In a press release published today, we predict that AT&T and Verizon will post double digit IPTV subscriber growth for the third quarter. Both have seen an impressive growth clip over the past year, and are likewise experiencing increased consumer take up percentages. Consumer take up, clearly, is key here. In a report we released back in September, we talked about drivers and inhibitors to IPTV growth in the US market. One key driver of IPTV uptake is household broadband penetration, which is currently at 63%, and estimated to grow to 81% by 2013. Likewise, household familiarity and comfort levels with bundling will drive uptake-this has certainly been the case in European markets including France, where IPTV was initially "bundled" with broadband as a giveaway. The "content is king" adage continues to hold true, and operators able to secure exclusive premium content will likewise have the upper hand. Satellite provider DirecTV's exclusive "NFL Sunday Ticket" has proven to be an effective churn mitigator and revenue source. Finally, aggressive marketing, such as the print and television campaigns currently underway by AT&T and Verizon, will continue to raise awareness and generate demand among television households. Several factors stand in the way of consumer takeup, however, and these must be overcome if IPTV is to truly take off in the US market. Among these potential inhibitors are "Over the Top" (OTT) content-programming and content available for free or inexpensively online-which to some households will obviate the need for pay television altogether. Customer unfamiliarity is another key hurdle Telcos must overcome; to date Telcos have done an inadequate job in communicating the benefits of IPTV over cable or Satellite. They must make this a priority. Likewise, strong and aggressive competition from cable players, who currently have pipes into 90% + of US homes, must not be overlooked. Twitter: twitter.com/DavidMercer_SA Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

Following on from my previous discussion of Blu-ray quality broadcasting claims, here is a further sign that confusion reigns when it comes to discussing what is and what isn't "Full HD" video. On September 1st Motorola issued a press release about a deal to provide Deutsche Telekom (T-Home) with IPTV set-top boxes which included the following statement: "Within the scope of the contract, Motorola will provide T-Home with its VIP1616E set-top -- known to T-Home customers as Media Receiver 300 Typ A. With the device, subscribers to T-Home's Entertain service will be able to view premium sporting content in full HD." Now my ears are obviously attuned, given the attention the Blu-ray/DirecTV/Dish saga has attracted, to any mention of the phrase "Full HD". I was particularly impressed with the suggestion that sports content would be available in 1080p, since I know of no regular capture of live sporting events in this format. With less than 2% of European homes watching (720p/1080i) HDTV today, the industry desperately needs to make its message clear. And major TV manufacturers like Samsung are using terms like "Full HD" to market the 1080p-capability of their large screen TVs. So what are consumers supposed to make of suggestions that Deutsche Telekom is now offering sports content in "full HD"? I would not blame them for thinking that football matches would be available in 1080p, and it has taken a week for Motorola to confirm to me that this is indeed not the case. The company admits that it was wrong in using the words "full HD", and its press release has now been amended. I don't believe Motorola was trying to mislead anyone. What is concerning is that this market-leading technology provider can use terms which can be so easily misinterpreted, and is apparently unaware of the confusion that surrounds HDTV marketing. Motorola’s service provider partners will not find it easy to upsell their subscribers to HDTV services unless they and their technology partners can show consistency in communicating exactly what it is television viewers are supposed to be getting from HDTV. Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

New research from NDS suggests that digital video recorders have improved relationships for nearly 80% of couples. In NDS's survey of DVR owners in the US, UK, Italy and Australia, the question was asked: If you have a DVR, has it improved your relationship with your partner? The responses were: If you have a DVR, has it improved your relationship with your partner? United States Yes 79% No 21% United Kingdom Yes 62% No 38% Italy Yes 78% No 22% Australia Yes 78% No 22% The survey offers no explanation as to why fewer UK DVR owners feel their relationships are improved than in other countries. Perhaps UK couples already exist in such a state of cohabiting bliss and harmony that nothing, not even the miraculous ability to record television programmes, can possibly improve their sense of well-being. Unfortunately the official divorce figures would suggest otherwise. You may be wondering why this motley selection of international markets was chosen for the survey. Not entirely coincidentally, they happen to mirror the leading countries in which NDS’s DVR software is deployed, namely on the Sky (UK and Italy), DirecTV (US) and Foxtel (Australia) platforms. The survey’s other findings highlight the relative importance of different household gadgets and appliances. The report says the DVR is second only to the mobile phone as something people could not live without. The iPod and games consoles are ranked amongst the items people are least likely to want to keep. These surveys are always good for press headlines, but the results should be treated with great caution (hence the general tone of this entry). The survey respondents were all owners of DVRs, who represent much less than half of the population in each of the countries surveyed. They are not representative of the population in general and the results should be treated accordingly. A survey of all iPod owners would undoubtedly find that a majority would want to keep their iPods, while I know of few children who use games consoles who would be happy to see them banished from the house. I imagine we are some way from DVRs being mandated in every household by governments and regulators anxious to reduce the impact of family breakdown on social security budgets, although we should never underestimate the ingenuity of our policy makers, and I’m sure DVR manufacturers would welcome such an initiative. Putting cynicism to one side, there is no doubt the digital video recorder has helped to transform television usage for the minority of people who own one, and it is one of those technologies from which there is no going back. Having used Sky+ for seven years, I am still bemused every time I have to watch television where a DVR is not available – pausing and rewinding live TV quickly becomes second nature and is sorely missed. Whether it saves marriages or not, I had better refrain from further comment… Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

A quick follow-up to my previous comments on 1080p broadcasting and its potential challenge to the Blu-ray Disc platform. I asked Disney’s EVP Gordon Ho, who leads the company’s BD initiative, how Disney could square the company’s claim that BD offered superior quality to any other platform when at the same time its partners, Dish and DirecTV, were marketing their new services as offering equivalent quality to BD. Ho was clearly anxious not to create a political incident with two of Disney’s major partners, and replied that the claims of BD quality by satellite providers were “a little misleading”. “1080p and 1080p are not the same,” he suggested, and that BD offers more. “In the end it’s all about educating the consumers.” In a public forum we would expect the reaction to be toned down somewhat, and these comments are relatively mild compared to the BDA’s assertion that satellite companies are being “irresponsible”. But Disney and the BDA are still some way short on the specifics of exactly why satellite and other service providers are not “technically capable” of matching BD quality. The BDA’s Frank Simonis noted that the satellite providers were using 15 Mbps for their 1080p programming, compared to BD’s potential of 48 Mbps (for video and audio). But bandwidth actually used on BD titles has been more in the region of 20Mbps, so there doesn’t seem to be a huge difference in reality. The key point about all this is that, regardless of the technical specifics, many consumers are confused about HD in general, and there is a lot of work to be done to persuade them of the relative merits of different HD content platforms. The studios recognise this, and Warner in particular is working with retailers to increase in-store comparison demonstrations of BD and DVD. But the BDA collectively also needs to be careful that the Blu-ray label is not misused. There may be no near term commercial threat to BD from digital TV providers, but if the Blu-ray designation is used inappropriately it will only help to increase consumer confusion even further. Client Reading: Blu-ray Devices: Forecasting Sales and Ownership

One of the main objectives of Blu-ray Disc developers was to set a benchmark in video quality that would provide sufficient encouragement for DVD owners to upgrade, as well as providing a challenge that few if any alternative video distribution platforms could hope to match, at least in the foreseeable future. One benchmark that BD sets is known as “Full HD” or 1080p and it provides the best possible video quality commercially available to consumers today. (Further enhancements are in the works, notably the Japanese Super Hi-Vision 4000 line system, but that’s another story for another day and will not see commercial availability for some years.) As the format was being developed in the early part of this decade, BD proponents were probably hoping that the blue laser disc would have the 1080p market all to itself for much of its life. It had been assumed that both broadcasting and internet delivery platforms would struggle to accommodate the bandwidth and bit rates required to delivery equivalent video quality. Those assumptions are now being questioned by recent announcements from broadcasting service providers on both sides of the Atlantic. French cable operator Numericable announced at the end of June that it would begin offering “Native HD” movies on its VOD service in July. Shortly afterwards, both US DBS providers, DirecTV and Dish Network, made announcements along similar lines. While DirecTV was first with the news, Dish is claiming bragging rights for the first 1080p movie, Warner Bros’ “I Am Legend”, which was available beginning August 1st. Dish claims this was an industry first, which may be correct as far as the US is concerned, but Numericable would appear to have beaten them to the punch in global terms. Apart from business model issues (like the fact that satellite providers can’t offer true VOD), there is the key question of video quality. Both Dish and DirecTV reference Blu-ray Disc in their publicity material. The quotations are as follows: • “Starting August 1, Warner Bros. Pictures' blockbuster "I Am Legend" starring Will Smith will be available in 1080p resolution -- same as Blu-ray(R) Disc quality -- on DISH Network's VOD service, DISH On Demand.” • “DIRECTV will begin offering movies in 1080p, the highest resolution format available for HD video enthusiasts and the same format used by Blu-Ray HD DVDs” These claims have clearly struck a sensitive nerve within the Blu-ray community, which, given their strategy as outlined above, is perhaps not surprising. Today the BDA has given me the following statement: “A number of companies have recently launched advertising campaigns claiming their products deliver high definition picture and sound “equal” to that delivered by Blu-ray Disc. These comparisons are irresponsible and are misleading to consumers. Up conversion and satellite broadcast cannot provide a true Blu-ray high definition experience, as neither is technically capable of producing the quality delivered by Blu-ray players and Blu-ray discs. To that end, the Blu-ray Disc Association is exploring these claims further and will take appropriate action, as necessary, to prevent consumers seeking the ultimate in high-definition home entertainment from being misled.” I look forward to hearing the results of the BDA’s exploration of these claims. It has always been a challenge to get industry consensus on the relative technical merits of one video system over another. Video and broadcast engineers will tie themselves in knots with competing claim and counterclaim about the significance or otherwise of numbers of vertical and horizontal lines, interlaced versus progressive scan, pixel counts, black levels, bandwidth, the merits of film and video cameras, scanning rates and any number of other technical criteria which may affect what the viewer ultimately sees on the TV screen. As far as misleading consumers is concerned, I agree wholeheartedly that while there may be no deliberate misleading going on, consumers are certainly confused in all sorts of ways about HD in general. People (on both sides of the Atlantic) have been buying “HDTVs” or “HD-Ready” TVs for a few years now, and many of those viewers will struggle to say exactly whether or not they are actually watching HDTV content at any given time. I have pointed out previously that programmes on so-called “HD channels” on Sky’s platform are often not true HD content. If viewers pay for HD channels and are watching SD content, how can they be blamed for not understanding? Instinctively I would say that the BDA is right – I don’t believe that DirecTV or Dish will actually be offering programming at the same level of quality of BD. But the technical arguments to prove the claim that they are not "technically capable" of doing so could be very difficult to prove one way or the other. In the end, these new Full HD initiatives are more of a statement of competitiveness against rival service providers than against BD itself. As has often been the case in the past, the satellite providers in the US are battling against cable companies, and now IPTV providers, to set new benchmarks in quality and customer experience. The 1080p story is just another phase in that competitive battle, but it is unlikely to seriously affect Blu-ray’s potential. Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

Strategy Analytics has been studying results from its latest round of user research. We released highlights at the recent Digital Hollywood event in the US. The presentation focused on the impact of web video and television on traditional TV, and related to the findings of our US survey. Research from Europe will be released separately in due course. Global revenues from online video and TV are estimated to have reached $2bn in 2007. Our survey finds that younger age groups are already watching significantly less television than older demographics, in the sense of "watching TV shows and movies on a TV set". 64% of 15-19 year olds watch TV in this traditional fashion on a weekly basis, which means that more than a third do not. This compares to the average of 78%, and 85% of 40-44 year-olds, who watch TV at least once a week. We also investigated viewing of the same type of content – “TV shows and movies” – on PCs. Not surprisingly younger age groups are more likely to engage in this activity on a regular basis, with around a quarter of those aged between 15 and 29 claiming to do this at least on a weekly basis. The average across all age groups is 16%, and most older demographics are much less frequent “PC TV” users. More than half of US Internet users have now watched TV shows or movies from a broadcast network website, ie the equivalent to the BBC’s iPlayer in the UK. But most of these web TV users are still not active on a regular basis: only 7% claim to use a broadcaster’s website for video streaming at least weekly. Perhaps the demographic findings are not too surprising. We expect younger Internet users to be in the vanguard of many emerging trends, and the fact that they also watch television less frequently than their elders has also been documented previously. The inevitable consequence of these two indicators is that a growing proportion of younger people are likely to find television programming on the Internet rather than through their “TV” or the associated “service provider”, ie cable or satellite, DirecTV or BskyB, a trend I have highlighted. Or to put it another way, TV companies are increasingly likely to find younger viewers through Internet distribution than through traditional channels. The tipping point when younger people watch more TV online than "on TV" may not be far off. John Malone may not be happy but TV networks have little choice but to go with the flow. Client Reading: Online Video: Global Market Forecast

One of the many nuggets offered by our latest survey digital home device markets is that more than 50 million TV homes around the world will be using a digital video recorder (DVR) by the end of this year. The US is leading the way, with nearly 30 million DVRs now in use (25% penetration), certainly a significant lead over Europe, where we estimate the installed base at around 14 million (8% of homes). (Note: these estimates include only DVRs provided by digital TV service providers. In particular, they exclude DVD recorders that incorporate a hard disk drive and therefore can serve as a DVR; this option is particularly popular in Japan.) The DVR has come a long way, but it has taken longer than many observers expected. Reporting on TiVo and ReplayTV in 1999, we noted: As each company gets drawn into wider industry alliances, it will inevitably lose control of its own destiny. DirecTV will want TiVo to serve its audiences, not those of rival services. Eventually the broadcaster will either swallow TiVo completely or develop its own solution independently." Well, DirecTV does have its own solution, although the TiVo partnership continues. But as we suggested, TiVo's share of the DVR market has dwindled to a few percentage points as operators push their own proprietary solutions. The DVR has now become a key competitive tool for digital TV providers and is set to move into the mainstream over the next few years. sub=addfavbtn&add=http://www.strategyanalytics.com/blogs/dmercer">

Following Sling's recent deal to distribute its Slingbox through UPC, the pan-European cable operator, announced at IBC, I drafted a comment that Sling could end up getting Tivo'ed. By which I meant that while Tivo started out as a disruptive force, it has depended on operator partners for its survival. Those partners' primary interests lie in maintaining a strong vertical relationship with their customer base, and reducing technology partners to vendor status. Sling also started out as a maverick independent, but deals with UPC and other distributors risk jeopardising its disruptive potential. So news that Sling is to be acquired by Echostar only intensifies those concerns. How disruptive can Sling be when it is owned by a major distribution partner of Hollywood? You can hardly blame Sling's founders for taking the money, and if they had a choice of similar partners, EchoStar was a good one. Charlie Ergen's outfit is as close to the maverick end of the scale as a Hollywood partner can be, but that ain't very close... According to EchoStar: "EchoStar has been pleased with the progress and commitment the company has made establishing Sling Media and the Slingbox as powerful and beloved digital media brands. EchoStar’s acquisition of Sling Media will allow us to offer innovative and convenient ways for our customers to enjoy their programming on more displays and locations, including TVs, computers and mobile phones, both inside and outside of the home. This combination paves the way for the development of a host of new innovative products and services for our subscribers, new digital media consumers and strategic partners." The sting is in the tail. It's not a question that Sling can be good for Echostar - it will allow the firm to offer new TV and web-based services. And it will put pressure on DirecTV and the US cable companies to address their own place-shifting strategies more urgently. But the interest centres on EchoStar/Sling's international strategy and partner relationships. I hope to have more by the end of the week, after Sling's press event in London on Thursday.

... look out of the window, of course, or, possibly, watch the Weather Channel in HD, which presumably should be just as good, depending on how often you get your windows cleaned. The Weather Channel launched in 1982, is owned by Landmark Communications, Inc. and reaches more than 89 million subscribers in the US. It has just announced an investment of $50m in HDTV, and its HD channel will be launched on DirecTV in September 2007. The investment will include a new studio in Atlanta, new cameras and other equipment, as well as upgrading its extensive graphics output to HD quality. Debora Wilson, the company's president, claims that the transition to HD is simply a "cost of doing business". Sony's broadcast division will certainly be licking its lips... TWC is an interesting case in the HD transition because it is one of the few examples of a nearly-24-hour live network. Even the regular 24-hour news channels carry a certain amount of pre-recorded programming, and TWC claims that 22 our of every 24 hours are live feeds. This means that, once the HD investments are made, the channel will very quickly become a full HD service, unlike most channels that claim to be HD, but in fact are relying heavily on upconverting older, SD originated material. There is still considerable debate as to how far and how fast the HD transition is going to affect news channels. The scale of TWC's investment suggests one reason why others may be reluctant to move quickly, however much it is dressed up as part of the normal capital spend. I imagine that for CNN or Sky News to make a similar move would require an outlay an order of magnitude greater, given the news gathering resources required to operate such a service. The flipside is that news channels may find themselves isolated from HD tiers. Wilson notes that HDTV subscribers tend to stick to HD channels, so news and other channels resistant to the transition may be forced to respond sooner than they would like.