DTH service providers, cable television companies and telephone companies are firing the first salvos in what will become an all out battle to become your personal portal into all things video. DTH has long been the king, able to beam large numbers of HD channels to millions of homes across broad land masses. But in a flanking maneuver that would make George Patton proud, telcos and cable companies are focusing heavily on video on demand in an effort to reframe the competitive argument.

In a world increasingly dominated by the Internet, instant access to programming is starting to gain traction. Will standard-definition video-on-demand programming trump linear HD programming? Will fiber to the home become the ultimate king, dethroning DTH providers? These are just a few of the questions that come up when the video-on-demand issue is examined.

Points of Attack

DTH service providers are unchallenged when it comes to distributing large numbers of standard and HD channels. Programs are scheduled back-to-back, hence, the moniker linear programming. Due to the simple nature of the broadcast channel, DTH platforms lack interactivity, which is being touted by competitors as a major weakness. To counter these claims, DTH providers have begun to offer a variety of on-demand offerings. The industry first responded with a pseudo-offering, which essentially was a small number of popular movies in a time-shifted format. This reduced wait times from hours to 15 to 30 minutes but it was not true video on demand.

Since the market penetration of DVRs in U.S. homes is roughly 50 percent, push programming was the satellite industry’s first video-on-demand offering in which a selected number of movies were downloaded across the satellite link into set-top boxes. When the viewer was ready to buy a movie, it was ready to be viewed without waiting. Disk space ultimately limits the number of movies which can be stored; fewer HD movies can be stored due to their heftier file sizes. In June 2008, DirecTV merged the power of the Internet with its DTH service, introducing DirecTV on Demand. Users can download more than 4,000 titles to their set top boxes over a high-speed broadband connection. Other DTH providers such as BSkyB in the United Kingdom also have introduced similar services.

While video on demand is touted as a major advantage to consumers by telcos and cable companies, it is important to note that terrestrial distribution technologies have weaknesses of their own, namely multiple connection points between their content servers and the set-top box. IPTV relies on broadband networks as the transport mechanism to deliver content to homes and businesses. Unlike satellite, which is multicast, IPTV is unicast. To reach its final destination, content must traverse multiple hops. IPTV is very sensitive to flaws in the network and this can cause problems for sports fans that use picture-in-picture options to display multiple games simultaneously. Sending multiple unicast channels to the same screen is challenging as the service providers must combine all of the unicasts, plus manage independent data and Voice Over IP traffic.

Ireland-based Shenick Network Systems manufactures equipment which helps broadcasters identify where problems are occurring in complex networks so they can improve the quality of the video delivered to the consumer. Robert Winters, founder of Shenick, explains the challenges IPTV service providers face. "End users are intolerant of a poor video experience. Since an IPTV feed must go across multiple hops in a telephone or cable network to get to its final destination, there are just as many places where problems can occur. The three most common problems users of IPTV experience are black screen, audio cutout and freeze frame. Our software probes allow service providers to determine which hop, or rack of equipment, is causing the problem," he says.

Another major problem telcos face is lack of bandwidth. DSL, or one of its derivatives, is the most prevalent subscriber loop technology used to provide broadband connectivity to homes and businesses. Although the newest variants of the service boast download speeds in the 20 to 30 Mbps range, the original standard was lucky to carry 6 megabits if the end point was close enough to a central office — not enough to transmit a single high definition video channel. Even at 20 megabits per second, there may not be enough bandwidth if a personal computer is downloading YouTube videos while family members are making phone calls over a Voice Over IP line.

Carlos Placido, media and satellite analyst for Northern Sky Research (NSR), uses France to illustrate the problems telcos face. "France leads IPTV and thanks to local loop unbundling, it has one of the world’s most competitive broadband environments. Although every household in France is wired with DSL, only 35 percent of them are eligible to receive IPTV due to bandwidth constraints. It isn’t economically feasible to go back and upgrade everyone’s DSL service to enhance the throughput, so France Telecom offers DTH to those households as an option in lieu of IPTV."

Fiber-to-the home offers limitless possibilities for broadcasters. With download speeds in the range of 100 to 200 Mbps, service providers can transport large numbers of HD channels, plus offer video on demand. AT&T’s U-verse and Verizon’s FiOS are good examples of fiber-based video services. While fiber offers the promise of unlimited bandwidth and the potential for new, creative video services, do not look for fiber to come to your neighborhood next week. Fiber rollouts are expensive, and if not done properly, prone to recurring failure due to fiber-seeking back hoes.

As the struggle for video customers has intensified, "coopetiton" has broken out around the world. DTH providers have begun teaming with telcos to bring the combined advantage of both technologies to the consumer. The market has entered a transition period which likely will last for years. With DTH providers offering broadband connectivity and telcos offering DTH packages, there will inevitably be friction and conflicts over who owns the customer relationship.

IPTV has been embraced by telcos around the globe as a delivery technology and is being adopted by many cable companies as the technology of choice since it enables interactivity and video on demand. Broadband speeds of 40 to 50 Mbps are being discussed, which creates the interesting possibility of consumers bypassing aggregators, such as Comcast and Time Warner, and acquiring programming directly from content providers, such as studios. IPTV also allows new types of broadcasters and content providers to enter the market. A good example is Hulu.com, which aggregates movies, television programming and other video content and allows it to be downloaded for free over the Internet. Even Comcast, the cable-TV giant, has entered the IPTV market, launching Fancast.com in January 2008.

New Business Models

Several interesting approaches are being considered to bolster the video-on-demand capabilities DTH providers can offer. One such strategy is to utilize a YouTube approach to narrow things down a bit by focusing on a viewer’s possible areas of interest, thereby filtering a long list of titles to something more manageable. The idea is to eliminate from the list of movie titles a viewer likely never will watch.

The triple-play option has become ubiquitous with cable, DTH and telcos around the world bundling pay TV, telephone and Internet access for a single monthly fee. The term quad play also has entered business lexicon as wireless carriers are eager to offer bundled packages which include their services. "More and more consumers want bundled services," says Placido. "They like the idea of dealing with one service provider at lower cost." France Telecom has been able to stem the number of users disconnecting their landlines by offering a bundle featuring IPTV with video on demand and now is the world’s largest operator of broadband television.

"We are in a transitional period right now with every service provider offering some sort of advantage," says Placido. "Telcos have the two-way DSL pipes, while satellites continue leading on the basis of superior digital-TV lineups and HD preponderance. That will change over time. Right now, telco services bundled with DTH is a great combination, but eventually fiber to the home is going to limit DTH’s role, which brings up an interesting question: ‘How will DirectTV, and other DTH providers offer competitive triple-play packages in the future?’ Long term, DTH providers will have to find non-competing broadband pipes for triple-play independence or they will become part of someone else’s business."

Finding a non-competing, two-way broadband pipe to help their offer will be a challenge for DTH companies, says Placido. WiMax offered one possible opportunity, but it appears that the service will be too costly, he says. DTH players also could work with powerline communications technology. "DTH providers will face significant competition from telcos and cable companies in the future. If they can’t find a non-competing broadband solution which they can bundle into their triple-play option, they are likely to be forced to change their business model to one of a wholesale service provider, supporting telcos and cable companies," Placido adds.

Placido also notes a potential paradox in the uptake of triple- play options. "Even in bad economic times, service providers could see a broadening of their installed base. Many argue that Internet access and multichannel TV have become non-discretionary expenses for most people and triple-play options save consumers money compared to buying individual services," he says. "The competition for market share is intense, which is good for the consumer. I expect some companies to accelerate service bundling. People can’t live without the Internet these days. Imagine being out of work and trying to do a job search without Internet access or e-mail."

Ultimately, TV and movie studios as well as the owners of content rights will have a large say in the shape of the market. Talk of broadband speeds in the 40 to 50 Mbps range brings up the possibility of consumers downloading content directly from studios and bypassing aggregators, such as Comcast and Time Warner. The technology exists today for consumers to download content directly from studios, but it is not as easy as looking at a menu of programming and choosing your selection in a matter of seconds. Cable and DTH companies provide a quality video experience and ease of use, which will continue to be important. But if it becomes easier to deal directly with the studios, will they opt to deal directly with the consumer or will they create powerful alliances?

"You can download content over the open Internet, but the quality may suffer since there is not a guaranteed level of service," says Jacques Le Mancq, product market manager for video services and services platforms at Thomson. "Cable and telephone companies own their own networks and have more control over [quality of service]. It is a question of open Internet versus a managed network. If you can’t guarantee the bandwidth during the duration of a movie, the best solution is to do a progressive download over a period of time. Our vision is that top-end content providers will ultimately offer [video-on-demand] content directly to end users over the Internet. To combat this, cable operators will need to focus on the user experience and content aggregation to keep their customers."

Jim Alexander, senior systems architect at Tandberg Television, concurs. "As speeds on the Internet increase, the viability of downloading content directly from studios also increases. Although this will be a challenge for companies in the delivery business, once you go over the Internet, you loose the ability to control [quality of service]. The cable companies will be challenged. There is always room for a service that aggregates content in one place and makes it easy to choose what to watch."

Andrew Rowe, vice president of software product management, at Tandberg, see a dramatic increase in the amount of content that is available to consumers, and this will have a long-term impact on the market. "HD and are clearly a focus of the industry. Each service provider is positioning themselves as the ultimate owner of the consumer. And while they are trying to grow their base, they don’t want a competitor hijacking their customers. The market is undergoing a major infrastructure change, and we are evolving to a multi-platform environment. We are quickly evolving to a video-on-demand world where consumers can have their content when they want it, where they want it delivered and how they want it. The DTH providers, cable companies and telcos are all coming from different places, but they are all heading to the same place. They all have one goal: to be the video provider of choice."

Conclusion

Video on demand is the first volley between combatants in the battle to control the digital video market of the future. We are on the leading edge of massive changes that will affect the entire video industry. It will be interesting to see what role satellite technology will play as the market shakes out.

A twenty-year veteran of the satellite industry, Greg Berlocher helped pioneer the Ku-Band VSAT market. He owns Berlocher & Company (www.berlocher.com), which provides sales and marketing consulting services to the satellite, technology and energy markets.