrested Development”, and movies such as “Last of the Mohicans”, “Basic Instinct”, and “Veggie Tales”, but there is also a healthy dose of video snacking on funny snippets from “Saturday Night Live” or “The Tonight
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25
Show with Conan O’Brien” skewing the average video length. Hulu has had no problem finding advertisers to fill up its inventory, which ranges from traditional banner ads, to video pre-roll and commercial interruptions, to more ambitious interactive programs with a call to action to buy a product or learn more at another web site.
Despite this success, some suspect that Hulu’s ultimate business model will evolve over time. Walt
Disney CEO Bob Iger even suggested recently that Hulu may one day charge for its content. While charging all viewers might prove difficult, a realistic scenario would have Hulu embracing a tiered model, where some content is free (ad-supported) and some premium and newer content is based on a subscription or pay-per-view basis.
Another challenge for Hulu is the pressure on the company to do whatever it can to keep its content off of living room TVs, which would compete with programmers lucrative deals with cable and satellite service providers. This strategy became clear in a March 2009 scuffle between Hulu and Boxee, a video browser that aggregates content from sites like Hulu and optimizes the experience for the TV’s “10-foot user interface”.
Facing threats from its backers, Hulu used several technical obstacles to block its content from being supported by the Boxee browser. This tension is likely to increase however, as more and more devices are able to migrate the Internet TV watching experience from the computer to the TV. The inevitability of Hulu finding its way to many TV screens may be the catalyst that forces Hulu to explore new fee-based business models.
Trender Research Coverage: http://www.trenderresearch.com/profiles/blogs/round-one-in-over-the-top http://www.trenderresearch.com/profiles/blogs/hulu-scores-huge-win-with http://www.trenderresearch.com/profiles/blogs/boxee-update-hulu-pulls-the
Trender Dashboard: Hulu
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 86
3 4 5
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6 7 8
Trender Research: The Growing Over the Top
Video Threat (June 2010)
9 10
For client review only— not for distribution.
26
4.1.3.
Netflix
Netflix is an interesting company because it has been at the center of some of the major changes in video entertainment over the years. Once seen as a niche postal delivery service for DVD renting enthisaists,
Netflix has become an industry leader shipping over 2 million discs a day with a user base of more than 14 million subscribers.
So far Netflix has successfully defended against two major new entrants which had the potential to disrupt their growth: Blockbuster, which launched their own postal delivery knock-off service to compete with the upstart, and WalMart, which after launch of a rival service finally ceded defeat and in 2005 handed their customers over to Netflix. Now Netflix is in a battle to be the leading movie streaming business on the Internet.
And while they are competing with Amazon.com and Blockbuster’s own streaming service, as well as hot new
OTT video properties like Hulu, their traditional physical media business must deal with competition from movie vending machine companies like Redbox.
Netflix is currently implementing a strategy to leverage all available platforms to get its content o consumers. It started with Roku via the $99 “Netflix Player by Roku” launched last year. Later came Blu-ray players from LG and Samsung and then its support for streaming on Mac, TiVo, and Xbox 360. As just one proofpoint of its uptake through these devices, Netflix has already streamed 1.5 billion minutes of digital entertainment to over 1 million customers using Microsoft’s Xbox platform. And last year Netflix announced deals with LG, Vizio Sony, Samsung, and Toshiba to enable its service via Internet-connected HDTVs or Blu-ray players. Netflix has also been integrating into the TiVo DVR box and service.
In a podcast with Trender Research, Steve Swasey, Netflix Vice President of Corporate Communications, said the company’s goal is to be ubiquitous, so we expect Netflix to continue expanding its presence, including mobile devices. “We want to be the movie channel,” he said. “However the Internet gets to you we want to be the place you go to get your movies.”
Netflix subscribers can now stream from a library of over 20,000 titles (to go with their 100,000 titles by mail). While impressive, this number of streaming titles is similar to a competing service from Amazon. The challenge for online video services such as Netflix, is that Hollywood studios have a strong vested interest to retain the best and most recent titles for delivery through more lucrative channels. This is the nature of
Hollywood’s “windowing” system which is designed to maximize profits across all channels. Some movie titles, such as those licensed exclusively to cable and TV channels, will never be available to Netflix. While Netflix could license more recent titles, the higher fees would not fit into Netflix business model and, at least for now, may not be necessary for the company to continue to grow.
In addition to its loyal and growing customer base, device support, and large content library, Netflix’s other advantages include a simple user interface, and one of the better video recommendation engines— both technologies continue to be top priorities for the company.
According to Swasey, Netflix is in the middle of a three-stage evolution. Stage 1 was DVDs by mail. Stage
2 is DVDs by mail and streaming. Stage 3 is streaming only. But the streaming-only future is still a ways out:
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27
Netflix predicts its disc business to grow for the next 5-10 years, with the DVD business supplemented by new
Blu-ray titles. What is not clear at this point is how the additional equipment and licensing costs to support its streaming business will affect its business model. Another big wild card for Netflix is whether Hollywood studios will effectively supplant Netflix’s business with their own streaming services, or if Netflix’s ubiquity can thwart their efforts with first-mover advantages including a powerful brand and wide device support.
Trender Research Coverage:
“Netflix Podcast: Its Streaming Future and Why Pay TV and OTT Video Will Coexist”; http://www.trenderresearch.com/profiles/blogs/netflix-podcast-its-streaming
“Cutting the Cord Part 6: Roku Review— Simple and Easy OTT Video Device”; http://www.trenderresearch.com/profiles/blogs/cutting-the-cord-part-6-roku
“NetFlix Streaming Ahead: Extends Video Streaming to Windows Media Center”; http://www.trenderresearch.com/profiles/blogs/netflix-streaming-ahead
Trender Dashboard: Netflix
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 84
3 4 5 6 7 8 9 10
4.1.4.
Amazon
Not content to be the world’s leading ecommerce site, Amazon has been pursuing an Internet video strategy similar to Netflix’s streaming service. The main difference is that Amazon has focused on a fee-based video on demand strategy (including streaming and “progressive downloads” which play before the file is finished downloading), whereas Netflix has launched an “all you can eat” subscription service to compliment its
DVDs-by-mail service. Only recently has Amazon begun growing out its free TV programming. Amidst videos clips and promos for paid content, users find several free programs available as part of Amazon’s line-up, including
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28
“Trauma” and “Mercy.” However, the site is still geared for “pay-per-show” or paying a subscription to watch the entire season’s episodes. Users may be frustrated sorting through shows that only allow a few minutes to play for free or reverts to paid content after a certain date. Most SD shows cost about $2 on Amazon, while HD shows are $3. The pricing for whole seasons ranges from around $20 (SD) to about $50 (HD), depending on the show and number of episodes in the season.
Amazon leverages the Adobe Flash Video plugin to play via most web browsers. Like Netflix, Amazon
Video on Demand boasts an impressive device support list, including TiVo, Xbox 360, as well as Sony Bravia TVs,
Vizio VIA HDTVs, other major TV manufacturers, and consumer electronics devices such as Panasonic’s Viera
Cast-enabled Blu-ray disc players.
Amazon’s service enables over 45,000 titles in both SD and HD content which, like Netflix, provides an indicator icon for video quality (although Internet and home network bottlenecks may limit high definition content from playing). This is a larger library than Netflix’s 20,000 streaming titles. Amazon also seems to have the edge on premium TV shows available. In addition, for access through enabling devices such as the Roku player, selections can be made directly from the user interface for the device rather than first setting up a streaming “queue” at the computer as is required for Netflix streaming. However, Netflix’s biggest advantage may be that it provides a better overall value for consumers, especially those looking to use OTT video as a way to “cut the cord” from their expensive cable bills. For a mere $9 per month, Netflix offers both its DVD-by-mail service and unlimited streaming. For this reason, Netflix’s business will most benefit from the cord-cutting trend, while Amazon may grow as a complimentary movie service, rather than a substation, to Pay TV.
4.1.5.
Blockbuster
After years of losing sales to Netflix’s DVDs-by-service and kiosks such as Redbox, Blockbuster is trying to regain lost ground. The company has already launched its own DVDs-by-mail service that looks and is priced similarly to Netflix. It has also been putting new energy into its video download service to complement its retail operation. Blockbuster has movies available for download “rental” for $3 on average, and a limited number of titles for free. It is also one of the few services that allow customers to download-to-own movies for $10 to over
$20.
Blockbuster is also experimenting with new business models. The company recently partnered with two cable MSOs to brand their video offerings under the Blockbuster brand. Suddenlink Communications and
Mediacom Communications will roll out co-branded video on-demand offerings in select markets this Fall. The
MSOs will also get access to Blockbuster's retail locations with kiosks where customers can purchase their cable and broadband Internet services. It also has plans to deploy 10,000 video rental kiosks, hoping to leverage its brand and content relationships to strike a blow against Redbox.
It is unclear whether any of these initiatives will be enough to offset the losses to Blockbuster’s core retail operations, which will see the closing of over 1,000 stores in 2010. Blockbuster is at the brink of bankruptcy and it may be too late to save it.
2010 Trender Research, Inc.
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29
4.1.6.
Walt Disney Company/ ABC.com
The Walt Disney Company and ABC were early pioneers in building out content-rich and user-friendly online presences for their TV shows and movies. While they have signed on to the Hulu bandwagon, they have not given up on the development of their own branded sites. In fact, Disney and ABC point to a “hedging trend” with Hollywood studios and television programmers. They have licensed many different deals to have their content streamed from a variety of online sites and OTT devices. While adding their considerable weight was a coup for Hulu, it does not restrict Disney from continuing to explore and invest in new and perhaps competing delivery platforms
ABC still has one of the best web sites for the quality and variety of its content. Leveraging the Move
Networks player, viewers can enjoy full-length, high-definition programming such as “Dancing with the Stars”, the past six years of “Lost,” and other popular shows. Like many TV broadcasters, ABC’s site appeals to all types of viewers, from those looking for full-length shows to those looking to catch up on video recaps of their favorites or participate in fan polls. ABC.com is both a video delivery platform in and of itself, as well as a promoter of new and existing shows. The net effect is to build brand loyalty that keeps viewers coming back to the site or looking forward to the next airing of their favorite shows on traditional TV.
With regard to the Walt Disney Studios and Disney’s cable channel content assets, Disney is taking a number of different approaches to online video that allow it to create more value for its viewers, while preserving the media company’s revenue models. These include placing full episodes of cable network shows from the Disney Channel and ABC Family online, as well as selling shows through the iTunes platform. Moreover,
Walt Disney Co. is considering an online subscription service for Disney-branded movies. Bob Iger, Walt Disney
Co. CEO said in a July 2009 conference call that it was in the development stage for an online subscription service that would give viewers access to Disney-branded movies— something separate from its investment and participation in Hulu. The initiative is part of a wider strategy to extend the brand as far and wide as possible, in addition to finding new ways to monetize content assets.
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30
Trender Dashboard: ABC.com
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 85
3 4 5 6 7 8 9 10
4.1.7.
FOX
As a backer of Hulu and also developing its own site, Fox’s Internet video strategy is similar to NBC and
ABC. It uses its FOX.com site to play full-length shows such as “Glee”, “American Idol”, “24”, “Bones”, and
“Fringe”, but is also uses it as an official fan sites for its shows, with actor bios, games, and interactive applications. Like ABC it uses the Move Networks player to power a quality HD streaming experience.
Interestingly, some of the free streaming shows on FOX.net are the same titles available on streaming sites such as Netflix.
In addition to its online strategy, Fox has also been experimenting with interactive TV through its Pay TV service provider partners. The network recently ran a test of interactive TV using Twitter running on top of reruns of its “Fringe” and Glee” shows. These "tweet-peats" featured tweets from the shows' cast and producers scrolling across the bottom of the screen. The tweets were designed to provide discussion between the creators of the show and its fans. Unfortunately, the resulting blend was cluttered at best, with the interactive tweets overtaking a third of the screen and making the background content unwatchable. This experiment showed just how far the networks need to go to fully embrace integrated television and OTT applications.
4.1.8.
CBS Interactive
According to ComScore’s survey of the “Top U.S. Online Video Content Properties by Videos Viewed,
August 2009”, CBS Interactive ranked 8th, after Turner Networks, with a 0.7% share of the market for online videos. CBS says its strategy is to strike open, non-exclusive relationships for the distribution of its content.
2010 Trender Research, Inc.
All rights reserved.
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Video Threat (June 2010)
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31
Through its digital media arm, CBS Interactive, they offer a significant amount of online programming (much of which is ad-supported) across PC, TV, and mobile distribution platforms.
The company’s core websites include CBS.com, TV.com, CNET.com and CBSSports.com. In addition, CBS
Interactive makes its content available to a number of other online outlets as well: YouTube and Comcast’s free online video site Fancast.com and sells commercial-free versions of its select content to Apple’s iTunes Store. It is one of the more progressive networks in terms of streaming live broadcasts of sporting events in the general belief that this approach will be additive to their TV business and not cannibalize TV viewing.
It remains, however, a staunch non-participant in Hulu, both in terms of investment and providing content. But in July 2009, CBS Interactive signed on to participate in Comcast’s On Demand Online trial where it will offer up both current and library titles during the cable operator’s version of a TV Everywhere trial. In general, CBS’s strategy is two-fold: keep as tight a controlling grip as possible on ownership of content rights in order to preserve the value (and revenue models) in the current multi-platform system; and squeeze as much revenue as possible from every content asset it produces.
4.1.9.
ESPN360
Sports content is still one of the major draws for Pay TV and ESPN is the crown jewel in this symbiotic profit relationship. There isn’t a pay TV provider that does not carry one or more of the various ESPN channels in their programming line-up.
In a bid to add value to its franchise in the online world, the company offers ESPN 360.com, a streaming service that provides access to more than 3500 sporting events and other online content. The premium online service is now available in 42 million homes under agreements with a number of TV service provider affiliates and ISP partners. Cable or telco TV providers must have an agreement with ESPN before its broadband customers can access the ESPN360.com’s online content. ESPN is majority-owned by the Walt Disney Company.
Among the major service providers: Comcast provides ESPN360 to its entire base of 15 million broadband customers; telco TV operators AT&T and Verizon have added it to their subscriber footprints; Charter
Communications offers it to a limited number of markets; Suddenlink Communications, a top 20 cable operator based out of St. Louis, MO, signed up for the service in August of 2009; and in late September, Cox
Communications also inked a deal to carry the online premium service for its 4 million broadband subscribers.
Notably missing from this list are large cable system operators Time Warner Cable and Cablevision Systems
Corp.
TV service providers who carry the ESPN360.com service have to pay additional affiliate fees beyond what they are already paying to carry ESPN’s cable TV sports channels— a fact that doesn’t seem to sit well with some operators. In fact, there has been debate in the industry as to who should pay for premium online content, subscribers or their broadband service providers. Some industry players, especially the smaller cable operators, protest that the practice of making Internet providers pay for sports content will drive up the price of
Internet services. ESPN, however, believes that the content on ESPN360.com provides true differentiation for their brand, in addition to providing a value- add that will help their TV service provider partners to grow their
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Video Threat (June 2010)
For client review only— not for distribution. broadband customer base. In addition, ESPN says it offers content that sports fans would not be able to see anywhere else, and that more than 60% of those events do not get broadcast on any of their various sports channels ( ESPN/ESPN HD, ESPN2, ESPNU), the ABC network, or other Disney channels.
In other areas, sports fans can now access YouTube for an ad-supported ESPN channel. This past summer, ESPN launched an advertiser-supported channel that streams online video content similar to what viewers can find on ESPN.com. By working with Googles’ YouTube, the largest online video site, ESPN is developing new distribution channels in order to expand the reach for its content as well as find new avenues for its advertisers.
32
Trender Research Coverage:
“OTT Video Adventures Part 5: Cutting the Cable Cord on Pay TV Sports and News”; http://www.trenderresearch.com/profiles/blogs/ott-video-adventures-part-5
4.1.10.
MLB.TV
Like other sports franchises, Major League Baseball is in the exploratory stages of its online video strategy. Live sports programming continues to be one of the strongholds of Pay TV service providers, and professional sports organizations reap large profits from this partnership. Some baseball teams own their own
TV channels, such as the Red Sox’s NESN. Without access to a premium cable or satellite subscription, fans would only be able to watch a few games on local channels via an over-the-air antenna, such as those broadcast by Fox as their “Game of the Week.” A few games can also be seen on ESPN360.com, provided that fans already subscribe to the local Pay TV providers broadband Internet service.
Consumers also benefit from the symbiotic relationship between Pay TV and professional sports, since they demand easy access to high definition live sports on their HDTVs, something not easily achieved with online video. At the same time, more and more sports fans are already enjoying a blended TV experience watching sports while keeping track of game stats and video highlights via the web, a trend partly driven by the success of fantasy sports leagues. The challenge for sports franchises is how to harness this trend without cannibalizing its existing revenue streams.
So far, MLB has implemented some plans that embrace OTT video, but has not fully embraced the trend.
For example, its MLB.TV site allows viewers to sign up for Gameday Premium, a $20 per year service for watching games, complete with HD resolution (where available), DVR functionality, and integrated statistics such as batter vs. pitcher scouting reports, pitch speed, location, etc. Though the premium package claims to include both home and away game feeds, because its online games are subject to the same complex system of local black-out rules, it often is limited to out-of-market games, leaving many fans confused and frustrated.
There have been some internal discussions within Major League Baseball to open up local market games to some form of online video subscription service, but the timing and details have not been announced as of the publishing of this report. Perhaps as an indicator of things to come, MLB recently announced deals with video browser Boxee and OTT set-top player Roku to deliver live out-of-market baseball games.
2010 Trender Research, Inc.
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Video Threat (June 2010)
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33
MLB.TV is also starting to work with cable TV service providers to offer their content within MSObranded online portals. In an effort to blur the lines between the traditional cable TV experience and the online experience, cable operators such as Charter Communications are cutting deals with subscription web video sites, in large measure to drive more value into both of those platforms. In the case of MLB.TV, Charter.net becomes an online video portal for MLB.com content. Charter’s online subscribers will not be sent to the actual sports sites, but instead stay within the protected cocoon of the Charter.net home base. This initiative is part of a larger digital sports tier package, called “Sports View Plus” that Charter started offering its subscribers for an extra $10 per month. Subscribers get access to all the TV channels on Charter's digital Sports View tier, as well as premium-level access to coverage of baseball at MLB.com (in addition to racing at NASCAR.com, plus hockey, football, basketball and more at sports Web sites such as FOXSports.com).
Finally, MLB is developing and already seeing initial success with its mobile video strategy. President and
CEO Bob Bowman said at the September “Apps for Brands” conference that its $9.99 “At Bat” application, which allows users to watch live games from their iPhone, has been downloaded more than 400,000 times.
Trender Research Coverage:
“OTT Video Adventures Part 5: Cutting the Cable Cord on Pay TV Sports and News”; http://www.trenderresearch.com/profiles/blogs/ott-video-adventures-part-5
4.1.11.
Discovery Communications
Discovery Communications portfolio of channels is another example of programming content that continues to enjoy a profitable relationship with Pay TV service providers. Since the launch of TLC (originally The
Learning Channel) in 1980, the Discovery Channel in 1985 and Animal Planet in 1996, Discovery Communications has continued to create a compelling assortment of TV programming that has engendered a wide and loyal following. Shows include the breathtaking Planet Earth series, the increasingly popular MythBusters and
Survivorman, as well as a contingent of reality shows such as American Loggers and Pitchmen.
In the early days of cable TV, new movie and TV channels were the major draws to get former OTA viewers to sign up for a pay TV service. That is why to this day Discovery, with its large stable of channels, is cautious about putting too much long-form content on their web site. Discovery has made a strategic decision to limit the amount of long-form or series content it makes available for streaming. Executives have articulated the company’s position widely in many industry conference venues and investor calls, saying in effect that while
Discovery wants to make its content accessible on every platform, it ultimately controls the use of its programming content, and where and in what form it gets distributed. It will not pursue and is unlikely to adopt any approach that threatens to lower the value of its content or put at risk what is known as the “dual revenue model” of affiliate fees and advertising revenues. CEO David Zaslav is on the record saying that as a business model “free doesn’t work,” especially in light of what’s happening to newspapers and magazines. While the company is mindful of not losing market share, it does not want to encourage free content either.
So instead the programmer is using a multi-platform approach—for TV, PC and mobile—that augments its shows using short clips, interviews, background information on shows or characters, interactive applications,
2010 Trender Research, Inc.
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Trender Research: The Growing Over the Top
Video Threat (June 2010)
For client review only— not for distribution.
34 etc. ,without putting full-length shows online. The intent is to make their shows a more immersive experience for viewers, with video being just one component of the total experience. For example, for the “Deadliest Catch” series, you can find reflections from the producer, a treatise on sea ice and global warming, an interactive game that lets you pretend to be a sea captain, as well as an online-only “webisode” about rescuing a man overboard in freezing waters.
But Discovery Communications is continuing to explore new business models. In the area of mobile applications, Discovery has launched an iPhone app that features clips from “Mythbusters”, “Man Vs. Wild”,
“Dirty Jobs” and more. It is also participating in Comcast’s Online On Demand trial of 5,000 customers, allowing certain full-length programs to be made available over Comcast’s broadband platform. Comcast’s cable TV customers who already pay for their subscriptions will be able to view Man vs. Wild and other select shows across multiple platforms and outside of their main TV viewing location. Nevertheless, don’t expect the company to depart from its primary strategy of clips and value-added content in the online domain, especially in the absence of real business models, standards and consistency for programmers, distributors or advertisers.
While experimenting with the more controlled Comcast Online trail, Discovery is taking a wait and see approach on the TV Everywhere concept, ostensibly to understand more fully the results of the trial, how the authentication model will work, and what the effect on revenues streams will be.
4.1.12.
HBO
As one of the original cable movie channels, HBO has always had a strong partnership with cable and satellite service providers. It has been a pioneer in adopting new technologies and pushing the industry forward in such areas as national satellite delivery of programming in the early 80s and the migration to MPEG-4 compression technology for its HD channels in the past year.
In the online world, HBO has held a tight rein on its content, but lately been loosening its approach in light of new initiatives by U.S. cable operator Comcast with its “On-Demand Online” trial. On iTunes it has offered downloads of past seasons of TV shows, and has even done trials in select markets for online rental downloads.
As part of the TV Everywhere trial, HBO will stream such programs as True Blood, Hung, Entourage and other series online to its subscribers free on Comcast.net and Fancast.com. All told expect HBO and its sister
Pay TV channel Cinemax to offer 750 hours of video content to Comcast customers, with an eye toward adding more content over time. The premium channel customers will have their subscriptions authenticated online, which will only allow paying subscribers to get access to the programming they watch on TV.
Similarly, HBO also announced a service called “HBO Go” that would let current paying subscribers view
HBO shows online, and go through an online authentication process similar to what Comcast is proposing with its online content trial. HBO looks to benefit from the approach in three ways: first, by providing convenience
(and therefore extra value and hopefully stickiness) to existing customers who want to watch HBO content wherever they have a broadband Internet connection; and second, by preserving the exclusivity of the channel’s content; and third, maintaining the pay revenue model for premium cable channels.
2010 Trender Research, Inc.
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Video Threat (June 2010)
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35
Premium cable revenues are the lifeblood for HBO/Cinemax and programmers like it, since by definition premium channels carry no outside advertising. Their whole business model would be undermined should premium content start to appear free in online sites. The question, however, is whether HBO has instituted sufficient online safeguards to prevent piracy of this content, and therefore free and unlawful distribution of its most popular shows over the Internet.
4.1.13.
Special Interest Sites: Crackle, KylinTV, SkyAngel
Like most major trends, looking only at the leading players and trend-points may miss the larger picture.
Often trends are not driven by the obvious, but what is quickly changing at the edges, or between the cracks of opportunity created by the major players. This is especially the case with OTT video. After YouTube proved that it could be done and delivered on a global scale, and the success of Hulu and Netflix streaming services, many other online video sites have emerged. These sites are taking advantage of the fact that, because of the reach and established tools of the Internet, barriers to entry for new content sites are relatively low. This is also the challenge for these sites which are all competing for the same eyeballs and revenues from advertising and subscriptions.
Taken together the emergence of the many special interest sites adds to the attraction of online video.
Some are geared to specific demographics, such as Sony’s Crackle.com site which targets younger demographics with an irreverent mix of TV re-runs and movies that range from slasher flicks to bawdy comedies. Others are geared to specific content, such as KylinTV’s subscription based service for Chinese and Korean language shows.
Another strong growth area for online video is religious programming such as SkyAngel’s Christian oriented service. SkyAngel is interesting in that it provides a full-service delivery platform that includes a broadband
Internet set-top box and over 80 “faith and family” channels.
All of these OTT video sites either charge subscriptions, ranging from $15 to $30 per month depending on the package. They represent a lost opportunity for Pay TV service providers, who can only deliver so many channels with their existing technology and, despite efforts to increase this number through plant and equipment upgrades, may never be able to match the hundreds and potentially thousands of “long-tail” channels available on the open Internet. In the wide open world of the Internet, enabled by search engines such as Google or video aggregation browsers such as Boxee, all of these sites are instantly available with a few clicks of a mouse and increasingly through the buttons on a remote control (or via a new set-top box and dedicated service).
But while helping to driving the cord-cutting trend or at least put pressure on Pay TV premium packages and VoD revenues, these sites have their own set of challenges. They must pay to license their content and in some cases invest in complete delivery platforms (e.g. SkyAngel). They must also aggregate enough unique content to differentiate in a competitive environment with relatively low barriers to entry. And they must draw enough viewers to achieve the scale necessary to make a profit.
2010 Trender Research, Inc.
All rights reserved.
Trender Research: The Growing Over the Top
Video Threat (June 2010)
For client review only— not for distribution.
4.2.
OTT VIDEO BROWSERS AND GUIDES
36
The user interface for any device or service is crucial to the usage experience and this is no different for
OTT video. While enabling a cornucopia of new content options, OTT video exacerbates a problem that has already plagued Pay TV for decades—content discovery and navigation. In short, to emulate the same guidebased or channel flipping experience online, one used to have to simultaneously open up dozens of browsers to check YouTube, Hulu, and other popular sites. However in the past 18 months new Internet video browsers, such as Boxee and Zinc, have effectively aggregated the process of content discovery and selection across multiple video sites. Beyond just overcoming the navigation problem, these video browsers also have the potential to vastly exceed the rigid viewing experience of grid-based traditional TV and video on demand services.
4.2.1.
Boxee
Boxee was one of the first Internet video browsers to try to resolve the online content discovery problem. Originally built for Apple computers and based on the open source XBMC media center software, the freeware application is now also available on Windows PCs and Linux (public alpha). Boxee created a huge buzz in late 2008 and early 2009, winning both the Consumer Electronics Association's i-Stage award and the "Best of the Best products of CES 2009" award at the January 2009 Consumer Electronics Show.
Boxee’s major innovation was to not only aggregate content menus from a variety of online video sites, but also to present it in a visually appealing graphical user interface, using cover art rather than merely textbased menus. Boxee supports a range of video playback and multimedia viewing options including music and photos. It also has its own imbedded social networking tools that allow users to rate and share their show preferences including the ability to link to Facebook and Twitter.
Boxee’s most controversial application is its use of a “10-foot interface” for viewing on big screen TVs rather than the cramped environment of the computer screen. Since Boxee’s sleek interface makes it much easier to browse for Internet videos from a television interface, it also helps overcome one of the major obstacles to consumers “cutting the cord” on their Pay TV subscriptions. As a result of this cannibalization threat, in the Spring of 2009 Boxee engaged in a high profile spat with one of its major content sources—Hulu, which utilized a series of technical tricks to keep its content from appearing in the Boxee browser. Hulu was under pressure from its broadcast TV backers who want to protect their profitable symbiotic relationship with
Pat TV service providers. Boxee fired back with a series of work-arounds and hacks, but Hulu has made it difficult for Boxee to natively support content from the number two Internet video site. The dispute is ongoing, with
Hulu launching its own desktop application, in part to mitigate the threat that Boxee represents.
In the summer of 2009 Boxee secured an additional $6 million in funding from General Catalyst and other investors. The stated goal of CEO Avner Ronen is to expand the capabilities of Boxee: adding an app store; increasing third-party API support; increasing device support by Internet-enabled HDTVs, game consoles, and
Blu-ray player; and expanding content relationships. The company has also launched its own BoxeeBox STB device. The company is also working to make the platform more robust and usable by mainstream consumers—
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Video Threat (June 2010)
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Boxee’s own user forum has complaints about a variety of issues, ranging from video choppiness to problems with third party players (e.g. BBC iPlayer, iTunes).
37
Trender Research Coverage:
“Boxee Update: Hulu Pulls the Plug”; http://www.trenderresearch.com/profiles/blogs/boxee-updatehulu-pulls-the
“Do You Boxee? Video Round-Up Part 5”; http://www.trenderresearch.com/profiles/blogs/do-youboxee-video-roundup
4.2.2.
Zinc
Originally the “ZViewer” interface for ZeeVee’s ZvBox home video distribution device, Zinc was relaunched as a stand-alone application in the Fall of 2008. The app, which can also be added as a Firefox browser plug-in, was originally developed for the PC and later ported to support Macs. Like Boxee, Zinc aggregates the
Internet video content and discovers content on the host computer (though it does not support as many media formats as Boxee). With little effort, users can quickly scan titles from ABC, Fox, ESPN, CNN, Break, Jaman, and most of the other top video sites. While ZeeVee regularly updates the major “tiles”, or channels, on the main navigation menu, users can also add their own RSS feeds. Zinc also offers the ability for users to follow favorite shows and be notified when new episodes area available, versus manually checking the status of different shows. In addition, Zinc supports Hulu content, native Netflix streaming, full-screen support for most sites, and works with the buttons on any Windows media remote control. One reason Zinc has been able to avoid Hulu’s animosity is that, while it ingests its content, it redirects the user to the Hulu site to play the show.
Zinc is part of a dual software/hardware strategy for ZeeVee which, after poor reviews for its consumer focused ZvBox, has revectored its hardware development into a series of successful commercial products such as ZvPro.
Note: the primary author of this report helped launch ZeeVee to the market and owns shares in the company.
Trender Research Coverage:
“ZeeVee Podcast: Efficient HD Video Distribution… And a Pretty Cool Video Browser Too”; http://www.trenderresearch.com/profiles/blogs/zeevee-podcast-efficient-hd
ZeeVee’s Zinc 3.0 Gets Rave Reviews”; http://www.trenderresearch.com/profiles/blogs/zeevees-zinc-
30-gets-rave
4.2.3.
Clicker
Clicker aims to be the new TV Guide for high-quality, long-form Internet video. They launched their GA product late last year with the “first complete program guide for Internet television”, having organized and tagged over 400,000 Web episodes. Clicker organizes shows, news, movies, with all the metadata to easily sort
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38 search results. They have already integrated Netflix and Amazon VOD libraries. One neat feature is the ability to see the 4 or 5 sites where the same movie appears and whether it is paid or free.
4.3.
OTT HARDWARE: COMPUTER-BASED PLATFORMS
One method for viewing OTT content that has been available to consumers for some time is simply using the computer to stream or download online videos. Options range from a high-end media center PC which might exceed $2,000, a mid-end laptop computer connected to an HDTV via HDMI or VGA cables, or the lower-end
Apple Mini for $599. Consumers can watch online video on a connected monitor or use their TV as the monitor.
The benefits of this approach include simplicity, the dual-use of a device 80% of homes already have, and the ability to enjoy other application such as email, music and photo viewing. The drawbacks include tying up the computer (if it is being connected to a TV), adding clutter to the living room, and the high cost of a computer versus a dedicated OTT set-top box. Most research (and our Trender Panel agrees) that this approach will not bridge the divide between the living room TVs and Internet video content. Instead, using the computer as a primary platform for consuming online videos has been limited to techies and AV enthusiasts.
4.4.
OTT HARDWARE: MEDIA EXTENDERS AND DONGLES
Another approach for watching OTT content is to extend the computer platform to the TV wirelessly.
There are now a variety of solutions available to accomplish this. The advantage of this approach is accessing the extensive capabilities of the computer, including Internet video content and other applications such as photos and music, but without cluttering up the living room with new wires or a directly connected computer. The adapters tend to be small dongle devices that wirelessly connect the outputs of the computer with the AV inputs on an HDTV.
4.4.1.
IOGEAR
IOGEAR’s Wireless Audio / Video Kit delivers up to 720p high definition multimedia content stored on a
PC to a TV or home entertainment center. The kit consists of three adapters: a wireless 3.5mm TRS stereo audio connector for speaker connectivity, a wireless VGA receiver for the TV, and a wireless USB dongle for the host PC
(Mac not supported). The major benefit of this approach is that users can perform all PC functions at their TV, which becomes an extended monitor. This includes browsing the Internet, watching online video, and working on spreadsheets or PowerPoint presentations. The major drawbacks of this approach include the solutions high cost ($300), a range limited to about 30 feet (in-room only), and the fact that media must be started at the host
PC or an additional wireless keyboard/remote must be added to the system.
Trender Research Coverage:
“Simple and Easy with IOGEAR: Video Round-Up Part 6”; http://www.trenderresearch.com/profiles/blogs/simple-and-easy-with-iogear
2010 Trender Research, Inc.
All rights reserved.
Trender Research: The Growing Over the Top
Video Threat (June 2010)
For client review only— not for distribution.
4.5.
OTT HARDWARE: STB-BASED DEVICES
39
4.5.1.
AppleTV
AppleTV was one of the first Internet TV devices launched by one of the most powerful brands. While
Apple has excelled at taking cutting edge technologies (such as the iPod or iPhone) and turning them into mainstream devices and services, this has not been the case with AppleTV.
AppleTV is a sleek, simple device that uses your home network to link your iTunes (audio and video) to your TV entertainment center. It has a graphically elegant interface and since it works with iTunes, it makes the process of choosing and paying for Internet videos as simple as using an iPod. Initially hailed as a breakthrough device that would change the locus of power away from traditional Cable TV and emerging IPTV services,
AppleTV has failed to live up to this hype. One of the biggest drawbacks is that it remains a “walled garden”, with content available for a fee from iTunes, including titles that are available for free from sites like Hulu.
AppleTV has largely languished for the past two years, with little innovation besides new versions with larger hard drives (e.g. 160GB). Apple executives have persistently called AppleTV a “hobby” for the company, leading some to question its staying power.
Despite this tepid commitment, Apple remains one of the few companies with the resources, credibility, and marketing might to drive Internet TV adoption to the mass market. Some speculate the famously mysterious company is gearing up for an AppleTV overhaul or the launch of a replacement device. There are rumors that
Apple has been shopping a $30/month, all you can watch TV service to the networks that would be built into iTunes and run across all of Apple's products. The opportunity for this may have passed however, as the networks and Hollywood studios are already far along in their content distribution and device partner strategies to give Apple any exclusive rights.
If Apple’s new iPad device is the eventual success that many predict, it may render Apple’s STB strategy obsolete.
Trender Research Coverage:
“Video Distribution Round-Up Part 2: AppleTV”; http://www.trenderresearch.com/profiles/blogs/videodistribution-roundup
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40
Trender Dashboard: AppleTV
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2 3 4 5 6 7 8 9 10
Trender Rating: 48
4.5.2.
TiVo
Tivo began as the company that largely invented the digital video recorder category with a consumer friendly message of “pause live TV”. In practice the use of a hard drive to record TV for later viewing, or to skip through commercials, was a relatively simple technology. But TiVo turned this novel application into a whole new viewing experience with a sleek user interface, advanced content discovery and search, and one of the best recommendation engines. Recently, the company has also embraced a blended form of OTT video that leverages their much-praised user interface and television schedule technology. It is this added-value which has helped TiVo survive as a premium service despite copy-cat DVR services from most Pay TV service providers.
Speaking to the power of their brand, some Pay TV providers, such as Comcast, have partnered with TiVo to provide a TiVo branded service in addition to their own generic DVR services.
TiVo has had an on-again off-again relationship with Pay TV operators. From the beginning TiVo has been embroiled in a variety of lawsuits, including an ongoing $208 million battle with Dish Network Corp. The company also recently initiated a suit against Telco TV providers AT&T and Verizon, claiming patent infringement of their DVR technology.
TiVo’s increased focus on litigation and new product enhancements may be a way to offset revenue losses and declining subscriber growth. The company posted revenue in subscription drops in 2009-2010, but still enjoys a total subscriber base of 3 million subscribers including partners, with 1.6 million of these accounts directly managed by TiVo.
With such a large installed base, TiVo has unique potential to benefit from the OTT trend, specifically consumers who “cut the cord” from Pay TV in favor of a hybrid OTA/OTT solution. In this configuration, cordcutters could use TiVo’s HD box connected to an OTA antenna and a broadband connection to get some local HD
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41 channels (CBS, ABC, NBC, Fox, PBS) as well as supplemental movies and TV programming from the likes of
Netflix, Amazon, CinemaNow, YouTube, Jaman, Disney, and Blockbuster.
TiVo believes one of its unique advantages is its user experience, that tries to reach a blend with traditional “lean back” TV with a more interactive “lean forward” experience that includes OTT video and applications. This holistic entertainment experience enables not only TV and movies, but also music Rhapsody and Music Choice and photos from Picasa and PhotoBucket. Though not announced, we expect TiVo to also support social networking applications such as FaceBook and Twitter. As an example of the company’s OTT strategy, its search engine has been upgraded to discover and recommend online videos related to traditional programming. It also remains one of the few OTT boxes that include DVR capabilities.
Other developments include the launch of the TiVo HD XL box (terabyte of data), a new mobile TiVo scheduling app, a user data tracking service that competes with Nielsen, and a private labeled version of its box that will be sold through electronics retailer Best Buy. The company has even experimented with one its original user benefits, now allowing ads to be shown when a user pauses and forwards through a program.
But TiVo also faces some challenges. While it provides a comprehensive mix, it is still another set-top box providing a closed “walled garden” of content and applications. It does not currently support an open
Internet browser for access to any OTT video site, instead preferring what they call a “walled experience” which only supports new apps and sites that work well with its blended user interface. Another hurdle for TiVo is that in addition to paying for the box (ranging from the $150 standard box to the $600 TiVo HD XL DVR box) it requires a paid subscription (ranging from $8 on up, not including the cost of new OTT services from vendors such as Netflix). While less than the $50-$100 typical for Pay TV, this up-front and ongoing fee may turn off many consumers who may be cutting the cord from Pay TV.
Trender Research Coverage:
“Tivo Podast: From Pay TV Threat to Teacher’s Pet— Lessons for OTT Video”; http://www.trenderresearch.com/profiles/blogs/tivo-podast-from-pay-tv-threat
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42
Trender Dashboard: TiVo
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 74
3 4 5 6 7 8 9 10
4.5.3.
Roku
Almost two years ago, Roku was spun out of an internal Netflix development effort and launched the first version of its Internet video player in May of 2008. Since then the “Netflix Player by Roku” has become one of the leading set-top boxes for OTT video content. Roku combines two attributes important to all new consumer electronics—a low $99 price and ease of use.
The Roku player is Wi-Fi ready and can detect Internet bandwidth and make on-the-fly adjustments to improve picture and audio quality. It comes with its own remote control and includes all the cables necessary to connect to a standard television. The player features composite, S-video, and component video outputs, stereo and optical audio outputs and an HDMI integrated audio/video connection. Roku takes advantage of the cloud computing model that allows the box to be a “thin client”—it only needs to stream and buffer about 4 minutes of video at a time, eliminating the need for a large hard drive. It does not need encryption inside the box, instead leveraging the DRM protections inherent in the connectors— similar to what a DVD player does.
Roku has been adding to its value recently. The company announced Amazon Video on Demand support, increasing its library of titles to over 40,000 movies and TV shows. The company also announced plans to open up its software development kit (SDK) to third parties who would like to add their own applications and sources of Internet content to the Roku player. This strategy has proved very successful to other CE companies such as Apple’s iPhone and could have a similar impact for Roku. The company says that it has no plans to integrate a full Internet browser into the box, however, as this could detract from the simplicity of its interface.
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43
The challenge for Roku is that the services its box offers are not unique. For example, Netflix streaming is available on a growing number of devices, including TiVo DVRs, the Xbox 360, and new Internet-enabled
HDTVs and Blu-ray players from leading manufacturers such as Vizio and Samsung.
In the short term, the company will continue to see a return on the $22 million it has raised so far. In a recent Trender Research podcast with Tim Twerdahl , Roku’s Vice President of Consumer Products, Twerdahl said: “We are running at full tilt, selling them almost as fast as we can make them.” Although he did not disclose any numbers, he assured us Roku “is absolutely making money on the hardware” and suggested that sales were well into the “hundreds of thousands.” Estimating sales at around 700,000 units, this would translate into sales of about $70 million over the past two years.
Trender Research Coverage:
“Cutting the Cord Part 6: Roku Review— Simple and Easy OTT Video Device”; http://www.trenderresearch.com/profiles/blogs/cutting-the-cord-part-6-roku
“Podcast: Roku’s Internet Video Player— It’s Not Just for Netflix Anymore”; http://www.trenderresearch.com/profiles/blogs/podcast-rokus-internet-video
Trender Dashboard: Roku
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 86
3 4 5 6 7 8 9 10
4.5.4.
Vudu
Vudu is an OTT STB device and HD video service that was recently acquired by Walmart as part of the retailing giant’s second try at profiting from Internet video (its earlier attempt failed and led to it turning its customers over to Netflix). Of the online video services, Vudu differentiates itself by embracing high definition content. Two thousand of their 15,000 movie titles are available in up to 1080p resolution, more than any other
OTT provider and more than the total Blu-ray library. Vudu also prides itself on its high quality Dolby Digital 5.1 surround sound and sleek, easy to use interface. As a result, Vudu says that its $150 box (they also sell a higher
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44 end $500 box) has the highest revenue per subscriber of any VoD service, with around $20 per month collected from customers.
Vudu can be connected to the home network directly via Ethernet or with the addition of the optional
Vudu wireless accessory bridge. Vudu claims that WiFi-G is sufficient for instant streaming of most movie formats. Its HDX technology provides movies in 1080p resolution at 24 frames per second, which Vudu claims is the highest quality on demand format available anywhere. According to users HDX requires queuing in advance to download and play.
Vudu has evolved its business model as solely an OTT box vendor to a hardware/software delivery platform that can be imbedded in other devices. The company has announced deals to port their Vudu service and content library to Internet-connected HDTVs from Vizio and LG and has plans to expand the list of partner devices. Ultimately, Vudu sees themselves as a service and software company with skill in delivering a premium
Internet video experience to consumers.
In a Trender Research podcast with Edward Lichty, Vudu’s Executive Vice President, said: “In general we believe there will be a proliferation of devices that connect TVs or are TVs… all of those devices become an environment where a service like Vudu can live. We see our business as being built around our service. The service is where the financial pay-off is.”
On the content side, Vudu was the first OTT set-top box company to deliver Brightcove ad-supported content as an option to its core VoD service. The company also announced a deal with Disney’s Buena Vista
Home Entertainment for the first major download-to-own service for movies, leveraging the Vudu box’s large hard drive. Together with current applications like Pandora and Flickr, Vudu is becoming more of a one-stop shop for OTT entertainment. Ultimately, Vudu sees themselves as a service and software company with skill in delivering a premium Internet video experience to consumers.
To emerging OTT players such as Vudu, the battle for viewers is as much about understanding the needs of consumers as it is technology. Says Mr. Lichty: “The nature of what we are doing is so different from what’s happening in cable and satellite. Those guys may find it a little harder than they think to just match us. Getting that powerful, Internet-driven, interactive, community focused, VoD service deployed on a broad basis is going to be pretty hard for cable and satellite to reproduce because it is not in their DNA. They are not software guys; they are not fundamentally of the Internet culture. They have great content power but they are not nimble and they do not have nimble technology.”
Trender Research Coverage:
“Vudu Podcast: Should Pay TV Players Fight the Leading OTT High-Def Content Provider, Or Join 'Em?” http://www.trenderresearch.com/profiles/blogs/vudu-podcast-should-pay-tv
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45
Trender Dashboard: Vudu (HW/SW)
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 68
3 4 5 6 7 8 9 10
4.5.5.
PeerTV
PeerTV is an open and flexible OTT video STB and middleware platform that has been targeting the niche foreign language content market and more recently the ISP market. Trender Research believes that
PeerTV’s solution is a differentiated offering that is uniquely tailored to meet the needs of the fast growing narrowcasting niche content such as ethnic and foreign language content. Few other devices combine the same range of features. Given the advantages of its solution and the company’s two years experience hardening its technology, we believe PeerTV has the potential to become one of the leaders in the market.
PeerTV’s solution is unique because no other Internet set-top box (STB) solution combines Internet streaming, video downloading, and two ways to receive live TV (streaming and via STB tuners). In addition, few other STB solutions, if any, have integrated server side and client side middleware to properly support a robust
Internet video offering (versus more bloated IPTV systems). PeerTV’s MX middleware is lightweight, open, flexible, and fine-tuned to the needs of Internet TV service providers and integrators. Other advantages of
PeerTV’s technology include native WiFi support, a custom media player optimized for performance, rich codec support for different video and media formats, HD video support, progressive download capability, remote management of distributed set-top boxes, an easily customizable user interface, a translation engine and multilanguage support, and pre-integration with key ecosystem partners such as digital rights management. PeerTV’s other advantage is the relatively low cost of its STB and middleware portfolio.
Weaknesses of PeerTV’s solution include a relatively plain STB industrial design, lack of features required for very large customers (such as channel lineup management and multi-customer/multi-domain management), lack of some standard features that are common to traditional IPTV solutions (e.g., robust content asset search), and lack of adaptive streaming support for adjusting video quality and optimizing server
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46 resources in low bandwidth situations. However, none of these deficiencies significantly detract from PeerTV’s ability to target current opportunities and all of them can be remedied through product enhancements over time.
All in all, despite dozens of tangential competitors, we believe PeerTV has the right combination of attributes to be a market leader in the narrowcasting market and it also has the potential to compete well in the broader Internet streaming/VoD market with sufficient marketing and sales investment, content partnerships, and further cost reductions of its box. Conversations with the company’s partners and integrators validate the belief that PeerTV has a unique solution.
4.5.6.
NeuLion
While it does have its own Internet TV STB, NeuLion has evolved to provide a full content management and CDN solution. Its strategy is to work closely with content partners to provide an end-to-end solution for IPTV services. The NeuLion platform encodes, delivers, stores and manages a range of multimedia content for partners including sports organizations such as the NHL, the NFL, and NCAA Division I schools and conferences; and international television aggregators and networks including KyLinTV (Chinese), ABS-CBN (Filipino), Talfazat
(Arabic), TV-Desi (South Asian) and Sky Angel (Christian). The content is delivered over the Internet to PCs or televisions via the company’s proprietary set-top box.
NeuLion does not offer live OTA/FTA television, but it does offer adaptive streaming like Roku, HD support, and has a noteworthy network PVR feature which can cut CAPEX for operators. However, without a
DVB-T/ATSC tuner, NeuLion is not a viable hybrid solution, leaving an opportunity open for competitors.
A key component of NeuLion’s technology is its Operational Support System (OSS) which maintains all billing and customer support services. In this regard, NeuLion can be compared to PeerTV’s server middleware.
4.5.7.
ZvBox
ZeeVee and its family of ZvBox video distribution devices ($999-$2499) were launched in May 2008 to high expectations and positive press. ZvBox is novel in that it leverages RF modulation technology to broadcast a computer’s audio and VGA video output as a new 720p (1080p for ZvPro) high-definition channel across the existing coaxial wiring of a home or business. The major benefits of this approach is that the ZvBox can be connected to the coax from anywhere in the house and the signal can reach all HDTV’s properly connected to the home’s root coaxial cable. Since this broadcast signal is picked up by the HDTV’s imbedded tuner, no set-top box needs to be directly connected, thereby eliminating additional clutter in the living room. Another advantage is it can access any Internet video site or computer application (including email, Facebook, photos, etc.). It is the only device that turns all home HDTVs into extended TV monitors and uses an open browser for access to all online video sites.
While a promising new approach to delivering Internet video and other computer applications to the TV, the initial reviews for ZvBox highlighted the some of the device’s downsides including: set-up complexity, need to tie up a computer during use, incompatibility with some computers and HDTVs, some latency with the RF wireless remote control, and high cost. ZeeVee learned from these negative reviews and re-vectored its efforts towards a dual software and hardware strategy.
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47
On the software side, ZeeVee extracted its ZvBox interface and repackaged it as the free Zinc video browser for navigating content from many OTT sites at once (see video browser section later in this report). On the hardware side, ZeeVee moved upstream with a product line more geared to the commercial and high-end residential markets.
In the commercial market ZeeVee launched the ZvPro 250, a rack-mountable version of ZvBox that has two separate input paths for VGA and component video so it can turn any AV source into a QAM channel for broadcasting to all the homes HDTVs over the coaxial wiring. It supports 1080, 720, or 480 video resolutions (up to 1680x1050 on VGA), and digital and analog audio. Zeevee
In the residential market, ZeeVee now offers a more stable and easier to install ZvBox 150 which adds component video inputs. Like the original, the ZvBox 150 can turn the computer’s VGA video into an HD channel, allowing one to watch any Internet video site on all the homes HDTVs. ZvBox 150 can also turn a set-top box,
TiVo/DVR, Blu-ray, or DVD player into a custom QAM channel (via RF modulation and MPEG2 encoding up to
720p). The device has a built-in spectrum analyzer to find an open QAM channel to broadcast to, or customers can choose their own. At $999, ZvBox 150 is targeted at high-end homes and is being sold through the custominstaller market.
With its high price and complexity, ZvBox may continue to be out of reach for most mainstream consumers. But with cost reductions over time and increased awareness of its advantages for multi-point home video distribution, more audio-visual and OTT enthusiasts may come to see its value.
Note: the primary author of this report helped launch ZeeVee to the market and owns shares in the company.
4.5.8.
Popcorn Hour
Popcorn Hour is the consumer electronics brand of Syabas Technology, a provider of wired and wireless home entertainment, digital electronics and peer-to-peer mesh network broadcasting technologies. Popcorn
Hour was founded in 2001 as a middleware software company that focused on integrating its technology into a variety of partners’ products, notably HP and Netgear. In 2007 the company enjoyed surprising success, primarily with the tech enthusiast community, by launching a media player device based on its own software.
To date Popcorn Hour has been marketed more to techies than the average consumer. The Popcorn
Hour device is less of a simple OTT set-top box and more of a media player and adapter. Among its capabilities is the ability to locate networked digital media and stream it to an HDTV. Other features include the ability to play the high-def DVD and Blu-ray movies, display local and online digital photos, play local MP3 files and audio from
Internet radio and music stores, and stream videos from YouTube and Blip.tv. It supports a variety of media formats including Windows Media, Xvid, H.264 and QuickTime. Like Roku, Popcorn Hour also recently announced a new software development kit (SDK) and OTT set-top device profile called the “David Box”. The
David Box allows developers to create new HD applications for deployment on the Popcorn Hour platform or
Syabas’ partner devices.
Trender Research Coverage:
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Video Threat (June 2010)
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“Pass the OTT Video Popcorn: Popcorn Hour Podcast”; http://www.trenderresearch.com/profiles/blogs/pass-the-ott-video-popcorn
“Cutting the Pay TV Cord Part 2: OTT Video Device Options”; http://www.trenderresearch.com/profiles/blogs/cutting-the-pay-tv-cord-part-2
48
4.5.9.
Screen-Capture Devices: Sling Media and Mediagate
An alternative approach for receiving Internet video is to stream your computer’s video interface via socalled “screen-capture” or “screen-shifting” devices. These boxes, including Mediagate’s MG-800HD and Sling
Media’s SlingProjector/Sling Catcher (street prices for both devices range from $200 to $250), work by taking the PC’s monitor output and streaming it to the TV. No codec support is required because the devices capture whatever the monitor output can show, including any online video site or computer application (e.g.
PowerPoint, photos). The downside of these devices include: requiring a dedicated wired connection between the TV and computer, computer must be on, application must be started at computer (versus the TV), quality issues in streaming the video, and requiring a powerful PC processor to run the application (in the case of Sling a
1.6-GHz Intel Core Duo CPU or 3-GHz Pentium IV with at least 1 GB RAM).
Like the Popcorn Hour box, the MG-800HD and SlingCatcher can also both stream locally stored videos from a hard drive to a connected TV across a wired or wireless network. They support a variety of outputs
(Composite, S-Video, or HDMI) and a long list of media and video formats and players (though the MG-800HD supports more exotic codecs).
In contrast to dedicated Internet video players like Roku, these devices are more likely to appeal to AV enthusiasts attracted to the boxes’ multi-use capabilities. In the case of Sling, the box works as part of the larger
SlingBox system for TV-to-Internet-device “place-shifting”. Parent company EchoStar has also launched new
“SlingLoaded DVR” IP set-top boxes that integrate the technology.
Trender Research Coverage:
“Sling Media Multi-Pronged Innovation: CES Video Round-Up Part 3”; http://www.trenderresearch.com/profiles/blogs/sling-media-multipronged
“SlingPlayer Mobile for BlackBerry Now Generally Available”; http://www.trenderresearch.com/profiles/blogs/slingplayer-mobile-for
4.5.10.
“All-In-One” Devices/Services: Sezmi and ZillionTV
Another strategy for delivering video content is to replace the entire value chain with a new combined hardware solution and service provider. This ambitious goal has been adopted with much fanfare by two new companies— Sezmi (founded as “Building B”) and ZillionTV. These companies aim to license content and deliver it via a hybrid set-top box that would leverage both a broadband Internet connection and over-the-air broadcast reception. In addition, both companies claim that the entire entertainment experience will be improved, including the user interface and interactive applications. In this way, the companies hope to provide an exciting
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49 mix of personalized television and “long-tail content” (best suited for Internet TV) and a short list of major channels (most efficiently delivered by broadcast technologies).
Sezmi wants to partner with local broadcasters to share their digital spectrum and co-brand or private label the service in markets where a hybrid service makes sense (not all markets have good enough OTA reception). Sezmi says it can deliver a better package of content at about half the cost of traditional service providers. As part of the service, Sezmi will provide subscribers with a new 1TB set-top box that can tune OTA content and store 500 hours of video on demand programming. Part of the value for subscribers is having different accounts for each family member, which would be personalized according to their unique preferences.
Last year ZillionTV débuted its strategy to offer a new Internet-connected set-top box that would combine premium online and OTA content with a completely rethought user interface and remote control. The company aimed to sell its video service through telcos and other ISPs with traffic priority and guaranteed quality-of-service (QoS). However, ZillionTV announced in September that it was delaying its launch until the latter half of 2010, and laid off a third of its employees a month later. Rather than only selling through service
The challenges for these “all-in-one” competitors are similar to the early days of cable TV, when subscribers were also faced with the prospect of new hardware, new bills, and new forms of content. To be successful, these companies will be forced to show enough value to offset consumer’s inertia and user behavior, a daunting task when incumbent Pay TV service providers are experimenting with their own hybrid TV strategies and more and more new OTT devices are launched every month.
4.6.
OTT HARDWARE: IPTV STBS AND MIDDLEWARE
4.6.1.
Middleware-Based Delivery Platforms
In addition to the OTT hardware options highlighted above, it is important to note that many established and emerging companies in the middleware space are expanding the capabilities of what used to be a fairly restrictive set-top box development environment. Once confined to the specifications of set-top box manufacturers and cable standards such as OCAP (tru2way), middleware vendors are innovating with new hybrid solutions. Market leaders such as Microsoft (MediaRoom), NDS (MediaHighway), BNS (Nautilus), and
Espial (Evo/Kasenna), and dozens others like them have taken a collaborative approach to delivering advanced applications through their service provider customers. Other smaller players such as TVBlob and TVAnywhere are exploring strategies to port their middleware experience to deliver new Internet set-top boxes, in some cases focusing on niche markets such as foreign-language content boxes or experimenting with new business models such as revenue-sharing with Internet service providers (e.g., TV Anywhere).
While these companies come out of the Pay TV middleware space, their experience in understanding efficient architectures, user interfaces, and the technical constraints of set-top boxes will give them a leg up on new OTT devices when it comes to building hybrid OTT/Pay TV set-top boxes or their own dedicated Internet video players. As the other OTT device manufacturers mentioned in this report expand their focus and move into the mainstream, many of them will have to re-learn lessons these middleware companies already understand from decades of research and development. At the same time, some middleware companies will be
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50 equally challenged to learn the new “Internet rules” for delivering video entertainment and may not easily make the transition to an OTT or OTT/hybrid world.
Trender Research Coverage:
“Microsoft Mediaroom Podcast: The King of IPTV Keeps Polishing the Crown”; http://www.trenderresearch.com/profiles/blogs/microsoft-mediaroom-podcast
“Podcast: TVBLOB Aims to Put “Life Back In TV— the Web Way”; http://www.trenderresearch.com/profiles/blogs/podcast-tvblob-aims-to-put
“TV Anywhere Podcast: Hybrid IPTV/OTT Player Looks to Drive Migration Strategy”; http://www.trenderresearch.com/profiles/blogs/tv-anywhere-podcast-hybrid
“Broadband Network Systems Podcast: IPTV Integrator Moving Into T-Commerce Apps”; http://www.trenderresearch.com/profiles/blogs/broadband-network-systems
4.6.2.
Amino
Amino leads in the lower tier service provider market but also caters to the hospitality industry in North
America. They are integrated with a range of middleware. Amino also has an HD IPTV box, but only just recently added PVR capability via an external HDD. The Amino boxes do not offer hybrid capabilities that combine any combination of IPTV, open Internet streaming, and/or live digital terrestrial TV. Nor does it offer WiFi on its box.
We do not see Amino as a strong competitor in the OTT space.
4.6.3.
Motorola
Motorola, which is one of the largest global STB vendors in the world, offers hybrid set-tops but does not pack all the same features of purpose-built OTT solutions into a single set-top— instead providing a suite of distinct boxes to keep per-unit costs lower. To date Motorola does not offer WiFi connections on their VIP series
IPTV set-top boxes. In North America, Motorola only supports MS Mediaroom middleware on its IPTV STBs and focuses exclusively on large Tier 1 service providers.
4.6.4.
Buffalo
Buffalo provides a hybrid IPTV box – the Link Theatre H91DTV provides both IP connections and satellite/terrestrial tuners, but not a WiFi connection. Buffalo LTH91DTV is uniquely targeted at the Japanese market and only supports the ARIB protocol stack at this time. The middleware is provided by Espial.
4.6.5.
Yuxing
Yuxing is a global China-based set-top vendor – one of the largest in the world by volume. Again however, it focuses on IPTV operators rather than Internet TV operators. Their latest set-top, the YX-5912T, is a hybrid/IP offering DVB services coupled with pure IPTV but they also have a pure IPTV box, the YX6911B. Both devices are HD capable, but neither come with a WiFi connection, adaptive streaming, or progressive download
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51 support. While not targeted at Internet TV, they do partner with Orca Interactive globally for the middleware.
Orca has an excellent middleware offering that is mature, feature-rich, and offers a highly personalized service.
Neither Yuxing nor Orca has significant business in the U.S. Market.
4.7.
OTT HARDWARE: VIDEO GAME CONSOLES
Trender Research predicts that gaming consoles will also secure a share of the OTT video market, in the range of 5%-15% over 3 years. In addition to the same limiting factors stated below for Internet-enabled HDTVs, gaming consoles are challenged by a cost that is twice as high as dedicated Internet STBs. It is also unlikely that consumers would buy a second gaming console for their home’s second and third TVs, leaving that market open for Internet video players. Also, there is little evidence to suggest that consumers are buying gaming consoles as a primary means for streaming Internet video. For example, while Xbox’s numbers are impressive, its OTT success has largely been additive to its primary purpose as a gaming console. Using gaming consoles as a multipurpose device puts family members at odds over using the platform for gaming or video entertainment.
4.7.1.
Microsoft Xbox 360
Microsoft has sold more than 30 million units of its Xbox 360 gaming console and now has more than 20 million active members in its Xbox LIVE community. Outside of using a computer, Xbox is one of the most ubiquitous platforms for downloading online videos and content. Even in this difficult economy, Microsoft is the only gaming console with year-over-year growth sales, which rose 17 percent in August with 215,000 units sold.
With the help of new titles such as Madden NFL 10, Xbox leads in third-party software sales with a total of $130 million during the month. Microsoft’s recent price cut of Xbox to $299 puts in direct competition with midrange consoles such as Sony's redesigned PS3 Slim and assures it of continued growth throughout the holiday shopping season.
What is most impressive is how Xbox has grown over the years from primarily a gaming console to a fullservice platform for multi-media entertainment. Leveraging Xbox Live and content partners such as Netflix, Xbox provides premium movies and TV shows in both standard definition and HD. To date nearly 1 billion gaming and entertainment titles have been downloaded from the Xbox LIVE Marketplace. As a measure of its reach as an
OTT delivery platform, Xbox LIVE reaches 26 countries worldwide and is now in more homes than even the largest satellite TV provider. Microsoft claims that before the end of 2009, that number will surpass the largest cable provider.
As a further measure of the strength of Microsoft’s OTT video strategy, British broadcaster Sky is utilizing the Xbox to stream live television programs, including sports, TV shows, and movies, in the UK and Irish markets. This is similar to a deal that Sony and Nintendo already have with the BBC's iPlayer, to instantly stream recent TV shows to the PlayStation 3 and Wii consoles. Among the benefits of the Xbox/Sky subscription-based service is that it will eliminate the need for set-top boxes and satellite dishes. But since it will leverage the customer’s broadband Internet connection, some portion of this cost will have to be passed onto the broadband service provider, which in the case of Cable MSOs may be the same entity. The service will have subscription
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For client review only— not for distribution. packages and pricing tiers similar to cable/satellite offerings today, but we expect it to have a broader array of content options given the Internet connection.
It remains to be seen if Microsoft can replicate this hybrid Pay TV/OTT partnership with other major service providers, particularly in the U.S. market where there are less regulatory restrictions on online video sites such as Netflix and Hulu. Satellite service providers and even smaller cable MSOs might see the value.
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The big question for Xbox, and similar gaming consoles, is if it can ever be a standard platform for OTT video, particularly as a replacement for cable set-top-boxes or purpose-built and less expensive OTT players such as Roku. While Xbox’s numbers are impressive, its OTT success has largely been additive to its primary purpose as a gaming console.
Trender Dashboard: Xbox
Understandability, Call to Action, Buzz, Reach:
Quality, Design:
Installability:
Usability, Passivity, Interoperability, Lifestyle Fit:
Total Cost, Value:
Customer Support:
Obsolescence:
Performance:
Security, Privacy:
Variety, Flexibility, Translatability:
0 1 2
Trender Rating: 78
3 4 5 6 7 8 9 10
4.7.2.
Sony Playstation
Sony has sold about 10 million Playstation3s in each of the past two years bring the total base to near 30 million. With Sony dropping the price of the PS3 and matching Microsoft Xbox’s $299 price in August of 2009,
Sony was also able to chart an impressive uptick in unit and software sales. It used to be that the blockbuster games like the Madden and Batman series were dominated by Xbox 360 sales. Sony claims they are now competing for these titles for use on the PS3. Sony claimed in 2009 that their top retailers reported a 300% increase in PS3 hardware sales and an increase of over 140% in total hardware revenue across the Playstation portfolio after the price decrease. They also claimed Sony was the only platform to realize a year-over-year increase in total software sales.
Other positive news for Sony comes from the new PS3 “Slimline” product version. The new slimmer and lighter PlayStation 3 hit the worldwide market in September of 2009. The internal design architecture of the
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For client review only— not for distribution. new PS3 system, from the main semiconductors and power supply unit to the cooling mechanism, has been completely redesigned, achieving a much slimmer and lighter body. Compared to the very first PS3 model with
60GB HDD, the PS3 Slimline has a 120GB hard disk drive and its power consumption is also cut by two-thirds from the original model, helping to reduce fan noise. While inheriting the sleek curved body design of the original, the form factor of the new PS3 system features a new meticulous design with textured surface finish, giving an all new impression and a casual look. With the compact body and casual appearance, the newly introduced model is expected to appeal to a wider audience.
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The new PS3 continues to offer cutting-edge features and functions, such as the ability to enjoy highdefinition Blu-ray disc (BD) movies and games as well as various content and services downloadable through the
PlayStation network. The new PS3’s storage size will provide for extra capacity for users to be able to store more games, music, photos, and videos. Having more than 27 million registered accounts around the world,
PlayStation Network offers more than 15,000 pieces of digital content, ranging from game titles, trailers, and demos to more than 15,000 movies and TV shows via the PlayStation Store. PlayStation Network members can also download free applications, such as PlayStation Home, a ground-breaking 3D social gaming community available on PS3 that allows users to interact, communicate and share gaming experiences, as well as Life with
PlayStation, which offers users various news and information on a TV monitor in the living room by connecting the PS3 to the network. Sony has stated publicly that it plans to leverage its own branded content, Internet media services, connected consumer electronics and “distribution machine” to make its Playstation Network unrivalled in content delivery.
Since the launch of PS3 in November 2006, the number of BD-based titles has reached more than 1,000 titles and downloadable PS3 games to 1,400 titles worldwide, with the support from a broad range of third party game developers and publishers. But the 2009 unit estimates may be optimistic considering Sony revealed in this year an annual loss of USD $1 Billion, its worst in 14 years. It might even get worse for Sony as they predicted further losses due to a serious slump in the global electronics market. Sony is planning to introduce measures in order to get their finances back on track, with one of the measures being a decision to close three production plants in Japan. They also have said that the path to recovery is not one that will happen straight away, as they projected a $1.2 billion loss for the fiscal year through March 2010. As well as losing money through their range of digital electronics, Sony has stated that the Playstation 3 is also losing money and that they have struggled to compete with the financial rewards that Microsoft and Nintendo have realized with their competing products. They will look to the new PS3 Slimline to help stop the bleeding in both their gaming division and combined electronics product lines.
4.7.3.
Nintendo Wii
Nintendo announced a September 2009 price drop for the Wii to $200 that will include its iconic remote controller, Nunchuk controller and Wii Sports software. In 2009 over 25 million Wii users have purchased
Nintendo’s hit exercise title Wii Fit. With sales for the game likely expected to remain high in 2010, Wii Fit is the first game ever not bundled with video game hardware to top $2 billion in revenue. This is just one indication of
Wii’s popularity and success.
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54
Nintendo’s Wii overshadowed the gaming sector in 2008 and ended the year by setting a record in US hardware sales, selling a new monthly high in December of 2.15 million units and another 3.04 million DS handheld units. And with a total of 10.17 million Wii units sold to US customers in 2008, it was the first time
Americans purchased over 10 million home console gaming device units in one year. According to Nintendo, the
Wii represented around 55% of all home console sales in 2008. The company also makes the lofty claim of representing 99% of the 19% gaming revenues growth increase over the previous year 2007.
As for software, over 100 million games were sold in the U.S. for Nintendo systems last year, with its console commanding 20 of the top 30 titles on the NPD Group’s best selling software list for a given month. Top titles such as Wii Play and Wii Fit remain popular. In addition, the music series games of Guitar Hero III: Legends of Rock, Guitar Hero World Tour and the Rock Band Special Edition bundle was sold and used on their console more than any other, providing a growth driver for the company.
Nintendo’s over-the-top strategy to date has not been as well positioned as Microsoft’s and Sony’s plans. The Wii’s video resolution has not been as high quality as Microsoft’s and and Sony’s products and is considered more DVD-like than HD quality. There also is the lack of a local hard drive. This does not preclude the consideration of streaming delivery, however. In 2009 Nintendo did launch a VOD service in Japan entitled
"Everyone's Theater Wii” offering Japanese users on-demand access to a variety of movies and TV shows. Users must spend 500 Nintendo points to download a third-party video player (Fujisoft's UIexit) that then enabled a
PPV option to view certain programming. The service launched with around 500 titles which cost between 100-
400 Wii points per download. Unlike Microsoft and Sony, Nintendo is not managing the service but us rather relying on Fujisoft. Nintendo is exchanging access to its Japanese Wii user base for royalties. We expect
Nintendo to work a similar deal utilizing third-parties in the US.
4.8.
OTT HARDWARE: INTERNET-ENABLED TVS
One of the more intriguing trends that will have a substantial impact on the adoption of OTT video with mainstreams consumers is the rise of Internet-enabled TVs. All of the major HDTV vendors are either already shipping models or have announced plans. The strategies of these consumer electronics manufacturers are all very similar, but their product portfolio and implementation approaches vary. All are at east providing some
“widget” technology (such as that from Yahoo! TV Widgets) that provides snippets of Internet information such as news headlines, weather, stock quotes, sports scores, etc. These applications are being directed integrated into the TV’s interface as sidebar overlays or as part of the TV’s main menu system. HDTV vendors are also offering access to movie streaming and download services from Netflix and Amazon and in some cases Vudu’s library of HD quality videos. Some are also including OTT content via other home entertainment devices such home theater systems and DVD/Blu-ray players.
What is most interesting about this development is that TVs are now becoming like computers. With
Yahoo!’s Widget Engine and Adobe’s Flash Platform for the Digital Home, TV manufacturers will now be able to roll out new applications without consumers having to replace their TVs. This has the potential to spur a new TV application development community. It also raised some concerns with regard to who will “own” the primary user interface for the consumer’s entertainment experience. Most mainstream consumers will have difficulty
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55 trading in their TV channel flipping to adjust to more of a lean-forward viewing experience, navigating a screen and remote control that requires clicking multiple keys or even a QWERTY keyboard.
Trender Research predicts that Internet-enabled TVs will command a significant portion of the OTT video market—perhaps as much as 25%. Internet connectivity will become a common feature for HDTVs and used by the vendors in their marketing to compete and differentiate. For many average consumers, this will be their first experience with online video services. Even though they may not buy a new TV specifically for this feature, its latent Internet video function will act as a “Trojan Horse” for consumers to try it out.
However, we believe that there are several factors that will limit the use of HDTVs as the primary mechanism for delivering online video, leaving room for a robust Internet STB market:
1) A cluttered user interface. Many mainstream consumers will be confused trying to navigate across several layers of menus including cable TV EPGs and VoD interfaces, online services such as Netflix, and the TVs own content launcher. In addition, as the TV becomes more like a computer, some consumers will struggle to adjust to a “lean forward” entertainment experience juggling a remote control and keyboard.
2) TV combo devices have never performed well in the market place. Combo TV/VCRs never succeeded and today there are few HDTV/DVD combo models. One of the reasons for this is the cost curve and technology life cycle of these distinct devices move at different speeds. In other words, consumers do not want to burden a $1,000, 5-year decision to buy a new TV with a $100 device that may be outdated or obsolete next year.
Though all pursuing similar strategies, we profile the product line-ups of a few of the HDTV manufacturers below.
4.8.1.
Vizio
Vizio, the leading seller of flat-panel HDTVs in the United States, is currently rolling out their VIA
Connected HDTVs (with the "Vizio Internet Apps" feature) in the XVT series of LCD HDTVs (sets range from
$1,2000 to $2,200). These Vizio HDTVs support a number of popular content sites and applications including:
Netflix, Amazon Video On Demand, Blockbuster On Demand, Netflix, Vudu, and Showtime for movie streaming and downloading
Vizio Internet Apps including Yahoo! TV Widgets
Accedo Broadband for games
Flickr for photos
Pandora, Rhapsody, and Radiotime for steaming music
eBay for e-commerce
Facebook and Twitter for social networking and social chat
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Rallypoint Sports for fantasy sports statistics
Vizio’s VIA Connected HDTVs come with a custom universal remote control with a built-in QWERTY keyboard that slides open and supports both Bluetooth and infrared controls (with a built-in IR library of most
A/V devices). The VIA™ Connected HDTVs can connect to a home network wirelessly (802.11n dual-band with automatic Wifi network discovery) or through wired Ethernet.
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Trender Research Coverage:
“Vizio Unveils Aggressive Internet TV Line-Up”; http://www.trenderresearch.com/profiles/blogs/viziounveils-aggressive
“Vizio Makes Huge Jump to Top Spot for Flat-Panel LCD TVs”; http://www.trenderresearch.com/profiles/blogs/vizio-makes-huge-jump-to-top
“Vizio Continues to Exceed Expectations with Unlikely Success Story”; http://www.trenderresearch.com/profiles/blogs/vizio-continues-to-exceed
4.8.2.
Samsung
Samsung Internet-enabled product line includes the LCD HDTV 650 Series sets as well as its LED LCD
HDTV Series 6000 (prices start at $1,100). As co-developers of Yahoo! TV Widgets, Samsung was the first company to release HDTVs using the widget technology. The menu for TV Widgets runs across the bottom of the screen and is activated with a single button on the remote which launches Web content from Yahoo! news, weather, stock quotes , sports, Twitter, and video clips from Yahoo!, YouTube and others. Samsung's TVs connect to the Internet over a wired Ethernet connection or via a Wi-Fi USB device sold separately for $35.
Samsung also recently launched widgets for Blockbuster On Demand and Amazon Video on Demand, which charges $2.99 to $3.99 for online rentals and has a library of more than 10,000 titles.
Trender Research Coverage:
“Samsung LED HDTVs Merge Power and Supreme Beauty”; http://www.trenderresearch.com/profiles/blogs/samsung-led-hdtvs-merge-power
4.8.3.
Sony
Sony was the first company to offer Internet connectivity to TVs. As early as 2007, the BRAVIA “Internet
Video Link” set-top box enabled compatible Sony TVs to display standard and high-definition content from AOL,
Yahoo! and Sony Pictures Entertainment. While the set-top version is still available ($200), Sony now integrates
Internet Video Link into 10 LCD HDTV models in the company’s W5100, Z5100 and XBR9 lines (prices range from
$1,700 to $5,000, a premium of about $300 price premium over those without Internet Video Link). Sony now has over 25 content partners for its Internet-enabled TVs, including the usual line-up including Netflix, Amazon,
YouTube and CBS and applications such as Yahoo! TV Widgets and Twitter.
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Rather than relying on third parties, Sony continues to develop its own menu system that is similar to the Sony PlayStation 3 “Xross Media Bar”. Interestingly, Sony has built their own customized interface for Netflix viewing, suggesting theirs is more elegant than what you would get natively from Netflix. This move suggest that
Sony understands the user experience will be a key area for differentiation in the coming battle among HDTV manufacturers.
Trender Research Coverage:
“Sony Adds Netflix: OTT Video Catch-Up or Leapfrog?”; http://www.trenderresearch.com/profiles/blogs/sony-adds-netflix-ott-video
4.8.4.
Panasonic
Panasonic Consumer Electronics’ OTT strategy includes 12 models (from about $1,000 to $5,500) with the company’s VIERA Cast online services. The TC-P54Z1, 54-inch model ($5,500) includes wireless Internet connectivity, with the other models using wired Ethernet. In Spring 2009, Panasonic announced plans to support downloads of full length TV shows and movies via Amazon’s Video on Demand service. Introduced last year but limited to mostly short-form content sources like YouTube, Panasonic’s Viera Cast service now allows certain
HDTVs and Bly-Ray disc players with Ethernet connections to access Amazon’s Video On Demand library and other content partners. Viera Cast is accessed via a single button on the television remote control and requires no subscription fee beyond what you pay for Amazon downloads.
Trender Research Coverage:
“Panasonic Attempts Leap-Frog of Vizio and Samsung Internet TV Plans”; http://www.trenderresearch.com/profiles/blogs/panasonic-attempts-leapfrog-of
4.8.5.
LG
LG recently joined Vizio and Mitsubishi as TV manufacturers able to support Vudu’s library of HD titles. It has added Vudu to its LH50 1080p LCD and PS80 1080p plasma series broadband TVs. LG already featured
Yahoo! TV Widgets and video streaming sites such as Netflix through its "NetCast Entertainment Access” service.
LG’s Internet-enabled TV models start at around $1,700.
4.8.6.
Combo HDTV/PCs: Allio, etc.
In addition to the new models of Internet-enabled TVs mentioned above, there has existed for some time niche devices that combine the functionality of computers and TVs. Silicon Mountain’s Allio product line is one such example of a device that foresaw the merging of both platforms. While never quite taking off with the mainstream market, Allio gives users the full functionality of a PC in a sleek tuner/monitor that can be mounted on the wall like a TV. PC control issue is managed by a wireless remote control. A major benefit of Allio is that it solves a space problem for users not wanting to add another set-top box to their TVs for DVR, DVD, Blu-Ray, or
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58 as an Internet TV and web browsing device. The flagship Allio model marries a full-HD 42” LCD display with a combo Blu-ray/DVD player, an integrated digital recorder for PVR, and a PC based on the Intel Core2Duo E8400 processor, 4GB of RAM from Silicon Mountain, and a 1TB hard drive. It retails starting at about $2,000.
Trender Research Coverage:
“Podcast: Silicon Mountain’s Allio Combo HDTV/PC”; http://www.trenderresearch.com/profiles/blogs/podcast-silicon-mountains
4.9.
HOME VIDEO DISTRIBUTION AND PROCESSING TECHNOLOGIES
One of the key enablers for OTT video is the technology for distributing and processing Internet video streams, especially high-definition content, to multiple TVs in the home. During the short term and intermediate phase, existing Ethernet cable and WiFi home networking may suffice to deliver a single IP video stream to a TV with an attached set-top box. But over the longer term technologies that enable multi-point distribution and processing of high definition video will be required if OTT is to be a true replacement for Pay TV, rather than just a supplementary service.
The benefit of existing technologies (Ethernet cables and WiFi) is that they are widely understood by consumers and have an existing supply chain for product fulfillment. WiFi in particular enjoyed a rare convergence of support from all the major industry players when it was launched to the market, making it easy for consumers to understand the benefit and ultimately delivering the scale necessary to drive down costs and achieve device interoperability and ubiquity. The major drawbacks to Ethernet are wiring and aesthetics issues, with mainstream consumers loathing extra work or marring their living rooms with extra cables. The drawbacks of WiFi include range, performance, and interference issues. While the WiFi setup of a Roku player, for example, is easy using an existing home network, the performance and extra latency of the wireless connection can disrupt video quality and make the trick play functions (pause/rewind/forward) an experience inferior to Pay TV.
That being said, WiFi does work well as an enabler for single-channel streaming or VoD download sites where multi-point distribution or frequent content/channel changing is not required. In fact Vudu Executive Vice
President Edward Lichty claims that WiFi G is more than enough for them to deliver HD content in real-time with delays of 1 second or less.
There are a range of other approaches from vendors large and small that attempt to solve at least some aspect of the Internet video distribution and processing problem. New wireless technologies such as WHDI
(more below) hold promise as does the newer form of WiFi N which gives better range and performance.
WirelessHD, from companies like SiBeam, is another emerging standard that has several benefits including low power consumption and uncompressed 1080p support, but as line-of-site technology with a range of 30 feet it is best suited for in-room applications such as HDMI cable replacement. RF modulators and encoders, such as
ZeeVee’s ZvBox, take advantage of the ubiquitous coaxial cable in most homes, but still do not measure up to the simplicity, interoperability, and understandability of Pay TV’s QAM-based multipoint video distribution system. For this reason, this challenge will remains one of Pay TV’s biggest advantages over OTT for some time to come. Below we profile a few of the companies trying to address these challenges through new chipsets or standards bodies.
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59
4.9.1.
Intel
Intel has the technology and industry weight to drive the technologies and standards required to solve the home video processing and distribution problem. At their September 2009 Intel Developer Forum (IDF) Intel launched a new processor to go after this market. The Intel Atom CE4100 processor is the latest system-on-achip (SoC) designed to bring Internet content and services to digital TVs and set-top boxes. The CE4100 supports integrated Internet and broadcast applications and has the processing horsepower to deliver rich Internet media including 3D graphics. Intel foresees a future where many consumer electronics are connected to the Internet and where multiple streams can be managed simultaneously.
As usual, Intel has recruited a broad ecosystem of partners to deliver on this vision, including Adobe (key for its Flash Player 10 technology for creating and rendering video, web, and interactive applications), the BBC,
CBS, and Cisco. The CE4100 will also be the workhorse for Intel’s TV Widget Channel technology for bringing OTT applications into the living room. In this regard, Intel demonstrated a range of partner Widget-enabled applications at IDF, including demos from Accedo Broadband, CinemaNow, Dailymotion, Netflix, and Showtime
Networks.
The CE4100 can support hardware decoding of up to two 1080p video streams and advanced 3D graphics and audio standards. In addition the SoC has several other imbedded capabilities, including MPEG-4 surpport for DivX Home Theater 3.0 certification, as well as a display processor, a graphics processor, a video display controller, a transport processor, and a dedicated security processor. The fact that Intel is trying to address so many Internet media challenges in one chip platform bodes well for the long-term growth of the OTT market.
4.9.2.
MoCA
MoCA is the Multimedia over Coax Alliance, a standard for whole home distribution of HD video over coaxial cables. The goal of MoCA is to promote the standard through the network operator value chain, including service providers (telco, cable and satellite), home electronics vendors, and chip vendors. MoCA believes that it has several advantages for high bandwidth, low latency applications that require high performance and reliability. The technology standard and the medium itself (coax) have proven reliability and demonstrated high net throughputs. The benefits of MoCA include:
Security
No physical interference
Carries multiple high definition channels
Requires no new wires
Is a whole-house solution— it allows one to pause/resume content from all coax-connected TVs in the home.
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Like RF modulation, MoCA uses the coax wiring that is ubiquitous throughout most homes. The only major drawback is that MoCA requires the sending and receiving devices to be MoCA compatible whereas RF modulated, MPEG2 encoded channels (e.g., QAM) can be received by any digital tuner. As a result, MoCA requires a set-top box at each TV, though only one main unit with smaller boxes at other TVs.
For OTT to break into mainstream acceptance, it will need the mass acceptance of a standard to help reduce HD video glitches and artifacts. While WiFi has advantages for its portability and powerline for its ease of use, MoCA has the endorsement of network operators. Verizon FiOS, with 2.2 million subscribers, is based on
MoCA. In addition, Time Warner Cable, Cox Communications, and Bright House Networks have publicly announced they will incorporate MoCA into their networks with trials beginning this year. There are no publicly announced MoCA deployments in Europe. There are two chip platforms with MoCA support baked in, Entropic and Broadcom, which should help drive scale and cost reduction. Many of the major consumer electronics, cable
TV, and connected home vendors are behind MoCA, including Intel, Cisco, Comcast, Cox, Panasonic, Motorola, and Time Warner.
Trender Research Coverage:
“MoCA Podcast: When Will "MoCA Inside" Rule the Day?”; http://www.trenderresearch.com/profiles/blogs/moca-podcast-when-will-moca
4.9.3.
Amimon and WHDI
Another promising technology for home video distribution is the Wireless Home Digital Interface (WHDI) standard based on Amimon’s multi-stream chipset. WHDI represents a potential break-through in that it can wirelessly deliver multiple high definition video streams (1080p/60Hz) and high quality computer graphics to a range beyond 100 feet and through walls, so it can reach all of the home’s TVs. Already a long list of manufacturers have announced plans to bake WHDI into their HDTVs, including Hisense, Mitsubishi, Sanyo,
Sharp, Sony, Vestel, Haier, and TCL. The company recently surpassed 500,000 chipsets shipped and expects that to exceed 1 million by the end of 2010.
Amimon’s second generation chipset, AMN 2120/2220, operates in the 5GHz unlicensed band and is the first to wirelessly distribute uncompressed 1080p HD video to multiple HDTVs spread throughout the home. It features virtually no latency (less than 1 millisecond according to Amimon), supports Hollywood approved HDCP
2.0 copy protection, can work on low power consumption modes for portable devices, and has the potential to achieve mass adoption cost scales (less than $10). The set up is similar to Wifi in that the users will use the remote and menu screen to search for WHDI devices to enable the connection, and then switch TV input buttons depending on which physical input is being used (component, VGA, etc.).
One drawback is that the technology requires a WHDI dongle be attached to each of the video source devices (STBs, DVRs, DVD players, game consoles, etc.), but according to Amimon there are several companies working on WHDI dongles and video accessories/extensions that have multiple output types including VGA,
HDMI, component, and composite. Supporting TVs will be shipped with the dongles included, such as a VGA version for outputting the video from a computer. In fact, the company expects some PC manufacturers to embed WHDI directly into computers and looks forward to the production of dual mode chips with both WiFi
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61 and WHDI capabilities. WiFi and WHDI would work together in that Wi-Fi would be optimized to handle data and
WHDI would handle wireless video streams from source devices.
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5.
OTT VIDEO MARKETS
5.1.
OPPORTUNITIES FOR THE INTERNET VOD/STREAMING MARKET
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We believe there are substantial opportunities in the general Internet STB market, but this market requires a higher level of investment to build awareness and scale as well as to build an attractive content library. In the U.S. market, Roku has been fairly successful in a short period of time, selling around 700,000 units in 2 years. But Roku benefited from its early partnership with Netflix, who helped to market the box to its 10 million subscribers. Roku was also able to launch with an attractive $99 price and now has a $79 SD model. In late 2009 Roku began expanding its reach and content partnerships—having launched a new software development kit for content and application partners and an additional 10 channels to go with Netflix and
Amazon.
Other devices that have exceeded 100,000 unit sales for Internet STBs include Apple TV, Vudu, and TiVo.
While TiVo has been increasing their investment in their online video strategies, Walmart-acquired Vudu is focusing on turning itself into a software company by licensing is library of HD titles through third party devices.
Trender Research expects many new entrants to enter the market for Internet STBs. For example,
Boxee, the pioneering company behind a popular Internet video browser, in late 2009 announced its
“BoxeeBox” that combines its navigation and aggregation interface with an Internet STB.
Technically we believe OTT video platforms are a good fit for this market, but new entrants will have to invest heavily in marketing and sales to catch up with existing players.
5.2.
OPPORTUNITIES IN THE ISP MARKET
Another OTT video strategy is to partner with Internet Service Providers, potentially on a revenue-share basis. These ISPs are all under pressure to provide a full “triple play” bundle of voice, video, and Internet access services. While many of these providers are unwilling to cannibalize their own lucrative TV services, there is potential to partner with Telco ISPs where cable broadband/TV service is not available. In regions where only satellite service is available, DSL and fiber-based Internet service providers may be attracted to an Internet STB as an alternative to expensive TelcoTV/IPTV infrastructures. In these cases, an OTT video solution could be seen as a way to derive incremental revenue streams on top of the basic Internet access service. OTT providers could also offer a solution as a hosted service through partnerships with resellers. This would have the added benefit of enabling a low CAPEX service that ISPs could deploy quickly.
5.3.
OPPORTUNITIES IN THE NARROWCASTING MARKET
The “narrowcasting” market is defined as the market for niche content that may appeal to specific language or demographic groups. It also refers to “communities of interest” of people from various backgrounds that come together in their support of shared topics or ideas, sometimes referred to as “long-tail” content.
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Over the top Internet TV technologies, which leverage a broadband Internet connection, are uniquely suited to address the narrowcasting market. While broadcast technologies, such as cable or satellite, are efficient for delivering a relatively small selection of content to a large number of simultaneous viewers, they are limited by satellite transponder space and cable channel spectrum to be able to efficiently deliver a wide variety of narrowcast content. OTT technologies are best suited to deliver a very large range of content to small or fragmented audiences that are geographically dispersed, especially in Western markets where broadband penetration is around 65%. Traditional TV service providers have continued to invest in technologies that help them expand the number of available channels, such as switched digital video (SDV), or that provide a more interactive environment leveraging Internet Protocol, such as DOCSIS 3.0, but to date they have failed to completely meet the demand for narrowcast content or to deliver it in a way that is accessible to the targeted demographics. Below we look at the market dynamics for some specific narrowcasting market opportunities.
5.4.
OPPORTUNITIES IN THE FOREIGN LANGUAGE CONTENT MARKET
Foreign language content is the most compelling of narrowcasting opportunities. It is appealing to recent immigrants and 2 nd generation citizens longing to keep a cultural connection to their countries of origin, and it is a necessity for people with limited skills in speaking the languages of their adopted countries. Though traditional broadcast TV providers have attempted to provide channels of content geared to some groups (e.g.,
Spanish channels in the U.S.), the demand for many language groups is largely unmet.
According to 2006-2008 U.S. Census data 1 , 12.5% of Americans are foreign born. What’s more, an astounding 19.6% of U.S. residents speak a language other than English at home, with 8.6% of residents claiming not to be able to speak English “very well”. The largest foreign language group in the U.S. is Spanish with 12.2%, or 37.5 million people. Other Indo-European languages account for 3.7% of U.S. residents, or about 11 million people. Asian languages, such as Chinese and Japanese, account for 2.9%, or 9 million people. Like Spanish, about half (48.9%) of the Asian language group do not speak English very well, but only a third (32.9%) of the
Indo-European group have limited English skills. Based on this data, we can assume a total addressable market for foreign-language content in the U.S. to be 19.6% of the 112 million U.S. households, or about 22 million.
Canada has a similarly large group of foreign-language speakers, with 20% of Canada’s 34 million residents speaking a “mother tongue” other than the two official languages of English and French.
2 In the UK, 4.9 million
(8.3 per cent) of the total population of the UK were born overseas 3 . Greater Europe also has a high rate of foreign born migrants. It is estimated that about 65 million of the 190 million people worldwide who live outside of their country of birth reside in Europe 4 . Germany, France, the United Kingdom and Spain have the largest numbers, with 27 million of these migrants. If you factor in second-generation migrants who retain their native tongues, the total is closer to 100 million people who hold an ethnic cultural identity and language different from their host countries.
1 U.S. Census Bureau, http://factfinder.census.gov
, “GCT0501. Percent of People Who Are Foreign Born”
2 Statistics Canada. “Languages Overview.” http://www41.statcan.gc.ca/2008/50000/ceb50000_000_e.htm
3 UK Office for National Statistics, “People & Migration”, http://www.statistics.gov.uk/CCI/nugget.asp?ID=1312&Pos=1&ColRank=2&Rank=480
4 Migration Policy Institute, “European Migration”, http://www.migrationinformation.org/datahub/europe.cfm
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64
While most Pay TV service providers do have foreign language content available, they typically only have one or two channels available for specific languages. These channels usually cost an extra $10-$15 on top of a
“digital starter” package of around $30-$50 per month. For example, Comcast offers only one channel each for
Chinese, Russian, Indian, French, Italian, and Portuguese content, with no Arabic channels. The one exception to this is Spanish language content in the U.S. market. Most Pay TV operators offer three or four Spanish channels in their basic package (e.g. Univision, Telemundo, Telefutura) and a package of an extra 10-25 channels depending on the market. For example, in the Boston market, Comcast offers “Canales Selecto” for $8.95 per month 5 . It includes a diverse lineup of content, including Spanish language versions of Fox Sports, Discovery,
CNN, History Channel, ESPN and a half dozen movie channels.
Verizon FiOS has slightly more options 6 . For $39.99 subscribers of the “La Connexion” have access to over 20 Spanish language channels in addition to the FiOS basic package of 200 channels. Verizon also has a more varied set of international content, including channels in German, Arabic, Vietnamese, Amrenian,
Japanese, Korean, and Punjabi. But though having breadth Verizon still lacks depth, with no more than three channels for any particular language (with Spanish again being the exception).
There also already exist dedicated foreign-language satellite services such as Globecast World TV.
Globecast is a direct-to-home provider of free-to-air and encrypted ethnic television and audio channels. In the
United States, WorldTV is the third-largest DTH platform and the leading source of international content. It carries over 200 Channels from 40 countries in 30 languages, including Chinese, Arabic, Hindi, Turkish, Bosnian,
Cambodia, and Farsi, as well as most of the European languages. In mainland Europe (not the U.K. or Ireland),
Globecast offers content primarily targeting the Indian and Pakistani communities with channels in Bengali,
Hindi, Urdu and Punjabi. The pricing for each ethnic package ranges from $15 to $25 per month. The downside of World TV and others like it is that it requires a STB and satellite dish that cost $180 plus installation, and installers are not available in all markets.
5.5.
OPPORTUNITIES IN THE CHRISTIAN TV MARKET
Christian video content is another attractive potential market. Especially in the U.S. market, where an active Christian community identifies strongly with their faith, Internet TV could be delivered as a supplemental
VoD service or as a replacement for more secular Pay TV services. For many Protestant denominations, televangelism has long been a major focus, so Internet TV is a natural way for them to expand their outreach to believers across the country.
According to2008 U.S. Census data, there are 173 million Christians in America 7 , representing 76% of the population. Of these, it is estimated that about 70 million Christians live a more conservative lifestyle based on their commitment to biblical teachings and attendance at worship services. This includes Mass-attending
Catholics, Evangelicals (and “Born Again”), Orthodox, Southern Baptists, Charismatic, Pentecostal and other
5 Comcast New England. “Channel Lineup.” http://comcast-ne.com/information/digital_cable.html#cti
6 Verizon FiOS. “FiOS TV Channel Lineup”. http://www22.verizon.com/Residential/FiOSTV/ChannelLineup/ChannelLineup.htm?zipCode=01886
7 U.S. Census. Religion. 2008. http://www.census.gov/prod/www/religion.htm
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65 denominations.
8910 These more conservative Christians are much more likely to have a skeptical view of secular society—many even find the larger culture antithetical to their beliefs. They are concerned that the influence of secular society is having a detrimental effect on their families and value system. This concern was raised in recent Trender Research focus groups, which included conservative Christians. Some parents felt that they could no longer trust their children with the TV, including commercial advertisements which they judged to be offensive or inappropriate. Supporting the views of these parents was the recent declaration against secular authority by a coalition of 150 Catholic, Orthodox, and evangelical leaders. In "The Manhattan Declaration: A
Call of Christian Conscience," these leaders call on Christians to reject laws that force them to accept abortion, same-sex marriage, and other ideas that betray their religious beliefs. Signatories of the document included evangelical leader Chuck Colson and Catholic Archbishops Donald Wuerl and Timothy Dolan.
In addition to established Christian channels on cable TV, such as Trinity Broadcasting Network, Christian
Television Network, EWTN, and CatholicTV, there is already at least one dedicated Internet TV competitor. Sky
Angel, which is based on a STB and CDN from NeuLion, provides 80 channels of Christian and family-friendly content including the above mentioned channels as well as sports and educational content. The Sky Angel receiver costs $99 and channel packages range from $15 to $25. Sky Angel had been providing programming for
20 years via satellite dish until it switched to an Internet STB in February of 2008, a move which the company claims saved costs, made installation easier, and opened up markets were dish placement restrictions made their service untenable. In addition, because of the nature of sometimes-controversial faith-based programming and the limited channel space available, cable and satellite companies have allowed a greater degree of flexibility from the traditional carriage platform business model which limits a programmer’s ability to redistribute content over the Internet.
11 This has allowed Sky Angel to provide a richer diversity of niche as well as mainstream Christian channels.
While Sky Angel has an early lead, the Christian TV market is so large that there is room for competitors, especially if there are opportunities to package unique content along with the major Christian channels. What’s more, there may be the potential for exclusive partnerships with specific religious denominations wanting to play a role in defining the channel lineup in return for assistance with marketing the service to its members.
5.6.
OTHER NARROWCASTING MARKETS
There are several other narrowcast markets that could be considered potential markets for OTT video.
Virtually any community of interest with a strong level of identity or fan support is a potential market, especially
8 Trender Research estimate based on various data sources, including: Packaged Facts. “Evangelical Christians in the U.S.: Lifestyle,
Demographic and Marketing Trends, 2007”. http://www.packagedfacts.com/Evangelicals-1495106/
9 Adherents.com. Baptists. http://www.adherents.com/largecom/baptist_SBCconv2000.html
10 Wikipedia.com. “Demographics of the United States”. http://en.wikipedia.org/wiki/Demographics_of_the_United_States#Religious_affiliation
11 TV Technology. “Using IPTV to Reach the Faithful”. http://www.tvtechnology.com/article/90054
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For client review only— not for distribution. when this content is not available, underserved, or too expensive from other sources. Some other potential markets include:
Sports (including professional leagues, college sports, and local high school, elementary, and club sports teams)
E-learning (including university distance learning and home schooling)
Gambling
Health and E-Medicine
Fitness
Urban/Hip-Hop/African American
Filmmakers
Music Enthusiasts
Hobbyists
Games and Trivia
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6.
PAY TV MITIGATION AND RESPONSE STRATEGIES
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6.1.
TRADITIONAL DEFENSES
While the fast-moving OTT trend is alarming to traditional TV providers, they have a few trump cards that may slow the impact of this emerging business model. Foremost of these advantages is that they have the
most, best, and freshest programming content of TV shows available, and through their premium channels and video on demand services, a strong line-up of movie titles. Pay TV also has a strong hold on important live
events, especially high-definition sports programming, which is not yet available online to the same extent. A second major advantage is that cable and satellite TV providers already have a reliable method for distributing
multiple channels of high-definition content to all of the home’s TVs via the existing coaxial wiring. This is in contrast to the fragmented OTT video market with its bewildering array of different devices and an equally dizzying list of protocols vying to be the primary means of connecting Internet video to the home’s TVs.
Ethernet, Wifi-g, WiFi-n, WHDI, MoCA, WirelessHD, QAM/RF Modulation, HomePlug, Ultra-Wideband (wireless
USB/VGA), each with different trade-offs and limitations, are all competing for mindshare with the end result being even more confusion for the mainstream market. Finally, service providers benefit from the inertia of
consumers who have grown comfortable with the traditional TV watching experience and enjoy the “lean
back”, high video quality, and instantaneous aspects of traditional TV, versus the “lean forward”, best effort qualities of OTT video. Consumers know how to use the remote control and, while few love their program guides, they understand how to navigate by flipping channels or entering channel numbers. Most also do not want the extra work to figure out how to connect a new OTT device or the clutter this might add to their living rooms. They also have an established trust relationship for billing, installation, and support. To make it even more difficult for customers to consider cancelling their Pay TV subscriptions, providers have tried to lock them in with compelling triple and quad play bundled pricing—discounts they would lose if they unbundled these services.
6.2.
TRY TO CONTROL THE CONTENT
The key question here is whether the owners of TV and movie content will somehow dictate the architecture or business models for Internet devices and set top boxes, keeping content away from OTT providers and giving incumbent Pay TV service providers an insurmountable advantage.
Trender Research does not believe this is a likely scenario. To date, the major Hollywood studios and TV programmers have largely embraced Internet TV, though they are still searching for the optimal business model.
Rather than license their content exclusively to specific partners and hardware devices, they have taken a shotgun approach of signing many channel partnerships. On the content delivery side, they have revenuegenerating relationships with partners including Netflix, Amazon, Vudu, YouTube and many others. They also distribute a portion of their long-form content through their own sites (e.g. ABC.com, Disney) or through Hulu
(with the exception of CBS) leveraging an advertising-based business model.
So far the only major requirements dictated by the major content houses are sufficient digital rights protections on the set-top box and the ability to get paid. As Netflix CEO Reed Hastings said at a recent trade
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68 show, with regard to Netflix increasing partnerships with various Internet-connected devices, “As long as we keep sending them a big check every month Hollywood is happy.”
We also don’t believe standards such as tru2way, HbbTV, etc. or commercial projects such as TV
Everywhere and Project Canvas are likely to change this dynamic. TV Everywhere is a defensive attempt by the cable and IPTV companies to somehow meet the threat of OTT video by extending their walled gardens of content online. TV Everywhere may be successful at stalling some consumers from “cutting the cord” from their
Pay TV subscriptions, but we do not believe it will have the political clout or consumer support to eliminate the market for “open Internet” solutions such as Roku and PeerTV. Initiatives such as Project Canvas are also unlikely to dictate standards to Internet STB companies. In fact, both of these projects may have the opposite effect and even spur the adoption of Internet STBs that extend traditional programming to online viewers.
Of course, the major OTT hold-outs are sports, live events, and premium channels such as HBO that reserve their best content for Pay TV.
6.3.
LEVERAGE ADVANCED PAY-TV FEATURES SUCH AS DVR AND VOD
Before the threat of OTT video even emerged, Pay TV providers had already responded to new challenges and opportunities. After TiVo arrived on the scene with its wildly popular “pause live TV” pitch and user-friendly program guide, Pay TV operators overcame their initial defensiveness and over time took more of a
“if you can’t beat them join them strategy” by offering new STBs with their own DVR services (or partnered with
TiVo directly for a premium service). Paired with expanded options for VoD movies and shows, subscribers have found it easier to fit television into their busy schedules and also enjoy readily available VoD shows without requiring the forethought to record in advance. Many subscribers now rely on their DVR systems as one of the primary means of watching video content. Since this behavior took some time for consumers to adopt, many will not be quick to abandon this pleasant TV watching experience in favor of OTT video.
The challenge for many Pay TV operators is that, while an improvement, the new DVR/VoD services still have several drawbacks. Many people complain that the VoD/DVR menu system is slow and clunky. Others complain that the movies available are not always the newest or the best titles. Active DVR users can become frustrated by the limits with how many shows can be stored at a time or how many channels watched or recorded simultaneously. Finally, some question the time investment required, however small, to record shows in advance when many are available online immediately as streaming downloads.
6.4.
RAISE THE PERFORMANCE BAR WITH HIGH DEFINITION CONTENT
While VoD and DVR services showed the ability for the Pay TV industry to innovate to meet consumer demand, the industry’s embrace of high definition programming showed its strength in getting the entire industry supply-chain to line up to service a new market opportunity. Not only did the industry need to roll-out new cameras, new encoders, new STBs, and new HDTVs, it had to educate consumers about the value of investing $1,000+ for the new TVs and pay more to their service provider for the equipment and HD channels.
Perhaps as a testament to the level of coordination, or the sheer beauty of HD programming, the industry performed brilliantly. According to SNL Kagan, in a few short years the percentage of U.S. households with
HDTVs has increased to 71 percent in 2009, compared to just 16 percent in 2008.
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69
Whatever the reason, HD is very popular with consumers and has effectively raised the stakes for “best effort” video over a broadband connection. While players such as Vudu have proved that it can be done, HD over broadband makes everything about the Internet delivery model a little more difficult, from latency and required streaming bandwidth to the storage needed for Internet VoD services, not to mention the many artifacts that can affect the quality of Internet-based HD video.
6.5.
LEVERAGE TECHNICAL HURDLES WITH 3D TV
While still early in its development, 3D TV has the potential to have a similar effect that high definition has had on the market. Like HD, it requires special cameras to record the content, and then requires compatible
TVs. However, like HD, it also has the potential to be another premium tier of content and give Hollywood studios and programmers another level of pricing/windowing to compete with free and lower-cost content found online. And since 3D movies are about 50% bigger files than comparable 2D high definition movies, 3D further exacerbates the OTT video deliver challenge over a “best effort” broadband connection.
That is of course if 3D proves to be more than a novelty. According to the College of Optometrists in
Vision Development up to 56 percent of those 18 to 38 years have one or more vision problems that may limit or negate their ability to see 3D effects. Others report headaches with symptoms ranging from minor to severe.
This, plus the problem of buying and wearing special 3D glasses, may keep 3D from ever reaching the adoption rates that HD has enjoyed.
But these cautions are not slowing support and investment by major CE vendors. Sony, Samsung,
Mitsubishi and Panasonic have all thrown their considerable weight and development resources at defining 3D standards and rolling out new TV sets. The good news for them is that most of the technology required to support 3D is already imbedded in HDTVs (e.g. high frame rates and high brightness) and therefore future sets can be made 3D compatible for only a slight cost premium. Furthermore the new 1.4 HDMI specification already supports 3D and the industry is pushing towards integrating 3D into the new Blu-ray Disc standard. As a result, manufacturers like Sony and Panasonic intend to ship 3D compatible HDTVs and devices in 2010. Whether or not consumers embrace 3D, the market is project to grow, with 46 million units shipped by 2013 according to
GigaOM.
As further evidence of the promise of 3D technology, BSkyB has announced plans to launch a 3D television service in 2010 that will be available to all of its 1.3 million subscribers. Sky’s new 3D channel will offer a mix of TV shows, movies, and sports. It will use the existing HD infrastructure but will require the purchase of a new 3D compatible HDTV.
6.6.
IMPROVE PAY TV QUALITY AND VARIETY
Since one of the threats represented by OTT video is the range of content options available online, including niche “long tail” programming and interactive apps, one obvious response to this threat is for Pay TV operators to offer more content and more interactivity themselves. In order to do this cable MSOs need to upgrade their plant and equipment to increase both Internet bandwidth and the number of channels they can offer. The goal is to become more like IPTV service providers and over time lock in subscribers with expanded
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6.6.1.
DOCSIS 3.0
Data Over Cable Service Interface Specification (DOCSIS) is an international standard developed by
CableLabs and contributing companies that include ARRIS, BigBand Networks, Broadcom, Cisco, Conexant,
Correlant, Harmonic, Intel, Motorola, Netgear, Terayon, and Texas Instruments. DOCSIS defines the communications and operation support interface requirements for a data over cable system. It permits the addition of high-speed data transfer to an existing Cable TV (CATV) system. It is employed by many cable television operators to provide Internet access over their existing hybrid fiber coaxial (HFC) infrastructure.
As frequency allocation band plans differ between U.S. and European CATV systems, DOCSIS standards have been modified for use in Europe. These changes were published under the name of "EuroDOCSIS". The main differences account for differing TV channel bandwidths; European cable channels conform to PAL TV standards and are 8 MHz wide, whereas in North American cable channels conform to NTSC standards which specify 6 MHz. The wider bandwidth in EuroDOCSIS architectures permits more bandwidth to be allocated to the downstream data path (toward the user).
In the high-stakes broadband game, DOCSIS 3.0 has been an ace in the hole for the cable industry. MSOs have started to roll out faster broadband services by using DOCSIS 3.0’s wideband downstream channel bonding. DOCSIS 3.0 can achieve downstream speeds of up to 160 Mbps by bonding 6 MHz channels together
(or in the case of Europe and some parts of Asia and Latin America, 8 MHz channels). DOCSIS upstream channel bonding can provide up to 120 Mbps of shared throughput for cable operators. While there’s more to the
DOCSIS 3.0 specification than just increased downstream speeds into customers’ homes, increased downstream speeds through wideband deployments allow cable operators to better compete against fiber-optic providers while providing a better service to subscribers.
6.6.2.
Switched Digital Video
Another way to squeeze more out of the existing cable TV system is to use HD channel optimization technologies such as switched digital video (SDV). BigBand is the leader in this market and has been deployed, or is being deployed, by seven of the top 10 service providers in North America. Its SDV solution is designed to enable operators to optimize the network spectrum needed for bandwidth-intensive services such as HDTV and long-tail content. According to BigBand, it provides a path to personalized television services by migrating seamlessly from multicast to ultimately individualized, unicast delivery. By implementing SDV systems, service providers can deliver and manage linear and non-linear video services across the network edge to traditional
MPEG set-top boxes and next-generation IP devices.
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6.7.
IMPLEMENT INTERACTIVE TV AND APPLICATIONS
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6.7.1.
tru2way
Since one of the major benefits of OTT video is its range of options and inherent interactivity, one way for Pay TV service providers to fight back against the OTT threat is to bring these features to their customers. For a long time, the applications and middleware platform for these features has been slowly rolling out to the market in the form of the tru2way initiative (formerly OCAP). Though many industry observers are questioning the financial viability of investing in tru2way, this talk has not stopped the top six US MSOs from investing in it.
Cox and Cablevision have completed headend testing and Cox has been making noise about its new tru2way based user interface. On the other hand, Tier 2 and 3 operators such as Evolution Broadband have publicly abandoned their tru2way trials, saying the numbers “simple don’t add up” (source: Jeff Baumgartner, Light
Reading).
6.7.2.
Canoe Ventures and EBIF
While tru2way is an expensive and ambition initiative, other ways to deliver interactive applications are underway. Canoe Ventures, which is a joint venture between the top six cable providers and covers 60% of the top 100 million households that subscribe to TV services, has begun implementing some basic interactive services based on CableLabs Enhanced TV Binary Interchange Format (EBIF), a simple platform for interactive applications that can run on even the most basic set-top boxes (and therefore can work with the existing installed base of STBs). Canoe’s focus on EBIF comes after a very public and embarrassing launch and then abandonment of plans in 2009 for a much more aggressive set of applications around interactivity and addressability. In short, Canoe came to realize that the diverse installed base of MSO STBs, all with various levels of capabilities and operating systems, would thwart their plans for universal interactive services—and the cost to replace them all was out of the question. That project was discontinued after a trial in 3 million homes.
Canoe is now focusing on an EBIF-powered interactive ad campaign, where consumers could click a button on the remote if they want more information about a product or service. But this more pedestrian app will be limited to 10 million homes and is only “interactive” in that it will reply to the button click with coupons or samples sent in the mail. Eventually, EBIF applications could become more sophisticated, including more advanced advertising, caller ID on screen, and simpler ways to control DVRs. But none of these apps have the same level of targeting and addressability of Canoe’s initial project.
6.8.
FOCUS ON MOBILE VIDEO
Another strategic option for service providers is to try to recoup OTT losses with revenues from the fast growing mobile video market. Consumers in this space are already used to bandwidth caps, minute caps, and text caps, so they are willing to take on a greater level of service provider control in return for mobility. They can also be charged for apps that are free on computers, such as Netflix’s mobile app.
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6.9.
DEVELOP AND LAUNCH HYBRID PAY TV/OTT SOLUTIONS
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As the saying goes, “if you can’t beat them, join them.” Most of the leading service providers have been investing in hybrid solutions that can defend their Pay TV turf while also giving consumers more of the online experience and variety they are looking for.
6.9.1.
Time Warner and TV Everywhere
Originally proposed by Time Warner but now with expanded partners including fellow cable companies like Comcast and IPTV triple play providers such as Verizon FiOS, TV Everywhere is an ambitious attempt to meet the threat of Internet video head-on while limiting disruption to existing business models. TV Everywhere is primarily an authentication system whereby certain premium video content can be accessed online— assuming you are already subscribed to services from a Pay TV operator such as cable, satellite, or IPTV. The content available will include shows you could already get from your TV set, but now the operators will also have an online channel to deliver “long-tail” niche content that cannot efficiently be delivered through traditional broadcast technology (since it would presumably take up scarce channel spectrum for only a small percentage of interested viewers). TV Everywhere will also build more advanced online tracking systems to allow partner operators to better measure program ratings and to charge more for targeted advertising.
While significant lip service is being given to the subscriber benefits of this system, the real beneficiaries are the Pay TV operators themselves. They are finding that more and more of the content they used to be able to uniquely deliver through their “walled gardens” is getting poached and made available online. The symbiotic trust relationship they have had for years with cable networks and programmers such as ABC, ESPN, MTV, and
Fox is being frayed as these networks create their own online sites or form joint online video properties such as
Hulu, stealing eyeballs and cannibalizing Pay TV advertising revenues.
Perhaps the other unspoken aspect of the TV Everywhere strategy is that is sets the stage for a metered broadband future and premium subscriptions. Right now it is all about getting existing content through any broadband connection, and new forms of content, but once this authentication “switch” is built into the system it is a reasonable next step for Pay TV operators to extend their tiered subscription model—one price for double play TV Everywhere customers (TV and broadband), a better deal for triple or quad play customers, and higher rates for broadband only customers. While TV Everywhere claims there will be no extra charge for existing subscribers, there are other ways to extract fees. TV Everywhere will likely follow a path that even free sites like
Hulu will traverse at some point—adding subscriptions or VoD fees for premium content in addition to their free basic titles. Hulu backers including Disney CEO Bob Iger and NBC CEO Jeff Zucker have suggested as much.
Besides some of the technical challenges for TV Everywhere, which are being worked out in several ongoing trials, the major risk factor is changing user behavior. TV Everywhere’s logic works like this: people like to watch video content from multiple platforms (PC, mobile, TV), so we will give it to them any way they want it assuming they are a paying subscriber; in this way we can expand the “walled garden” with more content, keep customers happy, and keep them from cutting the cord. Another possible scenario would work like this: TV
Everywhere helps to train average consumers how to watch online video, they look “over the wall” to see lots of great free or low-cost content on other sites (Hulu, Netflix, ESPN360), and they decide to cut the cord on their
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$100 cable bill or cut back to the basic $40 package and add Netflix streaming for $9 a month. TV Everywhere could be a Pay TV panacea or a pandora’s box that further breaks down the walls of the walled garden.
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6.9.2.
BBC and Project Canvas
Project Canvas, formed by the BCC, Five, BT Group, and ITV, combines free over-the-air content with free and paid OTT content. Like TV Everywhere, Project Canvas is less of a standard and more of a commercial attempt to quickly go-to-market with an attractive solution that is easy for consumers to embrace. It builds on the BBC’s success with its computer-based iPlayer for watching Internet video and the Freeview Free-to-Air
(FTA) system being used by 40% of Britain’s 25 million homes, a powerful combination for consumers. Project
Canvas is also tackling the hybrid interface challenge head-on by providing an integrated electronic program guide that would allow viewers to search both FTA and OTT content at the same time (similar to what TiVo can do today). Consumers would need to purchase a new STB and a new remote.
An interesting contrast is that Project Canvas starts with “free” mindset whereas TV Everywhere starts with a subscription mind-set. Both are trying to embrace the future by blending in Internet video content, but their business models and technical implementation approaches are vastly different. The reason for this has to do with the different regulatory, technical, and competitive backgrounds of the U.S. and European (and international) markets. In the U.S. the whole Pay TV market was carved out from the free “over-the-air” (OTA) channels that are broadcast unencrypted on UHF or VHF bands. Cable and satellite companies lured consumers away from their “rabbit ears” antennas to paid subscriptions by offering more channels and movie packages.
Consumers found this expanded content irresistible and over time become accustomed to paying $75 to $100 or more. OTA was seen as outdated ujtil the recent digital TV change-over, where consumers (in certain markets) were surprised that their roof-top antennas or living room rabbit ears allowed their digital TV tuners to receive a dozen or so major local channels in crystal clear high definition (often better quality that cable). Combined with a streaming movie service like Netflix and free shows from Hulu, OTA has new life and is therefore a threat to
Pay TV cable and satellite providers.
The European television market is very different. “Free-to-air” TV has a long history of support from consumers and regulators and enjoys greater market share than in the States. In most cases FTA is delivered via unencrypted satellite signals (though it might be free but still encrypted for copyright reasons) to dish receivers and set-top boxes rather than antennas and TV tuners. While described as “free”, depending on the country these channels are paid for through advertising, taxpayer funding, donations, or corporate sponsorships, as well as subsidies from the hardware required to enable the service.
The point is that Project Canvas has a starting point that everyone likes—free. From there it will be able to offer premium subscription channels or pay-per-view titles on top of the free basic offerings. It will merge the widely popular BBC iPlayer (but make it user friendly for browsing from the TV) for OTT content navigation and the familiarity and major channels of the Freeview FTA service.
6.9.3.
TV Everywhere Vs. Project Canvas Comparison Checklist
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Similarities:
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74
• Both projects are commercial initiatives launched by major industry players to profit from the growing
Internet video trend.
• Both projects will be challenged to provide a blended viewing experience for traditional TV as well as
OTT content; likewise both projects will need to license and package an attractive mix of content from both worlds, as well as understand new forms of advertising and how to offer interactive apps.
Differences:
• TV Everywhere is subscription-based Pay TV plus OTT (free and perhaps with paid options someday), whereas Project Canvas is free FTA plus OTT (free with options for premium paid content). As a result, Project
Canvas is facing resistance from Pay TV competitors such as Sky, unless they can somehow incorporate them into the partnership.
• TV Everywhere is an incremental approach and does not require a new set-top box, but instead a new software client that will enable content from PCs and mobile handsets; Project Canvas requires a completely new integrated end-to-end system.
• Project Canvas is tackling the “living room” interface head-on, whereas TV Everywhere’s strategy is to extend its content beyond the living room to other devices (though its backers claim it will also enable new content options at the TV). In fact, the entire Pay TV business model in the U.S. is threatened by the host of new devices (e.g., Roku, Xbox, Internet-enabled TVs) that make it much easier to bring OTT video content to the TV and thereby cannibalizing Pay TV.
• Project Canvas seems to be operating in a more restrictive regulatory environment and may face limits that could sub-optimize its ability to reap profits and recoup its $200M+ initial investment.
6.10.
ENFORCE BANDWIDTH CAPS AND/OR PRICE INCREASES
If all else fails, Pay TV service providers could try to enforce the bandwidth caps that they already include in the “fine print” of many of their User Agreements. For example, Comcast’s Internet access service includes a cap of 250 GB. This is enough for about 1 hour per day of HD-quality video being streamed-- OK for the casual user but certainly not enough for “cord cutters”. If this extreme step does not pass legislative or regulatory hurdles, Pay TV service providers always have the option of raising rates on all customers to recoup their costs to support OTT video users.
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7.
WHAT WILL HAPPEN
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7.1.
TOP TEN TRENDS MENTIONED IN THIS REPORT
1.
Many more OTT content sites will emerge.
Niche offerings, such as foreign language content, are a natural fit for OTT.
Brand companies will launch their own channels, rather than just advertising on other’s programming.
2.
OTT will evolve to a mix of complimentary business models.
The “free” advertising supported model, growing out of the traditional free over the air network TV business and morphed online by players like Hulu and YouTube. In this model, content is support by video pre-roll and commercial interruptions, as well as traditional web banner ads and more sophisticated interactive and “teaser” programs.
The subscription model, which allows a range of content options for a monthly fee on an “all you can eat” basis. This is the predominant model for traditional Pay TV providers like cable and satellite and may become more prevalent with online video over time.
The pay-per-view transactional model, led by online players like Apple, Amazon, and Vudu as well as
Pay TV’s own VoD and PPV services. This model is more of a supplement than a replacement for Pay
TV or subscription-based OTT sites.
A smaller segment of the market will continue to want to own movie titles and TV series. In this model, just as with buying a DVD, consumers will download-to-own content to be stored on a local or cloud-based storage device.
Says Netflix’s Steve Swasey, “There is room for all (models) to grow. Just like trucking, rail, and air transit all coexist in the transportation industry.”
3.
More OTT devices will be launched.
Internet TVs being the most prominent, expect some turf battles for the TV user interface.
OTT via game consoles will be better marketed.
4.
The OTT ecosystem will expand and mature.
Remote control devices and software companies that support advanced, interactive user interfaces will benefit from the growing OTT video trend.
This may include companies such as Hillcrest Labs (remote control), Rovi (formerly Macrovision),
Yahoo (TV Widgets), and traditional STB middleware companies such as Microsoft, NDS, Cascade,
Thomson, Espial, and Orca, and Minerva.
Video browsers such as Boxee and Clicker will become mainstream.
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5.
OTT device vendors will continue to expand their content and app partnerships.
But few if any will be able to secure differentiating, exclusive content relationships.
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6.
Pay TV operators will continue to explore and invest in hybrid models.
To try to monetize OTT trend and keep it within Pay TV framework.
To slow or stop the cord-cutting trend.
7.
Pay TV service providers will be forced to unbundle TV/movie service plans and provide more channels a la carte.
Eventually, Pay TV service providers will be forced to offer ala carte channels, similar to what consumers experience online.
8.
Home video distribution and networking technologies will improve and standardize.
The final coup for the OTT business model will not emerge until consumers see an industry standard approach they can become comfortable with, similar to what was accomplished in the development and marketing of WiFi or Bluetooth to consumers. Only when a single integrated platform (that includes powerful silicon, open Linux operating environment, open development API, and all the other required video players,
DRM , and other tools) can be cost effectively imbedded in a range of devices from TVs to set-top boxes will the
OTT revolution reach mainstream consumers. While this might be accomplished through a single integrated and low-cost product from a significant vendor like and Apple or Sony, it is more likely that an industry giant such as
Intel will have to rally the right set of partners to do achieve this goal.
9.
Brick and mortar outlets will continue to fade, but kiosks will grow.
Expect Blockbuster to file for bankruptcy in 2010. Expect Redbox revenues to double this year.
10.
Digital wallets for media will gain in popularity.
As more and more consumers come to rely on OTT, the will demand that the content they are watching and paying for is portable and compatible with whatever device they want to watch it from, including mobile phones.
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7.2.
“CORD-CUTTING” SCENARIOS
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While Pay TV service providers may find ways to profit from the OTT video trend by offering hybrid Pay
TV/OTT solutions , the worst case scenario is that a large number of consumers decide to drop their subscriptions in favor of a lower cost alternative through some combination of OTT video and OTA/FTA antennabased programming. In the following scenarios, we use the term “cord cutting” as a proxy for the sum total of financial impact to traditional Pay TV providers as the result of the OTT video trend. This may translate into some consumers completely abandoning their subscription Pay TV service, or it may mean some consumers reduce their cable TV bill from a premium $100 per month service to a basic $30 line-up augmented by an OTT streaming movie service such as Netflix.
Trender Research predicts that a sizeable percentage of the Pay TV market (modeled after the North
America and European markets and markets with similar competitive and regulatory dynamics) will be either supplementing or “cutting the cord” on Pay TV by purchasing an Internet set top box or other connected device.
The table below models three scenarios: 1) a limited scenario where only a small percentage of consumers adopt OTT video—this outcome would happen if mainstream consumers remained confused about their
Internet TV options and Pay TV operators were successful in blunting the growth of OTT; 2) a realistic scenario where about 7% of consumers adopt OTT video over three years; 3) and an aggressive scenario where 14%-22% of consumers adopt OTT video—this scenario could happen if Pay TV operators largely fail to commandeer OTT video content and revenue streams.
The below scenarios are based on a proprietary Trender Research model for predicting the outcomes, a summary of which is provided here.
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Adoption
Scenario
2010-
2011
2012
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2013 Potential Factors
78
Limited 1-2% 2-3% 3-5% OTT Video remains largely as an additive service offering to Pay TV.
Dizzying array of devices, lack of standards, limited content offerings (HD), and cluttered/confusing user experience turn off mainstream consumers.
Pay TV responds with price reductions. Pay TV implements bandwidth capping. Pay TV implements hybrid walled garden/ OTT offerings. Possible content licensing/ lawsuit challenges stall OTT video march.
Realistic 2-4% 4-7% 7-11% Internet TV STBs and Internet-enabled TVs take off. Increased awareness of HD content via OTA/FTA for hybrid solutions. Netflix/Hulu/etc. continue to expand content. Expanded OTT consumer education.
Aggressive 4-8% 8-14% 14-22% Pay TV operators fail to leverage industry initiatives such as Project Canvas and TV Everywhere walled gardens to monetize OTT video. 80% of content, including live events, sports, cable channels, HD content moves to OTT sources. Narrowcast communities embrace OTT. Various killer apps emerge (t-commerce, social networking). Vastly superior user experience/ content discovery/ recommendation technologies. Younger demographic abandon Pay TV. Bandwidth capping backlash from consumers/regulators.
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7.3.
SUMMARY OF OTT VIDEO WINNERS & LOSERS
The below table is a brief summary of the impact on industry players based on the “cord cutting” scenarios described above.
“Cord Cutting”
Scenario
Winners Losers
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Limited
Realistic
Aggressive
Pay TV service providers (cable, satellite,
IPTV), who succeed in monetizing OTT.
EBIF/TV Everywhere. STB manufacturers and TV middleware vendors.
Mainstream consumers, who stay largely confined to walled gardens and possibly face price increases or bandwidth caps for broadband. Netflix, Amazon, Vudu, etc. who face competition from hybrid Pay TV services.
HDTV manufacturers, who have new relevancy for providing a blended UI for
Pay TV/OTT, and the potential for a software-based revenue stream. Netflix,
Amazon, etc.
Pay TV service providers, who fail to fully monetize OTT. EBIF. TV Everywhere. Retail video rental/sales, which lose revenues to OTT.
Consumers. HDTV manufacturers.
Advanced remote control manufacturers. Netflix, Amazon (also for t-commerce), Vudu, etc. Niche content providers. Independent films and UGC which competes on more of a level playing field. Intel, other chipset providers, and home networking devices. Yahoo TV Widgets. Rovi.
Pay TV service providers . EBIF. TV Everywhere.
STB vendors. Broadband Internet service providers, who struggle to support costs of massive increase in IP video traffic. Retail video rental/sales. TiVo and DVR services, since OTT starts to replace recording of linear content.
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8.
REFERENCES
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8.1.
EXPLANATION OF TRENDER FRAMWORK AND TRENDER DASHBOARD
The Trender Dashboard™ used in this report is based upon Trender Research’s proprietary Trender
Framework™. The Trender Framework is comprised of factors that go beyond the desires of techno-savvy early adopters to determine a product’s attractiveness to the mainstream market. The Trender Framework helps us to evaluate the fit of new products and services for the mass market and thereby to better predict which products have what it takes to be successful with everyday consumers.
In this report, the generic variables outlined below have been adapted to apply to the different players in the OTT market. Some similar variables have been combined to leave 10 major factors for success with the mainstream market. A rating of 10 means that aspect of the product or service is very attractive to mainstream consumers as it relates to the OTT video trend; a rating of 1 means that aspect is detrimental to the product or service. Therefore, the Trender Dashboard is not to be read as an academic report card, where a ranking in the
70s would denote a sub-par “C” performance. In general, a rating above 60 signifies support by average consumers and a rating in the 80s would indicate very strong support. Products or services scoring in the low to mid range have some aspects that are holding average consumers from embracing it on a wide-scale. The
Trender Dashboard blends the ratings from the analysts writing this report with the Trender Panel. Here are the variables and their brief explanations:
Understandability. Understandability is probably the most important variable for what makes a product successful, for if people do not understand what problem the product is trying to solve, and why it is better, it has no hope of being adopted by them no matter how much money is spent on advertising. Understandability is a combination of how simple and emphatic the product’s value proposition is, the simplicity and clarity of its messaging/positioning/branding, and how effectively that message is communicated to consumers in an often crowded marketplace.
Call to Action. This is an advertising concept, but it applies equally to the product itself. If in fact one understands the product, why do they need to buy it now? What is driving someone to open their wallet? What are they missing out on if they do not act now? Something about the product needs to tie into a larger trend or solve a perplexing problem with how we live our lives. It cannot simply be something that causes one to say,
“Yes I like that product. Maybe someday someone might give me one as a gift.” It needs to have a stronger pull than that. It needs to have some “wow” appeal. It needs to appeal emotionally, such that someone is compelled to go look for it in the store or find it online.
Buzz. Buzz is when someone tells you “You HAVE to see this movie. It will change your life” or ask “You do such-and-such, and you don’t have a bla-bla?” That is buzz. There are lots of ways to create it, from traditional advertising, to word-of-mouth, to viral online campaigns, to product reviews, to the simple fact that millions have been sold and you do not have one yet. It builds on “understandability” and “call-to-action” to provide a certain cache to the purchase you are about to make. Obviously, buzz is more important for technically advanced products than say, paper clips, and even more so for expensive tech products or services.
Reach. People put a certain trust in things they see a lot of. They know they are within their reach, easy to buy. They do not have to go far to find them. They are not exotic or kooky. They are right, sound, and
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81 reasonable for normal folks. You might walk by the hardware store every day and never buy that chainsaw, but you know where to find it when you do need it. A product that is widely available, or at least where you would expect it to be, builds confidence.
Installability. A made up word, but it is important for people to know that what is expected of them to set up the new product or service is reasonable. We live very busy lives these days and our time is precious.
Knowing that a new product will take a long time to get working becomes a mental block for a lot of people and may cause many of them to only embrace it abstractly in their minds.
Design. Does it look and feel well-built, as it is supposed to look (i.e., whatever the intended target market would expect to see)? Are all the other factors of its physical look/feel acceptable?
Performance. Performance is an important variable that helps consumers feel good about their buying decision and usage experience. Depending on the product, it may pertain to speed, video resolution, or other variables that can be measured or perceived. In short, did you get what you paid for?
Quality. Does the product meet your cost/value expectations? Is it well built, or does the construction or design make it feel shabby and inferior to what you paid? If it is a service, does the quality of the content or features measure up? Whether or not the product ever actually fails, your perception that it is soundly made or has the best content will go a long way towards your enjoyment of it.
Usability. Ease of use is an important factor for how eagerly folks will embrace, continue to use, and willingly help create buzz for the product. It has to do with everything from the user interface and tactile control of the product, to how quickly and intuitively one can access its major features.
Passivity. Passivity is similar to usability but different. Passivity has to do with how much physical, mental, or emotional effort is required to use and maintain the product. Can you just set it up once and forget about it forever (like a wireless router)? Or do you have to constantly update drivers, download new versions, trouble-shoot problems, install new batteries, or make choices and trade-offs. In other words, is it one big headache, or does it go about its business passively, in the background.
Interoperability. This is highly relevant to all tech products. Does the product or service work well with the technical gadgets you already have in your home, at work, or on the road? Does it connect with what you expect it to connect with? Or does it require you to completely rework all the other things?
Lifestyle Fit. Again, this is somewhat related to some of the above items, but expands to include all of the other factors in our lives. Does it fit space-wise in our rooms, in our pockets, on the proper table? Does it give us more enjoyable time, or take up more time than it’s worth. Does it create harmony in our relationships, or create new sources of tension and arguments (e.g., who gets to record what)? Is it just a necessary evil, or something that delights us and makes us feel just a bit happier?
Variety. Just as “variety is the spice of life”, it is also important for many tech products and services. For hardware devices, supporting a variety of uses is important, where for software application or services, providing a range of utilities or content options ensures that users will keep coming back.
Flexibility. Flexibility could mean a lot of things, but for this purpose it means the ability of the product to meet the needs of multiple use cases over time. Does the product have the ability to evolve and adapt to beyond what was initially available when you bought the product?
Translatability. Does the product or service have the ability to traverse the needs of various demographics? Or is it tailored only for women, teens, seniors, or other groups. There are definitely scale and buzz advantages for a product that benefits from wide interest and usage.
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Total Cost. In most cases this is the up-front price, but it may also include ongoing maintenance costs or monthly service fees which can outweigh the initial retail price. Consumers have become very savvy at assessing various pricing schemes and coming up with both a real and perceived cost to buy the desired product or service.
Value. In addition to what you pay is how much you get for what you pay. Does the product or service do just one thing, or one thing well but a host of other things that exceed my expectations? How does it compare to what else I could have bought for half the cost? Twice the cost? Was it still worth it?
Customer Support. This is especially important for tech services that might need some hand-holding to install. Products that require little or no customer support automatically score high.
Security. Does the product or service do enough to protect your security, or are there real or perceived concerns about the safety of using it?
Privacy. Does the product or service do enough to protect your identity, personal information, and usage data, or are there real or perceived concerns?
Obsolescence. Most mainstream consumers do not just want the latest and greatest technology, they want some reassurance that their purchase will not become obsolete, or worse ridiculed, in a relatively short period of time. If that risk is even slightly perceived to be a possibility, mainstream consumers might just decide to wait it out to see what the next generation of technology brings.
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8.2.
AUTHOR BIO
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Brian Mahony, CEO & Chief Trender
Brian has 20 years experience in the technology industry leading strategy, sales, marketing, product management, and business development teams. Over the years, he has defined and/or launched over 20 technology-based products or services, several of which have received “product of the year” awards by various media. Brian's experience spans TV/OTT video, enterprise software, consumer electronics, Internet services, and telecom/mobile. He is the founder of technology consultancy Trender Research. Brian has contributed to the successful exit of three companies in his career: the IPO of IPTV middleware provider Espial (on the Toronto
Stock Exchange) where he was Vice President of Marketing, and the acquisitions of both Netcentrex (by
Comverse Technology) and Unisphere Networks (by Siemens and Juniper Networks) where he was Vice
President of Marketing and Director of Strategy and Business Development, respectively. Brian’s consulting experience includes PRTM, Sprint Nextel, Loral Space & Communications, Verizon, and ZeeVee.
Brian was named “The Decade's Top 100 Voices of IP Communications” by Internet Telephony and a finalist for
"Best Marketing by a Private Company" by Light Reading. His web site projects have earned Webby Award and
Summit Award honors, and he is an expert in social media, SEO/SEM, and Salesforce.com. He has been quoted in various media including The New York Times, Gizmodo, Light Reading, Telephony, and Telecommunications, and as a guest panelist for Digital Trends’ “Beyond the News” podcasts. Brian has also presented at major industry events including IPTV World Forum, IBC, Internet Telephony, TelcoTV, Digital Hollywood,
CONNECTIONS, FTTH Expo, VON, and SUPERCOMM. Brian holds an MBA in marketing and business strategy from the University of North Carolina-Chapel Hill, a BA in philosophy from Boston College, and is Certified in
Integrated Resource Management (CIRM) by APICS.
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84
3D TV, 69
ABC, 8, 16, 17, 23, 24, 29, 30, 32, 41
Adobe, 28, 54, 59
Allio, 57
Amazon, 10, 26, 27, 28, 41, 75, 79
Amimon, 60
Amino, 50
Apple, 10, 38, 39, 75, 76
AppleTV, 39
AT&T, 12, 31, 40
BBC, 37, 51, 59, 73
BigBand, 70
Blockbuster, 10, 13, 26, 29, 41, 55, 56,
76
BlockBuster, 29
Blu-ray disc, 28, 53
Boxee, 9, 25, 33, 35, 36, 37, 62, 75
Buffalo, 50
Cablevision, 32
Canoe Ventures, 71
CBS, 8, 16, 23, 24, 41
Charter Communications, 31, 33
Cisco, 17, 18, 59, 60, 70
Cisco Systems, 17, 18
Clicker, 38
Comcast, 31, 34, 35, 40, 60, 64, 72, 74
Cox Communications, 32
Crackle, 35
DirecTV, 12
Discovery, 10, 16, 22, 33, 34, 64
Disney, 8, 16, 24, 25, 29, 41, 44
DOCSIS 3.0, 63, 70
DVD, 8, 13, 14, 18, 19, 23, 26, 27, 60,
75
DVR, 9, 12, 13, 16, 19, 26, 40, 41, 79
EBIF, 71, 79
ESPN, 16, 22, 31, 32, 37, 64, 72
Ethernet, 10, 44, 67
FaceBook, 41
Fox, 8, 14, 16, 24, 30, 41
Globecast, 64
Google, 18, 23, 24, 35
HBO, 23, 34
8.3.
COMPANIES AND TECHNOLOGIES MENTIONED IN THIS REPORT
HD HomeRun , 51
HDMI, 38, 42, 48, 58, 60, 69
HomePlug, 10, 67
Hulu, 6, 8, 10, 16, 17, 18, 20, 21, 23,
24, 25, 26, 29, 30, 31, 35, 36, 37, 39,
52, 67, 72, 73, 75, 78
Intel, 48, 58, 59, 60, 70, 76, 79
IOGEAR, 38, 39 iTunes, 39
Jaman, 41
Klickable, 62
KylinTV, 35
LG, 26, 44, 57
Lions Gate, 23 media center PC, 38
MediaRoom, 49
MoCA, 10, 59, 60, 67
Motorola, 50, 60, 70
NESN, 32
Netflix, 10, 13, 16, 20, 21, 26, 27, 28,
29, 30, 35, 37, 38, 41, 42, 43, 51, 52,
54, 55, 56, 57, 59, 62, 67, 71, 72, 73,
75, 77, 78, 79
Netlfix, 10
NeuLion, 46, 65
Nintendo, 51, 53, 54
OTA, 19, 40
Panasonic, 28, 57, 60, 69
PeerTV, 45, 46, 68
PhotoBucket, 41
Picasa, 41
Popcorn Hour, 48
Project Canvas, 68, 73, 74, 78
Pulse~Link, 61
QAM, 10, 47, 58, 60, 67
Redbox, 13, 14, 16, 26
Roku, 6, 10, 22, 26, 27, 28, 33, 42, 43,
46, 47, 48, 52, 58, 62, 68, 74
Rovi, 75, 79
Samsung, 26, 43, 56, 57, 69
Sezmi, 48, 49
SiBeam, 58
Sky Angel, 46, 65
SkyAngel, 35, 36, 39
Sony, 23, 26, 28, 35, 51, 52, 53, 54, 56,
57, 60, 69, 76
Suddenlink Communications, 29, 31
Time Warner, 32, 60, 72
Time Warner Cable, 32
TiVo, 26, 40, 41, 43, 79 triple play, 9, 12, 14, 16, 17
Triple Play, 9 tru2way, 49, 68, 71
TV Everywhere, 31, 34, 35, 68, 72, 73,
74, 78, 79
TVAnywhere, 49
TVBlob, 50
Twitter, 30, 41
Ultra-Wideband, 10, 67
Universal, 8, 14, 16, 24
Verizon, 31, 40
Verizon FiOS, 60, 64, 72
Vizio, 26, 28, 43, 44, 55, 56, 57
VoD, 12, 13, 14, 44, 75
Vudu, 22, 43, 44, 54, 55, 57, 58, 62, 67,
69, 75, 79
Walmart, 29
WalMart, 26
Walt Disney Company, 31
WHDI, 10, 60, 61, 67
WiFi, 10, 18, 44, 58, 60, 61, 67, 76
WiFi N, 58
WiMAX, 12
Wireless HD, 10, 67
WirelessHD, 58
Xbox, 26, 43, 51
Yahoo, 10, 75, 79
Yahoo!, 54, 55, 56, 57
YouTube, 17, 23, 24, 31, 32, 35, 36, 41,
47, 56, 57, 67, 75
Yuxing, 50
ZillionTV, 48, 49
Zinc, 9, 36
ZvBox, 22, 37, 46, 47, 58
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Video Threat (June 2010)
