Web TV / IPTV / DTV

The above chart is my analysis of data from the ITIF and shows the broadband speeds of various countries against the services you can obtain at that speed. As you can see, the UK is hardly a stellar performer at a mean speed of 2.6 Mb/s - and now comes evidence that it ain't even that good..

The deplorable speed of British broadband connections has been revealed in the the latest figures from the Office of National Statistics, which show that 42.3% of broadband connections are slower than 2Mb/sec.

As far back as last year, telecoms regulator Ofcom was claiming "the average headline speed has doubled in a year to reach 4.6Mb/sec".

However, the ONS figures suggest that average is being heavily weighted by a small proportion of truly high-speed connections, such as the 24Mb/sec ADSL2+ broadband offered by ISPs with Local Loop Unbundled services.

More worryingly, the ONS statistics are based on the connection's headline speed, not actual throughput. That means that many more British broadband connections could well dip below the 2Mb/sec barrier when it comes to actual speeds.

We do argue internally as to bandwidth required for SDTV (Standard Definition TV) my view is for a contended line you want 3.5 - 4Mb for a PAL level of quality (Video and US NTSC and levels are lower, c 1.5 - 2.5 Mbps in my view). I have noticed my connection - ostensibly 8Mb/sec - has very seldom got above 1 Mb/sec over the last few weeks. It makes using video quite an issue, and even rich media websites are a pain in the *rse.

The worrying thing for the UK is that video media is one thing we're rather good at - but if we are competing on cart tracks while others have autobahns, we will be left behind.

Blockbuster is handing out Set Top Boxes (STBs) ....sez Engadget:

For a "limited time," the outfit will offer the 2Wire-built MediaPoint player for free with the "advance rental of 25 first-run movies, TV shows, foreign or classic films from Blockbuster On-Demand (previously Movielink) for $99." After that, rentals are $1.99 apiece, and a Blockbuster subscription is not required. The unit itself measures 8- x 8- x 1-inch and includes two USB ports, an SD slot, Ethernet / WiFi and an HDMI port, and it should be available at the company's website and in select retail stores very soon.

Ie Box $99 with 25 movies thrown in. The issue they face is that STBs have friction - it usually costs c $99 to supply one (equipment, logistics, transaction etc etc) compared to an Over the Top internet play, and most people already have one (or even two, plus a games console) so yet another is the last thing they want.

Its clearly an attempt to combat Netflix, who have gone for a multiple distribution channel approach, and no doubt is the fastest and easiest play. But in our view, Blockbuster would have been better off with a software player solution like BBC iPlayer and selling a black box to allow people to connect PCs to TVs. Lower cost, lower friction and with Blockbuster's better content portfolio a much smoother play, plus it takes a free ride over existing infrastructure.

It is a dearly held wish in Webland that the TV dies as a media, and all that attention (and resulting Ad dollars) flow into the online economy. Well, don't hold your breath, TV is doing just fine. While we were researching for our work on the Future of Online Video we found that TV viewing had hardly declined at all due to net usage in recent years, and formal confirmation of this comes from a Nielsen report today (reported today on Wired):

As of third quarter 2008, the average person in the U.S. watched approximately 142 hours of TV in one month [up 5 hours on a year ago]. In addition, people who used the Internet were online 27 hours a month, and people who used a mobile phone spent 3 hours a month watching mobile video. Furthermore, the average time a U.S. home used a TV set during the 2007-08 television season was up to 8 hours and 18 minutes per day, a record high since Nielsen started measuring television in the 1950’s

So - 3 / 27 / 142 hours, and assuming the customer value to be roughly equal that equates to roughly 2%, 15%, 83% of attention. Given that US online advertising is close to that (or not, e-Marketer again slashing its 3 months ago slashed estimate another 1/3rd a week ago) its not got far to grow.

However, as well as watching more TV, people are also using the Internet more often – 31% of which is happening simultaneously. I await combined TV/Laptop ads with eager anticipation.

Other key facts from the report include:

- Americans spend more than 6 hours per month watching timeshifted TV, which is more than double the amount of time they watch video online.

- Men are more likely than women to watch video on mobile phones, while women are more likely then men to watch video on the Internet.

- During the third quarter, there was no shortage of online video content with events including the Olympics, Major League baseball games, the political conventions and debates, and the financial crisis. Online video use grew steadily through the quarter.

TV remains the dominant choice for most Americans, yet timeshifting as well as videos on the Internet and on mobile phones, continue to be the trends to watch.

Article on Ars Tech - NBC's legal council Rick Cotton saying that most of the value of YouTube was from pirated content:

In this view, YouTube was a nice place for emo kids to post rants about Britney Spears, but this sort of stuff hardly made YouTube an essential visit. No, what built YouTube's brand was the flood of unauthorized commercial content sloshing around on the site a few years back—a heady time before Hulu et al. when one could reliably dig up episodes of The Simpsons, The Daily Show, or Saturday Night Live.

At a conference on the Future of Television this last week in New York, Cotton made it clear that he hasn't forgotten those early days. According to him, YouTube was vaulted into national popularity by SNL's hit "Lazy Sunday" rap about a pair of lame white guys from the Village who wanted nothing more than to spend a Sunday afternoon in the theater, watching The Chronicles of Narnia.

Now that was fairly clear at the time (our view here), which was why the amount Google paid ($1.65 bn) had many people gasping / shaking heads / raising eyebrows etc (was Google turning into dumb money etc) as it was clear it wasn't a sustainable play. What was more interesting is AOL repeating the trick a year or so later and buying Bebo for $830m - prompting Billy Bragg's calling the tune and Nick Carr's post about Digital Sharecropping.

Ars Tech reports a YouTube person later naysaying this, and noting that the shows mentioned above were just a blip. But there were many such blips - and the lesson is to watch what they do, not what they say - and what they are doing is finding more ways to load up on quality content with Ads and without lawsuits. YouTube is becoming just a New Order TV channel.

In this session at Amplified 08, I will present a summary of some of the findings from a research project we have undertaken over the last 2 months, aimed mainly at those people pushing the boundaries of the New Media.




We will examine the current situation - including:

- structure of the online video market value chain - who will be making money?
- structure of the players in the market (see chart above) and how will it evolve?
- rough market sizings (whats it all worth?)
- relative prospects for growth - and will the US an Europe ever build the sort of bandwidth seen in Korea?

Idea is then for us to discuss some views as to the future of the market, for example the interplay between:

- Content - UGC vs Curated, Short Form v Long Form - does user generated video have a future?
- Piracy vs Copyright issues
- Set Top Boxes vs Over the Top PC plays - does the STB have a role, no matter how smart, or will PC software go over the laptop?
- “FreeConomics” vs building a sustainable businesses
- Fixed vs Mobile video
- Web TV vs digital TV - is it a "a good enough" anyway?

If we have time, a last section for startups – where the opportunities seem to lie, potential business models etc - I hope to foment a good & robust discussion on all these areas too

TechCrunch asks if there is money in Online Video. The answer is yes, but not as much as the totally over-the-top forecasts of last year - and not where the New Media aficionados think it will be either.

The TechCrunch piece points to e-Marketers estimates of a $5.8bn US online video Ad market by 2012 (already pared down from nearly double that a year ago) and notes they will take down the numbers gain due to Crunch effects. Absolutely - the number should never have been so high in the first place - a lot of Web 2.0 / New Media market research in 2006 / 7 would make even mobile researchers blush with its overblown optimism (we have a game at Broadsight - take a 2 year old forecast of 2 years out, divide it by 2, and see how it compares to the actual - you would be amazed ).

But this does not mean that this is not going to be a big market, its just that it won't happen as quickly as the forecasters hoped. For the last 2 months we have been researching the Future of Online Video for a client (report available soon, and see here for the slideware from a recent presentation). What is clear, as Bill Gates once said, is that the impact will be less in 2 years than you imagine, but far greater in 10.

Just look at the big picture:

1. More people will move to Online Video, and will also spend an increasing amount of their time there:

- More and more people are turning away from traditional TV and watching Online Video. It has grown, in volume terms, in leaps and bounds since c 2004 when broadband became a reality for people in the US and Europe. (See the charts in the TechCrunch piece, they are typical).

- As the systems become ever more prevalent, they are rolling out from the PC onto the TV (eg BBC iPlayer) and mobile handsets like the iPhone now make online video a pleasure rather than a chore to watch. Watching early adopter behaviour with BBC iPlayer, its clear that online video will move into the living room

- This is the zeitgeist - as a commntator on TechCrunch notes "I’m a working professional in my late 20s and I haven’t had cable for years. Incoming freshmen are not bringing TVs to college anymore. The number of people who don’t consume any traditional media (TV, cable, radio) gets bigger everyday, and the only this group is with advertising on the web. The ad companies are idiots if they don’t realize that."

2. Where the attention goes, money will follow

- The money will follow the attention, it just takes time to work out how best to do it- there is a lag while old attitudes change, new metrics become available etc. Advertisers aren't dumb, they will advertise where the eyeballs are, it just takes time to move.

- Watching the UGC market (and I include stuff like Revision 3 / Diggnation in that) is missing the where the action really is - the money will be (primarily) in quality long form and (secondarily) in short form content. `Short form will probably rule on Mobile video. (See this post we made earlier)

Why do we say this? Well, just look at Japan and Korea. They are ahead of Europe and the US in broadband bandwidth (but not really penetration), and their experience is that as bandwidth rises (which it will in the US and Europe), more video is consumed online, and as that happens, more services that optimise the online video experience become available.

The future, as they say, is here - it is just unevenly distributed.

Last week we presented some of our thinking on the future evolution of the online video market at the Telco 2.0 conference. I’ve been working with the STL Telco 2.0 team on this thorny issue for the last 2 months, and we’ve come up with a hypothesis on how it may evolve – thanks to interviews, online questionnaires, a workshop with the avant garde new media users at the Tuttle Club and a “Wisdom of Crowds” session at the Telco 2.0 Brainstorm last week. The wisdom of the crowds input is from these worthy people, any madness is mine. Here is the presentation from last week (This piece is also up on the Telco 2.0 blog by the way).



To understand the industry evolution, its worth outlining the background to the online media world. What we can see is that there is massive and disruptive change across the video media supply chain:

Content Creation – There have been 2 major shifts in the last 5 years:

(i) Falling costs of content recording and production equipment (hardware and software) has reduced costs of capture and creation, and the resulting emergence of User Generated Content (UGC) has reduced content prices for media where amateur and professional differentiation is low (photography for example) as well as driven a huge (volume wise) new market in video production, mainly in short form content (a few minutes).

(ii) The digitisation of large amounts of video libraries, both by the owners and increasingly amateurs with low cost copying equipment, has made a huge back catalogue of video available online. This has aided not only the original media operators, but also the market in “User Copied Content” (also known as piracy in some quarters)

Aggregation – The traditional media aggregation functions of publication - content finding, content editing, and content marketing - have been replaced by algorithm based online systems. The finding content function was invaded by Search Engines (eg Google) and now increasingly Social Media, where networks of friends discover new content. These social networks have also taken over much of the editing functions of rating and recommending content. Marketing costs have also reduced in a networked world, to the extent where the transaction costs of some items makes it cheaper to give them away rather than to actually charge for them

Distribution – Moore’s Law, Open Source software, usable “de facto” webservice standards and a glut of bandwidth and hardware buildout from the dotcom failures has meant the cost per megabyte, teraflop and kilobaud has plummeted since 2000.
Over the last few years, Distributors have engaged in vicious price cutting to fill their huge empty pipes.

Customer Environment – The inexorable march of Moore’s Law, and increasing adherence to open architectures, plus increasing device interchangeability and application flexibility, has led to the total cost of ownership falling for hardware, software and services

Predicting the impact of all these axes of change is quite hard - we found that it was easier to group these axes into a number of scenarios. After some winnowing, 3 main ones emerged:

Old Order (eg BBC, Hollywood Movie Studios). They win if they can:

• Re-establish content rights
• Maintain control on sources of funding (Ads, Subscription)

Pirate World (YouTube et al)* win if there is

• No control of rights, Free wins
• Offset-based funding is sufficient to kep the costs of these businesses paid

New Order Players win if:

• New copyright models allow some form of pricing control by these new aggregators / creators
• Migrate control on sources of funding (Ads, Subscription) from Old Order

Interestingly enough, technology shifts cease to make strategic differences once you look at the “big picture” outcomes above. By and large the technology drives the opportunity, but the prediction of industry evolution resolves itself around the economics and sociopolitical reactions. In this space, the most material factor is the ability to manage – and monetise - the copyrights.

Also, when we started looking at these scenarios, we realised that the likely evolution was not either/or, but more likely to be an evolution of the market from the Old Order, through a disrupted, disaggregated “Pirate World” and then a New Order will emerge, as shown in the chart below:

(In the chart on page 9 of the deck, the X axis shows time, the Y axis shows relative market share.)

Why evolution?

It is fairly clear that the Old World structures have costs that are being attacked already (and have also been in similarly structured but lower bandwidth media – print and music – already). But our view is that although “Pirate World” is disruptive and will disaggregate much of the existing structures, its is not sustainable itself in the longer term, because:.

- Firstly, there is just not enough advertising money, nor enough offset funding money from all the Web behemoths, to indefinitely fund the growth of an industry as large as the video media industry. TV and Cinema is a c $0.5 trillion industry worldwide, that’s the size of the total global Ad industry – the current online Ad industry is c $50bn. This was true pre crunch, it is even more true now
- Secondly, all the evidence is that advertisers and funders want to fund high quality, longer form content, not the vast tranches of User Generated Content which is the main output of the current online video media industry
- Thirdly, we judge it is difficult to believe – given the size of market at stake – that counterplays to increase the difficulty of piracy for the average person will not occur.

What is interesting is to think about how the New Order could emerge. In our workshops and questionnaires, 4 likely approaches came out as the strongest:

(i) The “iTunes Play” – someone like Apple creates an end to end, owned but beautifully designed supply chain and starts to charge a reasonable amount – most people prefer to pay that than risk copyright infringement.

(ii) The Trusted Network – New Media networks emerge that people trust as the best pointers to desirable content. They could be social media based or algorithm based (Think Last.fm or bpandora, but for Video).

(iii) Existing “Pirate Players” go mainstream, typically due to legal and financial pressure – this weeks’ announcement that YouTube is to start showing Ad funded, legal, long form content is thus very interesting.

(iv) Old Media players make the decision to eat their own lunch and transition – think Hulu or BBC iPlayer here.

As to timings, these are the hardest to estimate – you can draw all sorts of adoption curves from past evidence and build simulation models - but Bill Gates’s maxim that things change less in 2 years than you think, and ditto more in 10, seems so hold good for the last 10 years of media so why not here.

At the Telco 2.0 event, we tested two main assumptions of this model:

- Was our assumption that Pirate World was not sustainable valid?
- Would the current distributors (ISPs, Broadcasters and Telcos) be able to transition? (we held that some would, but – as can be seen from the chart – value destruction would be significant over 5 – 10 years)

We asked people to vote and comment on whether we were too pessimistic or optimistic, or about right.

For the timings, c 33% of people felt we were optimistic – ie Pirate World would come sooner and/or last longer. 50% of people felt it was about right, 17% felt we were too pessimistic.

For the Old Order to transition, about 25% thought we were optmisitc (ie there would be more value destruction), 60% thought it was “about right” and about 15% thought we were pessimistic.

We’ll be working on our real number estimates in the report, but in the meantime we’d be fascinated to hear your thoughts.

Update - quite a nice article on TechCrunch on the evolution of different types of Video over here.

Today, MGM announces it will run movies through YouTube, thus allowing YouTube to actually monetise some of the content on its pipes (it can only advertise against about 4% of it at present). At the same time, ex BitTorrenter Ashwin Navin claims that piracy "leads to less crap". What is going on?

The YouTube play is all about getting quality content that Advertisers will subsidise onto the site - as they note:

....YouTube is trying harder to make friends with Hollywood — and emulate the appeal of Hulu, a joint venture of NBC and Fox. Along with its MGM relationship, YouTube has recently forged ties with the independent studio Lionsgate and with CBS, which this month started posting to YouTube full-length episodes of older shows like “Star Trek” and “Beverly Hills 90210.”

“We believe in comprehensiveness, and we want to have deals with everybody,” said Jordan Hoffner, the director of content partnerships for YouTube. “We want to be able to give users the most content possible.”

In the last few months, YouTube has swept its virtual floors and painted its stage as it prepares to offer more professional videos. This month, it introduced a “theater view” button that expands the viewing screen and darkens the rest of the Web page for optimum viewing — a feature similar to one introduced by Hulu.

Yet Navin's view is that:

“The free flow of information and entertainment over the Internet doesn’t diminish the relevance of high value, professional entertainment at all. It does force the publishers to be more quality conscious (make fewer flops, and more hits). And the great cardinal sin in this era would be to withhold your content in exclusive deals or to be too precious with your creation. Now’s the time to be more promiscuous with your distribution strategy than before: be everywhere at once, wherever there are eyeballs you can count.”

“In the previous era, there was a lot of forgiveness when 3 or 4 companies owned every road to the consumer. Publishers could produce a crap movie or TV show and get away with it. But when there are millions of ways to get to the user, or in other words, millions of “channels” to choose from, the best entertainment presented in the most frictionless format always wins.”

So, Navin argues that piracy leads to less crap. The entertainment business now has to make stuff people actually want to listen to or watch.

Now that, post Crunch und Drang, the irrational FreeConomic funding fever is ending, are we seeing the real economics starting to emerge? Ladies and Gentlemen, take your juxtapositions.....the beginning of the Online Video Endgame (or is it the end of the Beginning Game?) is going to start shortly!

Ireland's new favourite son, President Elect O'Bama ( ) , would do well to recall that refrain from that Irish classic "Danny Boy" when considering thing for a new US CTO to do. He has a long list of potential objectives, 'twould be better to focus on a few, and - if the activities in Korea and Japan are any guide - knocking heads together to build a real Information Superhighway is a key task.

Work we are doing in understanding the evolution of the Internet implies that one of the biggest drivers of competitiveness going forward will be top class digital logistics. It was ever thus - first class comms have been the hallmarks of great societies from the first Sumerian runners (the SandalNet) onwards.

However, the buildout of the huge pipes in Asia seems to be missing most Western commentators on the Arts Technical except for the odd remembrance. To recap, Korea has built out a very high speed internet system via a combination of government, corporate and consumer collaboration. This is from a ZDNet piece in 2004, when 8Mb was the standard:

....in stark contrast to the regulatory morass that has stunted development in US telecommunications for several decades. South Korea's policy -- the cornerstone of a national technology initiative to help revive a devastated economy -- has created true broadband competition, which in turn has helped prices fall and speeds rise.

......

The decision to focus on broadband began in the mid-1990s and intensified after South Korea's economy was crippled by the collapse of the Asian financial markets in 1997, when policy makers targeted technology as a key sector for restoring the country's economic health.

Korean regulators set out a clear path for the network industry with well-publicised national goals. All big office and apartment buildings would be given a fiber connection by 1997. By 2000, 30 percent of households would have broadband access through DSL or cable lines. By 2005, more than 80 percent of households would have access to fast connections of 20mbps or more -- about the rate needed for high-definition television.

The government also spent $24 billion building a national high-speed backbone network linking government facilities and public institutions.

That was then....roll forward 4 years - the country’s average broadband penetration rate by household was 90.1% in 2007 and in Seoul, the rate was 107.8 %. This has had some interesting effects - Online TV for example:

KT, Hanaro, and Powercomm all are offering high-definition television via their broadband networks and bundling
this with Internet and voice services in “triple-play” services. Koreans are willing to spend twice as much of their
household income on broadband than U.S. consumers. They seem to see broadband as a superior good and
thus place a higher value on it. This may be because South Korea has a wide variety of broadband content, and
the more services consumers can access using broadband, the greater its value to them.

Not to mention the Public Goods now economically viable:

....the Educational Broadcasting System (EBS) broadcasts high school education programs via the
Internet. Because students need broadband access in order to get their assignments and access education programs,
these schemes encourage parents to get high-speed access for their children.

The government’s digital literacy programs also target groups that otherwise would be less likely to use the Internet.
For example, the “Ten Million People Internet Education Project (2000-2002)” worked to provide Internet education
to approximately a fourth of South Korea’s citizens. Similarly, the government provided subsidies to around 1,000
private training institutes over the nation for the purpose of educating housewives, in order to create demand in
households. Under this “Cyber 21” program the government offered 20-hour, week-long courses to housewives
for only about $30. In just the first 10 days, 70,000 women signed up for the courses.

Of course, not all vested interests will be delighted - DVD is in dire straits in Fat Pipe Broadband world, as NewTeeVee reports:

The slump of DVD sales numbers has also taken its toll on DVD rental stores. The Korea Times is reporting that there were 10,000 of these Blockbuster-type stores back in 2001, but the number was down to 3,500 at the end of last year. Finally, box office sales have been slightly down in 2007 as well, but some attribute this to the changing box office landscape rather than to piracy.

How much of this trend will translate to the U.S.? At this point, it’s hard to speculate, but there are some lessons to be learned in South Korea that should worry Hollywood, the most important one being that in the face of ubiquitous broadband, DVDs won’t be replaced by other physical formats or even VOD services, but by the cloud.

Interestingly enough, its storage wot done the deed though:

P2P networks aren’t at the center of the Korean downloading craze. Users are flocking to web-based storage solutions instead. The market for these so-called “webhard” services was originally popularized by LG, but now there are dozens of vendors, with some offering up to 1 Terabyte of storage space for free. The services are monetized through priority access points that guarantee higher speeds. There are supposed to be filters in place, but it’s obvious they don’t work.

Korean film studios now want their piece of the pie by becoming part of the cloud. According to KBS World Radio, they’re starting a webhard-based movie download service by the end of the year.

The Lesson from Korea is that you can have this now, it does add value, but it will require significant collaboration between Government and other stakeholders - and in our view, quite a few of Mr Obama's other problems are knock ons of this - for example all of these...

- Protect the Openness of the Internet
- Encourage Diversity in Media Ownership
- Open Up Government to its Citizens
- Bring Government into the 21st Century
- Deploy Next-Generation Broadband
- Promote American Businesses Abroad
- Invest in the Sciences
- Invest in University-Based Research
- Ensure Competitive Markets
- Restore Scientific Integrity to the White House
- Make Math and Science Education a National Priority
- Address the Dropout Crisis
- Pinpoint College Aid for Math and Science Students
- Increase Science and Math Graduates
- Lower Health Care Costs by Investing in Electronic Information Technology Systems
- Invest in Climate-Friendly Energy Development and Deployment
- Modernize Public Safety Networks
- Advance the Biomedical Research Field

...are in one way or another impacted by big pipes, and the rules and policies one could broker for using them. And not just the US, any other (especially Western European) countries should learn the same lessons.

YouTube is going to show long form media - unsurprising, because despite the hype over User Generated Content, in the current Freeconomic plays there is no money in it. We are in the process of completing research on the future of online video distribution, and the in fact its Long Form media that makes a lot of money, and is predicted to carry on making it in future.



This chart from The Diffusion Group shows the situation - on the left hand side the traffic streams, on the right hand the expected Ad revenues: Now, it may be possible to monetise UGC more, but right now Advertisers want to fund legal, high quality content.

Hulu and the BBC got there first (Olde Media companies, you will note), and have increasingly proven the long form Web TV model. Google risks $1.65bn of investment going down the toilet if they stay with the current model.

Hence YouTube's play - they've blinked.

Update - never mind blinked - they've gone in Eyes Wide Shut.... MGM to run a long form movie Web TV channel via YouTube