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IPTV vs. Broadband Video: Competitive or Complementary

Introduction:
The race to deliver video over an IP network is driving the next generation of broadband networks worldwide.  In every part of the world, telecommunication companies are upgrading their broadband infrastructure to deliver video to the television set, PC, and mobile devices.  Service providers are driven by their desire to increase their average revenue per user (ARPU), which has been on a steady decline as voice services have become a commodity.  Broadband Internet access stemmed the decline briefly, but that market has also matured due to stiff competition and lower prices.

Telecommunication companies have sought to increase ARPU over the years with a number of different value added services.  The most promising and relevant service to end customers is video, and the industry has now turned its focus to delivering IPTV services.  IPTV is essentially the same as traditional cable service but promises a more interactive entertainment experience by leveraging the two-way communication capability of IP networks.  Similar to cable service, the service is delivered over a closed, walled garden IPTV network.

A key requirement to deliver IPTV services is a highly available, high bandwidth broadband network, and service providers have been investing heavily to video-enable their existing networks.  However, as broadband access speeds have increased, the higher speeds have enabled Internet based video services to proliferate.  Today, there are a number of Web 2.0 companies that are attempting to leverage the increased broadband access speeds to deliver video services using the public Internet.  Although initially   delivered to the PC, these companies are slowly expanding to deliver video services to all three screens: PC, television set, mobile device.

At this point, there is no doubt that video services delivered over the public Internet are here to stay.  The key question for service providers considering IPTV services is whether these Internet based video services are competitive or complementary to the closed IPTV services currently being considered.  At first glance, the Internet based services may seem to be competitive and a threat to the strategic objectives of telecommunication companies.  However, further analysis seems to indicate that these services could be very complementary and add incremental revenue to the IPTV services being developed.  

Internet as a Video Distribution Platform
Benefiting from the broadband infrastructure upgrades currently underway, hundreds of Internet based broadband video sites and services have been created.  The best known and arguably the most successful is Apple’s iTunes service, which has become a billion dollar business in a short period of time.  There is also a set top box based approach, and Apple TV, along with a number of high profile startups, is pursuing that approach.  Whether the delivery is to the PC or the television set, what is becoming more apparent is that the public Internet is becoming a platform for video distribution.  This approach is in direct contrast to the approach by the network based operators who are planning services to be delivered over a closed service delivery network.

As the Internet becomes more powerful as a video distribution platform, content providers and aggregators are introducing services that leverage the direct access to the end customer.  To effectively deliver video over broadband, there are essentially two components: connectivity and content presentation.  With the connectivity problem solved by faster broadband speeds, the new services are focusing on the aggregation and presentation of content to present video content in a way that encourages consumption. 

With over 300 million broadband users worldwide, the Internet has a footprint that no single service provider could ever match.  On the content side, with global reach and innovative new services being created every day, the public Internet has become a major source of video entertainment, which cannot be matched by traditional broadcast media companies or the new IPTV services being developed.  Today, most of the video entertainment is consumed on the PC due to broadband performance.  However, as access speeds for mobile devices increases over the next few years, consumers will inevitably begin to start consuming video entertainment services on their mobile devices as well. 

In the next few years, the Internet will firmly have established itself as a viable video distribution platform for consumer entertainment for fixed and mobile devices.  Any video service will need to incorporate the video offerings available on the public Internet.  If they do not, consumers are likely to view the service as incomplete, and the video service will not reach its full revenue potential. 

IPTV and Broadband Video Business Models
Service providers considering IPTV services must really consider how Internet based broadband video services can be integrated into their video offerings.   Many of the initial IPTV deployments largely mirror those offered by cable operators.  Although there is the promise of more channels and content, this is not a sustainable competitive advantage unless exclusive content deals can be signed.  Give that the number of video distribution options for networks and movie studios is only increasing, exclusive content deals are unlikely. 

When compared side by side, there are several similarities between IPTV and broadband video.  The table below details the key service considerations for IPTV and broadband video. 

When comparing the two services, what becomes apparent is that there is overlap in the key capabilities required to deliver the service and the revenue model.  What is interesting to note, however, is that IPTV capabilities are actually a superset of the broadband video capabilities.  So a service provider who can deliver IPTV should also have the key service delivery skills to deliver broadband video services. 

With the new IPTV and broadband video services, advertising revenue is expected to drive a big part of the business model.  In advertising, the Holy Grail is to deliver a relevant ad to the exact segment for which the ad is targeted, and service providers, with the new IP-based video services, are in a perfect position to deliver this.  IPTV and broadband video enable service providers to deliver relevant video content not just to a household, like the cable TV approach, but to the individual in the household.  They are able to do this because the underlying IP technology allows service providers to identify the specific subscriber and end device where the video is being delivered.

The implication is that service providers can offer an advertising platform that can deliver a personalized ad that is relevant to the exact target customer triggered by the content, device being used, and even the location where the customer is viewing the content.  The ability to deliver personalized ads is a tremendous strategic core competency.  Both Google and Microsoft have made multi-billion dollar acquisitions to acquire this capability.  However, all of this requires an intelligent network infrastructure that can deliver personalized services. 

SmartEdge Multi-Service Edge Router Designed to Personalize Networks
Redback’s SmartEdge Multi-Service Edge Routers (MSER) enable service providers to deliver personalized IPTV and broadband video over a single converged network infrastructure.  Networks built with SmartEdge routers are subscriber aware, meaning that regardless of the location and end user device, the network understands who is accessing the network and the bandwidth and QoS requirements of the end device. 

Effectively, each and every person has a personal virtual private network that aggregates their content and delivers video, voice, and data services to any device, whether it is fixed or mobile access.  Since the network is able to identify individual subscribers and services, service providers are able to proactively manage network resources and provide a quality experience. 

SmartEdge routers achieve the personalization by combining edge routing, Ethernet aggregation, and subscriber management into a single scalable platform.  In addition to the benefits of building a network that can be a strategic advantage, utilizing an integrated platform like the SmartEdge MSER can yield significant economic benefits.  An independent analysis by Yankee Group has shown that Redback’s products can save over 22% in capital expenditures and over 50% in operational expenses. 

As IPTV moves from becoming a closed network delivery of video content to integrating broadband video over the Internet, service providers will need a flexible, scalable platform to deliver all the services in a unified manner.  Integrating the creative and wide ranging video services available on the Internet with traditional video services can really differentiate a service provider’s video offering from those of traditional cable operators.  Going forward, as content creators have more distribution options, content distribution, i.e., traditional IPTV, will become increasingly competitive.  Service providers looking to differentiate their services must look towards developing a service that combines the creativity and freedom of the Internet with the video services from media and entertainment companies.