A couple of weeks ago I attended a seminar organized by the IAB UK in which experts from three companies (Alex Cameron from DigitalTX; Tony Hart from PacketVision and Clare Wells from Mizu) talked about IPTV and the future of advertising. After a quick buffet lunch (and I have to admit that the variety and quality of UK food is superior to that I have found usually offered at US events), the three speakers talked about the following topics:
- What are the key differences between IPTV and Internet Television?
- How receptive consumers will be to the emergence of these new forms of content delivery?
- What are the implications for the advertising community, and what are the current sponsorship/advertising models?
Many people are confused by what the term means. So let’s try to bring some clarification first.
The strictest interpretation of the term IPTV (Internet Protocol Television) indicates that IPTV is simply television content delivered to the consumer via internet technology. However this definition fails to clarify the complexity of the technology and to distinguish between what is normally called "Internet TV" and IPTV. Internet TV is the viewing of video content via the open network of the www on a PC; while IPTV is more accurately the delivery of programming over a closed network to a TV set-top box. From a consumer point of view the key difference is that with Internet TV consumers will have far greater access and control over what they watch - while for subscribers to IPTV the access to content, as extensive as it could be, will be determined by the service provider.
However there is not complete agreement on the definition and distinction between the two as many view IPTV as another name for Internet TV, and base the distinction on the difference between fee-based and free IPTV (where free IPTV becomes a synonymous of Internet TV)
Where there is more consensus is on the growth of this new media. According to the IPTV Global Forecast report from MRG, the number of global IPTV subscribers will grow from 4.3 million in 2005 to 36.8 million in 2009, a compound annual growth rate of 72%; production companies like Disney and NBC are experimenting with this channel, and network companies are investing in infrastructure to support its evolution and diffusion. The question is how fast will it grow?
Let's apply our "Marketspace Technology Relevance Filter" (MRTF) criteria to IPTV:
- Coverage in mainstream business publications
- Number of mainstream users (not vendors) quoted
- Level of new infrastructure required for deployment
- Level of behavioral change required for adoption
1 & 2. IPTV is a well covered phenomenon; every day or so there are news and articles on IPTV or on Internet TV; however there aren’t a lot of mainstream users quoted. Most of the news and articles cite experts and vendors.
3. Required infrastructure: My understanding is that there is actually some new infrastructure required, at least in terms of upgrade to the current systems; in particular IPTV is expensive to scale (think about what it takes to serve/ encrypt/ transmit). In addition the technology still needs to be perfected (quality of video is still not equal to TV broadcast); but these issues are expected to be solved in the short term
4. There is no change in the behavior required: watching TV is a well established behavior! And we can all learn (probably very fast) the functionalities of interactive TV.
So far so good. According to these criteria, IPTV will take off soon. However, as Alex Cameron pointed out during his presentation, adoption of IPTV will not happen overnight and will not bring a dramatic revolution; in particular, the rate of adoption will not be as high as it has been for other innovations, like cell phones or ipods. The reason: the value proposition to the consumers is not that compelling and people will not rush to substitute their current cable or satellite TV and top boxes to subscribe to IPTV.
Let's review some of the key barriers to fast adoption:
- Content: there is a limit to the amount of quality content currently available on IPTV services. The main reason is the yet unresolved problem of content rights and control retention. However this is expected to resolve in the near future.
- Consumer expectations: Unlike other innovation, like cell phones, for example, where consumer expectation was low at the beginning, IPTV needs to compete with the same quality of cable and satellite TV. This is what consumers are used to. Any glitches in the purchase and usage process (from video quality to installation and repair) would have a dramatic impact on consumers.
- Perception of benefits: The benefits are there, but not quite as compelling to motivate people to immediately jump on this new platform. Let's review some of the most important benefits:
1. Time shifted TV: ability to watch a program when I want it, not when it is decided by the network. Time shifted media consumption is becoming more and more the preferred way to consume music, news, videos (see article Non Linear Television). However, PPV to some extent, VOD and TiVo are already giving control over watching time. So what IPTV offers here is not unique, although it is very much valued by consumers.
2. Interactivity: consumers will be able to interact with program content and advertising, and, through hotspotting, click on objects and get more information on a product seen on TV (e.g.: clicking on the Prada shoes of one of Desperate Wives characters will bring you information on the product and the possibility to purchase it). This is quite a new and unique benefit, but probably not enough in itself to urge people to immediately switch to IPTV.
3. Convergence: It will be possible to seamlessly consume media across multiple platforms – PC, TV and mobile. Consumers will also be able to access a plethora of services that go beyond video signals
4. Personalization of the viewing experience: Ability to customize programs based on the consumer preference and to create your own channel to watch programs whenever you want.
Given that the benefits are not that unique, the price of IPTV subscription will probably be the main driver or barrier to widespread adoption of the service. In addition, IPTV service providers must focus carefully on the marketing and associated end user education to accelerate adoption.
On the other hand, the player with a huge interest in pushing adoption of IPTV are advertisers. In fact IPTV offers a new, more compelling model for advertisers to reach and influence consumers. As Tony Hart explained during his presentation, IPTV offers an opportunity to move from a “linear ad insertion model” (which brings with it many disadvantages, such as ads shown during live TV according to a precise schedule, low effectiveness in which advertisers need to pay for large audience even if they just reach small targets and weak measurement) to an “addressable advertising model” that offers the following advantages:
a) Ads can be placed over time allowing advertisers to easily modify the content of an old video to make it more relevant;
b) It is highly targeted: ads can be placed based on program, time viewed and viewer profile
c) Measurement is very effective, precise and real time
d) It is low cost compared to traditional TV advertising
e) It opens new opportunities to diversify the ad formats, moving away from the standard 30 second spot
In one word, advertisers have the possibility now to move from traditional unspecific, unmeasured, carpet-bombing approach for which they have to pay a premium for the numbers, to a highly targeted, highly measurable, very flexible approach that reaches smaller audiences that form a particular niche and just pay for them.
Ads can be placed when the set-top box boots up, on information screens, as a ‘screensaver’ when the box is idle, as ‘buffer’ when a movie loads or dynamically in the video streams. New, more effective forms of advertising will emerge: interactive, narrative (episodes of an ad can be delivered in sequence to a specific person), telescoping, frequency capping etc.
IPTV will probably rely on advertising to fund its programming; however consumers’ expectations for ads content will increase. The challenge for advertisers will be to carefully develop ads that are highly targeted and relevant as well as entertaining.
To accelerate adoption, service providers will need to find the right price and service bundles, focus on the end-to-end customer experience, invest in infrastructure and educate consumers on the benefits of this new platform. Digital Tech Consulting (DTC), a Dallas-based market research firm, predicts that growth will accelerate dramatically during the next five years, surpassing 20 million by year-end 2010. As of today, first-generation IPTV services are offered by Fastweb in Italy, HomeChoice in the U.K., MaLigne and Free in France, Telefonica in Spain, Chunghwa Telecom in Taiwan, PCCW Ltd. in Hong Kong and Softbank/Yahoo BB in Japan.
Advertisers have an opportunity to start experimenting now with this new medium so to be fully prepared to take full advantage of it when the market is ready.
