Time for Lightspeed: Questions About the SBC IPTV Platform
High projections for IP TV subscribers may actually be on target - but only because the carriers are going to be asking Madison Avenue, Hollywood and Wall Street to rethink the commonly accepted definition of a subscriber.
First, a little about the architecture of IP TV. Scientific-Atlanta will supply the IP video equipment for SBC's IP video operations center (VOC), two national IP video super hub offices (SHO) and 41 IP video hub offices (VHO), presumably under this timeline. Think of the VOC is a "command center" that will monitor the availability and quality of all of the content traveling through SBC's network. The SHOs receive, process, and encode video and TV programming from satellite feeds into IP packets. This content is then sent to the VHOs (typically one per major metropolitan area, such as St. Louis), via SBC's national IP-based network. SBC says they'll deliver U-Verse to some 18 million households by the end of 2007 - at a cost of between four to six billion dollars.
Compared to broadcast, cable or satellite TV systems, in which all content is continuously sent to every customer's home, SBC companies will use a switched IP video distribution system, where only the content the customer requests is sent. In any given month, a representative household might receive a thousand different channels, five hundred, or just a single episode of The Sopranos's fourth season.
While this is going to enable all kinds of nifty consumer-friendly applications to be accessed via the 2Wire set-top box, the traditional local advertising model is kaput - $80 million last year for the automotive sector alone, who trust advertising vehicles like roadblocks more than PVRs.
Likewise, Hollywood already has an architecture of participation in the form of intermediaries who are going to put some skin in the game, not passive distribution players. ShoWest is all about getting distributors to ante up, and competition between HBO and Starz provides billions of dollars to the studios, dollars that mean the difference between success and failure for thousands of films every year. Think of this as the Long Tail of the studios: a few great hits, and great marketing, ensure the company can produce all sorts of niche products that may or may not succeed.
Starz has negotiated VOD and IPTV rights to films released by Sony Picture Entertainment over the next 6 years, mirroring an earlier deal with Disney. These contracts include provisions for DRM and antidumping that limit the studio's ability to provide an IPTV carrier with promotional pricing, say a dollar, early in the PPV window.
Pro sports leagues are going to behave similarly - their business model is based on auctioning media rights to the highest bidder. They could care less whether fiber is going to the node, curb, or home. I agree with the basic premise of the force of the many (Microsoft Powerpoint required) - that's why I nag companies like Akimbo to think about how they can support logical groupings like commercial locations, or EchoStar about niche approaches to content such as fantasy sports.
Given all this, I have a hard time seeing how Wall Street is going to ascribe cable or satellite subscriber valuations to IP TV. At an install cost of $200-$300 per home, they may get higher subscriber numbers, but the initial value of each subscriber is going to be less than the current going rate of $3500-$4000 (subscription required). That's when carriers need innovation from companies like Brightcove to demonstrate IP TV is capable of sustaining stronger recurring revenue than the MSOs.
Link: Mark Glaser's OJR review of IPTV efforts from Google, Brightcove and others