Aligning with the content owners

Guillaume Sachet
05 Dec 2006

Over the last couple of years, the traditionally distinct worlds of media and telecommunications have converged. Broadcasters have become broadband companies and telecoms operators have TV licenses. Traditional triple-play operators are now facing the emergence of a new breed of players that leverage new infrastructures (IP) and technology (DVB-H) to break the barriers between telecoms and media.

Both media companies and telecoms operators have acknowledged changing consumption patterns with the emergence of new media. According to Forrester Research, Internet users and GenY (ages 18-26) are spending less time watching TV. Mobile markets are becoming saturated and customer acquisition, long considered as the key business driver, is now overtaken by the need to increase ARPU through new revenue streams. IPTV and mobile TV are looked at as the new 'el dorado' despite an unclear ROI.

Defining the model

Business models for both IPTV and mobile TV are yet to be determined. Alliances, takeovers, mergers or organic growth are potential solutions for both telcos and media companies to explore. However, disruptive players are also entering the game offering new options to end-users.

The traditional telco's view of IPTV is based on broadcasting TV and video-on-demand over IP. Telecom Italia for example, operates the network but will leave the content to a third party. Media companies usually opt for partnership with a telco or ISP. For example, Sky Italia has partnered with Tiscali on IPTV while BSkyB has taken over an ISP (Easynet) to broadcast its content.

Other operators opt for a hybrid model using IPTV for on-demand and interactive TV while moving to new technologies (Digital Terrestrial) for broadcast TV (Neuf Telecom in France). But other models are starting to emerge. uses the Internet to 'broadcast' streamed or stored content on a PC, Slingbox offers a device that plugs into a broadband connection to provide access to TV content and Moviebeam allows users to download video content to personal devices.

Similarly, telcos and media companies opt for different models to enter the mobile TV market. British Telecom (BT) and Sky have partnered to offer mobile TV. Sky creates content while BT aggregates and delivers content through Arquiva or Virgin Mobile and manages customers' relationship. Vodafone and Sky also provide mobile TV. Sky creates and aggregates content while Vodafone delivers it.

Despite the many business models, a business case has yet to be proven despite optimistic projections on mass-market appeal (see graph below). As a standalone business, the IPTV business case is marginal and projected revenue growth from IPTV does not justify the investment as consumer demand is unproven and regulation unclear. The key benefits from IPTV are clearer when combined with the operator's core business as IPTV helps reduce churn and grow customer base (in particular in new customers' segments). For mobile TV, the key challenge is consumers' readiness and willingness to pay for mobile TV content and as many trials to date have been free, usage figures are hard to translate into demand for paid services.

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