“The TV” has been about more than “TV” for many years. Ever since the first video recorders arrived back in the late 1970s, bringing home video to millions of millions of TV sets around the world, TV viewers have been faced with ever-increasing choice in what they watch and when they watch it.

The latest stage in this evolution has been the arrival of internet connectivity to the TV itself and to many of its attached devices. While such products have been around for a few years, it’s only relatively recently that improved bandwidth and usability have allowed people to explore the world of internet video on their big screens.

Our recent survey of nearly 5000 respondents across the US and Europe suggests people are taking to this “connected TV thing” in a big way. Based on the survey’s findings we estimate that 42 million homes across the two regions are now connecting a TV screen to the internet, in some way or other, in order to watch TV shows or movies. This is not a daily activity for most people just yet – this is the number of homes doing this monthly, weekly or daily. But it’s a clear sign that the concept of connected TV is becoming more widely accepted.

Significantly we found much higher usage in the US than in Europe – 20% of US homes are using connected TV compared to 10% of European homes. The Germans are falling some way behind the rest of Europe: only 6% of German homes are using connected TV currently, compared to 12% in both France and Italy – the UK proportion stands at 9%.

New digital service providers such as Netflix and Hulu have seen tremendous progress in the States in the last couple of years as they become available on multiple connected TV devices. Europe has yet to find its own equivalent, although each market can name examples of localised services.

People are still working out the best way to get connected TV content onto their TV set. In the US the games console is leading the way: in Europe the most popular method is to connect a PC to the TV using an HDMI cable. But the majority of connected TV viewers are actually making use of more than one solution. There may be a number of reasons for this: certain content is only available from different devices; or they are using different TV screens at different times.

We are in the early days of the connected TV revolution, but the momentum shows no sign of decline. As Ultraviolet launches and Apple considers its own streaming movie service, this market is set to get a lot more interesting over the next few months.

David Mercer

Client Reading: Multiscreen Connected TV: Assessing Device Usage and Ownership

 

 

Global advertising revenues are forecast to decline by 8.5% this year, according to Strategy Analytics’ latest Global Advertising Forecast. In such a tough environment the need to find new communications platforms and ad-based business models is more urgent than ever. In theory the arrival of so many new IPTV services, in both managed and over-the-top environments, should give cause for optimism. If IP technologies have any advantage over traditional alternatives it is that they enable closer, more measurable relationships between those with the message (advertisers) and those receiving it (viewers). So far, however, with a few exceptions, we have seen little commercial evidence of these capabilities in the real world. These are some of the issues we will be exploring at the forthcoming “Future TV Advertising Forum” in London on December 11th. I will be chairing a session on Advertising in the Age of Convergence, with speakers from Coca-Cola, Thinkbox, RomTelecom and the Co-Operative Group. Other keynote speakers at the event include Turner Broadcasting, Sky, Channel 4, ITV, Discovery, Telenet and Ford. It promises to be a compelling and thought-provoking event. Early bird conference passes are available until the 25th November or register to watch the event live online FREE of charge at www.futuretvads.com. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

Things certainly didn't run according to the slick rollout plan Sky and Microsoft had promised us. In the grand scheme of things that is unlikely to have any major impact on tomorrow's world of connected TV. But the fact that two well financed global players can stumble so badly at the first hurdle demonstrates the severity of the challenges that lie ahead in the race to bring online TV to the big screen. The day after the official service launch Xbox posted the following message: “due to the unprecedented levels of simultaneous demand, we did not have the capacity to satisfy all service requests”. Xbox indicates that “many tens of thousands” of users tried to use the service. We, on the other hand, are surprised that this level of demand was not predicted in advance for such a high profile launch. The service will certainly have to cope with much higher volumes if Sky’s expectations are realised. The current status as far as we can tell (neither Sky nor Xbox have admitted to a more detailed analysis of the problems so far) is that some Xbox owners are successfully using Sky Player, some have downloaded it and been unable to use it, and others have yet to be offered the service. After the furore of the first day, when the application was withdrawn within hours of its launch, Xbox admitted that there were issues with some servers and that the service would instead be rolled out gradually to ensure that quality was not compromised. My own experience has veered from the excellent to the frustrating. I can say that we have managed to watch an on-demand streamed movie from beginning to end without a single glitch, and the video quality was quite acceptable. By contrast an on-demand sports game yesterday refused to play for more than a few minutes without buffering. I am currently still encoutering many buffering problems and Sky Player disconnections. I have also noted a few minor niggles with the user experience. The Xbox controller switches itself off after a few minutes of non-use, which is inevitable during the viewing of any TV show or movie. So live pause or any other functions cannot be selected until the controller has connected with the console, a process which usually takes 10 seconds or so. The aspect ratio on a number of shows, notably in Sky World News, are incorrectly set, so that tops of heads and captions are chopped off. News tickers are affected by jerky motion. The release dates of some programmes are not indicated in the programme description, which can be especially frustrating in the news genre. Most of these issues will surely be resolved over time. Both Sky and Xbox may be surprised (although they really have no excuses) at the initial demands put on their software and network systems and have to make further investments in order to maintain quality levels. One further point to note is that fast forward during advertisements during on demand shows has been disabled, which should certainly please advertisers. Assumign that these early problems can be solved quickly, it is clear, as we indicated before, that Sky on Xbox has the potential to shake up the UK's online TV market just as the BBC's iPlayer did two years ago. When it works, Sky on Xbox offers an entirely new way of selecting and watching TV on the big screen. The Sky Movies channel experience alone is transformed by the ability to choose instant start from a selection of hundreds of films. On-demand movies in our view will be one of the most used services, at least until Sky and its broadcast partners populate the libraries of television shows, which currently are somewhat restricted. We remain to be convinced that the streaming platform is yet sufficiently robust to support the expectations of subscribers who choose to get Sky for the first time using the Xbox platform. Given the monthly premium of up to £41 which Sky on Xbox customers will be paying there will be no room for the quality problems which are apparent at this early stage. We are also doubtful that many existing Sky customers will opt to pay an additional £9.75 a month to use the Xbox for live television on an additional TV set. The appeal of on-demand TV is immediately apparent, however, and we expect this to be a key selling point. It could be enough to tempt existing Sky customers to buy an Xbox 360. Xbox had better make the most of this window of opportunity: the rumours are already circulating that the PS3 will also offer Sky Player before too long. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

The UK’s 1.3m Sky TV subscribers who own Xbox 360s are about to get a real treat. Instead of putting up with Sky’s archaic EPG they will soon be surfing Sky’s content using the slick Xbox Live interface. We were given a live demonstration of the service today and everything (well, almost everything) is looking good for the commercial rollout on October 27th. Let’s get the slight caveat out of the way first of all: today’s demonstration from a central London location used a broadband connection to the production servers which will support the commercial service rollout. However, during live IP “broadcasts” one of Sky’s sports channels the picture was not 100% reliable, and occasional freezing and jerkiness was noticeable on several occasions. This would not perhaps be significant on a normal streamed video service to a PC, but it seems doubtful if TV viewers will be quite so forgiving. I’m sure Xbox and Sky will ensure that the commercial service is not plagued by these slight problems. Sky’s Griff Parry, who heads the Sky Player group, and Microsoft’s Jerry Johnson, head of Xbox Live in Europe, offered a united front to the partnership, claiming that, after initial and understandable caution, both teams had worked together extremely well and with considerable mutual respect. Of course we have seen previous apparently rosy partnerships involving Xbox fail to deliver, but this is clearly different. Sky would not be putting its substantial reputation for quality and reliability on the line if it was not convinced that the Xbox Live platform was robust, and the evidence so far (subject to the earlier qualification) is looking extremely promising. As expected the Sky programming sits behind one of the Xbox Live menu items in the Video Marketplace tab. As soon as the Sky option is selected the background and colour scheme become blue, reflecting Sky’s corporate image. The Sky menu items closely reflect the standard Sky TV EPG, down to channel and genre options. For relevant options there is the choice to watch on demand or live. In my view the biggest benefit of Sky on Xbox will be for Sky Movies subscribers to have access to a considerable library of true VOD movies on their TV set. Sky believes there are two major opportunities from this initiative: first, to secure loyalty from existing customers; and second, to tap into a lucrative 20-30 demographic for which its traditional satellite-based distribution may not be appropriate. Sky is thinking here particularly of young males who have yet to “put down roots”, who may move home frequently, and who inhabit apartments where satellite dishes are prohibited. This segment is seen as prime Xbox owning territory and therefore ripe for upgrade to premium TV services. Besides increasing the overall customer base, the Xbox Live platform offers Sky a new avenue towards advanced services. The early example of avatars sitting in front of a big home cinema screen watching live football together may or may not prove to be a gimmick. But a real opportunity for Sky certainly lies around integrating communications and content into exciting new services. Parry admitted that he sees headset-based voice chat during programmes as one of the most compelling opportunities in the early days of the Xbox Live venture. We can only imagine the possibilities as Xbox continues to add peripherals such as the set-top camera/microphone – the crowd noise during live sports could soon become the sound of a million home-based viewers shouting at the TV screen . Given what has been possible before, it would seem that Sky and Xbox together really can take the TV experience to a completely new level. If anything disrupts progress it will be corporate disagreements, rather than technology failings. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

Perform and Kentaro have confirmed that "close to" half a million viewers watched the live internet stream of Ukraine v. England on Saturday (see my previous post). While this number includes British troops and cinema audiences, these numbers are not likely to reduce the internet audience significantly. At a conservative average revenue per subscriber of £5 (given that some proportion - those who paid in the last day or so - will have paid significantly more) this means that income from the match will have exceeded £2m. Ironically £2m is also the sum Kentaro (the rights holder) was reported to have been demanding for rights to broadcast the game live on regular TV. So if these estimates and reports are accurate, Kentaro may be pleased that it has generated more income than it originally hoped. Of course, it is not quite as straightforward, since Kentaro will have shared income with its distribution and marketing partners such as the national newspapers, and will have had to bear the significant costs of internet delivery with its partner, Perform. Whether the game actually made a profit for either partner is likely to remain a well-kept secret. Kentaro’s willingness to negotiate a last-minute deal with the BBC for highlights suggests that it was not prepared, contrary to its previous statements, to rely solely on the internet for its revenues. This suggests that it was struggling to balance the books on this event through online-only distribution. It also risks alienating future online sports subscribers who may in the future be reluctant to pay on the assumption of online exclusivity, only to find highlights will be available free-to-air after all. But as I indicated previously, it seems clear that delivery of live internet sports to a mass audience is now at least technically viable, and Perform should be congratulated for the technical success. Whatever the financial results of this particular event, hundreds of thousands of sports lovers have now seen with their own eyes that live internet sports broadcasting can be delivered effectively, and that has a significant marketing value. The quality is clearly not close to the best television can offer, but it will only improve over time. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

One of the biggest ever live Internet sports events passed off (for this viewer at least) without major technial hitches this evening as the World Cup qualifier between Ukraine and England was streamed live to hundreds of thousands of viewers in the UK. Each paid upwards of £4.99 to watch the game, which was not available through any other broadcast platform. For the record, Ukraine beat England 1-0 to keep alive their hopes of joining England at the World Cup Finals next year in South Africa. My own live internet TV experience was based on a ~3Mbps BT connnection, a WiFi link to the BT Homehub, using a HPElitebook 6930p laptop with an Intel Core2 Duo 2.4GHz processor and 2GB of RAM. After resolving an initial freezing problem by disabling hardware acceleration in the Flash player I was able to watch the entire broadcast in the high quality mode with no freezing or picture breaks. I would describe video quality as close to a poor quality standard definition live football broadcast on Sky, something which major UK broadcaster ITV is well known for. One way I gauge quality is to judge how easy it is to see the numbers on the back of the players’ shirts from a distant, half-pitch shot. In live Sky SD broadcasts this is relatively easy; in live broadcast ITV games it is almost impossible, and Perform’s internet broadcast was close to this level. But the overall experience was acceptable on a 15” PC screen. I imagine it would be less so for those who connected to a large screen TV. We will know more about the commercial success of the venture once Perform and Kantaro announce subscriber numbers, which they have promised to do. They have confirmed technically that live internet sports can be delivered to mass market audiences. But with each viewer paying a minimum of £4.99, the experience had to come as close to pay TV quality as possible. Even though our experience was good, we will watch with interest for any other reports of dissatisfaction from paying customers. While internet broadcast technology is becoming more reliable, it is still by no means clear that pay-per-view sports is a viable business model, on any platform. NTL famously failed to make a business from pay-per-view football in the UK, although many believe they vastly overpaid for rights in the first place. The internet may be proven technically as a delivery platform, but the questions around willingness to pay, appropriate price points, and the profitability of this platform remain very much unanswered. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

The final session this morning explored the emergence of online television services such as the BBC’s iPlayer and Hulu. Many of the audience saw Hulu demonstrated for the first time and were clearly impressed. Hulu is now reaching around 40M users a month in the US and looking towards international expansion for its next growth opportunity. Johannes Larcher, Hulu’s Senior Vice-President, International, indicated that the UK was clearly the first priority and that the company “is talking to everyone”, without naming names. He suggested news of Hulu’s arrival in the UK would come “not too far in the future”. The Q&A session brought up the question of the differences in the UK and US broadcast regulatory environments which apparently allowed Hulu (owned by Fox, Universal and, now, Disney) to launch without problems, and yet Kangaroo in the UK, a similar venture, was blocked by the regulator. One audience member pointed out that, although only two of the US majors were the original partners in Hulu, and therefore had a relatively low market share, historically the US has blocked many previous attempts by the Hollywood studios to join forces in various ventures which involve distribution of their product. It was therefore “surprising” that Hulu has been able to go ahead, particularly with Disney now becoming a partner. It was suggested that it might only be a question of time before Hulu did come under the US regulatory spotlight because of its exclusive access to first run online content. In the UK, meanwhile, the BBC’s Anthony Rose suggested that whatever new services arrived in Europe, the rights issues would always be complex and will determine success or failure. He also indicated that Project Marquee, which will make iPlayer technologies available to other public service broadcasters, is currently being reviewed by the BBC Trust with a decision scheduled for mid-July. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

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