Countering the over-the-top video threat: QoS charges, P2P offers and ‘streaming’ to the television

By John Moulding, Editor-in-Chief

The success of Apple’s iTunes video download service and the launch of Google Video is forcing IPTV operators to consider how they maintain their position in the content-to-consumer value-chain. 

Such is the pace of change in the digital TV marketplace that incumbent telcos now rolling out their video services are facing a potentially serious threat that does not come from their anticipated cable or satellite rivals. So-called 'over-the-top' video providers who use the unmanaged public broadband Internet to deliver video direct to consumers on their PCs, are emerging as a viable competitor, and as broadband speeds increase, all existing and would-be PayTV operators will have to decide how to counter them.

Consumer Uptake

The rapid consumer uptake of Internet video services from the likes of Apple has surprised some industry commentators; perhaps more surprising is the sudden availability of premium content like episodes of Lost and Desperate Housewives. As last mile network owner/operators offering broadband Internet services, incumbent telcos (like their cable operator rivals) face the unique dilemma that as they increase their broadband speeds, they make it easier for over-the-top video providers to deliver the Quality of Service (QoS) needed for professional broadcast standard television. So how should they deal with this phenomenon?

The strategy emerging within the telecoms and cable industries appears to focus around QoS, exploiting the fact that even on high-speed networks, bandwidth will remain a scarce resource as Peer-to-Peer (P2P) video means demand outstrips supply. Operators can use advances in bandwidth management that allow them to identify which IP packets belong to which type of service, then prioritise them. These mechanisms could be used to deliver a premium broadband video experience, suited to video streaming or downloads, but only for additional fees - whether these fees are paid by the person consuming the video or the companies offering the over-the-top aggregation/delivery service.

Higher-speed

It remains to be seen what regulators will think of attempts to charge for guaranteed QoS and it is quite clear their attitudes will have a crucial bearing on how this market develops. For last mile network providers, there is money to be made from higher-speed broadband connections. Internet video can feed the demand that drives consumers onto higher speed/higher download packages but as always, there is the danger that they could become a big, dumb pipe.

Video Retreat?

There are some business analysts who think the future for telcos with national networks is to remove themselves from the over-the-top dilemma altogether by retreating from video services - and instead setting themselves up as the wholesale bandwidth/service enabler who makes broadcast-quality video possible for everyone else. But assuming incumbents are determined to juggle higher-speed last miles (and the resultant broadband revenues) with private network Pay TV services, the most likely strategy for dealing with over-the-top providers is to beat them if you can, but if you can’t, work with them. Either way, operators should be prepared to integrate TV and PC functionality much more closely to keep fee-paying eyeballs on the big screen.

David Price, head of piracy intelligence at Envisional Ltd, a company that monitors the Internet for fraud and brand or content misuse, is convinced that the major studios are now committed to making premium content available online. First-run hit series are ending up on the Internet anyway - often within 15 minutes of airing in the US - and  downloading free (illegal) content is now part of the daily routine for P2P enthusiasts. For rights holders, Apple and their contemporaries are providing a conduit for legitimate downloads - a way to keep honest people honest.

Online Experiments

“For the content owners, some of the existing online aggregation was experimentation; testing the demand paradigm,” says Price. “But I’m pretty sure they’ve now made the decision that this is something they need to pursue.”

Jim Brooks, media director at consultants CapGemini Telecoms Media & Entertainment (TME) believes over-the-top video presents a great opportunity for content owners but does not believe it will encourage major brands to try to keep PayTV platforms out of the value chain. “My  personal view is that a company like Disney would see this as just another distribution channel,” he says.

Darren Childs, managing director, Global TV Channels at BBC Worldwide, also suggested recently that content owners will always want to work with PayTV platforms.

Robust Pay TV

“Content owners are trying to maximise their returns on content so they are not going to do things that destroy the PayTV world,” he told a primarily cable audience at the ECCA Congress (European Cable Communications Association) in late February. “We need to keep PayTV alive and need it to be a robust business in order to keep our business going. I think there will be incremental opportunities [for new content aggregators on the Internet] but I don’t think it is going to stop people paying their PayTV subscriptions.”

Some commentators are presenting an altogether less cheery picture, however. William Cooper, founder and principal consultant at informitv.com (an independent consultancy specialising in interactive media) is convinced that over-the-top is going to impact PayTV operators in a big way.

“Google, and their competitors and successors, have no real need to work with pay television operators or broadband service providers, but they will need to develop partnerships with providers of programming,” he declares. He believes video downloads and streaming present the same threat that audio downloads and streaming did to the record industry.

Disruption Impact

Joint author of the report IPTV: Broadband meets broadcast - the network television revolution, Cooper adds: “The threat is often over-stated and in reality, they will continue to co-exist. But it will have an inevitable impact on conventional channels of distribution. In the long-term, bandwidth and QoS will become less of an issue. Consumers will be able to access content  anywhere in the world.”

Cooper expects most service providers to try to keep their subscribers within the walled gardens of services they control initially, and to offer controlled access to Web content through their own portals. But he warns: “The reality is that a competitive market will ultimately force broadband service providers to compete as commodity data carriers, offering access to the services that consumers demand. Those that are able to offer additional, integrated, value-added services, will be better placed to compete.”

As last mile owner/operators who have spent billions building their networks, cable and IPTV may at last have a common cause. Mike Fries, the CEO of Liberty Global, which owns the UPC cable companies across Europe, brackets over-the-top video with piggy-back broadband services like Vonage and Skype telephony as part of the ongoing ‘dumb pipe’ challenge. Speaking at the ECCA Congress in Vienna he said: “This is one of the first times when we have something in common with telcos. As Ed Whitacre [chairman and CEO] at AT&T said, nobody is going to use this pipe free. We spent a tonne on our network and if you expect something for nothing that’s not going to happen.”

Fries ruled out attempts to block services as a bad idea legally and commercially. He believes no action is required yet but advised his cable audience (and it applies equally to all PayTV operators) to watch their over-the-top rivals “and take the best of what they are doing and roll it out yourselves”. He said last mile providers should seek to charge over-the-top companies a reasonable fee for the minimum QoS needed for their
customers. “Another option is to work with them.”

Creative Thinking

Some creative strategic thinking is going on behind closed doors. UK cable operator NTL has suggested that legitimised P2P video distribution is one of the major marketing opportunities that could underpin its ambitions to roll out a 100Mbps to the home broadband network. That infers an online content aggregation role for somebody and NTL appears conciliatory in its attitude towards the big online brands.

But Steve Upton, the company’s managing director of networks, has warned: “The passage of traffic on a network needs to be funded either by the end user or by the companies that want to offer services across it. We have a [broadband] model at the moment where the end user pays the whole cost and it is not differentiated by the service the customer uses. It is my personal view that we will start to see some segmentation of charging on different service types.”

Meanwhile, London-based video-over-DSL provider Video Networks Limited is pointing towards another possible solution. The company has just deployed technology from California-based ICTV that can bring unmanaged Internet video into the headend of a private network operator and transcode it into professional MPEG video for delivery to their subscribers. In effect, it converts streamed video into broadcast TV fit for display on the living room television set, complete with guaranteed QoS. Once transcoded, the content is made available to subscribers as if it was a traditional VOD asset, and is unicast to them via the normal private network infrastructure.

Video Networks’ chairman and CEO Roger Lynch sees this as a way to extend the ‘long-tail’ concept (comprehensive VOD archive) as far as possible. He told the IPTV World Forum in March: “The final step [in the long-tail approach] is to use the Web as a content server, but present that content in a televisual way. Taking care of rights and payments, you can give people access to all they want.”

Another option for all PayTV operators - especially those who are content-rich - is to join the online party. Jim Brooks at CapGemini TME believes PayTV operators will move their own businesses online as the Internet threat develops, but that presents the additional danger for late-movers that they will be competing not only against video aggregators like Google, AOL and Yahoo, and specific content owner and broadcast sites like Disney and BBC, but with existing Pay TV brands too.

However this market develops, the threat today is limited by broadband speeds. Any casual Internet browser stumbling across Google Video (at http://video.google.com) would certainly wonder what all the fuss is about but it is the very name Google, and the size and reach of brands like iTunes, that are making everyone take notice.

First published in IPTV News Analyst (see http://www.digitalmediapublishing.co.uk)