The Internet and wireless communications have had a major impact on the consumption of video content. TV operators no longer can think of just offering services via a single device at a set time and now have to think about whether to extend into mobile and other delivery methods.

Big-name operators such as France Telecom (Orange) and DirecTV are among those leading the transition to becoming multi-faceted content providers, adopting more complex strategies to meet the changing needs of the consumer. Orange’s “Content Everywhere” strategy “means serving the customer on all the different terminals: PC, TV, mobile and in whatever form and using whatever networks are available,” says Herve Payan, senior vice president of content services. “That is quite important. Last year, we managed to get our first full offers on all of these different screens. There have also been some interesting discussions recently by the executives of Time Warner and Disney on this whole issue of content on different platforms. … As part of our strategy, we have also decided to reach the maximum number of customers on all these different networks, whether it is delivering pure IPTV or ADSL, which we started in 2003. We are doing this in Poland and Spain and other smaller countries. We have around 2 million IPTV subscribers in France. We have another 400,000 subscribers who are using a hybrid solution of satellite and IP.”

DirecTV is using its established brand and buying power to make sure it is relevant on all platforms. As part of the extension of its contract for broadcasting  NFL (American football) games, DirecTV subscribers who cannot see games via satellite will be allowed to access them via broadband connections. A special channel that provides live glimpses of all games during scoring opportunities, now is available via cable, telco and satellite systems, wireless devices, and the Internet, showing the changing nature of content rights agreements.

DirecTV also is leading the way in terms of on-demand as it looks to cater to the needs of the next generation of video user. “Everyone one of our customers who has an HD PVR is able to access these services,” says DirecTV CTO Romulo Pontual. “When compared to cable providers, the major difference is that DirecTV has large storage in the homes and a large broadcast pipe that reaches all 50 states. Broadcast is the most efficient way to deliver content to multiple consumers. A smart product that can benefit from the broadcast pipe and local storage creates significant value. DirecTV’s video on demand is a hybrid system that benefits from broadcast and Internet delivery. The push system is like a predictor of what the customer will want to watch. You may call it a network cache. The two-way broadband connectivity serves the niche requests. Our solution may have the same name as a cable solution but relies on very different technology strategy,” he says.

Catering to New Tastes

The next generation of video users is stimulating the technology and software vendors who want to be the ones who are helping power these new and complex services. Companies are having to move out of their traditional markets and expand their services offerings. Compression companies like Tandberg Television, now owned by Ericsson, and Harmonic are two which want to help operator’s with their next generation content strategies. “Harmonic is focused on the video delivery piece, including encoding, transcoding and stream processing requirements around these services,” says Harmonic CEO Patrick Harshman. “We’re talking about different devices over different networks with different bandwidth requirements, different resolutions, different coding rates, etc. Certainly, with the introduction of a lot of upcoming mobile services, particularly in an on-demand environment, you are seeing dramatic movement in adaptive bit rates and multi-bit rates in terms of applications, and this calls for another level in terms of encoding at different speeds, encoding at different bit rates, and the systems that intelligently and adaptively deliver high quality video to any device and adjusting to the network throughput.”

Roger Bolton, executive vice president, compression systems, Tandberg Television, says, “You are beginning to see the audience fragment quite a lot, so either by the Web or consumer on-demand; even via satellite, with downloaded content and mixing it with real-time content, so you are seeing a bit of both. Tandberg of four to five years ago, we were talking purely about compression by either satellite, cable or terrestrial. Now we have an on-demand platform. We have a huge installed base of cable operators providing on-demand services. With Ericsson having purchased us, we have brought an IPTV solution into the picture for two-way television. You can take that down as far as single-user television.”

Harmonic is involved in several trials as more progressive content strategies are rolled out, says Harshman. “It might seem to more cynical observers that the mantra of anytime, anywhere has become somewhat of a cliché, but with the popularity of the iPhone and the investment going into wireless access services and the success of Web services like Hulu, I really do think over the next 12 months you are going to see substantial moves in this area. There will be progress on the technical and commercial side. We are involved in a number of exciting trials which we think will become more substantial contributors to our business over the next 12 months. For instance, in the satellite area, we see quite aggressive moves to bring on-demand capability over broadband, leveraging content and consumer relationships to offer innovative streaming and download services to hybrid set-top boxes,” he says.

NDS, a traditional provider of content security solutions also is looking to be at the forefront of these new services. “Television is clearly becoming broadband enabled,” Abe Peled, CEO of NDS, says. “We have a relationship with Access Networks to provide a net browser on connected TVs. We have Jungo, which offers gateway software. So our vision is that broadband comes into the home, and satellite comes into the home. Satellite will bring HD and the most popular channels, and then IP will bring catch-up channels, on-demand and network storage, and the distribution from that point on will be on IP. Some will be to another set-top box. People don’t want just a single point of failure. [Video on demand] has the potential to be a single point of failure, so will be a hybrid service. We view the connected home as a very critical part of our longer term of our revenues.”

User Interface

With access to thousands of hours of content now at peoples’ fingertips, the user interface (UI) to this content has never been so important. One of the companies trying to bring the next generation of UIs to TV users is OpenTV. Ben Bennett, OpenTV’s CEO, says content convergence is happening “at a rapid rate,” presenting new challenges to traditional middleware companies. “TV on the Internet and Web-based data are being made available across satellite, cable and IPTV. Set-top boxes are being connected, and convergence is a reality. We are also making use of mobile devices to control and interact with TV. In five years time, you could walk into your home and control your TV through your mobile. Viewers will be able to immediately access their profile, change channels and search for content. The shift in viewing habits is happening, and OpenTV is prepared to address it.”

Technology no longer hampers the creation of a stronger UI. “The great barrier to a good UI in the past is lack of broadband return paths, but set-top boxes and home networks are maturing and what we have is technology that shifts the way people choose what they want to watch,” Bennett says. “There will always be the need for a more linear approach and a single guide but through multiple executions — so on both the TV and in Adobe Flash as well as widgets. We will be seeing a lot of innovation will take place in the UI space. … In the past, we have provided the plumbing, but now we are providing the plumbing and the UI, because it is not just broadcast, it is a multi-convergent content story. For us, it is more of a UI than an EPG. It is a much wider definition. It is a connection into the much wider broadband Internet world.”

Apple and Microsoft

One trend in the video space is players like Microsoft and Apple looking to have more of an impact. Microsoft signed a deal with BSkyB in May to provide Sky TV services through the Xbox 360 video game player. Apple has set the pace in the portable media player market with its iPod and then with Apple TV.

However, some in the satellite industry believe it may not be sexy brands like Apple that will prove the ultimate winners in providing video services to the next generation of users but rather TV operators which already have established relationships with content players and a significant amount of buying power. “Television is very different from music and books. It is about content experience and this is what matters,” Peled says. “TV operators are large players. They have strong content relationships. They understand the consumer. They understand that they need to offer the customer the ability to offer content everywhere. Apple view this as an opportunity to sell more hardware, but we think TV operators will win because they have the content relationships they have as well as the buying power they have because of the established subscriber bases that they have. To get any good content, you need minimum guarantees. It can be very expensive otherwise. Joost was setup by marquee names but didn’t work. Yes, people are watching YouTube, but they are still watching popular content.”

Harshman cited DirecTV’s agreement with the NFL as an example of a satellite pay-TV operator flexing its muscles in the content area. “The traditional pay-TV providers have the relationships. After all, they have the experience in maintaining a profitable business model and the monetization of this content. The key players in this industry are well-positioned to be at the forefront. If you look at DirecTV for example, they have signed an extension of the NFL Sunday Ticket. That agreement not only includes making games available for viewing for television, but also across different devices. I see that as a harbinger of what will come.”

The complexity in TV offers is bewildering as content needs become ever more demanding. For a company like France Telecom, which cuts its teeth in the communications space, video now is vital for its future success. “Having a better television offer is really important with us. We have the most comprehensive [video-on-demand] offering, and this is now very important. We have specific offers in sports, cinema. We are doing 3-D, HD. This is all important. We have come a long way. Users see it a key differentiation element. You can add mobile TV to the mix also. We have been pushing mobile TV. All of our premium offers are available on TV, PC and mobile. This is a very important part of our strategy. This is what customers want, content on all platforms,” says Payan.

The past and the future are colliding, says Peled. “There are two conflicting trends in the market which have been going on over the last two to three years. They are actually coming to a head in the way we suspected. Customers want free content, but there is this notion that advertising will make up for this free content. As you know, a lot of businesses are rethinking that. We did a study on this over three years ago. Our research told us that you would need to double advertising revenues to make up for subscription revenues. Advertising growth is like GDP growth, so there is no way that it can possibly make that leap. If GDP goes down, so do advertising revenues. Our conclusion was either costs go up, or it is not going to work. This year, for the first time in the United States, you are beginning to see authentication where you can watch stuff on the Web, but only if you can authenticate that you can watch it on pay-TV so you have to prove you are a paying subscriber.”

Bottom Line

There is little doubt this is one of the most exciting times to be involved in the TV industry. However, with the next generation of digital video user more demanding than ever, wanting more for less, the path to profitable business models will continue to be a tricky one to navigate.

Mark Holmes is Via Satellite’s Associate Editor.