IPTV offers an unparalleled entertainment service for end users, but can prove a headache for operators that need to make a profit from it. With tough competition from satellite broadcasters, it is vital that telcos find the right model to offer IPTV services.
Federico Membrillera, partner, Delta Partners
Jasper Gu, GM, Huawei software and core network, Middle East
Jawad Abbassi, founder and general manager, Arab Advisors Group
Naoual Bellafih, communication and entertainment solutions sales, Nokia Siemens Networks ME
CommsMEA: What are the main challenges that operators face when running IPTV services?
Jawad Abbassi: Mainly it’s the availability of good quality free or pirated satellite TV. In regions that are sparsely populated and where penetration of satellite TV receivers is nearing saturation, it becomes quite hard to offer premium TV service against a good TV service that’s free. Even some of the characteristics of IPTV, such as playback, and video-on-demand are also being offered by some satellite operators. That is the uphill battle for the potential of IPTV in the region.
Naoual Bellafqih: Additionally, providing only linear channels and video-on-demand to a TV is no longer adequate when launching IPTV – operators must now provide video and other services to multiple screens.
Fede Membrillera: IPTV is a platform used by telecom operators to deliver linear and on-demand content to their broadband subscribers in digital format using the IP protocol. The technological peculiarity of IP combined with the operational specifics of a TV service put extra requirements to any player with IPTV ambitions.
By definition IP packets do not travel in linear way – they may take different “least cost” routes and may experience different delays. As a result linear content – be it streaming audio, video or speech – is prone to quality degradation such as latency, packet loss or jitter.
The way to solve this is to ensure a controlled network environment where dedicated “guaranteed” bandwidth minimises those risks.
In order to serve IPTV, a dedicated service delivery platform is necessary. The head-end servers talk to the end-point set-top-boxes, specially designed for the platform. Initial investments in such platforms tend to be in the millions of dollars. An investment of this size requires sufficient customer base in order to make financial sense.
The content “broadcast” over IPTV must be licensed, and content is not cheap. Content rights owners apply models for fee calculations known as “carriage fees” for TV channels and “minimum guarantees” for video-on-demand. In essence those models charge a minimum amount which is calculated proportionally to the expected market potential. Each TV channel has a carriage fee associated with it; each title in the video-on-demand line-up has a minimum guarantee. This puts pressure on service providers to reach a certain minimum volume of sales of a product that is not their core specialty.
Running video content business and bringing it to market requires telecom operators to launch an operation in a new industry, and as a consequence build new operational capabilities – both technical and organisational.
Naoual Bellafqih: The challenges are new for many operators as they enter into the IPTV business. Many have never had any business or relationships with traditional video content or linear channels. They will also have to compete in a business that has been dominated by the satellite providers.
Additionally, providing only linear channels and video-on-demand to a TV is no longer adequate when launching IPTV – operators must now provide video and other services to multiple screens. Many operators have never had any business or relationships with traditional video content or linear channels. They also will have to compete in a business that has been dominated by the satellite providers.
Jasper Guo: As a personalised and interactive multimedia video service, IPTV attracts a lot of subscribers. IPTV does, however, impose a higher demand on network and O&M. When born into existing networks, insufficient bandwidth has led to packet loss and screen blur on the subscriber side.
Furthermore, not all devices in existing networks support multicast, while unicast brings down utilisation of network resources. Delayed channel switchover and service requests also cause subscriber complaints.
When looking at competing technologies, one of the main challenges in the IPTV market is providing a hybrid solution for telecom carriers who compete with free-to-air (FTA) satellites. Content from regional media companies can be quite expensive, with intense competition from these FTA satellites.
CommsMEA: How can operators ensure that their IPTV services make a profit?
Jasper Guo: An important milestone was that starting in 2009, many MENA countries began building national broadband networks. After completion and deployment of these high-speed fibre networks, subscribers will have an incredible 10m-20m bandwidth—more than enough to accommodate high-quality IPTV services through minimal O&M.
Overall repairs, upgrades, and billing are also made easier as operators can bundle services into a triple-play offering of voice, data, and video. Not only is that attractive from a subscriber perspective, but it also gives telecom operators the chance to boost their average revenue per user by offering more through IPTV’s unique and interactive services.
Fede Membrillera: There are a number of factors which affect the profitability of an IPTV service. Scale is the most important factor. Rolling out IPTV requires heavy upfront investment in technology platform, content rights and in many cases upgrade or expansion of the network. To recover this investment from the profit margin of each household’s TV revenues requires a sufficiently large base.
One key question is whether a market has the potential to generate that number of households. Another key question is how quickly will the required base be ramped up. It is also critical to ensure that on a total lifetime basis each customer is profitable.
Naoual Bellafqih: Profit is a difficult problem when factoring in the increased demands of a quality last mile infrastructure like FTTH for delivery of HD video to multiple TVs. This CAPEX must be allocated across multiple services like internet, phone and even other services like home video security and other services. Video content is also very expensive with small margins telcos are no accustomed to. With an aggressive rollout of multiscreen IPTV, economies of scale can be helpful in gaining leverage with content providers plus assist in acquiring and retaining customers of higher margin services like IP and fixed and mobile voice.
CommsMEA: Does IPTV need to be profitable for operators?
Fede Membrillera: Often operators will go for IPTV even if revenues and margin from IPTV alone will be insufficient to pay for the investment in the foreseeable future. Yet in today’s competitive market, having IPTV so you can offer a triple / quadruple play may pay back for itself not in IPTV revenues, but by protecting the revenues from the other telecom services – fixed and mobile voice and broadband access.
Comparing what the total financial impact will be with and without IPTV should help understand whether the defensive dimension of IPTV can be attributed the monetary value to justify the business case.
CommsMEA: Is a partnership model best?
Fede Membrillera: Telecom operators may choose to deploy an IPTV service with varying degrees of involvement in the content preparation. They may choose to partner with an existing TV service provider for content.
Under the partnership model, the telco receives the content or channel bouquet ready-to-market and serves as a delivery partner by providing the technology platform, delivery network, billing relationship, field engineering and customer service.
Alternatively the telecom operator may choose to negotiate all content deals alone. As mentioned, this requires a different type of skill-set on strategic and operational level, which can be justified only in cases where the telcos’ ambitions are much larger.
Jasper Guo: Collaboration is absolutely essential to driving the future of IPTV and creating services that are both financially viable to operators and of great value to subscribers.
In terms of content, we have seen how important partnerships are with media companies in the development of earlier TV network technologies. Similar relationships must be nurtured in the IPTV space—especially for premium content—as network operators work with media owners of all size and scale.
From a subscriber point of view, “smart” set-top boxes (STBs) are also an emerging trend which is often based on mutual collaboration. With an Android STB, for example, users can enjoy Android apps, a digital shopping experience, internet browsing and games all at once—adding to the IPTV experience.
Naoual Bellafqih: Existing content aggregators and video platform providers have benefited from IPTV rollouts in the Middle East with increased penetration of households.
The partnership model works best to reduce the cost of acquiring content directly from Hollywood, Bollywood and Arabic which can be daunting and in some cases impossible if content is locked up by existing distributors or providers.
CommsMEA: What are the advantages of running an IPTV network for operators?
Jasper Guo: Compared with other TV services, IPTV has a number of clear advantages for operators. One is in bringing convenience to subscribers. Once the subscription IPTV service is activated, users only need to connect to the set-top box (STB) with no need for additional wiring or satellite antennas. In addition, IPTV can provide rich content that goes beyond satellite TV broadcasts, including interactive services such as VoD, TVoD, and video conferencing.
Modern IPTV networks also offer greater availability and reliability in content delivery, giving telecom operators a stronger guarantee of high-quality service.
Jawad Abbassi: It’s finding the revenue stream but also increasing the stickiness of your subscribers. Basically if you just have a fixed voice service, the more bundles per offer that you have with your clients, the less the potential for churn.
If you’re offering just a home voice service to a house, they can easily drop it and get cellular voice, but if you are getting broadband internet and voice and TV, the switching costs are higher.
IPTV is progressing well in the region.
We will have a situation where we have very developed markets and markets where the service will remain in its infancy for many years to come.
Naoual Bellafqih: Triple and quad play customers for operators become much less likely to churn to competition and remain in their service bundles. Also, understanding the video business helps as more and more traffic over their radio networks is OTT video being from YouTube or direct from providers.
Controlling and monetising as much of the video over their network is an important step in moving up the value chain and avoiding becoming a utility delivering IP.
It’s important to recognise that IPTV technology has matured over the last five years with standards and end-to-end providers more or less solidified. Having said that, OTT should be integrated into any offering and the business should be entered with someone who can provide a unified turnkey solution since problems will arise during the integration and launch.
Too often immature or small solution providers fail to implement or deliver a delayed solution to the operator.
Lastly, each region and country around the world is unique so there is no magic solution that will work for everyone. One must adapt the content, pricing, packaging to the local market with good media and entertainment consulting.