[opendtv] Re: News: The Internet revolution is about to be televised
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: opendtv@xxxxxxxxxxxxx
- Date: Thu, 24 Feb 2005 09:47:42 -0500
At 9:48 AM -0600 2/23/05, John McClenny wrote:
First John, thanks for this detailed response. There are many issues
here in which we are incomplete agreement. There are some key issues
however where further discussion is appropriate.
>The Cable IP networks are designed for high speed access with bursty
>traffic. It will not stand the load of continous delivery of TV video
>to lots of TV sets. The problem isn't so much at the edge, but closer
>to the core of the network. They are not currently sized for this
>large, continous load,
Agreed. But this thread was not specifically about the migration of
cable to an all IP infrastructure. I agree that the availability of
higher download speeds is not in and of itself a guarantee that they
can be used to deliver TV services. But the case for any new IPTV
deployments by the telcos is much different than for cable, since
they must assume up front the kind of usage statistics that you
described in your post. And the cable systems are designed to migrate
to the kind of loading factors you talk about - to do this they will
need to reduce the number of homes on each local loop, light up more
trunks to accommodate the increased traffic, and beef up the pipes
that connect outside their walled gardens.
The shift that I am talking about is not likely to take place over
night. The bulk of the traffic on both Cable and Telco IPTV networks
will continue to be in the form of IP multicasts of popular content.
The shift will occur first in paid downloads of content, as we are
seeing today in the music business. In time it may migrate to
Internet TV channels that parallel the Internet radio channels that
are proliferating today.
Even more important will be the ways in which the major content
conglomerates refocus their business to make their content libraries
available to the public through both the public Internet, and through
walled gardens. This is where the decoupling of content and carriage
is gong to play a major role.
It is helpful to look at what is happening around the public
Internet, with respect to the infrastructure needed to deliver
digital media content, and WHO is paying the costs for the required
infrastructure.
At the most fundamental level, there is a huge difference between the
Internet model and the walled garden multichannel TV model. With the
Internet model, content and carriage are almost totally decoupled.
AOL still has some unique content franchises, but most of the content
they offer today is actually coming from the public Internet.
With the Internet model, a content owner PAYS for distribution. This
may be nothing more than a small monthly fee to an ISP to host a
site, or it can be a huge, costly effort. Akamai does not pay content
owners for the privilege of delivering their bits - they get paid to
do this. It is then up to the content owner to figure out an
appropriate business model to make a profit. This may be a
pay-per-view fee, a subscription fee, or the content may be supported
by advertising revenues. And there is another category that properly
considered a marketing and/or support expense. For example, Apple has
a popular movie trailer site; they use Akamai to deliver the bits.
There is no advertising per se, but the movie trailer site promotes
Apple's QuickTime, and there are links on this page to other apple
products and services. What is IMPORTANT here is that there are MANY
business models that can be supported over the same distribution
infrastructure.
With the walled garden model the "marketplace" is highly distorted.
In many cases the content conglomerates are paid for their content,
rather than paying for carriage costs. As these fees are passed
through to the subscriber (often with a markup for the Cable MSO) it
is easy to say that these are subscriber fees. But subscribers are
not given a choice as to whether they want this content, and many
would drop some of these channels if they knew how much they were
paying for something they rarely if ever watch. Most browser channels
would drop their subscriber fees if ala carte became a viable option,
because they would lose a big chunk of their audience if people could
choose whether to pay for that channel. The parallel with the
Internet model is that the content owner would pay the cable company
for carriage, not the other way around.
>The pricing we pay for broadband is based on relatively small amounts
>of data used per month. The BitTorrent users, although few in number
>and transfering relatively small amounts of data, are major loads on
>ISP networks. To build a network that can sustain even an MSO
>equivalent video load with mulitcast and unicast VOD is neither cheap
>nor easy. Look at Broadband reports and all of the high data volume
>users getting kicked off of cable systems when they hit some usage
>caps. Now make everyone a high data volume user and the system
>collapses.
But this is just a reflection of the approach that cable systems have
taken with broadband services. And a reflection of the fact that they
do not need to provision their networks to deliver the IP MUlticast
bits, since they are broadcasting this stuff to everyone. As the
usage statistics evolve for cable they must reduce the number of
homes on a local loop and beef up the plumbing all the way back to
the core.
Any new IPTV deployment assumes that everyone will be a high
bandwidth user. The network is provisioned from the start to support
the kind of bit volume that would bring a HFC cable network to its
knees. So the problem is not near the edge, or in the trunks from the
CO, but rather inside the CO and in the links to the outside world.
Note I did not say public Internet. The links I am talking about are
a combination of public and private networks.
For stuff that is available via the public Internet this will require
some big pipes, as it does today with DSL. These pipes can be scaled
as needed based on usage demands, and the cost will be reflected in
the rate structure, or possibly in usage fees based on the actual
volume of bits consumed. But there will ALSO be private networks
bringing content into the CO, just as there are private networks that
bring content to cable head ends. The good news is that the content
conglomerates typically pay for the satellite bandwidth used to
deliver the networks feeds to the cable head ends. I would expect
this to be true for the private network bandwidth that content
owners would use to deliver content to IPTV systems as well.
For example, Disney would most likely create a private network
infrastructure similar to Akamai, or they could choose to pay Akamai
or some other competitor to operate the network for them. And they
would pay for a big pipe into the IPTV head end so that the IPTV
system subscribers could access the servers with the Disney content
library. This private network would be used to deliver the stable of
Disney IP multicast channels (ABC, the ESPNs, ABC Family Channel, The
Disney Channel, et al) . And it would carry the bits for all of the
demand based services as well.
It is highly likely that Disney would seek to co-locate servers at
the IPTV Head ends, as is starting to happen with some cable
networks. These servers would mirror popular content to take the load
off of the wide are links, and they would handle the localization and
personalization of the content.
Bottom line, the business model would evolve and it would be much
more obvious to the consumer what they are paying for and to whom.
>Right now the money paid for content subsidizes the carriage. Both
>the MSOs and telcos leveraged existing infrastructure to add IP
>connectivity. Moving their networks to the next size level involves a
>lot of forklift upgrades if you want to build an infrastructure that
>can handle the general any content to any person case. What are we
>willing to pay for this?
The obvious answer is YES.
How many of us on this list are paying for both a broadband service
and a multi-channel TV service. And how much do we spend in addition
to this, to rent or buy content?
I can go to a bunch of local stores and spend $10-15 for a music CD.
But now I can also go to Napster, Serius or XM for an "all I can eat"
music subscription service, or I can go to the iTunes Music Store and
its competitors and buy just the tracks I want, or the entire CD for
$8-9.
The true cost of the album from the iTunes store is greater than the
money paid to Apple, because I need to include a portion of my
monthly fee for Internet service, but the savings I get versus going
to the store help to offset this.
Apparently the Telcos believe that they can deploy an IPTV
infrastructure and still be competitive with cable. Moore's law is
working in their favor, and there is PLENTY of wide area bandwidth
available to deal with the issues of moving bits at the core of the
networks.
The cable guys just spent about $70 billion to upgrade their
networks, and they will continue to spend big bucks to upgrade them
as they migrate to an IPTV infrastructure. Their reward is that the
revenues per subscriber are increasing as they introduce new service.
Will all of this be disruptive? Of course.
Will it cost consumers more? Perhaps in the short term, but it will
cost less in the long term.
Why? Because of competition and the fact that it will be much more
difficult to shift revenues based on techno-political regulatory
advantage.
The marketplace works!
>If we separate the carriage from content, we have capped the potential
>revenue for the carriage provider while forcing them to bear all of
>the risk of building and supporting the network. The business id iffy
>enough under the current setup, remove any hope of incremental revenue
>and the networks will not get built. Unless, of course, we let the
>governments build and subsidize the networks, but that is another
The Telcos have been in the carriage business for almost a century.
The revenues they produce still dwarf the revenues produce by the
entertainment industry here at home. We still spend more on beer as
consumers than we do on electronic entertainment; and the beer
industry is one of the largest advertisers on TV.
What's more relevant is that both cable and the telcos are making
money on broadband.
There will be MANY ways to generate incremental revenue. There is
PLENTY of money in the system. The real issues are the equitable
distribution of this money. Even more important is the reality that
many independent producers will be able to bypass the gatekeepers. It
will be possible to create a series that does not have to be sold to
one of the media conglomerates; you can sell it direct to the
consumer at a much more attractive price. Competition will help to
bring the cost of content under control as well.
>I think the reality is that you cannot build a business case for a
>truely open network at this time. Too much risk and not enough
>revenue.
I am not trying to build this business case. I AM predicting that
this is the way things will evolve over time. IP multicast tiers
will be a necessity for competition with cable in the near term, and
they will continue to be necessary for some forms of content in the
future. People will still want to watch live sports, news and
weather. But the consumption of pre-produced entertainment
programming is going to shift from todays browser model into a model
that is driven by the consumer, who will become the program director.
Adjaceny to a program on NBC will become meaningless. Getting your
content into a viewers PVR is going to be the new game. You will surf
the stuff you want, not the stuff they want to push at you. And the
compensation models are going to change drastically too. Advertisers
are going to move their money where they can get verifiable results.
Paying for thousands or millions of eyeballs that are NOT paying
attention is only going to work in limited applications. The
advantage of IPTV routing is that you know EXACTLY what is being
delivered to each home. The real value add for IPTV systems will be
to leverage this information in ways that are acceptable to both the
subscribers and the people who want to reach them.
>Ala carte pricing brings more transparency to content pricing. It
>would raise rates for, say ESPN, because the base of subscribers would
>be smaller. Under the current system, I am subsidizing ESPN viewers
>if it is part of the base package and I don't use it. The longer term
>advantage of ala carte is reducing the pricing power that the content
>providers have right now by allowing consumers to make more
>incremental choices.
All true. It is the pricing power that they enjoy through regulatory
advantage that we are all paying for today. We may want ABC or ESPN,
but we must pay for ABC Family and Disney too.
Hopefully we are close to the peak in terms of content pricing.
Clearly the major sports franchises have peaked. I suspect that the
days of an actor making $1 million per episode for a sitcom or drama
are numbered too.
>
>You still have the wall between PC and TV content. It isn't going
>away anytime soon.
Not sure I understand this. I believe this wall is primarily a
difference in applications. Up close and interactive versus lean
back. But the lines will blur here too. The same technology that
makes the interactive PC experience viable today can be used to
localize and personalize the TV experience,. Even more important, TV
display technology is finally getting good enough to support the new
interactive applications that will be optimized for the big screen in
the family room, rather than the PC in the den.
Regards
Craig
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