if connected

Today Microsoft are announcing new online video initiatives in Europe plus new partners.
We’ve published extensive quantitative research on video and TV across the “three screens” and on social portals. Clients or journalists – please contact us for our analysis of these areas.
Key reports:
European Three-Screen Audiences
Leveraging the PC and Mobile Opportunity
European Online Video Consumption
Assessing the Evolution from Short-Form Content
European Media Consumption Consumer Survey, 2007
Understanding the Impact of the Second Screen
21st Century Portals
Thriving in the Google-MySpace Era

Ashley Highfield speculates about new distribution models for BBC TV programmes via Apple’s platform. The main consumer advantage I see with offering BBC catch-up TV via iTunes is that such programmes would be transferable to iPods, iPhones, Macs, PCs i.e. multiple devices, rather than remaining tied to one PC as now.
However, there is an implementation challenge, despite the similarities between protecting rentals and catch-up content viewing windows. BBC iPlayer, 4oD and other catch-up services use IP address screening to prevent non-country residents from watching TV to which they’re not entitled. Apple use the billing address of the iTunes account holder instead. These approaches aren’t easily compatible. So, there is still work to be done before iPods work with BBC, 4oD and other broadcasters TV.
Regardless of the work needed, adding free catch-up TV to iTunes should be a no brainer for Apple (at least it would be if Apple’s headquarters was not thousands of miles distant from White City).
Apple’s profits continue to be driven by device sales, and not from content, rental or otherwise. Adding lots of high quality free professional TV content to iTunes would at a stroke tremendously increase the value to consumers of the iPod Touch and iPhone and so boost sales.
If Apple wishes to sell high end video-focused devices, it needs to have better video content (ideally free) to make the proposition work. I doubt movie rentals alone will be sufficient. Apple needs to add catch-up TV to the mix.

Sky’s ‘See, Speak, Surf’ marketing wins: Sky reaches 1 million broadband customers.
But while Sky report that “around 70% of Sky Broadband customers are taking a paid-for [broadband] option”, the actual revenue impact will be fairly modest for now. The paid broadband options are only £5 a month or £10 a month incremental.
Much more importantly for Sky is this metric: “Around 30% of customers who have joined Sky Broadband so far are new Sky TV customers.”
What of the cable companies that have had a head start of more than five years of marketing triple play, although with much more modest results?
Well, VirginMedia is altering its strategy away from bundles (!), away from pay TV, and instead plans to focus on high speed broadband. This is a sign of weakness from VirginMedia. Their long cherished differentiator of triple play simply isn’t unique any more, and as usual, Sky is following through on its stated bundle strategy with tremendous efficiency.
VirginMedia’s cable broadband does have some advantages over Sky’s DSL, but the cable operator must come much closer to matching Sky’s ability to execute on its strategy. Otherwise, Sky will continue to extend its lead.

Ms Turner [CEO, Tiscali UK] said that unless they could agree a strategy with the BBC to share network costs, Tiscali would have to restrict users’ access to the iPlayer.
A senior insider at BT added: “It is certainly a live debate between ISPs [internet service providers] and the BBC. If the BBC gets the numbers it wants for iPlayer then network capacity could become an issue.”

I don’t usually do this, but I told you.
(and more background: iPlayer and ISPs, Broadband as a Trojan Horse for ISPs, or broadband quality and net neutrality, more here on ISP broadband revenues).

What iPlayer, 4oD, Joost, Babelgum and a number of other peer to peer content distribution networks are doing in essence is: they are lowering the cost of online video distribution by transferring a large part of that cost from the publisher onto the ISP (or on to the consumer if the consumer is on a metered broadband package).

If ISPs had healthy margins for broadband, this wouldn’t matter anything like as much. But European consumers are highly price sensitive on broadband access, so ISP margins are poor. ISPs have done an atrocious job of explaining why a consumer should pay more for a higher quality broadband service.

Plus, most large ISPs now have their own TV services. So, these Internet delivered TV offers both push up ISPs’ bandwidth and network costs, and they potentially undermine the ISPs’ own TV services. So ISPs vocally use the issue of higher costs, while ISPs are also concerned about revenue protection for their TV services.

Media coverage on the views of BT, Carphone Warehouse and Tiscali (three of the UK’s largest ISPs):
- FT:- ISPs warn BBC over new iPlayer service.
- Mail on Sunday:- Pay up if you jam the web, BBC warned.
- Independent on Sunday:- Internet groups warn BBC over iPlayer plans

The full impacts of all of this are still evolving. Clients must read our Net Neutrality in Europe report now, especially content owners, rich media/video aggregators, advertisers seeking to profit from this move to Internet TV distribution, and ISPs.

Virgin Media’s quadruple play of tv, broadband, home telephony and mobile has had tremendous industry expectations placed upon it, especially from US-based investors and companies. Unusually, Virgin Media also operates off-net — outside the coverage of its cable network — where it delivers DSL broadband and CPS telephony today, and plans IPTV in the future.
Today, Virgin Media announces its second set of results since the re-brand.
First takes:
Biggest success for the quarter is the V+ combined DVR and HDTV box. Subscribers increase from 114,200 to 166,800. Especially impressive given the rough quarter for broadband and TV additions.
Solid triple play progress: Now, 45.2 percent of customers take three services, up from 37.1 percent a year earlier. But cable churn increased to 1.8 percent in the quarter, from 1.6 percent in q1 2007.
Poor broadband additions: just 45,800 cable broadband additions in the quarter. Satellite TV and DSL rival Sky, added 259,000 broadband customers in the same period.
Virgin explains weak broadband numbers by citing problems in its TV product range. Could multiplay be increasing churn for bundled services? (something we analysed earlier this year, most specifically slide 4 titled, “The Vicious Competition Circle Will Drive Multi-play and Increase Overall Market Churn“). What Virgin says under the sub-heading ‘Broadband’ is: “On-net broadband net additions in the quarter were 45,800, down from 87,900 in the previous quarter. Growth in the quarter was negatively affected by increased churn relating to the loss of the Sky basic channels.”
Good usage of VOD by Virgin Media customers. Important to note that free VOD is being used as a differentiator by Virgin, so this VOD usage will not translate directly into revenue unless Virgin can shift free VOD behaviours onto paid VOD. Regardless, 44 percent of customers using VOD, compared with 36 percent at the start of the year, demonstrates steady progress. Virgin’s challenge is whether it can continue to use VOD as a distinctive part of its offer given Sky’s aggressive move into DSL (and on the back of that eventually into IPTV and VOD) and the launch of free catch-up TV services from the BBC and Channel 4 which are available to any UK broadband household.
Re-confirmation of Virgin’s plans to launch IPTV off-net. But no timescale. Given Virgin’s mobile offer is national, it is important for Virgin to have a solid at home offer outside its traditional cable areas if the company is to leverage the quadruple play fully. Additionally, Virgin will hope that bolstering its off-net service may help customer retention when consumers move house to outside the cable footprint. Virgin’s challenge here is that the UK TV market is becoming very congested: There are existing IPTV offers from BT and Tiscali, Orange has advanced plans, and Sky is a player here too. Plus the multichannel digital free to air service, Freeview, continues to perform very strongly.

There’s an assumption I encounter regularly in Europe — typically from US-based folks — that while cable is weak here now, cable will win out in the long run; that cable is the natural broadband winner and delivers better quality than DSL; and that triple plays and multiplays are something only a cable company can deliver.
Someone should tell Sky.
Today, Sky announced their latest quarterly results:
- 8 million TV households in the UK alone, plus more in Ireland, that’s almost two and half times the UK’s cable operator.
- 716,000 DSL customers, just one year after launch. This already amounts to one fifth of cable’s broadband base. But Sky is growing quarter on quarter at over 56 percent, compared with 3 percent for cable broadband.
- 526,000 telephony customers.
- 2.4 million DVR households.
- 70 percent reach of UK households for the Sky LLU DSL network which is now greater availability than the UK’s cable network. In time, Sky will use DSL to deliver VOD as well as broadband. Plus, Sky have almost universal TV availability from DTH satellite.
Why is Sky so strong here and not cable? Some of the main factors:
Market: The regulatory environment in the UK is totally different. DSL lines are shorter / better quality and so can deliver faster speeds more reliably. The DSL industry is set up to enable new entrants and the incumbent telecoms operator is relatively weak. The telephony market is organized to foster competition.
Company dynamics: Sky has a strong brand and is tremendous at executing on its strategy. Cable is still working through the growing pains of numerous mergers over the last 10-15 years, frequent re-brandings, highly variable network quality between franchise areas, and has an ongoing hangover from surviving chapter 11.
Read more about how DSL and cable compare in a variety of European countries in these reports :
Cable Broadband Versus DSL,
How to Survive in Someone Else’s Market
Competitive DSL ISPs,
Understanding Multiplay Broadband Packaging Strategies in Europe
Cable Broadband in Europe,
Benchmarking Broadband Package-Tier Tactics.

I’m fascinated by the name of the new initiative by the BBC, ITV, Channel 4 etc. to distribute TV programmes across the Internet using a common platform (there are existing separate approaches by Channel 4, Sky and ITV as well as a long-heralded launch due from the BBC).

Was the name ‘Project Kangaroo’ chosen because it’s all about ‘over the top’ business models?

On the cost side: I’m curious about the impact on ISPs. Large-scale Internet TV distribution has to threaten to increase their cost base as consumer bandwidth consumption increases substantially. I can’t imagine any ISP being able to overtly block mainstream TV organisations such as the BBC, ITV etc. without widespread public outcry.

However, ISPs may deploy more subtle quality of service management to minimise load on ISP networks at peak times. To some extent this is already happening. Or, ISPs, may simply increase the number of package tiers with data volume limits.

Even more interesting are the competitive issues. I’ve written about broadband threatening to become a Trojan horse for operators before. Project Kangaroo is yet another example of such a threat.

If ISPs use cost as an excuse to reduce the quality of service for Project Kanagaroo, which worsens the customer experience, will Ofcom of others act? It seems to depend on whether the ISP has significant market power. However, the UK ISP market is consolidating, so defining a clear test of which ISP’s have such power will become more challenging and more important for both the industry and for consumers.

For example on the competitive side: most of the major UK ISPs have TV offerings. Most have been focusing on improving the on demand parts of their TV services too:

• Virgin Media - Cable TV company. Differentiates its TV service with a free video on demand channel. Over the top catch-up TV diminishes this differentiator if it’s available to any UK broadband subscriber.
• BT - Launched an on demand IPTV service last December, BT Vision.
• Tiscali - bought IPTV company Homechoice that offer a TV set-focused service, now re-branded to use the Tiscali name. Tiscali also offer PC-based on demand movie downloads in conjunction with Arts Alliance Media.
• Orange - offer IPTV in France and elsewhere in Europe. Have plans for a UK launch.
• Sky – the leading UK pay TV operator with over 8 million DTH satellite homes, plus operate a fast growing DSL ISP using an LLU network. Plan VOD. Already offer a triple play of TV, DSL and telephony with the tagline: “See, Speak, Surf”.
• TalkTalk/Carphone Warehouse – alone of the major ISPs in lacking a clear TV strategy. Perhaps therefore they are best placed to benefit from Project Kangaroo.