TV distribution has historically been a closed, managed vertical market, but as the fundamental characteristics of the Internet become increasingly engrained in the TV value chain, traditional players need to evolve to survive.
Distribution is the lifeblood of any business. No matter how good the product, or how attractive the content, without distribution a business is in trouble. In this, the second of our articles on the future of TV, we explore how the growth of broadband take-up and the introduction of Internet (and in particular web services) technology into TVs and set-top boxes is set to change the business paradigm for every organisation in the TV value chain.
As discussed in our previous article, TV distribution has historically been a closed, managed vertical market. Platform operators have exercised control through a combination of set-top boxes/devices locked exclusively to one distribution network together with control over scarce distribution resources (broadcast spectrum, cable, satellite, etc). Even with the introduction of IPTV, operators continued to maintain control through exclusive set-top boxes and management of the quality of service on the broadband connection used for service delivery.
Today, the industry is seeing a plethora of new interactive services being introduced into the market, such as video-on-demand or catch-up TV services. Many anticipate that existing platform operators will be able to maintain their current relationship with consumers given the control they have over content presentation and the level of engagement consumers have with their current service. Internet to TV services may become more complex and costs may rise but provided a clear and attractive migration path is offered to new services on the existing platforms, customers will remain with the service and (cyclical economic effects aside) net revenue impact to platform operators will be minimal.
This ideal scenario remains a possibility, particularly as existing players have indeed significant market presence and financial power to invest in this transition. However, an alternative scenario is equally plausible.
The two mechanisms that platform owners have used to retain market control – proprietary devices and control over distribution resources – are under threat. The improving quality and reach of broadband IP connectivity is making it increasingly possible to deliver broadcast-quality TV over existing fixed broadband infrastructure without requiring additional management of the connectivity service by the provider.
At the same time, Ethernet connectivity and web service technologies based on open standards are being built into both set-top boxes and TVs. These elements are the building blocks of an ‘open TV’ content distribution environment, where the consumer is no longer reliant on a platform operator to dictate and control the nature and the quality of the service.
At the recent IBC conference in Amsterdam, the scope of the development of Internet TV technologies was apparent. TV manufacturers, middleware vendors and set-top box providers were all displaying a range of web enabled devices and related technology. Apple iPhone-like widget interfaces and content carousels were abundant giving a graphic illustration of what an open-TV world may look like. Projects such as HbbTV supported by a range of European players, and as Canvas from the BBC promise a whole new genre of features to programme makers together with a standard development environment in which new content based applications can be written and delivered.
As these device technologies are widely adopted, barriers to entry for content aggregators and production houses alike will fall dramatically. As with the Apple iPhone, any organisation would have the opportunity to create an EPG-like application or program and make it available to consumers to use on their TV. In so doing, they would be able to provide the user with a unique and differentiated content experience unencumbered by the platform limitations of the past.
It is possible of course that new limitations and constraints may emerge to prevent open TV becoming a reality. However, what is clear is that as the fundamental characteristics of the Internet become more widely engrained in the TV value chain, traditional players – production companies, broadcasters and platform operators alike – need to consider now how their offerings should evolve to position themselves for this new paradigm. While not a foregone conclusion, there is a significant risk that without a proactive strategy traditional leading TV players may succumb to the same fate as the newspaper and music industries have to the arrival of the Internet.
Analysys Mason has worked extensively on content strategies in converging markets for a range of players worldwide. If you would like to discuss further the issues raised in this article and how they may impact your business, please contact Mike Grant, Partner, Analysys Mason.
