Smart Pipes & Smart Devices
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1) The document discusses the evolution of television and advertising away from traditional broadcast models towards personalized, on-demand viewing and interactive advertising delivered over broadband networks. 2) It notes that the television market is worth over $400 billion annually but this model is being disrupted by new technologies that allow for self-programming, tailored advertising, and "anywhere" access to content across devices. 3) Two evolutionary paths are clashing - the "smart devices" path led by internet companies and the "smart pipes" path of cable and telecom companies trying to lock in users and control the experience. The conventional wisdom about how this clash will be resolved is challenged.
Smart Pipes & Smart Devices
- 1. IBM Global Business Services Smart Pipes and Smart Devices Berlin December, 2007 deeper © Copyright IBM Corporation 2007
- 2. IBM Global Business Services Strategy & Change Consulting The 30 second summary so you can start reading your Blackberry for the rest of the presentation • The different of television and advertising business models is going to be very different that we know today. • The IPTV landscape will be quite different from the PC and TV landscape. • Much of the conventional wisdom about how this market will evolve is wrong. • Winners and losers in the market will change as the user experience evolves and some be better at adapting than others. 2 © Copyright IBM Corporation 2007
- 3. IBM Global Business Services Strategy & Change Consulting Television will not be the same. Our children won’t even think of it as television Consumers looking for media control and access: Convenience viewing Interactive and social viewing Higher quality content Content looking for viewers: Multi-channel distribution Digital media business models Technology has evolved: Widely available broadband Efficient compression technologies Hi speed, in-home wireless 3 © Copyright IBM Corporation 2007
- 4. IBM Global Business Services Strategy & Change Consulting The End of TV: The next five years In The End of Television as We Know It, we posit that disruption to the media value chain is inevitable long-term Past Future Central programming Self programming Content networks’ oligopoly Internet and mobile aggregators Broad-reaching advertising with Tailored interactive advertising CPMs Single device for content delivery “Anywhere” content portability Primarily ad-supported models Subscriptions, PPV ad revenues Platform-based release windowing Time-based release windowing “One size fits all” content / channels Tailored content / channel bundles Silo’d monopoly/oligopolies for Blurred access from telcos, content access Internet, traditional players, others “Your grandchildren won’t know what a TV is” – Saul Berman 4 © Copyright IBM Corporation 2007
- 5. IBM Global Business Services Strategy & Change Consulting The stakes are significant. The global TV market is worth over $400 billion annually, the majority of which still comes from advertising WW Television Revenues 2001—2010 Other 600 $535B 500 $410B Basic and USD Billions Premium TV 400 $315B Subscriptions 300 Licensing Fees 200 100 Advertising Revenue 0 2002 E2006 E2010 Source: PricewaterhouseCoopers, Entertainment and Media Outlook 2006—2010, IBM Analysis 5 © Copyright IBM Corporation 2007
- 6. IBM Global Business Services Strategy & Change Consulting The world of yesteryear will give way to a new form of advertising addressability, personalization and contextual integration Past Evolving Future Interruption advertising Contextual marketing Broadcast, one-to-many messages Follow me messages x-channels Fight for placement Fight for interaction Media networks as advertising conduit More marketing portals, platforms Agency-created advertising User tribes, content owners, others producing creative campaigns Anonymous household data Granular individual data Impression-based/CPM metrics Action-based tracking, currency Marginalized digital specialists Integrated agencies, providers Upfront and tight-knit ad inventories Open, third-party online platforms Source: IBM Institute for Business Value (IBV) 6 © Copyright IBM Corporation 2007
- 7. IBM Global Business Services Strategy & Change Consulting While much of the innovation has been happening on the PC screen, the real battle will be for the consumer engagement Almost non-existent “Traditional IPTV” Technology perspective Examples: KT MegaTV, network Private AT&T, U-verse, Imagenio by Telefonica, T-Home by Consumers T-Com don’t care “Internet TV" “OTT IPTV” where there network Examples: Joost, GyAo, Examples: Apple TV, content Public YouTube, etc. Sony IVL, Akimbo, Amino comes from PC screen Video screen Customer usage perspective 7 © Copyright IBM Corporation 2007
- 8. IBM Global Business Services Strategy & Change Consulting Two different evolutionary paths are now clashing in the battle for dominance in the new world of video and advertising Smart Devices – PC Evolution Smart Pipes – TV Evolution Satellite MSO Telco The internet is the dumb pipe that High quality networks deliver & delivers all content. manage value added services Consumers pick based on user Superior content, service, and long- experience and functionality term user contracts lock in users 8 © Copyright IBM Corporation 2007
- 9. IBM Global Business Services Strategy & Change Consulting The conventional wisdom about how this clash will resolve seems to depend on three key assumptions that may turn out to be wrong •Over the top service providers cannot Network Neutrality access the market without a regulator- driven guarantee of network neutrality •Access to unique and exclusive Distinctive Content content will provide a competitive advantage to incumbents •Subsidized set top boxes will lure Free Set Top Boxes customers and enable lock-in through long-term usage contracts 9 © Copyright IBM Corporation 2007
- 10. IBM Global Business Services Strategy & Change Consulting Myth #1: Regulators will be needed to enforce network neutrality. Reality: the market will do it US Market example: TODAY IN MARKET BY 2010 Network Telco Cable MSO WiMax 700 Mhz Television Operator “Auction 73” White Space Type Open Access / Neutrality Stance • Unfavorable but • Unfavorable but • Neutral • Positive • Very Positive limited by fear limited by fear • New player • Google lobbied • Concept of angering of angering wants to for Open designed by CE users users distinguish from Access companies incumbents 10 © Copyright IBM Corporation 2007
- 11. IBM Global Business Services Strategy & Change Consulting Internet access is a paid experience by consumers and consumers hate unnecessary restrictions Threats on Net Neutrality Results NextGenTel in Norway restricted Limit removed after customer the transfer capacity from NRK.no1 backlash and bad publicity Comcast prevented content Claims refuted and content uploading to P2P networks flowing 2 days later including BitTorrent AT&T bleeped anti-Bush Promise to not do it again and comments in a Webcast concert explained that it was done by an overzealous contractor who stepped out of bounds IBM reviewed 69 ISPS and 24 countries and found only a few that made any significant effort to restrict BitTorrent traffic 11 Note (1): Norwegian Broadcasting Corporation © Copyright IBM Corporation 2007 Source: NRK.no, ZDnet.com
- 12. IBM Global Business Services Strategy & Change Consulting Myth #2: Exclusive content will be a differentiating advantage Reality: Free To Air broadcasters will dominate the mass market Audience Share for Free To Air TV: UK Viewership Statistics UK 67% Channel Average Daily Reach 000s % TOTAL BBC1/BBC2 27,528 56.8 ITALY 48% TOTAL/ANY COMM. TERR. TV 27,254 56.2 Total Terrestrial 33,312 68.7 France 46% Total Sky 9,936 20.5 Germany 44% Once you leave the terrestrial broadcast space, total share of any individual channel is quite small. The UK has over 200 channel USA 25% with a reach of under 3%. Note: Excluding ad-supported commercial chanels Sources: Broadcasters Audience Research Board, European Audiovisual Observatory, Cable television advertising bureau 12 © Copyright IBM Corporation 2007
- 13. IBM Global Business Services Strategy & Change Consulting Content providers don’t want a repeat of iTunes, so they will make content broadly available Digital Music Digital Video from content owners perspectives Apple was first in the “The money is rarely on the table for exclusivity market and now has to make sense” leverage VP of digital media at Twentieth Century Fox “It really doesn’t make sense, with the advertising and distribution model for TV content.” Disney and ESPN Media Networks "In the UK we felt worried about what happened Video content to the music industry. iTunes is a disaster for providers are rights holders” determined to not let BBC Worldwide executive this happen 13 © Copyright IBM Corporation 2007
- 14. IBM Global Business Services Strategy & Change Consulting Myth #3: Consumers will always choose the free set top box Reality: Network operators have a poor history as CE companies Comcast HD DVR TiVo Series 3 HD Subsidized set top box for $5 to $500-$800 up front + $5-10 $15 monthly fee, no up front monthly fee for the TiVo service cost on top of your cable bill Installed by network operator No support from the cable with supporting customer VS company service “Just awful” “I like it a lot” “If cable boxes were sold at retail…the Comcast DVR would get creamed.” 14 Source: WSJ, Personal Technology by Walter Mossberg “The HDTV Dilemma: © Copyright IBM Corporation 2007 Pay for TiVo's Recorder Or Settle for Cable's? December 28, 2006
- 15. IBM Global Business Services Strategy & Change Consulting The cost of advanced set top boxes is rapidly approaching a price level where they can be sold at retail for under $200 $400 Advanced Set Top Box Cost Forecast – 1 TB HDD / Cell Under $200 $300 Under $100 $200 Other Non Chips $100 Other Chips Cell Processor 1 TB HDD $0 2008 2009 2010 2011 2012 Readiness to buy a STB rises Comparable phenomenon is markedly at the $200 and $100 happening with HD-DVD and price points BluRay players <$100 15 Source: WSJ article on holiday sales, IBM research © Copyright IBM Corporation 2007
- 16. IBM Global Business Services Strategy & Change Consulting So, how might this market transformation actually play out? ... We’ve demolished some assumptions… …we’ve also got three predictions… Network Not The Neutrality necessary… Experience Distinctive Not The Content available… Timing Free Set Top Not a The Boxes differentiator Impact 16 © Copyright IBM Corporation 2007
- 17. IBM Global Business Services Strategy & Change Consulting The Experience: winners will create value by offering competitive content, a better user experience, and targeted ads Popular Content Case Example: Silicon Valley start-up Building B Delivered through Free To Air stations and stored on a local HDD Niche Content Delivered through data-casting or over the top Most popular material is pre- loaded for immediate viewing Targeted Advertising Ads targeted at customer demographic for better results Building B could deliver an experience competitive to any cable or satellite provider without investing in any of costly infrastructure 17 © Copyright IBM Corporation 2007
- 18. IBM Global Business Services Strategy & Change Consulting The timing: the bandwidth and the technology is here today. 2008 will see the first disruptive devices on the market Required Bandwidth By Content Type vs Average Bandwidth by Country SD streaming without QoS VUDU Movies On HD streaming Demand USA 4.8 without QoS Movies On Demand UK 2.6 in near HD quality Buffer enough Germany 17.6 material to handle network France 6.0 interruptions and start movie instantly Sweden 18.2 Speed equals MSO, user experience is far superior Speed required to deliver buffered near HD without QoS 18 Source: ITU global bandwidth survey, IBM research © Copyright IBM Corporation 2007
- 19. IBM Global Business Services Strategy & Change Consulting The Impact: Traditional cable and MSOs will keep the majority of the market share for now, but their economics will change dramatically Flat fee, Per minute Most calls are still run Telephony unlimited pricing on the PSTN… use Most music is still sold on CD… But the industry Bundled Per track economics have Music changed forever… CD pricing Monthly ? Ad “Same Same but Video MSO fee supported Different…” 19 © Copyright IBM Corporation 2007
- 20. IBM Global Business Services Strategy & Change Consulting Recap: (Or what you missed you while you were reading your Blackberry) • This business is changing – and sooner perhaps than many were expecting. • A new user experience is upon us, and it is the user experience that will be the key differentiator for players. • Players should not count on keeping closed networks, exclusive content, or contract-locked subscribers in the future. • Existing service providers will probably keep their volume leadership, but industry economics will shift dramatically. 20 © Copyright IBM Corporation 2007
- 21. IBM Global Business Services Thank You deeper © Copyright IBM Corporation 2007