June 25, 2007

VOD Key for IPTV Providers

By Mike Robuck

While Cablevision figures out how to switch 500 HD channels and Cox moves toward 50 HD channels, IPTV providers are still trying to come to grips with VOD offerings, according to a recent report.

Pyramid Research wrote in a recent report that while IPTV providers are making gains with the deployment of their video services, they're struggling with VOD. IPTV providers are finding out that content acquisition is more time consuming and expensive than first envisioned, according to a press release.

In regards to VOD, the report includes the following analysis:

• VOD services over IPTV networks don't promise direct returns in the medium term, but they will contribute to customer retention efforts. With new movies representing the most popular and costly VOD assets, IPTV players pay almost all revenue back to the studios and can hardly achieve any profits from VOD transactions. Initially, VOD should be about customer retention. Television is an essential component of a triple or a quadruple play, and VOD can help differentiate a telco's IPTV service. There is little evidence, however, to suggest that television carries more weight than the other services. Simply put, exclusive, premium VOD content cannot compensate for deficient voice and broadband offerings. Yet VOD is a necessary evil for IPTV operators. For some, it is a way to differentiate themselves from satellite DTH carriers; for others, it is about matching competitors' pay-TV offerings. It is also a way to convince consumers to pay for television.

• IPTV VOD models should be more lucrative as customer bases grow over the next five years. Shorter release windows for content will play a significant role in the evolution of the model, but more importantly, by developing a multi-platform presence for their VOD content, IPTV operators will build larger audiences and grow profits. When IPTV VoD reaches an acceptable scale, the report said, telcos will have more negotiating power with the studios and more opportunities with advertisers.

• Ultimately, to make up for declines in wireline voice revenues and stay relevant, telcos should invest in building a robust content business. VOD is a key component of that strategy. With consumers increasingly demanding access to content any time, anywhere and on any device, telcos have an opportunity to build fully integrated multi-platform VOD services that can be accessed from TV sets, PCs and mobile devices. Most telcos have access to large amounts of funds to make sure that they can put together differentiated content offerings. Without a content business that can readily respond to the rapidly changing patterns of media distribution and consumption, IPTV players risk becoming dumb pipes as over-the-top providers bypass them and reach consumers directly.

But developing a multi-platform offering will take time, largely because of copyright and licensing issues.

- Mike Robuck