Entries in Video Trends (3)


A Picture is Worth... A Reduction in Churn

When an ILEC as big as TDS Telecom says that IPTV has allowed them to gain “30% share against two national cable operators in just three years,” and that, “based on that success we're planning to roll out to... 19 [additional] markets during 2012,” perhaps it's time to take IPTV seriously. Speaking at Citi Entertainment and Media Conference this past Friday, TDS president and ceo, LeRoy Carlson Jr., said that the company's wager on IPTV had proved wise, warranting these additional markets. Carlson added that, after these 19 markets, “we'll see if there are additional markets to roll out into in future years."

Of course, we've been hearing more about successful IPTV rollouts recently, usually by ILECs who are trying to offset significant voice line losses. In the past, it seemed so many IPTV ventures were deemed “defunct” after initial trials, never actually making good on the promise of additional revenue.

But TDS says its initial two-market roll-out, last year, was successful in both markets. Now the Madison, Wisconsin-based telecom giant isn't just dabbling in video services; instead, Carlson and company see IPTV as a way both to retain and attract subscribers. Last year, TDS rolled out VDSL services in 20 markets of its 30-state operating area, offering up to 25 Mbps, and it operates ADSL and ADSL2+ services as part of its broadband offering.

So it's safe to say that building out broadband, through a variety of pipes, has been an emphasis for TDS. With a staggering $100m in broadband stimulus funding, the company has been working to extend high-speed services into many of its rural territories, then bundling data with voice and, in some cases, video services. To date, Carlson said that TDS had approximately 55% market share of broadband in its traditional ILEC markets—something he said was "quite different than the other ILECs that typically have only 40 percent share compared to cable's 60 percent."

And broadband has been working to reduce churn. "What we have found is that when we have three services in a household our churn rate drops from over 2% for a single service to 1.5% for two services and down to 0.5 and 0.6% when we have three services," Carlson said. "As we add DSL on top of voice and we add video on top of voice and DSL we dramatically reduce our churn in the consumer household."

That's something ILECs across the country have been waiting to hear, as many smaller companies and cooperatives have also started to (re)consider IPTV for its “stickiness.” Carlson said that, by bundling its services, they're able to moderate voice line losses, but also "drive our top line revenue in our consumer business.” The company's IPTV services will be revenue on top of its $37 ARPU.

“On the ILEC side,” Carlton said, “the primary drivers of growth have been on pushing DSL further to our customer base. Sixty-one percent of our lines now have some form of DSL and we're pushing faster speeds out there.”

Carlton also announced that TDS's new IPTV markets would incorporate Microsoft's Mediaroom platform—an interface that many smaller ILECs and co-ops are adopting as well (several of whom we've profiled last year). Mediaroom allows for the bells-and-whistles services many consumers have come to expect and ILECs now want to provide: VOD, whole-home DVR, caller ID over the TV, and even remote DVR services.

TDS's IPTV announcement comes after a year of investment and diversification at the company. In the past two years, TDS has pursued both the data center and cloud services markets, most recently with its acquisition of OneNeck for $95m this past summer. But as I predicted for 2012 (and we're only a few days in), companies like TDS will also want to find new ways of making their broadband expansion count for even more. We'll be interested to see the numbers when all 21 IPTV markets are live.


TelcoTV Takeaways – Part 1

“For Everyone Who Really Scores Big, There’s One Hobbling Around”

That’s what Carol Wilson, Chief Editor for Events at Light Reading and head of the TelcoTV event going on this week in New Orleans, said Tuesday at the opening general session of the show…right before introducing AT&T vp of U-Verse and Video Strategy Jeff Weber. And if U-Verse is one of the telcos scoring big with its pay TV offering—more on Weber’s comments below—I think it’s a fairly safe bet to say that there are actually more than a few telcos in attendance here that are still hobbling around the pay TV field. Because even after listening to two full days of discussion about what consumers want and how their viewing habits are changing, what’s technically possible today and what’s in the works, I have yet to hear a speaker here say he or she can explain the business model. In fact, several speakers openly admitted in Wednesday’s general session that the business case for TelcoTV remains undefined; others said that in the end the programmers and content developers will be the ones to make that determination. So despite the exciting developments on display here in the Big Easy, I’m nonetheless left wondering where’s the beef…er…business case for TelcoTV?

Perhaps it’s not the right question, for now anyway. Virtually every speaker here has suggested that providing the best broadband service will be what matters in the long run for network operators. That probably doesn’t mean a copper network, but if a telco plans to lay fiber then providing video programming will surely be necessary to push up ARPU and get (hopefully) an eventual return on investment. And even if programmers determine the pricing in the end, at least the playing field will be level for pay TV service providers.  Although, with some video providers serving more than 20m subs, it’s arguable that the Comcasts and Netflix of the world might get better pricing than a 1,000-line RLEC…

And then there’s the issue of differentiation. According to research presented Wednesday, service price and/or discount bundles were the most important factor consumers considered when choosing their pay TV provider. Finally, there’s the OTT threat, but actually this year it seems more speakers are describing OTT as an opportunity for providers rather than a threat…although I haven’t heard anyone describe exactly HOW a provider monetizes OTT…

It’s a murky playing field, to say the least, but one thing’s for sure: if a telco today ISN’T weighing the pros and cons of the multitude of new services and capabilities showcased here at TelcoTV, there simply won’t be a business back home ten years from now. Game over. With that certainty in mind, let’s get into some of the comments made over the past two days and some of the data shared. In this segment I’ll review the comments of AT&T’s U-Verse VP and also share some research data gathered by Heavy Reading’s Aditya Kishore. Other panel discussions and quotes will be given in later posts.

Unlike many that believe the broadband service is becoming the core service, AT&T’s Weber said that “Today, it begins with the TV Service,” but he also pointed out that the growing availability of apps is proving popular. He noted that last year over Christmas Eve and Christmas, fully 40% of his customers had used the Santa Tracker app. He also talked about the app which allows the viewer to change camera angles while watching a baseball game, which he said “allows customers to engage at a deeper level than with our competitors.”

Engaging the customer was a major theme in Weber’s talk, from U-Verse Online to controlling the DVR to U-Verse Mobile…customers “want to be in charge of their experience wherever they are” and the more engaged they are with their service and content, the lower the likelihood of churn. “It’s almost a linear relationship,” he added.

AT&T also unveiled a wireless receiver which will send the signal throughout the home via WiFi so that customers can move their TVs anywhere in the house. Weber noted that originally the wireless receiver was conceived of as a cost cutting tool for the company but they’ve found that customers are thrilled to be able to move their TVs. He noted, however, that AT&T’s all IP infrastructure made this much easier to do than for competitors. Finally, Weber along with many other TelcoTV speakers here, noted the popularity of the xBox 360 as a streaming video device. As another speaker here pointed out, “we in this audience aren’t necessarily typical…if you go two hours up the road, you’ll find a lot more game consoles in homes than smart TVs.”

Some Stats to Study

In Wednesday’s general session, Heavy Reading presented the findings of its annual study of U.S. pay TV subscribers. Aditya Kishore noted that Heavy Reading surveyed 500 people in September; of those about 58% were cable customers, 28% were DBS customers and just under 10% were telco video customers. Kishore highlighted the new trends:  66% of respondents have multi-room DVR capabilities; other features mentioned by respondents included interest in multi-device service, remote access and integrated Internet. In fact, at a price point of $5/month, 19.2% said they were ‘highly likely’ to buy an integrated Internet service and another 40% were ‘somewhat likely’.

Other trends highlighted by Kishore include a shift away from user-generated content (UGC) to more professionally produced content—movies and TV shows—by streaming video users. Kishore said that, not surprisingly, delays and buffering were the largest cause of frustration among streaming video users, and that while viewers didn’t necessarily demand very high resolution, if the image goes pixelly they will be unhappy with the service.

Notably, the survey found the consumers experiencing difficulty with streaming video will blame their ISP about half the time, rather than “most” of the time as had been  the perception. The other half will blame the web site for their problems. [I know I called for a Comcast service tech to come out to my home just a few weeks ago after I was unable to watch a film from Netflix…lo and behold, my connection speed was 30 Mbps and the issue was with Netflix…my bad.]

As for video cord cutting, Kishore indicated that the facts aren’t as disheartening as the hype. His data indicated that only about 6% of consumers have already cancelled their service and another 10% say they are planning to cancel their service—although several speakers here have indicated that only about half of consumers actually do what they say they are going to do in surveys. Kishore opined that the larger threat to pay TV providers is “cord shaving” where consumers cancel some of their (higher margin) premium services and keep only the basic service level. 20% of the survey respondents indicated a likelihood to cord shave. He emphasized that 60%-65% of consumers have no plans to cancel their pay TV service and also noted that once a customer has been with a provider for five years or more, they are not likely to churn at all.

I’ll be back with more from N’Awlins in coming posts…


Mindshare: Filling the Video Value Gap: The Case for Broadband TV

New White Paper by TDG and Entone Asserts There's Room for Telcos "In the Middle"

This new whitepaper, forwarded to me by Entone, caught my attention because it addresses something I’ve been writing a fair bit about: the very high cost of cable video service relative to OTT offerings like Netflix’ streaming service. It’s a frightening situation for telcos, many of which have either recently or were planning to enter the video fray for significant cost.

But without a compelling video offering, I’ve argued, telcos are increasingly relegated to the position of trying to earn an acceptable return by simply providing the “dumb pipe.” I’ve opined that a telco’s best chance of survival in the next decade revolves around providing the best, fastest pipe in the market, but we all know that for many rural companies, especially given the uncertain situation with regard to Universal Service Funding and the Connect America Fund, there is no clear path to a reliable return on investment. My intention here isn’t to throw my support behind the Entone solution necessarily, but I think the concept of “Filling the Video Value Gap” makes a lot of sense. The paper was authored by consumer technology research firm The Diffusion Group (TDG), and I’ll summarize the pertinent points here.

TDG says that, “The consumer value gap exists for consumers who want more than just OTT video, and yet do not attribute full value to premium PayTV services.” I’ve railed against my cable company and threatened to cancel service repeatedly for this reason—I have hundreds and hundreds of channels and nothing to watch. But because I like the ability to DVR the handful of shows I do like, and VOD service for movies, I have yet to follow through on my threats. Still watching my options, however…

That said, TDG argues (rightly) that “The operator value gap exists for operators who want to offer a subscription video service without taking the plunge into IPTV.”  It adds, “…providing IPTV PayTV services is an expensive proposition that involves network upgrades, TV head-end facilities, middleware, settop boxes, DRM software, VOD servers, and ongoing operational costs to maintain the network. Although many telcos have launched IPTV service and reaped considerable success, all would agree that the costs involved are considerable.

“Content costs for telcoTV services can also be high, particularly for small operators that lack the bargaining power of larger MSOs. Combined with large upfront capital costs, this can lead to pressure on the business case for IPTV services. Satellite resale, while alleviating the hassle and expense of network upgrades and content negotiations, provides little in the way of additional revenue or strategic value.”

All true. So what’s a telco to do? The whitepaper argues that “These gaps can both be filled with the launch of Broadband TV services while delivering strong economic value to both consumers and operators.”

The authors state that “A new service category called BroadbandTV (BTV) has emerged that appeals to consumers who want more for less, providing operators with a way to deliver new revenue-generating services without the full infrastructure costs that come with IPTV. Whether an operator has delivered TV services or not, BTV can become an important new service tier for telcos. Providing a home media gateway as part of the BTV service is a simple pathway to enable a number of new services with very high consumer appeal including: 

• Live HDTV

• Broadband VoD services

• Whole-home DVR

• Integrated personal media

• Personal media sharing through social websites

• Integration of Internet radio

“Since the gateway is IP-enabled, it can easily be updated to provide additional resources, features, and services. This means an operator has a platform that can keep up with the fast pace of innovation on the Internet, as well as deliver a wide range of other IP-based services such as home security, home medical monitoring, digital storage and backup, and VoIP. The consumer value gap provides some great opportunities for you, the telco, and the operator value gap shows the economic incentive to leverage broadband for new services.”

Unfortunately, the whitepaper doesn’t get into the expenses associated with Entone’s (or any other vendor’s) “BVT” solution, but it does describe some interesting ways for the telco to marry on-demand content with Internet content and over-the-air and/or cable content as well as using the service to move subscribers onto a higher speed/tier broadband service:

“For example, subscribing to broadband TV services with a broadband-enabled DVR could require a special tier of broadband service. Some operators are currently testing this approach. Virgin Media in the UK has launched a DVR that includes a 10 mbps dedicated broadband connection. The DVR uses this “through-the-middle” broadband connection to deliver a blended PayTV and Internet video home media service.

“TDG asked a group of 2000 PayTV+broadband subscribers about their interest in a broadband TV service that included their favorite TV channels, on-demand movies, and a mix of Internet content. Given such an offering, survey participants were asked to rate their interest on a 7 point scale from “definitely not interested” to “strongly interested…there is broad interest in such a supplemental service, with 34% of PayTV+BB users expressing interest at a price of $25 a month…This suggests a total market potential in excess of $8b a year for such a broadband TV service…Importantly, this approach gives the operator a platform in the consumer home over which additional value-added services can be offered. There is evidence of major revenue potential for such services.” The paper goes on to describe in more detail how companies both with an existing video service or without can leverage the “BTV Gateway” to fill the “value gap.”

The study was sponsored by Entone, and of course the point of a whitepaper is to generate sales leads and calls to the vendor (hence the lack of equipment pricing information).  But it does (rightly) point out that this so-called "video value gap" will eventually be filled by other service providers if telcos don't move to do so.  If you want to read the entire white paper, click here.