Better late than never, I should summarise the main discussion points from last week’s IPTV World Forum in London. In general “IPTV” in the context of this event means “managed TV services over broadband”, and indeed, “managed by broadband service providers”, as opposed to “managed by over-the-top providers”. It’s easy to spot this because the interest of the major sponsors – Ericsson, Alcatel-Lucent, Cisco etc – has historically been to support BSPs rather than their competition. But in spite of this natural bias, much of the debate in the conference and on the show floor revolved around how BSPs could counter the impact of emerging OTT competitors such as Hulu and the BBC’s iPlayer. While anecdotes are always a dangerous foundation for analysis, it is not unprecedented to hear of people in the US claiming to have cancelled their cable subscription (ie TV) because they can now “get all their shows” on Hulu and other internet-based services. However much they pretend to dismiss these claims as isolated or atypical, such stories strike fear into the hearts of operators, and their technology vendor partners, around the world. The general impression from IPTV World Forum debates is that the BSP response will be to “embrace” OTT content, encouraging providers to join their managed services and packages so that customers are guaranteed quality of experience for their Youtube videos. Before accepting these overtures, OTT providers themselves should consider whether this embrace will resemble a loving couple gazing at the sunset, or a grizzly bear hugging its newly captured prey. Broadband providers have little choice but to offer content in some form or other, and that’s really what IPTV is about. As we are seeing in France, bundling content (TV) with broadband access can be a highly successful, if controversial, strategy. And the regulators have barely begun with this issue, let alone completed their assessment. As Christophe Forax, a Member of EU Media Commissioner Viviane Reding’s Office, informed the conference on day one, all broadband service providers would be expected to embrace “platform neutrality”. Quite what this means to the bundling of access and content, however, is a topic for further very heated and lengthy debate. The key question, as Juniper’s EMEA Director Paul Gainham put it, is “what is the role of service providers in a few years’ time?” For now, a number of them are placing their bets on content, either as partners and distributors or as fully fledged owners and developers. The other main strategic option in a mature market is often described disparagingly as becoming “bit pipe providers”, and incumbent telcos in particular are reluctant to admit to this possibility: it would inevitably mean considerable downsizing, and that’s something that’s tough to sell to any investor. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Media & Entertainment Market Forecast, 2004-2012

Personalised, targeted advertising is the big black hole in the IPTV world. Everyone talks about it, and technology demonstrations are plentiful, but few claim to have seen it in action in the real, commercial world. NDS, the content security and middleware provider, used IPTV World Forum to introduce its new InfiniteTV PVR platform based on Adobe’s Flash technology. InfiniteTV allows over-the-top providers to offer internet video integrated with advertising options such as pop-up banners, or “trick mode” adverts which appear when a movie is paused, for example. Because the adverts are server-based, they are always up to date, so that recorded or stored content can be integrated with the latest advertising campaign. The service provider can monitor “retrieval” of the adverts, ie which and how many ads pop up on the screen. The NDS demonstration featured mainly short-form ads, but the company indicated that nothing prevented traditional long form, 30-second or longer video slots from being served. Ads could also appear episodically, so that an advertising message could be distributed across a series of banners, and could even be distributed to different devices. They can also be contextual, so that an advertiser might tailor a message to paused content. There are a couple of surprises about NDS’s implementation of InfiniteTV so far. First, it can only support full downloads, since the company’s emphasis is on the best quality video experience. This seems like a weakness to me, since most web TV players are at least moving to progressive downloads, and even towards fully fledged streaming. TV viewers are not known for their patience, and will expect the video to start as soon as possible after hitting the “I want this” button. Progressive download seems like a must-have for future updates of the platform. It was also surprising, given its close involvement in the interactive TV industry over the past 15 years, that NDS has not implemented interactive advertising capabilities into InfiniteTV. It would seem an obvious step to offer viewer response capabilities, and NDS confirmed that this could be possible in a future iteration of the software. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Media & Entertainment Market Forecast, 2004-2012

The buzz at the Game Developers Conference (GDC) this week is focused on the new OnLive service to be launched in “winter 2009”. OnLive has been in development for seven years and is headed by Steve Perlman, who previously founded WebTV, which was sold to Microsoft as the foundation for its IPTV platforms. OnLive’s hallmarks are that it doesn’t require a “console”, or at least in the traditional sense. In fact, there is a small (“pack of cards” size) module (“microconsole”) which plugs into the TV set and connects it to the broadband service. It will also support “almost any” PC or Mac with a simple browser software download – no microconsole required. All games are then delivered from remote servers with very little local storage or processing required. OnLive also owns Mova, which develops facial animation technologies. OnLive claims to have the “support” of top games publishers, including Electronic Arts, Ubisoft, Take-Two Interactive Software, Warner Bros. Interactive Entertainment, THQ Inc., Epic Games, Eidos, Atari Interactive and Codemasters. The list sounds impressive, but “support” is just a little too vague. It would be surprising if games publishers did not “support” a venture that could cut out the middle men (platform owners, retailers) which take a substantial cut of industry revenues. No pricing has been confirmed, but the business model will be monthly subscriptions, and the aim is clearly to squeeze as much cost out of the microconsole as possible. Don’t be surprised to see “free” consoles being offered in return for long-term contract commitments. Online content has already featured in the games industry for some years. In the PC world games content is frequently downloaded, either as standalone applications or in combination with disc-based delivery. And online features strongly in each of the latest generation of TV consoles, including full game downloads. As I reported recently, Strategy Analytics research has found that nearly a third of gamers in the US already claim to buy and download games to a video games console. 21% are doing so on a monthly basis or more frequently. What is different about OnLive is that it claims little or no “downloading” is required. It claims to have advanced compression technologies that allow a 1MB software player to render the content, which is processed in real time on remote servers. This model clearly depends on the availability of a fast and reliable broadband connection to the TV set. The OnLive microconsole will include USB, HDMI and ethernet. I’m surprised if ethernet is the only connectivity option: it’s an impractical option in many homes, so wireless or powerline connectivity also needs to be available. The established console vendors, Nintendo, Microsoft and Sony, will express scepticism that OnLive can really compete, and there are certainly doubts about the viability of “cloud gaming” in the real world of dodgy internet service, wireless LANs and the battle over data prioritisation with broadband service providers. Already the gaming community is arguing over latency rates and whether OnLive’s technology can really meet the demands of hard core multi-player virtual worlds, or how close it can come to delivering the 1080p video offered by Sony and Microsoft (answer: not very). But OnLive’s unveiling has at least put the cat amongst the proverbial pigeons: the 40-year history of video games consoles has been based on the assumption that you need some piece of serious hardware attached to the TV set. It is only a question of time before broadband brings that assumption crashing to the ground, but the end of this year is probably a few years too early for this model to create a significant commercial impact. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Survey: An analysis of US Gamers

The battle between French media and communications powerhouses Orange (France Telecom) and Vivendi is boiling up nicely, and French viewers are about to see the results on their TV screens. From today, Orange has stopped selling its Orange Sport TV channel to new subscribers, following a court ruling. Orange Sport broadcasts live French football matches on Saturdays. Existing subscribers will continue to receive Orange Sport for the moment, although the channel’s future depends on further court rulings. Football fans can still get other live matches by paying for Canal Plus (owned by Vivendi). The two firms split the current 12 Ligue 1 football rights packages between them – Canal Plus paid €460m a year for nine packages, and Orange paid just under €200m for the remaining three. The football authorities are concerned that Orange will stop offering football altogether, drastically reducing the game’s income. At the heart of the dispute is bundling of media and communications services. Orange, which operates both fixed broadband as well as mobile networks across many countries, is offering its Orange Sport channel only to customers who also take its ADSL broadband service. Competing broadband service providers Free and SFR have lodged complaints that Orange is competing unfairly and should offer its football rights on a wholesale basis to competitors. It would take a brave soul to predict how the French authorities will eventually rule on this case. As we have seen in other disputes (notably Sky/Virgin in the UK) these things can drag on for months, and blank TV screens look like an increasingly realistic prospect. Twitter: twitter.com/DavidMercer_SA Client Reading: Broadband Satisfaction and Customer Churn: France Survey Results 2H'08

I just came off a call with Bob McIntyre, CTO of Cisco’s Service Provider Video Technology Group (formerly Scientific Atlanta). Bob was introducing Cisco’s approach to media networks (medianets) for cable providers. What disturbed me was McIntyre’s reference to the BBC’s iPlayer, as implemented on Virgin Media’s UK cable network, as an example of successful hybrid network DVR/VOD solutions. Not that the iPlayer has not been successful, which of course it has. But McIntyre seems to have misunderstood some of the fundamental dynamics of media business models in the UK market, because he suggested that the BBC “gets the benefit of advertising” by making seven days of its programmes available on demand. This is clearly some way off the mark: within the UK, the BBC is not permitted to run advertising alongside its TV programmes. Which begs the question: what actually is the answer to the question McIntyre was trying to address, namely, what is the motivation for programme owners and broadcasters to make their content available on demand? The answer, in the BBC’s case, is that it is obliged to make its programmes available across multiple platforms and multiple models, because of its responsibilities as the UK’s leading public service broadcaster. It has no commercial interest in doing this, beyond increasing eyeballs, but that doesn’t directly affect its core revenue base, the television licence fee, which is mandated by the UK government. With all respect to the great technology firms, such as Scientific Atlanta, which have helped to create the cable industry, it never ceases to amaze me how the economics of broadcasting in the UK and Europe are misunderstood by US observers. They frequently cite the BBC’s activities of evidence of market success. Please, please, please remember: the BBC does lots of wonderful things, but many would not survive in a purely commercial market environment. (But I still think iPlayer is fantastic.) Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Predictions for 2009

Cisco today announced its intention today to acquire Pure Digital Technologies, the makers of Flip Video camcorders, for more than $600m. Pure has sold more than two million Flip devices since their launch. They had sold a million nearly a year ago so that gives some idea of the run rate. Flip launched in Europe last year, but we get the feeling sales have not taken off as much as in the US. There has been much hoopla around the fact that Flip has become a leading “camcorder” brand in no time. But in reality the company has created a new category distinct from the tape, disc or HDD-based devices that have traditionally dominated. The main market driver historically has been to offer the best possible video quality, and the best consumer camcorders now come pretty close to professional quality video capture. Pure Digital took another approach – it wanted to simplify the capture and sharing of user-generated video for the net generation, and its portability, fast boot-up, one-button recording, simple USB connection and automatic loading PC software were hits with people who would normally baulk at the complexity of traditional camcorder devices. I’ve been using a Flip device for the past nine months, and there is no question it is an easier decision to carry one of these than my albeit excellent Panasonic DVC device, as long as I’m not expecting to create high quality video. In fact, it’s been successfully used by children with virtually no training, as well as by technophobe adults of my acquaintance. Cisco’s Chris Dobrec told us the background to the deal: he was at a daughter’s school sports event and saw many parents capturing the action on their Flip devices. They seemed so cool he suggested Cisco buy the company. Observers are already questioning the $600m valuation, and understandably if annual sales of a million or so devices at $150 are the benchmark. But Cisco is more interested in the device usability and software sharing capabilities that Pure has developed, as well as the fact that Pure takes Cisco further into the video market, which is a strategic objective. We can expect to see those capabilities to be improved on and integrated into Cisco’s emerging consumer device and software portfolio, with its Media Hub at the centre. While we expect Cisco also to add improved connectivity, such as WiFi, to the devices, the wider strategic question is the size of the market opportunity for personal, single-function devices such as digital still cameras and camcorders, when mobile phones are increasingly sophisticated in those applications. How many different devices can we expect users to carry? For now, Pure has unique benefits for certain segments: other vendors are sure to match it before long. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Predictions for 2009

While Facebook, MySpace and Twitter grab the fast growth headlines in English-speaking markets, in France it is video sharing, rather than just blogging or messaging, sites, which are leading the way. The leader in the field is DailyMotion, and Strategy Analytics research indicates that four million people in France are uploading videos to video sharing websites on a weekly basis. There are still more people in France - 5.3 million – who are checking social network sites such as Facebook at least weekly. And 7.7 million people are using social network sites at least a few times a year. But the overall user base is higher for video sharing sites at 10.8 million. The contrast with the UK is stark. Here there are 15 million people – three times the number in France, with a similar population – checking social network sites at least weekly. And while 10.6 million people in the UK claim to upload videos to video sharing websites like Youtube at least a few times a year – similar to France - only 1.3m people in the UK do so at least weekly, a third of the level of activity in France. The early entry (in 2005) of Dailymotion to the French market is one obvious explanation for this difference. But I can’t help wondering if broadband connection speeds are also part of the story. Any UK broadband user who has tried to upload video will be familiar with the frustrations of slow upload speeds, which are typically well below 500Kbps. In France Free offers upload speeds of 1Mbps, which may not seem like a big difference but can halve the time spent uploading videos. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Survey: France Country Profile

The terrible financial results reported today by ITV, the UK’s largest commercial broadcaster, illustrate the collapse in traditional television advertising business models as the recession’s bite deepens. The £2.7bn loss (on turnover of £2.02bn) results largely from reduced expectations for future advertising revenue. Television advertising revenues are currently in freefall, declining in the current quarter at a rate of 17% compared to a year ago, and that’s why the company is having to make 600 people redundant and suspend production of some of its most popular shows. As Michael Grade notes, UK market conditions are “unprecedented” in the past 30 years, and probably since the launch of commercial TV in the 1950s. Like many firms, ITV is now reluctant to forecast the outlook for its core revenue stream. It had previously assumed annual advertising growth rates of 1.5-2.0%. This assumption has clearly been blown out of the water. The recession is clearly a large part of the blame, but ITV has also made a number of strategic errors over the years, and those chickens are now coming home to roost. Buying Friends Reunited was always a strange move, and even though the business is profitable it has been non-strategic to the company’s core video and television business. It is now pushing ITV.com as a video portal and has launched ITVplayer in response to the phenomenal success of the BBC's iPlayer. ITV was also late to the party in multichannel television, having previously been caught up in the ONdigital/ITVdigital debacle nearly ten years ago. Its “family” channels (ie sub brands of ITV) are doing well, but they are competing in a world of several hundred TV channels and ITV had already missed the opportunity to establish a leading multichannel position. While traditional television advertising in free-to-air television will eventually recover, there must be real uncertainty as to whether it will ever reach the peaks seen in recent years as viewers move increasingly to on-demand services. For this reason, ITV’s online video distribution strategy is now key to its future. ITV.com now has 6.5 million monthly unique visitors, and this peaked at 9.4 million in November last year, making it the UK’s fifth most popular website. In total ITV.com delivered 86 million “video views” during 2008. ITV’s challenge is to continue to grow this activity and to turn its losses into profits: no easy task, but in the current environment this is about all the company has to hang on to. Twitter: twitter.com/dmercer15 Client Reading: Western Europe Digital Television Forecast: 1H'09

Pace, the UK-based set-top box manufacturer and third largest in the world, announced its 2008 financial results today. The company’s revenues rose to a record £745m and profits reached £28.5m. Comparison with previous years is difficult for two reasons: The company made a major acquisition of Philips’ set-top box business in 2008, and also changed its financial year. Pace’s CEO Neil Gaydon told us that he expects the pay TV business to be more resistant to the impact of the recession than many other sectors. The global market for set-top boxes continues to grow as new pay TV customers sign up for the first time and existing customers upgrade to more advanced services (HD, PVR). A key driver at the moment is the process of analogue switch-over which is taking place in many countries, and is encouraging some customers to switch to set-top box-based services for the first time. According to Gaydon, the structure of the set-top box industry is dictated by the unique and precise requirements of the multiple pay television operators in different parts of the world. These needs make it very difficult for smaller vendors to build the economies of scale that are traditionally associated with consumer technology markets. Pace’s strategy has focused not on becoming the number one supplier in the market, but on winning new service provider customers and maintaining profit margins. While it has clearly performed well recently, Pace’s long term future is inevitably dependent on the impact of the transformation of the television industry by broadband and connected TV devices. Gaydon is probably right to say that there is no imminent threat to the set-top box for the large majority of couch potato TV viewers. As I said recently, the fact that Sky still outbids its rivals for live football rights is a good sign for pay TV, as long as unauthorised broadband distribution of live football does not get out of control. But as we move through the next decade the landscape will surely begin to evolve towards new models of video delivery and Pace will need to demonstrate flexibility and innovation in order to keep pace (sorry) with those changes. Twitter: twitter.com/dmercer15 Client Reading: Western Europe Digital Television Forecast: 1H'09