BT and Verizon: Worlds apart in terms of IPTV

Posted by Rob Gallagher Wednesday, March 24th, 2010

Add a comment

The keynote speeches by BT and Verizon at IPTV World Forum yesterday couldn’t have been more different. Terry Denson, vice-president of programming and marketing, for Verizon’s FiOS TV service gave a slick presentation featuring slides boasting impressive subscriber numbers and aims to maximise average revenue per user (ARPU). Richard Young, director of business development for BT’s Vision choose to preface his talk with a speculative video about the future of TV, but went PowerPoint-free otherwise. Now I welcome a break from PowerPoint as much as the next person, but there was a distinct sense of style winning over content about BT’s presentation, in more ways than one.

For those unfamiliar with BT’s strategy, it is taking a markedly different path to offering TV than Verizon, which offers a ‘walled garden’ of channels and on-demand content essentially similar to those of its conventional pay-TV rivals. BT, in contrast, plans to offer a service that uses Freeview digital terrestrial TV (DTT) for broadcast TV and a platform based on the BBC-backed Canvas specification for delivering on-demand.

Whether the service will only offer a walled garden or allow users to access any Canvas-compatible content available over the open Internet is not clear, but talk on the show’s floor suggests Canvas’ broadcasters are determined to control major elements of the electronic programme guide (EPG). In any case, it seems likely BT will have little control over content, especially when compared to Verizon.

Young talked a lot about how the openness of Canvas would attract content providers, increase competition and boost consumer choice to ultimately make Canvas “the biggest brand in the UK multimedia market”. But he said very little about where the revenues would come from. So I asked. He gave a rather woolly answer about delivering more attractive services and packages to consumers, but conceded that the “economics were more difficult”.

My guess? There is a glimmer of hope that BT will be able take care – and thus take a share – of the billing for subscription-based and pay-per-view services. Unfortunately for BT, it is likely that some of the most popular Canvas services will already have billing relationships with viewers, in much the same way that App Store purchases by iPhone users are billed by Apple and not by mobile operators. We can already see this in the US with the over-the-top TV services from DVD-rental firm Netflix, online retail behemoth Amazon - and of course, Apple.

BT could also sell data to broadcasters and advertisers about who its subscribers are and how they are using their set-top boxes. It could even insert its own ads into the EPG or before and after on-demand streams. Unfortunately, it could be a long time before this could happen. Various people from across the media spectrum have told us that an IPTV service would need between 10-20% share of TV market, equal to about 2.3-4.6 million subscribers in the UK, before advertisers would take it seriously. Until then, it may remain just another bothersome medium that may cost more to address than it delivers.

Then there’s the old interactive apps opportunity. But as Denson of Verizon said: “Interactivity will not win you customers; it just won’t. But in a three-year time horizon, it will yield big benefits.” A lot can happen in three years in highly-competitive TV market with powerful players such as Sky and Virgin.

Finally, BT may able to charge Canvas-compatible content providers for helping to deliver their content and perhaps ensuring that video streams over its network reach the viewer without suffering from buffering and other problems caused by the vagaries of the open Internet. Unfortunately for BT Vision’s division, BT Retail, the bulk or perhaps all of these revenues will go to BT Wholesale. And although the two companies are part of the same group, Wholesale is a legally-separate business and obliged to provide similar services to rival over-the-top TV services.

Nor is it entirely clear that content providers will embrace such services. The BBC, for example, took part in technical trials of BT’s content delivery network (CDN) service, but a senior executive with the broadcaster suggested to me that the organisation would rather not pay to use it (Intelligence Centre subscription required). The truth is operators may have to build CDNs into their infrastructure to manage the spiralling costs of online video traffic, regardless of whether they can charge content providers to use them.

I agree with BT that Canvas promises to shake up the UK TV market. But it does not change the fact that for most telecoms operators, offering TV is less about new sources of revenue and more about stopping their customers from abandoning their lines in favour of those of their rivals. If anything, Canvas threatens to shift the balance even further away from that promised extra cash.

I will be hosting a breakfast briefing about operator CDN strategies and chairing the CDN stream at tomorrow’s IPTV World Forum. Please drop me a line if you would like to meet up: rob.gallagher@informa.com