IPTV is stupid (as a business model for independent ISPs and CLECs)
I’m more than a little bewildered by all the rumblings in the CLEC/ISP community in the last year or two in favour of IPTV, or IP-based television content delivery.
For those not familiar, it is basically the same service as that of your cable or satellite provider; channels of television content beamed into a set-top box. Except, instead of using the traditional HFC and/or waveguide and QAM transport infrastructure that cable uses, it is prospectively delivered (1) over a variety of last-mile infrastructure in telecom companies’ incumbent plant, such as copper ADSL2 loops, direct fiber to the premise (a la Verizon FiOS), and (2) it comes as an IP-based data stream, leveraging a variety of approaches that seem to suit this aim — e.g. multicasting.
I think that in general, IPTV is a dead-end business model for ISPs and CLECs to pursue.
As is widely acknowledged to happen from time to time, I did not consciously arrive at the conclusion suggested in the title until stumbled into a recent debate on ISP Planet’s isp-clec list about affordable and/or partly open-source driven head-end equipment for IPTV and associated accoutrements for the required network build-out. It’s something that came to fruition as a realisation as I devoured the exchanges about encoding gear, GPON vendors, etc.
Having bared that thesis, I will attempt to indemnify myself with the disclaimer that I am not a full-time market analyst, do not work in the video space, and know relatively little in detail about the technology. Additionally, I do not watch TV. I have not even had cable for many years now. And in general, television, the film industry, and entertainment as a whole are at the absolute dead-bottom of my list of personal or professional interests. So, I cannot possibly claim much credibility or authority here even if I harboured such designs.
It’s just a gut feeling. But gut feelings carry a frequently under-acknowledged significance in the anatomy of business decisions.
The first and most principal problem: TV is obsolete. No, I am not saying that nobody watches TV anymore; that is rather self-evidently not the case, and it seems implausible to even imagine American society without one of the most critical elements of its vitality–if that is the appropriate word to use. Indeed, the seemingly inextricable relationship of television to the basic respiration of American society — at least, on a pedestrian level — is one of the best known things about American society.
What I mean is that the traditional, incumbent nature–and particularly, the format–of broadcast television is on the decline. Television conceptualised hitherto, as a one-to-many broadcast network offering a fixed selection of professionally prefabricated content interspersed with frequent advertising, is not a growth industry.
The leading cable networks’ viewership has been consistently falling for several years now. Hollywood is beset by successive, protracted strikes of the various writers’ and actors’ unions, contributing to a blight of new and original content as well as a commonly acknowledged tendency to recycle, rerun and reuse. New shows are crafted according to predictable and overused formulas to — at least, I think — a previously unseen level, as epitomised by the bromidic “reality” genre. A study released just over a week ago suggested that the median age of habitual American TV viewers is now 50. Advertising revenue has plunged. The news channels part with growing segments of audience as more and more people–most especially the youngest demographics–move to the Internet to get their news.
Of course, this assessment falls short in its failure to consider certain lopsidedness in the trends. Various pay-per-view and on-demand movie channels, and other accessories of the technological upgrades heralded by digital cable, have actually registered modest gains.
All the same, I can’t see how anyone could be moved to suggest that these market conditions are investment-grade. Far as they may be from a proclamation of TV’s imminent demise, the stench of decay and obsolescence seems to be in the air.
That’s not to say that consumption of the essential phenomenon of the moving picture has abetted, although that may be the case with categories of younger viewers who have switched to the textual realm of the Internet to obtain their news–and increasingly from non-traditional media outlets, to boot.
Rather, the medium and the basis of the content has shifted increasingly in favour of online video content such as YouTube. As with the challenge to traditional corporate media posed by blogging, more and more video content that is considered entertaining and defining in popular culture is becoming user-generated and collaborative–”amateur,” if the terminological preference of the incumbents is to be respected. Perhaps more significantly but less overtly, there is a plethora of commercial (and some free) sites offering streaming feature-length movies, comprehensive archives of TV show episodes, and much more. Some of them are probably legal and have content licensing arrangements with the industry. Most, I imagine, are not. I can’t really say, as I am not a consumer thereof.
Even among those whose consumption of the boob tube has not significantly diminished, TiVo appliances have become commonplace. They conveniently defeat intrusive advertising and dutifully record shows to be watched later, according to the viewer’s own schedule and preference.
All this points to the irreversible trend that people are no longer satisfied with bulk, canned streams of content, or anything resembling “channels.” The next generation of video content is something like YouTube, if not necessarily identical. It my involve a marriage of the YouTube paradigm with a number of other presentation formats, technologies and approaches, including ones that may not have been conceived or applied yet. But essentially, something that carries its click-and-pick spirit forward.
It’s no different than where the music industry has been headed, where, aside from the more publicised and prolific lamentations about CD prices and labels screwing artists and so forth, the critical - if understated - key factor is that people want to cherry-pick their songs. Nobody wants to pay $16 for a CD where they won’t like all - maybe even most - tracks. But they are quite happy to pay $.99 for a single track from the iTunes store. It’s because they want that specific track, right here, right now, easily and quickly. And they want to amass it into a large, portable collection on the device of their choice (which, in light of the DRM restrictions, makes market acceptance of the Apple approach somewhat curious, if not necessarily beyond the reach of explanation).
And then, of course, there is the woefully limited landscape of choice offered within the RIAA production and distribution cartel, and the incredibly high financial barriers to entry it carries. How are you going to get your band’s album into the Barnes & Noble music section? Online music distribution democratises the playing field considerably, if not perfectly.
This is where things are headed. Toward openness, clips, bites - all on-demand, and bolstered by the convergence of digital delivery features with the interactive possibilities offered by computer interfaces, fed by the Internet — so much as that remains possible in light of the vicious hostility displayed by the telcos and MSOs alike toward net neutrality and all the issues surrounding that.
(By the way, the cable companies know this. That doesn’t mean they like it. That is why they have lined up to impose bandwidth and data transfer limits on customers once again - once thought to be a tired anachronism of a previous generation of the Internet economy’s evolution. It’s because they assume–not without some justification–that if you’re transferring 60-80 GB/month or more, you are either a prolific BitTorrent pirate or you’re watching a lot of streaming video, which means you’re not watching TV, which is a terrible, terrible thing indeed.)
Rome is burning, and you want to build a telco-cum-cable company providing what can and should be properly called legacy broadcast content in the middle of it? I’m not in MENSA, but if someone tries to take your money to invest in something like that, I’d say don’t fall for that scam. Run for the hills!
The second issue is with the technology, marketing, costs, and competency of the sort of organisation that a telco-land network service provider (CLEC / ISP) is.
Who said the head-end technology available within an independent CLEC’s budget works well, and is reliable or mature? Nobody I’ve spoken to who has tried it. Of course, I could just be speaking to the wrong people.
A friend of mine, who works with MSOs for a large vendor, has informed me that a lot of the gear typically found in major MSOs’ head-ends is overpriced, overrated, and suffers from egregious duplication and wastefulness stemming from lack of interoperability. But, I am not persuaded that anything built out there to replace it for a CLEC’s build-out budget actually works. Mind, this isn’t really my area of technical expertise, so I just don’t know. But nothing I have heard has been particularly encouraging. If anything, it’s been abusive and disdainful of Mickey Mouse solutions.
Who said last-mile broadband delivery infrastructure in the US, particularly copper or hybrid ADSL2, can handle high-definition, full-motion digital video streams with the level of robustness TV viewers take for granted with conventional digital cable, or that the equipment and technology necessary for delivering it over IP has those qualities either?
I know that a lot of the distribution infrastructure feeding the MSO head-ends has been IP-based for a while. But the last-mile portion is done with QAMs and RF. Are you sure you’re going to match that consistency with New Age ADSL2–still a largely uncharted province in terms of its rollout in North American telco plant and all of its idiosyncrasies, most notably a lack of fiber to the premise–and IP-based decoders?
If my experience of the extreme sensitivity of users to the quality of service issues (read: the way it’s inferior to the PSTN experience) in residential VoIP delivery is any indication, the Monday Night Football crowd will probably lynch you. Yes, I know a lot of that has to do with the feebleness of delivering carrier-grade voice over the Internet, which isn’t how IPTV would work at all, but that is not a hinderance to the point.
The network build-out, presumably involving some combination of copper ADSL2, fiber to the premise, and various hybridised transport, is a very capital-intensive undertaking. And as if the regulatory and bureaucratic burden on CLECs isn’t enough already, franchising agreements and content licensing enter the picture as significant CAPEX. I don’t know how much any of that costs, but I have a hard time imagining that an independent CLEC can get it the same breadth of it, on the same terms, as the large cable MSOs.
Third, to harness an insight of Clint’s: video is hard. Let alone to do right. No, it’s not insurmountable, but it is fraught with considerably more technical and logistical complexity than, say, voice or data. As Clint has remarked, it is relatively easy for a cable entity to enter the telephony space, especially as they already do data, making VoIP a logical, ostensible proposition. The synergy in triple-play is there for them. But telcos trying to reform their competency upward from voice/data into the video space is much harder. The synergy in triple-play is there for the MSOs because it’s a downhill battle — they already have the hard part. Telcos, institutionally, would have to fight an uphill competency battle.
But if that’s not discouraging enough, the real question is — where’s the elusive value proposition, the uniting elixir that is going to bring all these customers and the windfall profits for the enterprising CLEC?
What is being sold?
Something that people don’t already have, like … cable TV? Very funny. Perhaps rural areas not covered by cable might be a candidate, as relatively few as they are, but it is a stretch of the imagination to consider that the infrastructure there - i.e. the copper plant - is ready to support a brand new ADSL2 roll-out. Sure, remote DSLAMs with their fiber tails can be intrepidly built, but if the cable company doesn’t think there’s any ROI in building out their plant to the area because of population density or demographics, you must know something they don’t.
You might try for rural areas that have inferior, legacy local-yokel cable with a narrower range of features and content access, but you’ll have to conveniently ignore the existence of satellite–and hope your customers do too.
Aside from that, what’s the value? A little bit of bundled savings on triple play? Using New Age, avant garde technology that is unlikely to work as well as the perfectly good cable TV that is fairly ubiquitous, over experimental delivery mechanisms? And to suppose that your cost structure — and urgent need to recoup the cost of the build-out you just did and that the MSOs already have — is going to allow you to offer that competitively? CLECs/ISPs are often straitjacketed from even offering voice and data competitively with the ILECs unless they’re simply willing to take a margin hit; how did TV get to be the manna from the sky?
Marketing this type of stuff with any significant conversion rate is hard enough as is. It’s going to be even harder if you have nothing superior to offer. This is a good time to brush up on the subjective theory of value: just because television may be a novel, interesting business for a telco doesn’t mean its customers will think — or experience it as — a novel, interesting product. Well, they might think that, but the correlation between thinking certain things and voting with dollars would prove disappointingly low.
Having said all that, there are probably a few niches here and there where going into the TV business might make sense, such as multi-tenant buildings (MDUs). Or maybe if you’re fortunate enough to get a shot at a free and clear monopoly on a small (but growing) rural municipality if you do the trenching. Well, okay. That could work pretty well. But then the question arises: Why not do that from the cable side, instead of the telco side, from an infrastructural perspective? Get stuff that already works well.
In any event, I’m not prepared to condone a business model based on the theoretical possibility of making it work with a set of highly specific, contrived artifices. I’m sure there are circumstances in which there may be an extremely compelling business case to offer janitorial services or lawn care, too — maybe do a deal with Blackwater in Iraq or something. Pockets of the extraordinary notwithstanding, it doesn’t count.
The news is not all bad. As I mentioned above, TV may be dying, but consumption of video content is not. If what you’re interested in is capitalising on the possibility of offering the next generation of computer-convergent set-top boxes with access to all sorts of newfangled content options whose market share and significance is likely to meteorically rise, that’s not such a bad idea.
But in that case, concentrate on rolling out the next generation of high-speed broadband access and customer premise equipment, especially as much of it is likely to be Internet-driven. If it turns out that this is not the case, you can add distribution and plant to drive new content models later. Why on earth would anyone want to get quagmired in the business of television as such? Why the stampede to imitate what the cable companies have been refining for decades, and provide an alternate distribution mechanism for the exact same content?
It’s time CLECs, Wall Street, and vendors got off this insipid IPTV bandwagon. Independent CLECs need to find something better to do.
July 7th, 2008 at 12:31 am
I love the ‘educated outsider’ approach to this article.
CLEC’s (both independent and “known”) are really taking a step back if they think this is a business model that can sustain a profit.
My reasons for stating as such:
1) Far from a scientific survey, but I can’t think of any family I know with children at the moment who have a service contract with any type of channel delivery access company, be it satellite, cable or even this IPTV idea. From my little perspective, I see more and more internet savvy households getting their television through sites legal (hulu, itunes, etc) and illegal (surfthechannel, quicksilverscreen, etc). It’s definitely a paradigm shift in effect, an the idea of rolling out IPTV on the infrastructure of an already bruised CLEC, is like if the train manufacturers, after the automobile was introduced and matured, said they were going to sell trains strapped to the back of donkeys and horses. completely unrealistic and completely out of touch with the expressed needs of consumers.
2) A paradigm shift initiative has already started, in the wake of inactivity from the current lords and masters of channel-based content streams, the cable and satellite companies. This initiative has been spearheaded by companies such as Apple and the content-creators themselves (as is somewhat the case with Hulu). You can’t very well think that by distributing legacy service solutions over a non-condusive infrastructure is going to magically recreate the boon that cable and satellite companies went through. What if vhs tapes, at the time of the mass-market release of dvd’s, were going to be instead distributed through a vast network of sheppards herding donkey’s with vhs tapes attached to them. (apologies, i love creating over-the-top analogies) That still doesn’t solve the fact that the consumers were quickly taken in with the concept of dvd’s. At all. DVD’s were one of the last steps in the Right Direction(tm), in my opinion, performed by the entertainment industry as a whole. It was a carefully plotted uprooting of the then-standard subpar vhs experience that worked because they listed to their consumers. Have the CLEC’s, currently offering or who plan to offer in the future, IPTV service actually consulted their customer base? If so, then I stand corrected at the idiocracy of ourselves as a whole. If not, then WTF?!!
Closing, I have to really say that like Alex, I’m not a professional in this field. However, unlike Alex, I am a heavy consumer of entertainment. This shift in infrastructure in TV land distribution is very similar to the vhs-to-dvd event in my opinion, but it differs that the solution and shift itself was widely developed by the consumers themselves. The content providers are begrudgingly starting to listen to demand, but it seems some CLEC’s are not on the same wavelength. Sad.
July 7th, 2008 at 12:34 am
The content providers may be listening to the demand, but I don’t think the distributors are. They’ve invested billions in cable plant and they’re not going down without a fight. They want you watching TV, the way TV is meant to be watched, and they want to prolong the misery and postpone their exposure by charging you extra for bandwidth consumed in lieu of TV.
July 7th, 2008 at 1:00 pm
Good post, and well observed.
I can’t really think of an ISP / CLEC for whom IPTV (traditional TV delivered via IP) makes sense. By and large, most of them are lousy at marketing, go after niche markets, and have low penetration. This makes for a very unprofitable entry into a market that generally requires mass market consumption, good marketing, and high penetration rates to be profitable. They would be much better served as marketing “Internet ready networks”, marketing “we offer 10,000,000,000 programs on demand”, and so forth, and setting up their networks to prioritize Internet television (real time stuff, not bit-torrent downloads), and so forth. It makes much, much more sense than, as you put it, offering a sub-par offering…and, while it is in their reach to offer a “broadcast TV over the network” model, it is a lot trickier and more expensive to offer 200-400 channels, HDTV, Video on Demand, etc… on such a small scale. They don’t have any revenue streams to protect, so they can definitely leverage that to their advantage for once. However, judging by a lot of the sentiments on the WISPA list, a lot are already looking at or doing bandwidth caps out of sheer stupidity–trying to shave a few dollars off their upstream bill at the expense of actually being good or worthwhile at something.
Still, as I’ve pointed out several times, the disadvantage for ISPs / CLECs in the residential space is that they are paying for their network out of the revenue for 1-2 services instead of 2-4 services like their competition. It is simply impossible to build the same quality network on $30 monthly ARPU as your competition can build on $150 monthly ARPU. Throw in the fact that have much lower penetration rates so your fundamental costs of building the network is higher to a large degree, and you are simply unable to compete in any meaningful sense. The fact is that cable companies are a few equipment and policy changes away from being able to offer 50-100Mb/s; AT&T could similarly go to 25Mb/s with little effort (neither do because of protectionism, not because of costs / technical limits). How many independent ISPs / CLECs could offer 100Mb/s to their customer base? When you’re rolling out wireless over noisy public spectrum and your competition is rolling out FTTH, it’s hard to compete. It is still possible to compete, but requires some engineering and marketing skills that are very rare in the CLEC / independent ISP world. Or, you get lucky and your competition sucks at delivery (as is often the case). As a fundamental model, the single / double play is hindered…even if the other offerings just break even but subsidize the network, it offers the revenue to build a better network. But, again, it does have the advantage of not needing to protect any other streams. In some ways, a pure “single play” provider that actually tried to build a good Internet network might have some possibilities…
Still, Alex, no one on Wall Street actually cares about the independent ISPs/CLECs and definitely not in terms of IPTV. The growth area for IPTV is among ILECS, not CLECS, and there it makes sense. They typically have high penetration rates, some have good marketing skills, and most have a pretty strong hold on their market, so they can / do actually get at least acceptable returns on their investment. Many are in areas that don’t have cable competition or where the cable competition is basically “broadcast over cable”. From this standpoint, there is an opportunity. From a technical side, IP is a superior method to delivering video (indeed, most head ends are already heavily IP-based and then just go RF to feed out to the customers). Most of the problems come from the fact that IP is newer and very, very few people actually understand the stuff well enough to do it “well”. As far as physical layer goes, ADSL can (and does quite often outside the US) handle video without a problem–you just have to do it “right”. Forward Error Correction (FEC) is pretty much manditory because line errors are a given. But, it is very feasible if done right…but, it is expensive, it requires expertise, and is difficult, to say the least.
I do think there is a very glaring lack of any open source companies in the video provider space, btw. Given the growth and economics of video providers in developing nations, there’s a good opportunity for an “Asterisk” type company in the video space (although service provider oriented, of course). Video is expensive for two reasons: it’s very demanding on a network and the gear is somewhat proprietary / overpriced / inoperable from a management perspective. Open source solutions can’t reduce the load on the network but can make the gear both more economical and much more affordable to manage.
Now, all that addresses the “now”–which, avoids your fundamental assertion that the future goes to an Internet-based delivery (hulu.com, bittorrent, youtube, joost, etc…). This is a bit trickier of a question, I think, than most people treat it as.
For starters, the fundamental problem with “Internet-based television” is that it sucks. Now, don’t get me wrong–my wife and I view 95% of our “television” via the Internet on a PC hooked up in the living room. But, Internet television, in the end, provides a very subpar user experience. It is complicated, often broken, often flawed, etc… By and large, the crowd watching television off the Internet falls into the “young and broke” or the “early adopter” crowd (or the combination of the two). I know very few people who have at least modest financial means who aren’t much happier with good cable + tivo over crowding around a computer screen with their family. While the “young and broke” demographic has the time/energy to spend and make little enough that the hours spent saving a cable bill are actually worth enough to justify the time spent, I don’t think that is true of the market as a whole. The user experience of Internet-based video (searching through dozens of sites, each with different interfaces, tiled video, having to replace a very convenient remote with a keyboard, etc…) is pretty lousy. Plus, the experience of watching something on a relatively small computer monitor with crappy speakers sucks compared to watching something on a nice television set with good speakers. Not to mention the fact that no one has actually figured out good ways to really make money with video online, so it’s not all that sustainable. Internet video is getting better, but it is still not the instant-on, instant gratification, and instant change experience that regular television is.
Television has an incredibly elegent userinterface. You push the up button to go to the next channel up, you push down to go to the next channel down. That is mass market. Firefox is a great web browser, but sucks for a television interface. The problems mentioned above have to be fixed prior to any mass-market for Internet based. While “advanced/converged set top” in some form is inevitable, is simply not viable right now…there’s no standardization of delivery, there’s no standardization of contracts / pricing and so forth. Most importantly, there’s no “video platform provider” that has both great content and a committment to a business model that you can build a business model around. YouTube has the committment to the business model, but is missing the type of content that people will watch for hours a night, 7 nights a week. You would either negotiate contracts with a gazillion different content sources (at rates that would not allow anyone to make a profit and would require a massive scale) or scrape their websites and kludge it all together and hope that they don’t start blocking/sueing you. Then there’s the problem that people just don’t like buying boxes to put in their living room…
Also, keep in mind that the cost of delivering one show on demand to a million users costs 1 million times the bandwidth (and corresponding financial costs) than simultaneously broadcasting one show to a million users. We are years away from it being a technical viability to have a 100% on demand network on incumbant-style networks. Video content on demand is only technically viable because it isn’t mass market in the same sense that television is. (On just a side note, this is more a limit of the incumbent mentality. There are so many artificial limits in service provider network design that simply don’t need to exist but do to protect the value of a Mb/s of traffic)
It’s not that Internet-based video won’t win out in the end…it will. Too many content producers will want to cut out the cable company or the television network, too many aspiring people will want access to the market-place without the the approval of the middle-men, too many consumers want access to content that isn’t “mass market”. And, we reach an all-fiber world, then bandwidth is “free” and so the cost of distributing over the Internet is cheaper than the cost of distributing over the traditional cable plants. Eventually the business and delivery models will get standardized to the point where you can build a set-top box that can access all the Internet “channels” as simply as you access television channels today. But, that’s not today, and there are a lot of very wealthy people who are very much set on it not happening anytime soon. And, it will probably happen quite late in the US given the very monopolistic and protectionist service provider mindset.
BTW, check out http://gigaom.com/2007/12/21/xavier-niel-free-fr/ , a writeup of free.fr, a french ISP that takes an approach that I think most of us would philosophically and technically agree with.
But, to come full circle, all of those changes are way beyond the finances and energy of any CLEC or independent service provider that I know of. There is a great dearth of talent in telecom providers in general (of any size), and very little forward thinking. Your fundamental argument is right on–it is retarded for most CLEC / service providers to chase video in the traditional sense–being a “me-too” in that space is expensive, difficult, and hits about every weakness of most of the CLECs and service providers that I know of. They’d be much better off fixing their sales / marketing problems, building networks and service offering that are actually compelling, and, if they must go into video, go into niche areas that are ignored or blocked by the traditional service providers (ie actually push online video, or maybe deliver ethnic content to immigrant communities that may, at best, get a token channel from the cable company, and pay a premium for that).
July 7th, 2008 at 1:05 pm
Another note as well. In the end, we have two basic needs in the market–the Internet delivery model needs a much better interface and some quality improvements; the cable model needs openness, content, and ease of “on demand”. Of those, the interface is the hardest to achieve–a good interface that can make simple, on-demand and immediate access from a million of different sources (and providers!) is hard.
Still, the Internet delivery model will win simply because it _will_ produce a better interface much faster than the cable will evolve to be more open and “on demand” based. This will happen much faster because the Internet companies want to improve, while the cable companies want to protect the status-quo.
July 9th, 2008 at 12:25 pm
Though the idea of traditional-tv-over-IP is a semi-novel idea, I just cannot ever see this working out. I can see where the CLECs/ISPs are coming from though: the average viewer is 50 (and on the way to Florida) whereas the average internet user is roughly 35 (http://www.december.com/web/text/tutor/netuse.html). However, most people see that television is giving way to the internet just as the radio gave way to television so many years ago. If a CLEC really wants to get in on the ground floor with this concept they need to ditch the TV set and pull a youtube with video on demand.
July 13th, 2008 at 7:43 am
Ben Said “If a CLEC really wants to get in on the ground floor with this concept they need to ditch the TV set and pull a youtube with video on demand.”
I Agree. Could you imagine a service like DivX’s Stage6 that was pay on demand? What with Disney’s early iTunes success (http://www.pcpro.co.uk/news/103810/disney-clocks-13-million-itunes-movie-sales.html) and their admittance that online sales are not eating away at their dvd sales, added to the fact that iTunes movie media are usually the same price as their physical DVD counterparts (which means, there’s a bigger profit margin in there paying someone a nice vacation bonus [hopefully for the developers…]), there are multiple instances of precedence for successful business models to be put into effect.
That said, I still don’t think it would be wise for clec’s to consider traditional telly type service over their internet infrastructure. Honda doesn’t make canoes afterall…
July 15th, 2008 at 7:21 pm
Rex,
I am curious, where are you getting this ARPU figure? Most consumers of cable bundles I see are paying $50-70/mo for some sort of expanded/digital cable + Internet. Even with phone service thrown in, it still seems to be under $100/mo. Even granted that some people may have ultra-ultra-expanded digital cable + the highest speed Internet access + extensive phone service and/or multiple lines, if it’s average revenue per customer that we’re talking about… where does that average hit $150?
Where do you perceive the conceptual essence of the protectionism to lie, and why does this oligopolic dynamic work despite the lucrative competitive advantage available to someone that does bother to step in and offer massive bandwidth?
And why is bandwidth so valuable when there are so few Internet applications and peering situations, etc. that can actually allow one to take advantage of a 100 Mbps Internet connection, especially on a residential level? There’s no way, I would think, the users would end up peaking at more than 5-6 Mbps even now.
Yes, but what you lose in simplicity and instant gratification and presentation format (i.e. TV set vs. computer) you gain back in choice, as opposed to simply having to watch what’s there on any given channel, even though the array of channels and features to choose from is dizzying and ever-expanding.
But they seem to be quite willing to buy and fit TiVOs and the likes thereof.
You know, I’m somewhat inclined to think that there are certain marketing problems CLECs have that just aren’t solvable because what they are offering is neither innovative, nor up to the standard set by their competitors, nor attractively priced.
July 15th, 2008 at 9:54 pm
My $150 arpu figure is gleaned from industry reports that I’ve seen. The point of the $99 specials for triple play is to get people in the door, not for the final selling price. I’m don’t recall if the figures I’ve seen included ad-revenue as well (cable companies make a good chunk of money selling local ads) or that pertained to certain markets; if that included customers who were triple play eligible but only opted for single or double play. Regardless, the logic is the same–effectiveness of monetizing your network is directly related to being able to build said network (as well as the quality thereof).
Err…sort of. Remember that TiVOs pretty much have access to all the content of cable TV. There is currently no way to achieve this with an Internet television set top box–there is no standard of delivery that can be easily be accessed by a single box. Internet television is wrapped through several layers of abstraction (Flash, etc…) and DRM. So, aside from the technical problems, the legal aspects would necessitate a lot of individual deals. No one–and I mean no one–would be able to land all of it, which means that a customer trying to get access to the whole range of content would need multiple boxes. The market has repeatedly rejected that premise (see dozens of failed movie services that have run on this premise). And, even with the content, the model has not worked (see Apple TV). Regardless, this is _all_ way beyond the abilities of a CLEC–content providers wouldn’t even come to the table.
I disagree to a large degree. Almost all of the uniquely Internet content is short-play. YouTube is “break at the office”, not crash at home with a remote for 3 hours a night (yeah, American culture is pathetic, but it is what it is).
All of the other content is much more convenient on television. On demand? Most people have DVRs, and the cable companies are going to an on-demand model in any case (search Time Warner startover for an example).
Will this all change? Well, yeah…but not today, and, again CLECs just don’t have the pull to influence this space.
Innovation is highly overrated. Delivery / execution / marketing is much more important. Out of the billions of dollars consumers spend on telecommunication services, only a small, small fraction is on services that one could label “innovative”.
But, yes, it is hard to innovate when you’re selling your selling the competition’s products. It’s hard to innovate when you only own a small fraction of the product you are trying to sell (and the competition owns the rest). As I love to say, the telecom act of 96 was meant to help jumpstart competitive providers in building out their own network, not provide an endless supply of arbitrage opportunities. Innovation aside, the vast majority of the CLECs simply have not and do not provide value and have about the same support quality as the incumbents.
I’ve made this argument before as well, but it is a little bit problematic to make this argument while arguing for the expanse of Internet television. Video is bandwidth intensive, HDTV (which is becoming the standard) is 12-20 Mb/s (depending on how high-def it is); most households have _several_ television sets; etc… So, if Internet television is the future, then the future is higher bandwidth. Watching grainy, jerky video in a small window in a browser is a concession to the reality of today’s networks.
Even video aside, having more bandwidth would change the architecture. The “thin-client” web browser has risen, in part, because there was no other possibility. Having more bandwidth allows for other models and other applications.
July 17th, 2008 at 2:04 am
My understanding was that ARPU is calculated (at least, in the service provider space to which we are mutually referring) based on base recurring subscriber revenue, not any additional revenue that can be amortised across the subscriber or revenue base and whose dimension is somewhat of a derivative of that base. In other words, while cable companies may be able to make more money off of ads if they have x subscribers than .75x, the general understanding of ARPU from an accounting perspective forbids the ascription of such revenue to users per se.
But surely, far from most, or even half, of cable customers overall are triple-play customers? How does that get them a $150 ARPU figure? I don’t understand. How can the public, on average, be spending $150/mo on cable services per household?
My inclination, thinking as a programmer, is to suppose that all this calls for a genericisation of content delivery to a single mechanism to which the manufacture of set-top equipment is then beholden, and then the particular vendors and service providers can choose how to “feed” that engine. Kind of like RSS for blogs. Or like GSM/CDMA for cell phones, a little more contortedly.
Well, if it’s YouTube specifically that is under discussion, that has more to do with how YouTube has positioned itself and some inherent limitations they’ve decided to impose on user content. It’s supposed to be a site of short clips and other bursts of video that can be, at most, termed “episodic.” YouTube doesn’t allow users to upload 2 hour-long clips. Indeed, I am not sure HTTP POST can really support that. But that’s YouTube, not the inherent untenability of Internet-based distribution of hours of engaging content.
What do you mean by that? Do you mean that it is widely anticipated that almost all TV content will be user-chosen and temporally unbounded in the next few years, and the notion of “channels” as a stream of uncontrollable content (which you miss if you’re not watching, unless you’re recording) will go away? How prevalent is this already?
I don’t actually know. I don’t follow TV trends, and don’t watch TV, and it’s been years since I’ve worked the remote on a cable box, so I’m genuinely curious.
Well, yeah, definitely. I have no quarrel with that whatsoever.
It’s just that the value that is provided by good execution is not possible at the scale at which CLECs are operating, if nothing else. They can’t execute as well with those kinds of cost structures (from a peripheral vantage point) for reasons that you have largely touched upon.
July 17th, 2008 at 12:46 pm
Again, not sure of where I saw that or what was encompassed in the figure. Though, if you want an idea of what video services run a month, Dish / DirectTV (so, single-play video providers) post $70 ARPU for just video alone). I wouldn’t be surprised if cable companies are slightly higher on their video services since you can’t really do VOD over satellite (you can, but it’s really, really limited). It’s hard to get at that data, though since most of it is locked in trade reports that cost $1,500 to read or relies on FCC data which is several years behind.
It’s an interesting discussion considering that between us we spend about $10 per month on TV. So, we’re definitely not the target customers of the cable industry.
Regardless, the simple fact is that a provider selling more services on the same line has a higher revenue per line. Assuming that revenue is decent enough, then it enables them to build better networks. The margins on data networks alone are too low to really support building out FTTH for pure-data networks, for example. (Well, not really, but you have to have investors who accept a really long term ROI–again, most of the CLECs really do suck at actually selling deep within a community, so they have problems getting the community members to invest in projects. There are some exceptions, but they are rare. The ones that actually do offer good services, focus on a community (or area), and have had the committment and focus to sell to the core of the community (banks, schools, etc…)have typically been able to get the funding and the franchise agreements to make such project work. The rest hang out on the WISPA or FISPA list and whine.
Well, agreed. Except, that’s exactly what a lot of the players involved _don’t_ want to happen. They allow their content to be displayed on the Internet as both a means of accessing the long tail and as a way of getting access to a different revenue stream. They aren’t currently looking at it as a means of replacing the status-quo, just supplementing existing revenue streams.
No, it’s not You-Tube specifically. Internet video falls into two categories–short run and long-run. Long-run is pretty much a replication of television, short-run is the you-tube variety–short 1-5 minute clips.
Now, short-run stuff (1-5 minute clips) is really lousy for watching for hours on end, day after day, week after week. If nothing else, there’s the simple effort involved in finding the stuff to watch, the constant “action” required, etc…
If you’re talking about long-run content (30 minutes or more), then you talk about stuff that’s capable of being a television replacement. However, talking about this in terms of “choice” over television is patently false…since almost all of this type of content _is_ recycled television content. Sure, it’s available on a quasi on-demand model and sure, you have access to shows that are no longer on television (indeed, the majority of this content has been, up until recently, older shows that are no longer run on television).
There is more access to foreign programming–but this was largely available on satellite. Regardless, this has nothing to do with a discussion that is focused around mass-market.
The simple fact is that while it is easy to make a 5 minute video of mentos and coke, it takes a substantial amount of money and commitment from a lot of people to make a serial television show. There are a few shows produced for the Internet out there, but they are rare and, by most mass market standards, pretty lousy. I don’t think they are commercially viable at this point.
In the end, even when people are accessing video content on the Internet that is meaningfully a television replacement, it is largely just a different medium for the same content. It’s not that the medium is incapable of distribution, it’s that the commerical viability of such a model without the backing of existing production studios is questionable.
That said, there is some movement in this space, and I suppose it could be done, to some degree. A sit-com could reasonably be filmed and distributed by 3-4 people working day jobs and doing it on the side, and there is some of this sort of thing going on. No idea whether where it is at these days in terms of market share, but my guess is low.
I do have a guess, though, that something that doesn’t really worry about the US market could do well–quality standards are lower (in terms of production value, not necessarily in terms of content itself), you expand your market by a few billion people, and you have a leg up over the traditional producers which heavily control the distribution of their own content. I think people sometimes forget that the Internet is international…
http://www.timewarnercable.com/rochester/products/cable/start_over/startover_cnn.html
Basically, it records a lot of television shows to a video on demand server that you can start over from the beginning (in case you missed it). Other services are just doing straight video on demand for a lot of the high-viewership shows. It’s sort of a quasi-provider based DVR…
From a cable provider perspective, I think they would much rather be in an on-demand model. It would give them an unbeatable edge of satellite-based providers and gain market share in general. The obstacle isn’t the cable providers, it’s the producers who keep a very tight hold on their content. But, it will happen because it has to…in the end, producers who make it easier for people to watch their content will eclipse producers who favor short-term monetization over long-term audience share.
I’d agree, these days. I largely see that a lot of the current problems of the CLECs is a result of them having taken the easy, quasi arbitrage revenue of the late 90s/early 2000s and never reinvested it in building out their own networks. They are financially strained now because they didn’t invest well when they had the money…
July 21st, 2008 at 12:49 am
Anonymous Rex wrote:
Of which you spend $9.85.
My personal, unauthoritative conclusion is that nobody in the technology and/or infrastructure space–least of all VCs, angels, banks, or miscellaneous financial consortia–are willing to invest in anything with a long-term ROI anymore, if they ever were. Long-term, blue-chip growth, to the extent that it was ever possible in a market that changes so rapidly and where comprehensive obsolescence cycles turn over in a few years, is very Economy 1.0 and that’s like, so passe. So, any business model that inherently entails that is pointless.
“Get rich relatively quick, or bust” is the new psychological and strategic norm, and I think it’s here to stay.
Believe it or not, I also think that in the more subconscious stratum of economic calculus, that may be a reflection of the subtle (perhaps unacknowledged) acceptance of the likely possibility of pervasive future instability as this century drags on. Widespread social unrest, economic collapse (or at the very least, high inflation/tanking dollar/de facto governmental default), and wars stemming from increasing scarcity, price volatility and strategic vulnerability in energy, food, water, and extractables, are expectations that have gained increased acceptance, even if they are still considered marginal alarmism in the main. Also, serious infrastructure developments catering primarily to suburban topologies are a little more sketchy if there is some doubt as to whether the world will continue to march along that paradigm of development, or even if the march continues but in a somewhat orthogonal direction.
Smart investors are–by definition–not stupid, and so they include that possibility in their contingency plans and allow it to shape their strategy. The strategy is to get rich while money is still worth something and hedge against its decline by demonetising one’s existence through free and clear ownership of real property and resources, and ASAP.
I don’t think anyone is seriously expecting a century of peaceful, unadulterated prosperity, sustainable development, and seamless conversion to renewable energy. I think that folks with money feel that most acutely, and so that is another reason, apart from this being the age of “$$$ GET RICH QUICK WITH COMPUTERZ! $$$!”, that they are not interested in funding long-haul infrastructure development. If FTTH built out now is not obsolete in ten years, it may simply be irrelevant.
By some accounts, if you’re looking for long-term growth, it may be wiser to invest in the security sector; paramilitary organisations, asset protection, weaponry, and asset stripping techniques may prove to be a lot more valuable than infrastructure to provide consumer entertainment services and luxuries.
OK, so that may be getting carried away a little. But not so far away as any of us would like, I think.
It’s going to go up as traditional sources of revenue for large-scale professional media production by big studios dries up.
No argument there.
July 22nd, 2008 at 2:41 pm
I definitely agree, to a point.
That said, I also haven’t heard all that much of independent ISPs or CLECs getting rejected by banks / investors, and on the contrary, I can think of about 20-30 small ISPs that have built or are building fiber networks, mostly on outside investments from banks, etc…
I think a lot of people in this space just don’t pursue this. Is it any surprise that the same people who haven’t bothered to try or failed selling investors on their network buildout similarly have problems selling their bootstrapped operations?
I would guess that the lean away from long term loans is more technology problem. There is a risk with an investment in technology that it looses its value very quickly–a 20 year loan on a server, for example, is absolutely ludicrous. I’m not sure where fiber / telecom infrastructure fits in–fiber itself is pretty stable cost wise, and is fairly future proof, at least in the intermediate term.
Still, as mentioned above, there are people who do get loans / financing for this. To some extent as well, this is a category that doesn’t _have_ to get substantial returns–it is an investment in a community, and, as such, can often get funded with lower returns.