Urban Myths and Truths for the European Cable Industry

I'm at the CTAM EuroSummit'10 in Budapest, and had the chance to talk about some urban legends and myths on a panel session titled “TV Retakes Center Stage.” My job was to discuss five urban myths and the truths as it relates to TV service and the cable operator’s role:

1. Urban Legend 1: “Online Video Cannibalizes Traditional TV Viewing” – not true according to our data, and the speaker from Liberty Global and Virgin Media had their own data that showed an increase in television viewing.
2. Urban Legend 2: “People simply won’t ‘cut the cord’” – not yet, anyway. However, I showed our data that indicates that consumers who are active in watching online video through connected devices or configurations (game consoles and PC-to-TV connections) are 3x more likely to be a cord-cutting threat. I then showed some numbers for expected worldwide penetration of connected CE devices, with a comment that the operators can choose to work with connected CE and take advantage of it or try to fight it (and probably lose). A speaker from Solon (a consultancy in Munich) indicates that 36% of the TVs sold in Germany in the first half of 2010 were Web-connectable. So, that’s very similar to what we’re seeing in the U.S. (where close to one-third we expect to be sold as Internet-capable). When we get to 2015, we'll see household penetration of connected TVs worldwide at more than 200 million, not to mention the tens of millions of households with connected Blu-ray players, game consoles, set-top boxes, and other IP-video-receiving devices.
3. Urban Legend 3: “Consumers don’t care about home networking” – I rephrased it to dispel the myth that consumers don’t see additional value in home networking to focus on video features such as whole-home DVR. After all, we already know that more than 250 million households (well over one-half of global households with broadband) have home networks in some way shape or form. Our data indicates a strong interest in whole-home DVR, and high percentages of consumers in Western Europe indicating willingness to pay a premium for such a feature. Verizon indicates that significantly higher than 25% of its FiOS TV customers are taking its Home Media DVR, paying a premium of $4 per month. So, there are in fact new revenue streams to be created from home networking, and I showed our estimate for the number of connected devices on global home networks growing to four billion by year-end 2014 – that’s an average of eight nodes per networked households, and it will include consumer electronics, mobile and portable devices, routers and femtocells, and nodes for home, health, safety, security, and energy monitoring. So, cable operators need to be considering more of a holistic approach to the connected home.
4. Urban Legend 4: “There’s no premium to be charged for TV Everywhere” – Not true – our data shows that 16% of consumers in U.S. broadband households are willing to consider paying up to $5 additionally per month, and it was noted earlier this week at the Connected Home World Summit conference that operators are deploying TV Everywhere at a €5-6 premium.
5. Urban Legend 5: “The connected TV causes little concern, because it’s all about video … and we do it best” – Not true – certainly, cable operators will have an advantage over many online video services because of the high quality video formats that they can deliver to the consumer. However, interest in connected TV applications is going to go beyond video, so cable operators need to consider features such as social networking, family calendaring, gaming, music, and other services that complement the television experience. They should also consider the ways in which they can leverage their networks, their billing relationships, and tools such as device discovery and management to ensure a high-quality entertainment experience across devices, even those beyond the set-top box. They can actually use dynamic provisioning and configuration tools to bring more devices into the video experience and use this to both reduce customer support calls and to build a more highly-valuable service.
   
   
   
   
   
   
   

European Service Providers Embracing the Connected Home

We're in London for the Connected Home World Summit, and I chaired yesterday's sessions. The operators in attendance are from a wide spread of European markets - everywhere from Greenland, Estonia, Italy, Germany, France, Russia, and countries in between. I was furiously writing notes during the keynotes and the panels, and came away with the following takeaways:

• There are very different takes on the economics of deploying the "God Box"/über-box, which would bring in the functionality of the residential gateway (modem, routing, remote manageability, etc.) along with multiple set-top boxes (tuners, transcoding, server capability, etc.). For reasons related to cost, lifecyle differences in CPE, and the risk of one point of failure, many operators are taking a very conservative approach in deploying a fully integrated customer premise equipment hardware. At the same time, Intel (which was represented at the event by Brendan Traw) has had early success with some service providers, including Telecom Italia and Liberty Global, to deliver a high-powered gateway that takes on much of the functionality of the über-box.
• The effort formerly known as Project Canvas (now known as YouView is making progress, and we can expect to see set-top boxes and then connected televisions with the implementation in 2011.
• There are some interesting thoughts about whether the concept of TV Everywhere is simply a nice-to-add feature or a true revenue generator. Our own research finds a good percentage of consumers willing to pay a $5 premium per month for access to their cable channels on different IP-connected devices, and Irdeto - which delivers content protection solutions - indicates that one of its European service provider customers is getting a good take rate on a TV Everywhere service at a €5-6 premium.
• Irdeto's representative also spoke of the evolution of digital rights management, indicating the the renewability DRM - that is, its ability to be updated as new threats emerge - will be a critical trend. It's one of the key reasons that Irdeto acquired Cloakware.
• A speaker from Vodafone shared the company's key connected home strategies, which includes the deployment of both residential gateways (with a port for a 3G modem) and femtocells in the U.K., French, and Spanish markets. In terms of value-added services, they have found good success with delivering an online backup service, which is one of the key value-added services that Parks Associates identified in our Customer Support in the Digital Home: Europe study in major Western European markets. Finally, they have embraced at least some basic home control applications with remote home monitoring through the mobile phone. This is an area that we're watching closely, as we expect that energy, home control, and health applications as value-added services will be important for operators to investigate in the next few years.
• Operators are mainly very pleased with the capabilities that DLNA provides to them, particularly in applications such as media servers and multi-device entertainment servers.
• Several service providers spoke of their concern about the high number of video formats that will need to be supported.
• A speaker from A1 Telekom Austria also spoke of the importance of its online backup service as a value-added service (as did a speaker from Telefónica). A1 Telekom Austria offers 1 GB of storage for free, but also will upsell tiers. The company developed their own UI and Media Manager software so different devices (TV, PC, mobile, etc.) could access and share content. The sharing of content is a critical element as well. You can push things like photos to your parents by simply entering in their telephone number into the interface on the TV or the PC, so sharing digital photos with non-tech savvy people becomes much easier.

I'm off to Budapest to speak at the CTAM EuroSummit'10 tomorrow. It will be interesting to hear the perspectives of the cable operators in Europe regarding the connected home, and what similarities and differences exist with technology, strategy, and business models.