IPTV VoD business models fall short

(c) Pyramid Research

The business model for VoD is different from and arguably more attractive than that of linear TV programming, particularly for introducing new content. VoD is generally based on a revenue-sharing agreement and can be provided profitably to smaller audiences, whereas the high programming costs of the linear TV model require wide distribution and aggregated audiences.

We don’t believe, however, that VoD services over IPTV networks offer an attractive business model in the medium term, for a number of reasons. The mostpopular VoD asset is new movies; in the US, for instance, movies account for 80% of all VoD transactions, and 75% of those transactions are for new releases. However, new movies come at a price. Hollywood studios generally demand the bulk of the revenue, and sometimes minimum guarantees. Because they have to pay almost all revenue back to the studios and generally have small customer bases, we don’t believe IPTV operators can achieve significant profits from VoD transactions.

Yet VoD is a necessary evil for IPTV operators. For some, it is a way to differentiate themselves from satellite DTH carriers; for others, it is about matching competitors’ pay-TV offerings. It is also a way to convince consumers to pay for TV. For VoD to become a more lucrative business, we see the model evolving in two stages.

• The initial stage is one of customer retention. Telcos have been looking into providing multi-play bundles of services to compensate for declining fixed voice revenues as well as to retain and win customers. TV is an essential component of a triple or a quadruple play, and VoD could help differentiate a telco’s IPTV service. There is little evidence, however, to suggest that TV carries more weight than the other services. Simply put, exclusive, premium VoD content cannot compensate for deficient voice and broadband offerings. As mentioned above, we expect VoD profit margins to be minimal at this stage.

• The second stage of the IPTV VoD model should be more lucrative, but it will take another 3-5 years for this model to come into its own. Shorter release windows for content will play a significant role in the evolution of the model, but more importantly, by developing a multiplatform presence for their VoD content, IPTV operators will build larger audiences and grow profits. When IPTV VoD reaches an acceptable scale, we expect that telcos will have more negotiating power with the studios and more opportunities with advertisers.

For telcos to reinvent themselves in order to cope with diminishing revenue from voice services, they need to develop their overall content business, and VoD is a key part of that. For example, France Telecom hopes to generate about €400m in 2008 from its content business, as much as 22% of which will come from VoD services. For some of its VoD content, the operator has already created ’mobisodes’ and special highlights for mobile devices as well as trailers, previews and exclusive interviews for the PC. With consumers increasingly demanding access to content anytime, anywhere, and on any device, telcos have an opportunity to build fully integrated multiplatform VoD services that can be accessed from TVs, PCs and mobile devices.

Indeed, this is a necessary move for all video providers to respond to the rapidly changing patterns of media distribution and consumption, so that they won’t be sidelined by broadband or over-the-top providers that bypass platform operators to reach consumers directly.

Developing a multiplatform offering will take time, largely because of copyright and licensing issues. While telcos such as Telefónica, Verizon and France Telecom are already pursuing the multiplatform opportunity, they still have to license content for each platform separately. Having content that’s licensed for an IPTV VoD platform does not mean that it can also be distributed over a mobile platform. Indeed, telcos have reportedly found the content sourcing process to be more complex and time-consuming than anticipated. Content providers are interested in extending their reach, but they are also concerned about disrupting established advertising models as well as about piracy.

News Corp COO Peter Chernin Sees Mobile As Anybody’s Game

Peter Chernin, News Corp chief operating officer, said at a press conference at the Cable Show that the mobile market was still confused, reports Ad Age.

“No one knows what it looks like,” he said. “It’s like the cable business in the late ‘70s right now. In 1977, no one knew there was going to be an ESPN, Discovery or a Lifetime. What happens is hopefully smart people get into it and begin experimenting with different content forms. When we bought Jamba, they had a business model that has fairly high-priced subscriptions,” he said...But even though Mr. Chernin has control over the largest player in the mobile industry right now, the overall business is still sink or swim. “Those people who do a good job will flourish and those who don’t, won’t. We’re in the very first pitch of the first inning and we’re all trying to figure it out.” So News Corp plans to be very active in mobile, but hasn’t yet set its heart on a particular business model.

Mobile Market to Boom, Games to Suffer?

(c) Next Generation

New mobile research from Screen Digest analyzing the impact of gaming, music and TV on the mobile phone industry through to 2011 suggests that the mobile gaming market will stall unless current business models are adapted.

As phone penetration reaches saturation point in a number of regions, it is believed that mobile operators will increasingly focus on media content to achieve differentiation, new subscribers and increased revenue.

With gaming being the oldest form of mobile content, Screen Digest mobile analyst David MacQueen believes the market will stall unless current business models are changed to counter the growing focus of mobile operators on delivering music and TV services.

From the release of Snake back in 1997, the mobile gaming industry has grown to be worth €1.6 billion ($2.165 billion) today, with 50% of that revenue emanating from South Korea and Japan. However, market growth is slowing, and according to MacQueen the market will rise incrementally over the next five years to be worth €2 billion ($2.71 billion) by 2011.

In contrast, Screen Digest predicts that the global full track music download market will grow eight fold over the next five years, reaching €1.47 billion ($1.99 billion) by 2011, growth largely driven by an increase in subscription services offering more than just music.

Similarly, the mobile TV market, which offers the newest type of mobile content, looks set to explode over the coming years. Screen Digest forecast revenues of €4.7 billion ($6.36 billion) by 2011 from 140 million subscribers.

According to MacQueen, “Regulatory and competitive pressures have pushed down the average consumer spend on voice and messaging. Mobile operators must now look to new content offerings to deliver the business growth they’ve enjoyed over the past decade. Screen Digest believes that the revenue is out there – and operators should be looking to TV, music and games to deliver it.”

WMG’s New Division For Original Programming

(c) MARKET WIRE

Warner Music Group today announced the creation of a new production division designed to develop and produce original programming for network, cable, DVD, broadband and mobile platforms. The division, named Den of Thieves, will be led by music and television industry veterans Jesse Ignjatovic and Evan Prager, and will be overseen by executives from WMG's U.S. Recorded Music Division including Lyor Cohen, Craig Kallman, Julie Greenwald and Tom Whalley.

Based in Los Angeles, Den of Thieves will work closely with WMG's record labels to create content for distribution around its artists' releases and special projects. In addition, Den of Thieves will explore original programming and opportunities beyond WMG's roster in an effort to broaden the scope of content created by WMG and its labels.

In making the announcement, Lyor Cohen, WMG's Chairman and CEO of U.S. Recorded Music, said, "As we continue our evolution as a music-based content company, it is essential to bring in-house the expertise to create the highest quality music-based original programming. With Jesse and Evan, we've got some of the brightest talent in the business aggressively developing new creative content and creating new revenue streams that will greatly benefit our world-class roster of artists."

"We are thrilled to be working with such an incredibly forward-thinking company as WMG and its labels," said Ignjatovic. "Den of Thieves will think outside of the box to create and develop unique opportunities that will expand the reach and creativity of WMG's recording artists."

Added Prager, "Having worked together for many years as colleagues in the industry, Jesse and I are looking forward to combining our talents to not only develop strategic creative content for Atlantic Records' and Warner Bros. Records' artists, but also to build new franchises for WMG."

Atlantic Records President Julie Greenwald said, "Den of Thieves will be a fantastic way to extend the reach of our artists and music into new territory, while at the same time vastly expanding the range of content that we are able to generate within our own house. I have been a huge fan of both Jesse and Evan for many years, and the combination of Jesse's inspired creative vision and Evan's deep promotion experience makes them a terrific team."

Tom Whalley, Chairman and CEO, Warner Bros. Records, said, "Identifying new creative outlets for our artists has been a key part of the Warner Bros.' strategy. We're excited about working with Jesse and Evan and look forward to collaborating with them on high-quality music-based programming in the television, online and mobile spaces."

Most recently, Ignjatovic was named Executive Producer of the 2007 MTV Video Music Awards. Additionally, Den of Thieves will revive "Diary" for Country Music Television (CMT). "Diary," which was created, directed and executive produced by Ignjatovic at MTV, has aired more than 80 episodes to date and takes viewers into the lives of popular entertainers, as told in their own words. Martina McBride and Gretchen Wilson are among the first artists who will be featured.

Ignjatovic spent 14 years at MTV, where he was responsible for developing innovative projects with music talent, as well as long-form, music-based programming for the network. He co-created, produced and developed such original programming as "Meet the Barkers," "Diary," "mtvICON," "Life & Rhymes of...," which featured profiles of artists including Nas, 50 Cent, Kanye West, Mary J. Blige, LL Cool J, Ludacris and Snoop Dogg and "Dancelife," with Jennifer Lopez. In addition, he co-created and Executive Produced "MTV Ultimate Mash-Ups - Jay-Z/Linkin Park," which won a Grammy award in 2004.

Prager has 13 years' experience working for major record labels, where he worked with a variety of recording artists. He worked at Epic Records from 1993-2002, and most recently at the Island Def Jam Music Group where he served as Vice President, Video Promotion from 2002-2006. During this time, he also earned an MBA from Columbia University.

During his career, he has worked with Mariah Carey, Fall Out Boy, Bon Jovi, The Osbournes, Oasis, Rage Against The Machine, Good Charlotte, Jennifer Lopez, Shakira, Michael Jackson and Incubus.

Den of Thieves is represented by Creative Artists Agency (CAA).

Boredom Leads To Mobile TV Market

(c) MocoNews

There is a strong demand for mobile TV based largely on boredom, claims Research and Markets. “In 80% of the trials surveyed by Research and Markets (including services in Finland, England, France, Italy, Korea and Japan), boredom ranked as the biggest driver to adopting mobile TV services. People said that watching chunks of video, what I call mobile snacking, at different times throughout the day would relieve boredom,” writes Over The Air blog at Information Week.

The report also claims that broadcast services will be far more popular than unicast services. “It is only people that have seen impoverished unicast video services, and who also compete for spectrum with mobile voice, who continue to believe that video on a device that small is a mistake...About 13% of people asked in surveys what they thought of streaming TV on a mobile would say it might take off, while in broadcast services which offer up to 4 times the resolution, around 60% say Wed buy it, or It will take off.”

(c) Research and Markets

The big issues about mobile TV are whether people really want to watch television programming on a screen that small, and if so, how long will it take to happen and what exactly will the experience be like?

During the research for this report, the answers to these questions have become obvious: doubt about the rise of mobile TV as a major new technology area will be swept aside by the large number of possibilities in front of the cellular and broadcasting communities.

In every single trial, of video on a handset, between 60% and 85% of the audience said, “When can I buy one?” or words to that effect. Once a consumer sees what is possible, their doubt appears to evaporate. It is only people that have seen impoverished “unicast” video services, and who also compete for spectrum with mobile voice, who continue to believe that video on a device that small is a mistake.

Unicast video will have its place, we are sure. However, the early services, whether they were the Live! service from Vodafone, the huge number of TV channels offered by Orange in Europe, the VCast services of Verizon or AT&T Video and Sprint PCS services offered in the US, were all extremely limited.

In surveys of US customers that had experienced these services, around 13% to 15% of them thought that mobile TV had a future.

Extract from Introduction
Background Research on Mobile TV drivers
It was in August 2005 when Nokia first asked people who had experienced a DVB-H mobile TV trials what they thought of it. It turned out that those people were amazed. They had found a cure for boredom. And effectively that’s the biggest driver for mobile TV, and its usage pattern, which shows in the four or five trials that have surveyed their customers. This is particularly noteworthy in public trials in Finland, the UK, and France and the live volume services in Italy, Korea and Japan, with new prime times occurring in journey time to work, in work breaks and in early evening post work, and also later in the home.

About 13% of people asked in surveys what they thought of streaming TV on a mobile would say “it might take off,” while in broadcast services which offer up to 4 times the resolution, around 60% say “We’d buy it,” or “It will take off.
People ask what are the drivers for Mobile TV, and what’s obvious is that quality video on the move was always the driver because it will break into the chunks of boredom that pepper our work days, but only if the quality is sufficiently good that consumers can watch it without getting a headache or eyestrain.

When Nokia first announced the results of its Finland survey it showed that 41% of trial participants were happy to pay for mobile TV services, at $12 a month and that 58% said that they believed broadcast mobile TV services would be popular. And they watched their usual programs, not “mobisodes.” These were national channels including drama, sports and news programming. Given that the national sport of Finland is Ice Hockey, these people found the service had the resolution not only to watch the scores in the corner of the screen, but they could see the tiny puck flying around the ice at incredible speeds. The trial was on while the Ice Hockey World cup was in progress and that was one of the major viewing experiences, along with Formula One car racing and the UEFA Cup Champions League soccer. They went from a standing start to watching 20 minutes a day across the pilot viewers, and some watched an enormous amount of mobile TV, in multiple 30 or 40 minutes chunks each day. Furthermore, when viewers begin to see DVR applications on their handset throughout 2008 and beyond, the problems with TV schedules should diminish. At present the widespread use of simulcast – showing the same channels that are currently on TV - means that the 8.00 am slot is no longer just for housewives and schoolchildren, but is just as likely to be watched by businessmen on the way to work. With the DVR, the businessman will just set his phone DVR to record when he sets his alarm clock, and watch prime time TV in the morning.

Of course, there have been problems with early experiments. The Koreans, with two working systems, have only managed to get 3 million customers on their mobile TV system in a country of 48 million people. However, considering that the two competing services are locked in a political rivalry that sees one without good distribution channels and the other without good content, one realizes that mobile TV services here are a success in spite of themselves.

In Italy around 300,000 customers have bought mobile TV in 6 months out of a population of the 6.8 million existing customers of the operator 3 Italia. This means a penetration of almost 5% in 6 months. Boredom is the driver for mobile TV, but poor execution at the network, establishment of market channels and content availability are all that’s holding it back.

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