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Digital Media InSight

www.generatorresearch.com 1September2010

InternetTelevision:2010to2014
AnalysingHowtheInternetwillChangeTelevision


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Contents
EXECUTIVE SUMMARY ...............................................................................................................9 DEFINITIONS ...................................................................................................................................9 IPTV #1 (Internet Video) ............................................................................................................9 IPTV #2 (Telco TV).....................................................................................................................9 IPTV #3 (Internet Television)...................................................................................................10 INTERNET TELEVISION: A CLOSER LOOK ......................................................................................11 MARKET ANALYSIS .......................................................................................................................13 Comparison with Digital Music .................................................................................................13 Impact on Viewing Hours...........................................................................................................14 Value Proposition.......................................................................................................................14 Underling Demand.....................................................................................................................15 Economics: Business Case for Internet Television ....................................................................15 Address Consumer Electronics Issue ..................................................................................................................... 15 Increase Marginal Revenues.................................................................................................................................. 15 Decrease Marginal Costs ....................................................................................................................................... 16 Content .................................................................................................................................................................. 17 Long Tail Content ......................................................................................................................18 GOOGLE .........................................................................................................................................18 INTRODUCTION ...........................................................................................................................21 Terrestrial Television .................................................................................................................21 Broadcast Architecture .......................................................................................................................................... 21 Transition from Analogue to Digital...................................................................................................................... 22 Importance of Broadband Connectivity ................................................................................................................. 22 Business Models .................................................................................................................................................... 23 Public Service Broadcasters: Terrestrial Television .......................................................................................... 23 Commercial Broadcasters: Terrestrial Television ............................................................................................. 23 Cable TV ....................................................................................................................................23 Infrastructure ......................................................................................................................................................... 23 Business Model...................................................................................................................................................... 24 Satellite TV .................................................................................................................................25 IPTV ...........................................................................................................................................25 Defining IPTV ....................................................................................................................................................... 25 Distribution Infrastructure ................................................................................................................................. 25 Marginal Cost of Video Delivery ...................................................................................................................... 26 Peer to Peer Networks ....................................................................................................................................... 30 IPTV Service Categories ....................................................................................................................................... 31 Online Video ..................................................................................................................................................... 32 Telco TV ........................................................................................................................................................... 33 Internet Television............................................................................................................................................. 35 INTERNET TELEVISION ............................................................................................................38 BENEFITS: SERVICE PROPOSITION .................................................................................................38 Improved On-Demand Viewing..................................................................................................39 Dramatically More Content .......................................................................................................40 Advanced Content Discovery Tools ...........................................................................................40 Social and Community Features ................................................................................................41 Unified User Interface................................................................................................................42 Second Screen Controllers .........................................................................................................43 Third-party Developers: Applications .......................................................................................44 BENEFITS: COMMERCIAL ...............................................................................................................45 Targeted Ads ..............................................................................................................................45 Targeting based on Content ................................................................................................................................... 45 Geographic Targeting ............................................................................................................................................ 45 Internet Television: Example Ad-targeting Scenarios ........................................................................................... 46 Contextual Targeting for On-demand Viewing ................................................................................................. 46 Viewing Profiles................................................................................................................................................ 46
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Targeting Based on Optional ad-profile ............................................................................................................ 46 Global Publishing ......................................................................................................................47 PEER TO PEER (P2P) CONTENT DISTRIBUTION ..............................................................................49 Why P2P?...................................................................................................................................49 Very Low Cost....................................................................................................................................................... 49 Global Reach ......................................................................................................................................................... 49 Optimising Use of Network Resources.......................................................................................50

REVIEW OF INTERNET TELEVISION SERVICES ...............................................................56 SONY INTERNET TV.......................................................................................................................56 Service Outline ...........................................................................................................................56 Major System Components.................................................................................................................................... 57 Compatible TV Sets .......................................................................................................................................... 57 Upscaling Technology....................................................................................................................................... 57 Content Authoring Toolsets .............................................................................................................................. 57 Rights Management Software ........................................................................................................................... 57 Premium Content and Revenue Sharing............................................................................................................ 57 Viewing Modes...................................................................................................................................................... 57 Bravia Internet Video (TV mode) ..................................................................................................................... 58 Bravia Internet Widgets (Web mode)................................................................................................................ 58 User Experience..................................................................................................................................................... 58 Our Take ....................................................................................................................................61 GOOGLE TV ...................................................................................................................................62 Service Outline ...........................................................................................................................62 Googles Open Media Project: VB8 Codec and WebM ........................................................................................ 62 System Components....................................................................................................................63 Hardware and Software Elements.......................................................................................................................... 63 Consumer Electronics........................................................................................................................................ 63 Software ............................................................................................................................................................ 65 Content: TV and Movies........................................................................................................................................ 65 Internet Websites............................................................................................................................................... 65 Google TV Content ........................................................................................................................................... 66 Developer Community........................................................................................................................................... 66 Content Indexing and Meta Data....................................................................................................................... 67 Content Discoverability: Prevention of Unwanted Syndication within the Google TV Platform...................... 68 Sharing Advertising and Other Revenue ........................................................................................................... 68 Implementation of Geographic Licensing Restrictions ..................................................................................... 68 Ad Targeting: Geographic, Demographic and Contextual Criteria ................................................................... 68 Revenue Models for Third Party Developers .................................................................................................... 69 Applications: Example API Features..................................................................................................................... 70 Sharing Data between Applications .................................................................................................................. 70 Event-triggered Applications............................................................................................................................. 71 Location Manger API........................................................................................................................................ 71 XMPP Service API............................................................................................................................................ 72 Notification Manager API ................................................................................................................................. 72 User Experience .........................................................................................................................73 Usage Modes ......................................................................................................................................................... 73 Linear Mode ...................................................................................................................................................... 73 App Mode ......................................................................................................................................................... 73 Web Mode......................................................................................................................................................... 73 Connectivity Options: Companion Box or Integrated TV ..................................................................................... 76 Smartphone Controller........................................................................................................................................... 76 Search .................................................................................................................................................................... 78 Applications........................................................................................................................................................... 78 Our Take ....................................................................................................................................80 APPLE TV.......................................................................................................................................81 Service Outline ...........................................................................................................................81 Our Take ....................................................................................................................................82 BBC IPLAYER ................................................................................................................................83 Overview ....................................................................................................................................83 Service Outline ...........................................................................................................................84 Our Take ....................................................................................................................................85
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PROJECT CANVAS ..........................................................................................................................86 Overview ....................................................................................................................................86 Our Take ....................................................................................................................................87 HULU ..............................................................................................................................................87 Service Description ....................................................................................................................87 Our Take ....................................................................................................................................89 BOXEE ............................................................................................................................................90 Service Outline ...........................................................................................................................90 Our Take ....................................................................................................................................91 SEESAW TV ...................................................................................................................................92 AMAZON VIDEO ON DEMAND ........................................................................................................93 ROKU..............................................................................................................................................95 ZOWEETV (FORMERLY ZILLION TV).............................................................................................96 Service Outline ...........................................................................................................................96 Our Take ....................................................................................................................................97 CLICKER.COM ................................................................................................................................99 LIVESTATION ...............................................................................................................................100 VUDU ...........................................................................................................................................100 VEOH.COM ...................................................................................................................................101 CRACKLE......................................................................................................................................102 FEARNET .....................................................................................................................................103 MUZU TV ...................................................................................................................................103 TVCATCHUP ................................................................................................................................104 PPLIVE .........................................................................................................................................105 SOPCAST ......................................................................................................................................105 COOLSTREAMING ........................................................................................................................106 ZATTOO ........................................................................................................................................106 JOOST ...........................................................................................................................................107 Content and Marketing ............................................................................................................108 Execution..................................................................................................................................108 AKIMBO........................................................................................................................................109 Price of STB .............................................................................................................................109 Content Catch 22......................................................................................................................110 Marketing .................................................................................................................................110 No Bundling .............................................................................................................................110 Pricing Model...........................................................................................................................111

MARKET ANALYSIS..................................................................................................................112 COMPARISON WITH THE INTRODUCTION OF DIGITAL MUSIC ......................................................112 Minimal Access to Content.......................................................................................................112 Not a Replacement Format ......................................................................................................112 IMPACT ON VIEWING HOURS .......................................................................................................113 SUSTAINABILITY OF VALUE PROPOSITION ..................................................................................115 Key Benefits..............................................................................................................................115 Intrinsic Quality .......................................................................................................................115 Underlying Demand .................................................................................................................116 ECONOMICS: BUSINESS CASE FOR INTERNET TELEVISION ..........................................................116 Consumer Electronics ..............................................................................................................117 Marginal Revenues...................................................................................................................118 Advertising Revenues.......................................................................................................................................... 118 Ad Fill per Hour .............................................................................................................................................. 119 Percentage Ad Inventory Filled....................................................................................................................... 120 Revenue Share................................................................................................................................................. 120 Subscription and Pay-per View Revenue............................................................................................................. 120 Marginal Costs.........................................................................................................................121
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Hosting ................................................................................................................................................................ 121 Delivery ............................................................................................................................................................... 121

Summary...................................................................................................................................123 CONTENT......................................................................................................................................123 Mainstream Shows and Exclusive Deals..................................................................................123 Long Tail Content ....................................................................................................................124 APPLICATIONS..............................................................................................................................127 Emergence of Web 2.0..............................................................................................................127 Emergence of Client Applications............................................................................................129 GOOGLE .......................................................................................................................................131 Why Google is Interested in Television....................................................................................131 Impact on Market Structure .....................................................................................................136 Historic Situation ................................................................................................................................................. 136 Phase 1: Arrival of Over-the-top (OTT) IPTV Services ...................................................................................... 136 Phase 2: Introduction of Google TV .................................................................................................................... 136 MARKET FORECASTS ..............................................................................................................140 INTERNET TELEVISION AND FILM ................................................................................................140 Worldwide User Base...............................................................................................................140 Regional User Base..................................................................................................................140 Viewing Hours..........................................................................................................................141 Monetisation Models ................................................................................................................144 Traffic Consumption.................................................................................................................145 Service Revenues......................................................................................................................146 TV HOUSEHOLDS .........................................................................................................................148 FIXED BROADBAND .....................................................................................................................149 CABLE TV ....................................................................................................................................150 SATELLITE TV..............................................................................................................................151 TELCO TV ....................................................................................................................................152 INTERNET VIDEO..........................................................................................................................153 GLOBAL IP TRAFFIC.....................................................................................................................154 Global IP Traffic by Type ........................................................................................................154 Global IP Traffic by Segment...................................................................................................156 Global IP Traffic by Region .....................................................................................................157 EXECUTIVE INTERVIEW TRANSCRIPTS ...........................................................................159 EXECUTIVE INTERVIEW TRANSCRIPTS ...........................................................................159 FIVE TELEVISION: KIERAN CLIFTON, HEAD OF STRATEGY ........................................................159 Where are you with internet television right now? How engaged are you? ......................................................... 159 Do you see internet television as being the future of television? ......................................................................... 160 What do you understand about the sorts of people who are consuming internet television, the users? ............... 160
Thinking ahead, about the long term, do you think that internet television will result in an increase in total viewing time? ...................................................................................................................................................... 161 What risks do you see? challenging facing the development of a mass market for internet television? .............. 162 Do you think the industry needs a standardised way to measure and monetise online video with ads, something that works regardless of device or delivery method? ........................................................................................... 162 Thinking about incremental ad revenue per viewer hour, how does terrestrial television compare with online at present?................................................................................................................................................................ 163 To clarify, youre not taking purely about revenue here? .................................................................................... 164 How are you dealing with this from a business perspective? Seems like a bit of a disaster?............................... 164 So returning to the 25 number, the contribution number, is the problem that the CDN costs for internet video are high, or that youve taken a hit on online CPMs? Or has something else changed? ............................................ 164 But why would 1 hour of television programming delivered over a broadband line to a TV set carry fewer ads than the same programme delivered to the same TV set via a conventional broadcast network? ........................ 165 Could you expand on this the economic value of one person watching one programme? ................................ 165 But is this a policy division at your end? Meaning you dont think that its acceptable for the viewer to watch the same proportional number of minutes per hour on a PC as they currently do on their TV set when watching broadcast TV?...................................................................................................................................................... 165 Can you charge more for those ads? .................................................................................................................... 166

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Im a bit confused about this. Lets imagine two families Smith and Jones in two different homes who are watching TV at the same time. The Smith family is watching Greys Anatomy on linear broadcast on FIVE on their TV set. The Smiths are getting the full 12 mins of ads per hour. But the Jones family is watching the previous weeks episode of Greys Anatomy, again on their TV set exactly the same programme content, one hour lets say but in this case the content is coming from a some other service is being delivered over the internet via a broadband connection. Now the important question here is whether the Jones family is also willing to watch 12 mins of ads?...................................................................................................................................... 166 Lets talk about the long tail. Imagine a future when all of the long-tail television content in existence has been indexed and is accessible using an internetconnected TV set. Do you see the viewing hours for this long tail content as being significant proportion of the total viewing time for internet television? ................................... 168 We talked earlier about whether internet television would enable some amount of incremental viewing time, do you think long tail viewing might account for some of that?............................................................................... 169 Returning to targeted advertising, is it really credible that you will be able to charge more for targeted inventory? Do advertisers really pay more for targeted versus non-targeted? ....................................................................... 169 We are talking here about bring two worlds together here an internet world which is free, open, and horizontal and a television world which is structured around closed vertical platforms which are fiercely protected. Do you think that internet television in the future is going to end up being more like the internet which is mostly open or more like the television industry which is mostly closed?............................................................................ 170 SONY: TIM PAGE, TECHNICAL MANAGER, TELEVISION ..............................................................171 Can you summarise where you are with your internet television strategy? ......................................................... 171 So things have moved on since you were talking about TV widgets a couple of years ago?............................... 171 How do you see Sony Internet video fitting in with Google TV? ........................................................................ 172 How much content is currently available on Sony Internet TV? ......................................................................... 172 What sort of service delivery infrastructure lies behind Sony Internet Video?.................................................... 172 So in effect its a front end, a way of aggregating content from many sources sand then presenting it all to the used in one interface? .......................................................................................................................................... 172 Is all the content free?.......................................................................................................................................... 172 And on the revenue side, is Sony taking a share of the revenue?......................................................................... 173 So what does a content provider need to do to get their content on the Sony Internet TV platform? Whats the To Do list, at a high level? ........................................................................................................................................ 173 What about the meta data associated with the content; programme title, rights and so on?................................. 173 What about the technical aspects of the TV? Who supplies the browser technology?......................................... 173 How do you see Sony Internet Video panning out now that Google TV has been announced, bearing in mind that Sony is one of Googles launch partners for Google TV? ................................................................................... 173 Do you have an associated developer programme? ............................................................................................. 174 So effectively there are two levels of aggregation there?..................................................................................... 174 Can you compare Internet Television with 3D Television, in terms of market potential? Market uptake? ......... 174 Do you see Sony Internet TV, and other similar initiatives, as something that is fundamentally about delivering a superior television experience? Or do you see all this as a way of allowing people to access the general internet using their TV sets? ............................................................................................................................................. 174 What about the connection between the television and the streaming server itself? Is this independent of Sony Bravia Internet Video?......................................................................................................................................... 175 Can you talk more about the upscaling functionality you mentioned earlier? ..................................................... 175 How does the user interface work? ...................................................................................................................... 176 This is based on the content owners license requirements?................................................................................ 176 So, how would a user access and control the service? ......................................................................................... 176 Do you envisage in the future that the Sony Internet Video platform will incorporate an automated monetisation mechanism that might encourage smaller content providers to publish their content to the platform?................ 177 Is the revenue share limited to pay-per-view content or does it also encompass in-video ads where in situations where they are served?......................................................................................................................................... 177 How does the pay-per-view model work? ........................................................................................................... 177 Do you have any data on deployment of the service so far? ................................................................................ 177 How sustainable is the walled garden approach to Internet Video? Is the market going to develop into a number of closed platforms, like TV broadcast today, or is it going to turn out to be a lot more open, like the web today? ............................................................................................................................................................................. 178 Do you think that restricting the search functionality to content that has been designed to work with the Sony Internet TV platform, will be a source of frustration to users? ............................................................................ 178 What about social features? For instance, including features that allow viewers of a given show to discuss the program in real time, interact with others, provide a recommendation to another user which would then appear of their TV set as a notification and so on. Rather similar to what people currently do online, but on their TV?.... 179 What about the remote control? What is the user experience like there?............................................................. 179 What about controlling Sony Internet TV using a Smartphone? Is that possible? ............................................... 179 Do you see any major barriers to growth? ........................................................................................................... 180 What do you think will happen to total television viewing time as this internet television market develops?..... 180 What about PVRs? Do you see a role for the PVR in the future?........................................................................ 180

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But wouldnt it be possible to make Skys content available on Sony Internet Video, but only to Sky subscribers? ............................................................................................................................................................................. 180 AKAMAI: STUART CLEARY, PRODUCT MARKETING DIRECTOR ..................................................181 Who are you customers when it comes to internet television?............................................................................. 181 Can you expand on the trends youre seeing?...................................................................................................... 181 But doesnt that mean compromising on quality, at least for some people? ........................................................ 182 Can you explain more about what been happening to connection speeds? .......................................................... 182 Can you take us through an example of a recent deployment? ............................................................................ 183 How does Adaptive Bit Rate Streaming work? ................................................................................................... 183 Do you actually measure the connection speed of the link? ................................................................................ 183 Does the adaptive streaming work in fixed bands or on a sliding basis? ............................................................. 184 Does Akamai provide tools that allow content providers to do this? ................................................................... 185 What feedback have you had from consumers?................................................................................................... 185 Is this functionality is delivered by the network, as opposed to the consumers device?..................................... 186 Does Akamai offer any other network-level interactivity features?..................................................................... 186 So what do consumers think of these features? What usage patterns are you seeing? ......................................... 187 Do you have any thoughts for even more advanced network level features, for example adding a cloud-based personal media library where users can record games? ....................................................................................... 187 Are you aware of upcoming features? Things that content providers are talking about?..................................... 188 Anything else youre planning? ........................................................................................................................... 188 Are you seeing any other key trends in the market right now? ............................................................................ 189 What would you define as broadcast scale? 10 million consecutive streams, 50 million consecutive streams? 189

APPENDIX ....................................................................................................................................190 METHODOLOGY ...........................................................................................................................190 Framework Model ....................................................................................................................190 Potential Users (Pool 0) ....................................................................................................................................... 191 First-time Users (Pool 2)...................................................................................................................................... 193 Experienced Users (Pool 3) ................................................................................................................................. 193 Committed Users (Pool 4) ................................................................................................................................... 194 Key Considerations ..................................................................................................................194 Value Proposition ................................................................................................................................................ 195 Starting Conditions .............................................................................................................................................. 195 Current Market Development Trajectory............................................................................................................. 195 Adoption Dynamics ............................................................................................................................................. 195 Saturation Levels and Addressable Market.......................................................................................................... 195 Growth Drivers and Inhibitors ............................................................................................................................. 196 Benchmarking using Relevant Markets ............................................................................................................... 196 Industry Data and Insight..................................................................................................................................... 196 Constituent Markets: Worldwide and Regional Forecasts ......................................................196 Tracker Markets................................................................................................................................................... 196 Other Markets ...................................................................................................................................................... 197 ABOUT THE AUTHORS ..................................................................................................................199

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Executive Summary
Definitions
InternetTelevisionisoneofthreemaintypesofIPTV,whichinvolvesthedeliveryoftelevisionand filmcontentoverIPbasednetworks.TherearethreedifferenttypesofIPTV: IPTV #1 (Internet Video) ThemajorityofInternetVideocontentconsistsofshortform,usergeneratedvideoclips.Example sites include YouTube and Youku (a Chinese YouTube clone). Many branded television and film producershavecreatedchannelsonthemajorOnlineVideosharingsiteswhereuserscanwatch shortclips.InternetVideoismainlyanInternetpropositionandInternetVideoservicesaremainly consumedbyPCusers. We estimate that by 2014 730 million users around the world will regularly consume Internet Video,upover55%from467millionin2009.The primarysourceofrevenueforInternetVideo sitesisadvertising.WeestimatethatworldwideservicerevenuesforInternetVideositesin2009 wasalittleoverUSD4billion.By2014weproject thatInternet Videorevenueswillincreaseto overUSD7.6billion,a90%increase. IPTV #2 (Telco TV) ATelcoTVserviceiswhereanincumbenttelecomsprovider,likeAT&TorChinaTelecom,offersa television service over an xDSL connection. The content on offer is primarily professionally producedmaterialthatislicensedfromthirdparties.TelcosuseTVservicesmainlyasamarketing tooltopersuadeuserstotakeoutbroadbandsubscriptions:whiletheTVserviceitselfisgenerally not especially profitable, when combined with a broadband service, or a third service such as a fixedlinephoneservice(tripleplay)orafourthservicesuchasamobilephone(quadplay)then theoverallbundleisprofitable.TelcoTVservicesarealmostexclusivelyconsumedontheusers televisionsetusingaspecialsettopbox(STB).

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Weestimatethatby2014121millionusersaroundtheworldwillsubscribetoTelcoTVservices, up over 77% from 27 million in 2009. Monthly subscriptions constitute the primary source of revenue for Telco TV services although advertising is an important source of ancillary revenue. WeestimatethatworldwideservicerevenuesforTelcoTVservicesin2009wasalittleoverUSD 11billion.By2014weprojectthatTelcoTVservicerevenueswillincreasetooverUSD60billion, anincreaseofover400%. IPTV #3 (Internet Television) InternetTelevisionserviceshavemuchincommonwithTelcoTVservices,buttheyarenotoffered byTelcos.Instead,InternetTelevisionservicesaremostlybeingofferedbycompaniesthathave theiroriginsintheinternetorsoftwareworldsandotherswhooccupytheconsumerelectronics arena.ExamplesofInternetTelevisionservicesincludeHulu,BBCiPlayer,RokuandSonyInternet Television. Internet Television services are quite diverse in terms of the service, product and market strategy adopted, which reflects the very early stage nature of the market. Internet Television services are currently consumed mainly on PCs, or PCs that are connected to TV sets usingasimplecablewheretheTVsetisusedasaseconddisplaybutincreasingly,asthemarket develops,InternetTelevisionserviceswillmigratetotheTVsetwhereviewerswilluseaspecial set top box (STB) or a special TV set that includes the hardware and software needed to access InternetTelevisionservices. Weestimatethatby2014298millionusersaroundtheworldwillregularlyuseInternetTelevision services,upover400%fromjust58millionin2009.InternetTelevisionserviceproviderscurrently derive most of their revenue from advertising, but we expect subscription and payper view revenuemodelstobecomeincreasinglycommonbecauseofthelowcomparativeadrevenueand high marginal costs of video delivery, compared with other forms so adfunded television. We estimatethatworldwideservicerevenuesforInternetTelevisionservicesin2009wereUSD227 million.By2014weprojectthatInternetTelevisionservicerevenueswillexceedUSD6billion,an increaseofover2,500%.

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Internet Television: A Closer Look

We see Internet Television as something that will in the end be integrated into every television set. At this time, users that have a broadband internet connection will have access to Internet Television services, whether they use them or not. We think that in 20 years time, it will be as naturalforpeopletouseInternetTelevisionservicesastheycurrentlyusecableTVandsatellite TVservices. Internet Television will not, however, be a replacement for existing forms of television. Instead, Internet Television will develop alongside cable, satellite and terrestrial television. Indeed, becausesomeofthemainplayersintheInternetTelevisionmarketarecurrentlytheincumbent televisionserviceproviders,weseethesecompaniesincreasinglyincorporatingInternetTelevision serviceswithintheirmainserviceoffers. Internet Television will not be successful if it turns out to be little more than another way of deliveringtelevisionprogrammingthatviewersarealreadyaccustomedto.Thetelevisionmarket is already mature and there is in our opinion little or no room for another me too digital televisionservice. Instead,InternetTelevisionismainlyaboutdeliveringanewtypeoftelevisionproposition.Freed fromthecapacityrestrictionsinherentwithinabroadcastdeliverynetwork,anInternetTelevision serviceprovidercansimultaneouslydeliveradifferentprogrammetoeveryviewer.Whatismore, becauseInternetTelevisionservicesaredeliveredoverabroadbandinternetconnection,thevery latest internet software, service delivery strategies and business models in other words Web 2.0canbecherrypickedtocreateanew,fresh,leanforwardtelevisionexperience.Internet Televisionisaboutnewfeatures,newfunctionalityandgivingfarhigherdegreeofcontroltothe viewer.InternetTelevisionisnotWebTV.Rather,InternetTelevisionisabouthowtousethebest of the modern web to create a superior television experience, rather than simply porting the generalinternettotheTVset. HerearesomeexamplesofthesortoffeaturesthatwillbecomepossiblewithInternetTelevision:

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Improved Ondemand Viewing: Users could have an online media library where they couldstoreandorganisetheirfavouriteTVprogrammesandmovies.Thislibrarycouldbe accessed from their TV set, PC or mobile device. Users could register with thirdparty contentdiscoveryservicesthatwould addcontent totheir medialibrarybasedonuser definedpreferences(e..gdirector,genre,languageetc.);

Dramatically More Content: Eventually, it will become be possible for all the television and film content ever produced to be published to an Internet Television platform. Standard metadata would allow the content to be indexed and discoverable by TV focusedsearch,discoveryandrecommendationservices;

AdvancedContentDiscoveryTools:Ifaviewerwaswatchingaprogrammeaboutseafood cookerythatwasbeingpresentedbyaparticularchef,thisitiscleartousthatthesame viewer might be interested in using a service that allowed him to see more shows like thisorseemoreshowsfeaturingthispresenter.Thirdpartyservicescouldfulfilthisrole;

Social and Community Features: Social and community tools and services have become immenselypopularontheweb.Today,practicallyeverywebsitenowincludescommunity featuresorasocialnetworkingfunction.Manywebsiteshavebecomelesslikeplacesto gotoreadpagesandmoreofplacetointeractwithotherswhohavecommoninterests. Partly because TV is fundamentally a social phenomenon and partly because social networking and communitybased service concepts are now deeply embedded right acrosstheweb,wethinkthattheInternetTelevisionpropositionofthefuturewillinclude strong social and community aspects. Currently, these features are entirely absent from existingtelevisionpropositions,suchasterrestrial,cableandsatelliteTV;

UnifiedUserInterface:Toavoidtheproblemofhavingtohavedifferentremotecontrols to control different television services, Internet Television provides the possibility for users to be presented with a unified onscreen interface that could work across 10s of thousands of Internet Television services available on a global basis. This would be analogoustohowpeopletodayuseawebbrowsertonavigatetheweb;

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SecondScreenControllers:Onepotentialadvantageofusingasecondscreendevicesuch as a Smartphone or Media Tablet as a TV controller would be that text entry would be betterfacilitated.Insteadoftheuserhavingtouseup/down,left/rightcursorstonavigate agiantkeypadthatisdisplayedontheTVset,theusercouldlookdownandentertexton their second screen device. this would better enable home shopping, interactive advertising,search&discoveryfeaturesandsocialfunctionality;

Thirdparty Developers (Applications):InternetTelevisioncouldenableawholelayerof valueaddedservicesthatsitbetweentheuserandthecontent.Currently,withtraditional forms of television, terrestrial, cable, satellite and Telco TV companies provide the servicesthatsitbetweenthesourcecontentandtheuser.However,mobileapplications (e.g.iPhoneandAndroidapps)indicatewhatmightbepossiblewithInternetTelevision.

We believe that the result of this will be that those broadband households that adopt Internet Televisionserviceswillspendmoretimewatchingtelevisionthantheydocurrently.

Market Analysis
Comparison with Digital Music Consumersforthemostpartdonothaveeasyaccesstothesourcetelevisionandfilmcontentso they cannot force industry change in the way they did for music. This means that the Internet Televisionmarketwilldevelopmoreslowlythanwasthecasefordigitalmusic.Televisioncontent producersareveryawareofwhathappenedwithmusicandtheyarefiercelyprotectiveoftheir content. Also, legal precedents that have been established for music now make it clear to entrepreneurs what will happen if they set up a business whose strategy is based on profiting from the monetisation of copyrightprotected material that they do not own and are not authorisedtocommercialise. Internet Television is not going to replace existing forms of television because it is a not a substitutionalformat,liketheCDwhichreplacedvinyl,forexample.ThebestwaytoviewInternet Television is as a new television channel that will, in the end, be available on every TV set as a standardfeature.

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 Impact on Viewing Hours

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Inthefuture,weseemostbroadbandhouseholdsusingInternetTelevisionforsome,butnotall, of their viewing. Our projections indicate that by 2014, 38% of broadband households will use Internet Television services and that, for these households, Internet Television will account for 19%oftheirtotaltelevisionviewing.However,thevastmajorityofthesourcecontentwillcome fromexistingtelevisionandmovieproducers. We think that the introduction of Internet Television will result in a modest increase in total viewinghours.Thiswillbebecauseitwillbecomeeasiertoviewfamiliarcontentatatimeandon a device that suits the user and, in addition, it will become easier to find and view unfamiliar content that the viewer finds interesting. The result will be that, for the average broadband householdthathasadoptedInternetTelevision,totaltelevisionviewinghourswillincreasefrom 21hoursperweekin2009to24hoursperweekin2014. Value Proposition ThekeyuserbenefitsthatwillbedeliveredbyInternetTelevisioncanbesummedupas: Moreconvenientaccesstofamiliarcontent:whentheuserwants,onthedevicetheuse wants; Awiderchoiceincontent:newmaterialthatallowsdeepercoverageoffavouritegenres andmaterialthatopensnewdoors; Valueadded services: thirdparty service providers will be able to enter the market to offer new features and functionality that will add a new dimension to the television experience. Whenitcomestoviewingvideoontheweb,andespeciallywhenthecontentisbeingviewedona TVsetthatisconnectedtotheweb,usersdemand: FastStartup:minimalornonoticeablebuffering; FastDownloads; ReliableStreaming(nojitterorpicturebreakup); High Picture Quality (e.g. HD, 3D and fullscreen format on whatever device or TV set is beingused).

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While online video in the past has fallen short of these requirements, our research strongly suggeststhatthemarketiswellonthewaytoaddressingtheseproblemsandthatastheInternet Televisionmarketdevelopstothematurephase,thevastmajorityofbroadbanduserswillbeable toenjoyalevelofpicturequalitythatisatleastasgoodaswhytheycanexperiencewithcable andsatelliteTVservices. Underling Demand Webelievethatthetelevisionindustryuptonowhasdoneagoodjobofservingusersbutwealso believe that Internet Television will offer incremental benefits and that, when users begin to understandthevalueofthosebenefits,theywillstronglyadoptInternetTelevisionservicesforthe long term. We strongly believe that there is substantial pentup demand for the new type of televisionpropositionoutlinedabove. Economics: Business Case for Internet Television InternetTelevisionwillneedtosurmountthreemajoreconomicbarriersifthemarketistomove fromitscurrentformativestageintoamassmarket,sustainablecategory: AddressConsumerElectronicsIssue UsersneedanewSTBorTVsetinordertoviewInternetTelevisionservices.However,thiswasan oftcited problem in the early days of cable TV and, more recently, with satellite TV both of whichwentontobehugelysuccessful.TheSTBproblemisnot,infact,theneedforanewSTB, but the business strategy used to recover its cost from the user. This suggests that Internet Television service providers need to think in terms subsidising the STB, bundling the Internet Televisionservicewithotherservicesandextractingdirectpaymentfromtheuseronamonthly basis. Companies, like Apple, who run a hardwarebusiness will find it challenging if they simply thinkintermsofmakingmoneyonthesaleoftheSTB. IncreaseMarginalRevenues AdfundedInternetTelevisionserviceprovidersaredisadvantagedforfourreasons: Internet Television CPM rates are lower, although not massively lower, than for other forms of television. This problem will be alleviated as Internet Television matures and advertisersgainconfidencewiththemedium.Theintroductionoftargetedadvertisingwill alsohelpincreaseCPMs;

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UsersarecurrentlylesstolerantofadsinInternetTelevisionprogrammingthantheyare for other forms of television. This means less revenue per viewing hour for Internet Television than for other forms of television. This problem will be alleviated as Internet Television moves to the TV set to become more TV like and as the category matures generally;

Because of the immature nature of the market, which many advertisers do not understand, many adfunded Internet Television services providers cannot fill their availableinventory.Weareawareoffillratesaslowas60%;

PartlybecauseInternetTelevisionserviceprovidersdonotproducetheirowncontentand partlybecausemostofthemtheycannotaffordtopayforexclusivedistributionrights(at leastnotforcontentforwhichthereisgoingtobemassdemand)thentheymustshare theiradrevenuewithcontentproviders. Thisreducestheavailableadrevenuebybetween70%and80%,dependingonwhether anintermediary(e.g.aggregator)isinvolvedintherevenuepayout. ForthesereasonsweagainthinkthatInternetTelevisionservicesprovidersneedtothinkinterms of (a) taking direct payment from users in the form of a monthly subscription or payperview revenuestream,and(b)intermsofbundlingwithotherproductsandservices; DecreaseMarginalCosts Themarginalcostsofvideodeliveryneedtobereducedfromwheretheyaretoday.Thismeans thatthehostinganddeliverypriceschargesbyContentDeliveryNetworks(CDN)serviceproviders willneedtodecreasesignificantly. ThecoststructuresofcableandsatelliteTVproviderscanbesummarisedashighcapitalcost,low marginalcostwhereasthecoststructureofanInternetTelevisionserviceproviderislowcapital cost,highmarginalcost.ThisisprimarilybecausethecableandsatelliteTVprovidershavehadto build their own distribution networks and so, having built those networks, the marginal cost of deliveryislow.

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InternetTelevisionserviceprovidershavenothavetogotothecapitalmarketstoraisethehuge amountofmoneyneededtobuildamassscaledistributionnetwork.Instead,theyusethelocal accesslinesandassociatedbroadbandinfrastructurethathasbeencreatedbyothers,thecostof whichismostlycoveredbyusersviatheirbroadbandsubscriptions. But they cannot escape completely and incur ongoing marginal costs to use those networks. These costs can be seen as fees paid to Content Delivery Network (CDN) service providers like Akamai(HulusCDNpartnerisAkamai). This fundamental difference is why so many Internet Video service providers are currently strugglingtomakemoneyoutofonlinevideo,includingInternetTelevision:themarginalcostof deliveringagivenTVprogrammetooneextravieweronaterrestrialbroadcastnetworkiszero, whereastheequivalentcostisverysignificantforaInternetTelevisionserviceprovider. Content SomeInternetTelevision serviceproviders1havediscoveredto theircost thattheyhave noreal businessunlesstheycanoffertrulygreatcontent,preferablyonanexclusivebasis. ItwillbemanyyearsbeforethedistributioninfrastructureforInternetTelevisionislargeenough andmatureenoughforittoofferagenuinealternativetowhatcurrentlyexistswithnetworkTV, cableTVorsatelliteTV. This means that the Internet Television services market will for some time be dominated by incumbent providers who will create their own Internet Television services that will be used to distributetheirowncontent. Later on, as these services start to become connected, probably using thirdparty search and discoveryservicesthatarebasedonplatformslikeGoogleTV,thenthemarketwillbegintoopen up but, even then, there will be no shortcuts that will allow startups to gain access to highly valuablecontentwhichwillremainfiercelyguardedbytheproducersandhighersoughtafterby major,incumbenttelevisionbroadcasters.

Forexample,Joost,whichcollapsedin2009.
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 Long Tail Content

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Atthisstageofthemarketitisunclearwhethertherewillbestrongdemandforsocalledlong tailcontent,meaninglongformat,professionallyproducedcontentthatisofhighqualitybutnot well known to a given domestic audience. Some people think that the vast majority of viewer hourswillcontinuetobedirectedtowardsarelativelysmallnumberofhitshows,asisthecase today. However,havingtalkedtomanypeople,wethinkthattherewillbeasignificantalthoughnot dramatic change in viewer behaviour when the sort of Internet Television service proposition described earlier in this report finally arrives. We do see people spending time surfing for televisioncontentandrespondingtocontentrecommendations.

Google
GoogleTVisahighlysignificantdevelopment,althoughitwillbeyearsbeforetheproductgains anymeaningfultraction.Ofthe26internettelevisionservicepropositionsreviewedinthisreport wethinkthatGoogleTVhasbyfarthegreatestlongtermpotentialtoenablethesortofservice propositionsthatweoutlinedabove. 95% of Googles revenues come from contextual ads that are served on Googles websites (e.g. Search, Google Mail etc.) and on third party publisher websites under the Google AdSense programme.Googlesonlineadrevenuesin2009wereUSD23.2billionbutthetotalworldwide onlineadmarketwasonlyworthUSD57.5billion,whichimpliesthatGooglecontrolsabout40% oftotalworldwideonlineadvertisingmarket. The television advertising market is attractive to Google because it represents a clearly incremental business opportunity which, when viewed at a high level, is far larger that the companysexistingmarket:worldwideexpenditureontelevisionadvertisingin2009wasUSD156 billion,comparedwithUSD57.5billionforonlineadvertising. IfGooglecanbesuccessfulincatalysingalarge,growingmarketforinternettelevision,thenthe companycouldinprincipleservetargetedadvertisementstoanytelevisionsetthatisconnected totheinternet.
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On 20 May 2010, Google announced2 Google TV which is an open platform that the company hopeswillchange thefutureof television.Theinitiativewassimultaneouslyannounced bysix launchpartners(seeTable5). In contrast to similar initiatives in the past (e.g. Microsoft WebTV and Yahoo TV Widgets) It is worth pointing out that Google is positioning Google TV as an initiative that is mainly about leveragingthepoweroftheinternetinordertoenableasuperiorTVexperienceasopposedtoa wayofdeliveringtheinternettotheTVset.InthewordsofGoogle3TheGoogleTVplatformwill allowdeveloperstonavigateTVcontent. However,whilethisistheintention,GoogleTVisnottooprescriptiveaboutthisanditremainsto be seen what sort of services developers will create and which of those will become the most popular. We believe that it will be the TVfocussed apps that will prevail in the end, as opposed to TV versionsofFacebookortheWashingtonPost,forexample. GoogleTVisbasedonAndroid,whichisthecompanysopensourceoperatingsystemformobile phones. With Google TV, existing Android developers will not only have access to most of the AndroidAPIscurrentlyavailablebutalsotoGoogleTVspecificAPIextensionsthattapintotheTV. The significance of this is that, in principle, developers will be able to create their own search, recommendation and discovery services. As well as a range of other services. Therefore, in the future,ausersprimaryinterfacewithInternetTelevisioncontentmightbeviacompanyxyz,not GoogleandnottheirexistingPayTVprovider. GoogleispositioningGoogleTVtothedevelopercommunityasawaytogainaccessto4billion users.
2 3

See:http://www.google.com/intl/en/press/pressrel/20100520_googletv.html See:http://www.google.com/tv/faq/
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ThereisnodoubtinourmindsthatGoogleTVrepresentsbyfarthemostsignificantdevelopment intheInternetTelevisionmarketsofar. Theproductisveryyoung,soyounginfactthatsomereadersmightbesurprisedthatwecanbe soopinionatedabouttheplatformsprospectsatsuchanearlyjuncture. Ourviewisbasedontworeasons: Whenviewedfromataproductlevel,itiscleartousthattheGoogleTVplatformhasby farthe highestpotentialtoenable thetypeofservicepropositionand businessbenefits setoutabove. Google TV is strongly linked to Googles wider business strategy which is based on advertising and scale. To us, it was inevitable that Google would try to enter the TV industryatsomepointandwethinkthattheplatformhasthepotentialtotransformthe TV ad market to a broadly comparable extent to how Google AdWords transformed the onlineadmarket.

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Introduction
Therearecurrentlyfourmethodsofdeliveringcommercialtelevisionprogramming: TerrestrialTelevision CableTelevision SatelliteTelevision(alsoknownasDirecttoHome,orDTH). IPTV o o o
Users,Millions 2009 TerrestrialTelevision CableTelevision SatelliteTelevision IPTV(TelcoTV) IPTV(InternetVideo) IPTV(InternetTelevision) 1,325 395 106 27 467 58 2010 1,358 398 109 41 518 95 WorldwideUsers(Note1) 2011 1,391 403 115 55 570 137 2012 1,424 406 117 76 622 185 2013 1,456 408 119 98 676 239 2014 1,487 410 120 121 730 298 2.3% 0.8% 2.6% 35.0% 9.3% 38.9% CAGR

TelcoTV OnlineVideo InternetTelevisionandFilm(themainsubjectofthisreport).

Note1:Individualtelevisioncategoriesarenotmutuallyexclusive:oneusermightconsumearangeoftelevisionservices.'User' inthiscontextismostcommonlyahouseholdorasubscription.InthecaseofInternetVideoandInternetTelevisionandFilm' theterm'User'mostlyreferstoanindividual. Source:GeneratorResearch

Table1:ComparisonofWorldwideUserBasesforMainTelevisionDeliveryMethods(Terrestrial TV,CableTV,SatelliteTV,TelcoTV,InternetVideoandInternetTelevisionandFilm(2009to2014) Terrestrial Television BroadcastArchitecture Terrestrial television programming is delivered using a network of landbased wireless transmitters which each broadcast the same television signal across their respective coverage areas. The broadcast range of television transmitter varies from a few km, for shortrange repeater stations, to several hundred km in situations the transmitter can be mounted on high terrain. Each television household requires a television antenna which needs to be pointed towardsthemostfavourabletelevisiontransmitter.

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USD,Millions 2009 TerrestrialTelevision(Note2) CableTelevision SatelliteTelevision IPTV(TelcoTV) IPTV(InternetVideo) IPTV(InternetTelevision) Total: $159,815 $ 136,137 $56,821 $11,048 $4,082 $227 WorldwideRevenues(Note1) 2010 $164,758 $ 147,803 $60,360 $17,535 $4,630 $550 2011 $171,513 $ 156,319 $65,249 $24,539 $5,263 $1,132 2012 $175,458 $ 164,420 $67,867 $35,313 $5,980 $2,117 2013 $181,599 $ 172,332 $70,772 $47,346 $6,776 $3,700

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CAGR 2014 $186,684 $ 179,974 $74,923 $60,694 $7,641 $6,137 3.2% 5.7% 5.7% 40.6% 13.4% 93.3% 7.0%

$ 368,131 $ 395,635 $ 424,015 $ 451,156 $ 482,524 $ 516,052

Note1:Individualtelevisioncategoriesarenotmutuallyexclusive:one'User'mightconsumearangeoftelevisionservices. 'User' inthiscontextismostcommonlyahouseholdorasubscription.InthecaseofInternetVideoandInternetTelevisionandFilm' theterm'User'mostlyreferstoanindividual.

Source:GeneratorResearch

Table2:ComparisonofWorldwideRevenuesforMainTelevisionDeliveryMethods(TerrestrialTV, CableTV,SatelliteTV,TelcoTV,InternetVideoandInternetTelevisionandFilm(2009to2014) Public Service Broadcasters (PSBs) across the globe have traditionally distributed their programmingtotheirnationalaudiencesusingterrestrialnetworksalthoughmanyPSBs,suchas theBBCintheUKandTV1inFrance,arenowalsodistributingtheircontentovertheinternet(see below). TransitionfromAnaloguetoDigital Terrestrial television is currently undergoing a major transition from analogue to digital technology.Digitaltechnologycanallowthesamenumberoftelevisionchannelstobebroadcast using30%ofradiospectrumneededbyanaloguetechnology.Asfarasusersareconcerned,the potential benefits of digital technology are superior picture and sound quality as well as more channels. Meanwhile, the national bodies who regulate and/or administer the use of wireless spectrumbenefitbecausetheycanreallocatetheradiospectrumthatwillbefreedupforother purposes,forexampleformobilecommunications. ImportanceofBroadbandConnectivity Looking ahead, even when the migration to digital technology has been completed, terrestrial television services will be fundamentally disadvantaged when compared with the competing modes of delivering television programming (cable, satellite and IPTV) if they lack an associated broadbandconnection.

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Modern payTV digital television services delivered using cable, satellite and IP are offering advanced functionality such as catchup TV, content downloads, personalised programming recommendations based on viewer behaviour, search functionality that extends across multiple televisionservicesandtargetedadvertising. Featuressuchasthesenotonlyrequireanassociatedsettopbox(STB)butonethatisconnected totheinternetusingabroadbandconnection. BusinessModels PublicServiceBroadcasters:TerrestrialTelevision Public Service Broadcasters receive direct funding from the state. In turn, the state finances its publictelevisionservicebycollectingpaymentfromusersintheformofanannuallicensefee(tax) and/orintheformofasalestaxwhichisleviedonthesaleofnewtelevisionsets. BecausePSBsdonotcollectdirectpaymentfromusersintheirnationaljurisdictions,PSBprovided televisionservicesarefreetowatch(freetoair). CommercialBroadcasters:TerrestrialTelevision Byfarthemostprevalentfundingmodelforterrestrialtelevisionisadvertising.Usersdopay Cable TV Infrastructure Like terrestrial television, cable TV services were initially based on analogue technology. But around 1995 cable operators began upgrading their networks to digital, mainly in order to increasethenumberofchannelssotheycouldchargesubscribersmorefortheirservices.Today, dependingonthemarket,between20%and40%ofcableTVsubscribersenjoythebenefitsofa digitalservice. Anotherimportanttechnologyshifthasbeentheintroductionoftechnologythatallowstheuser tosendsignalsbacktothecableTVoperator.ApartfromimprovingthecorecableTVservice,for examplebyofferinganenhancedelectronicprogrammeguide,twowayfunctionalityalsoallows thecableoperatortoofferotherservices,suchasbasictelephonyandbroadbandinternet.Two way functionality was first implemented using the users existing telephone line and a dialup modem.
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Cable network operators then began offering other solutions, such as an integrated cable that carriedwithinitanassociated2wiretwistedpairthatcouldbeusedforthereturnpath.Inother situations, cable operator installed twoway wireless modems throughout their network which allowsthereturnsignaltobecarriedupstreamusingthesameapproachasthetelevisionsignals werebeingdelivereddownstream. Looking ahead, the two most common ways of implementing twoway functionality will be to either use a settop box that is connected to the users broadband connection or, mainly in the relatively limited number of households that have an optical fibre connection, twoway functionalitycaneasilybeofferedusinganupstreamopticalchannelonthefibreitself. With the exception of technology approaches that have been developed by the cable industry (e.g. Tru2way)4, every cable TV household requires a set top box which provides a physical and electronic interface between the coaxial cable5 which comes in from the street and the users televisionset. BusinessModel Cable TV network operators derive their revenue from a combination of monthly subscription revenue, adhoc payperview revenue for ondemand viewing and advertising. In general advertisingaccountsforbetween10%and20%ofacableoperatorsrevenue. In order to increase revenue per subscriber, reduce churn and maintain competitiveness with rivals,suchassatelliteTVprovidersandTelcoTVproviders,mostcableoperatorsarenowoffering bundled services that include television and film, broadband internet and telephony (socalled tripleplay)whilesomearealsoaddingmobileservicetothepackage(quadplay).

4 5

Thistechnologyallowsthecableoperatortoconnectdirectlytoaspecialtelevisionsetbutithasnotbeenwidelyadopted. Alimitednumberofhouseholdsareconnectedwithopticalfibre.
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 Satellite TV SatelliteTVoperatorshavealotincommonwithcableTVoperators: Theyhavebothincurredlargecapitalcostscreatingtheirnetworks;

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Theybothhavealargeinstalledbaseofsettopboxeswhichcancreatechallengeswhen theserviceproviderwantstointroducenewfeaturesandservices; Theyarebothmigratingtowardsthesamesolutionfordeliveringthenewgenerationof digital television and bundled services, which is a settop box that is connected to the internetusingabroadbandconnection;

They are both funded by a combination of subscription revenue, adhoc revenue (less commonwithsatelliteTVproviders)andadvertising; They are both aggressively offering bundled services, including triple and quadplay offerings.

IPTV DefiningIPTV IPTVinvolvesthedeliveryoftelevisionandfilmcontentoveranIPbasednetwork. The widespread deployment of consumer broadband internet connections, which now exceed over 500 million globally, as well as the increasing speed of those broadband connections, has madeittechnicallyfeasibletodeliverhighqualitytelevisionandfilmcontentovertheinternet. By2014,weprojectthattherewillbe785millionbroadbandconnectionsacrosstheglobe,which willmeanthatover50%ofTVhouseholdswillhavebroadbandby2014. DistributionInfrastructure As noted above, terrestrial, cable and satellite television service providers use different distribution networks to connect their service centres to individual homes. A terrestrial broadcasterusesalandbasednetworkofwirelesstransmitters.Acableproviderusesanetwork ofcables.Asatelliteproviderusesgeostationarysatellitewhichthenbroadcaststhesignalovera largecoveragearea. ThedeliverynetworkforIPTVincludesthreeelements:

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1. AbroadbandconnectionwhichconnectstheusershomestotheirchosenISP; 2. An intermediate layer of content delivery infrastructure which an IPTV service provider hastouseinordertoensureanacceptablequalityofservicefortheuser.Thisnetwork provides a connection between the IPTV service providers Network Operations Centre (NOC)andtheusersISP6. 3. InthesituationwhereanIPTVserviceisdelivereddirectlytotheusersTVsetthenathird infrastructureelementisrequired:anelectronicsandsoftwarefunctionwhichcaneither berealisedasaseparatebox(settopbox,orSTB)oritcanbeintegratedintotheusersTV set.

ThesethreeinfrastructureelementsareshowninFigure1. MarginalCostofVideoDelivery IPTVisfundamentallydifferentfromterrestrial,cableandsatellitetelevisioninthatthedeliveryof thevideosignalincursamarginalcostwhichmustultimatelybepaidbytheserviceprovider.This meansthatthecoststructureforIPTVisfundamentallydifferenttothatforterrestrial,cableand satellite,especiallybecauseatthecurrentstageofthemarket,thecostsarehighlysignificantona perMBbasis. CustomerPremisesEquipment Referring to Figure1,therequirementfortheusertohaveaSTB(item2)is nodifferent tothe caseforcableorsatellite.Also,thefixedcostsneededtorunthenetworkoperationscentre,or eventhemarginalcostsneededtoinjectcontentfromtheNOCintotheCDNarenodifferentto thecaseforterrestrial,cableorsatellite,whichallincursimilarcosts. AccessNetwork The first major difference for IPTV is the requirement for the user to have a broadband connection.

This assumes that the CDN provider and the users ISP are both large enough in scale. If they are, then their respective internet

networkswillbedirectlyconnectedtogetheratseveralpoints.Ifthereisnodirectconnectionthenthevideocontentwillhavetotravel throughoneofmoretransitnetworksinordertoreachtheusersISP.DependingontherelativetrafficflowsbetweentheCDNandthe transitnetworkthistransportmayormaynotbeprovidedforfreeunderapeeringrelationship.

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BecausetheuserispayingforahighspeedconnectionthroughwhichtheIPTVserviceprovider will be delivering their service then, in effect, the user is paying for part of the IPTV access network. This would be analogous to the user paying for the cost of installing and operating the cable connectingacableheadendtotheusershome. Of course, the users broadband connection is not just used for the IPTV but it is nevertheless important to realise that the IPTV service provider has, in effect, delegated responsibility for creatingandoperatingtheIPTVaccessnetworktoothers7. ThisisimportantbecauseiftheusersbroadbandtrafficinthefuturebecomesdominatedbyIPTV traffic, and the current trends suggest that this is going to be the case, then the ISPs costs will increase.Thisincreasewilleitherhavetobecompensatedforbychargingusersmoreandwe are already seeing this as ISPs introduce higherpriced broadband services that offer unlimited dataconsumptionandwhereISPshavedecidedtointroduceatieredlevelofservicetoprevent usersabusingtheirbroadbandconnectionorwewillseeISPstellingtheIPTVserviceproviders thattheywillhavetopay,andweareagainseeingtheemergenceofthistrendwithdealshaving beendonebetweenseveralcompanies,mostrecentlybetweenVerizonandGoogle. WhencableTVandsatelliteTVserviceproviderswantedtocreatetheiraccessnetworkstheyhad to go to the capital markets to raise the required money, which in the case of cable was approximately$2,000perhomepassed.Bywayofcomparison,requiredstartupcapitalrequired toentertheIPTVmarketisdramaticallymuchlowerthanisthecaseforcableandsatelliteTV. ContentDeliveryNetwork(CDN) If an IPTV service provider wants to offer a visual quality that is competitive with that available withcableandsatelliteTVservices,thenitisnotfeasibletosimplysetupavideoserverandpay for a simple connection to the internet and hope that the connection between the service providers internet connection point and the users PC or TV set is good enough. This approach simplydoesnotwork.

The exception to this is where the IPTV service is provided by the incumbent telecoms provider who of course was the one that createdtheaccessnetworkinthefirstplace(albeitwithpublicfunding).
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OtherInternet Content

ContentProviders TelevisionandFilmProducers

Content (digitalformat) IPTVService Provider NetworkOperations Centre

InternetServiceProvider Thisisthecompanywho providestheusers broadbandconnection

TransitNetwork/s Thevideocontentwillhave totravelthroughatransit network/siftheCDNdoes nothaveadirectconnection totheusersISP.

ContentInjectionPoint(CIP) ContentDeliveryNetwork (CDN)

Thisisanetworkofserversand associatedsoftwareandoperational staffthatprovideaqualityassured pathfromtheContentInjection Point(CIP)to,hopefully,theusers ISP.

Figure1:NetworkInfrastructureRequiredtoDeliverIPTV
BroadbandConnection
ForxDSL thisisatwowirecopperlinethatconnectsthe subscribershometothelocalexchange.

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Router/Modem

ForxDSL this wouldbethelocal exchange.

SomeIPTVserviceprovidersmay createtheirownCDN.Burtmostwill usethirdpartyCDNserviceproviders (e.g.Akamai,MoveNetworks).

UsersHome

SetTopBox(STB)

HomeNetwork

InthecasewheretheIPTVserviceProviderisofferingadirectconnectionto theusersTVset(i.e.withouttheneedforaPC)thenthiswillrequiresome electronicshardwaretobeinstalledattheconsumerspremises.Thiscouldbe aseparatebox(e.g.Roku)oritcouldbeintegratedwithintheTVset(e.g. someSonyBravia TVmodelsfortheSonyInternetVideoservice).Theother optionistorelyonaplatform,likeGoogleTV,wheretherequisiteSTBwill alreadyexist.

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Source:GeneratorResearch

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As more and more video content is appearing on the web, users are becoming increasingly intolerantoflongstartuptimes,inshowrebufferingandwildlyfluctuatingpixilationwhereone momentthepicturelooksgoodandthenextitseemstobebreakingup.Whe4nITPVservicestry todelivera televisionserviceota televisionset,orevenjustdeliverittoPCs,butpositionitas internettelevisionthenusersexpectationsaresuchthattheaboveshortcomingsarecompletely unacceptable. If the IPTV service provider expects the users to pay to access the service, say by means of a monthlysubscription,thenitisevenmoreimportantthatqualityissueslikethesedonotdamage theviewingexperience. Inordertoaddresstheseproblems,theIPTVserviceproviderneedstodefineandcontrolthepath betweentheNOCandtheusershome. InthecaseofalargescaleIPTVdeploymentthismeansthataglobalnetworkofcontentdeliver servicersneedtobeinstalledtominimisethenetworkpathlengthbetweentheserviceproviders network and the users ISP. Ideally, the service providers network will be directly connected to the users ISP, probably at several physical; locations. Secondly, the connections between the content deliver servers need to be managed IP connections. Finally, a layer of performance managementsoftwareisneededsothattheserviceprovidercanmeasurenetworkperformance onaperconnectionbasisand,ifneeded,debugproblems. Becausethisisanontrialjob,mostIPTVserviceprovidersturntoathirdpartywhohasalready createdsuchanetwork,whichiscommonlyreferredtoasaContentDeliveryNetwork(CDN).One ofthebetterknownCDNnetworkoperatorsisAkamai. Thisishighlysignificantbecauseeachvideostreamincursacost.ThismeansthattheIPTVservice providersvariablecostbaseincreaseswitheverymajorgrowthvector: 1. MoreUsers:Eachnewusermeansmorebandwidthisneededand,therefore,morecost; 2. MoreUsageperUser:Moreviewinghoursperuserpernightmeansmorecost;

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3. MoreBandwidthperStream:WiththemovefromSDtoHDor2Dto3DthePTVservice providerscostswillincrease.

Because these costs increase linearly (unlike terrestrial, cable and satellite where the costs increase in quantum jumps as a new network capacity threshold is reached), the IPTV service providerscoststructureislowcapitalcost,highmarginalcost.Whereas,bycomparison,acable TVorsatelliteTVserviceprovidersbusinessmodelishighcapitalcost,lowmarginalcost. While CDN costs are decreasing steadily, they will never decrease to zero. This fact affects the businesscaseforadsupportedIPTVservices.Withacommercialterrestrialbroadcaster,thereis nodifferenceincostwhether1millionviewersviewashowor10million.Buttheadrevenuewill scale. With IPTV, assuming the same cost per impression ad rates (say $10 per CPM) then the marginalcostofserving1millionviewerswillbe10%ofthecostofserving10million. This is currently why online video providers are having problems making a business case out of deliveringadsupportedvideocontent. PeertoPeerNetworks Because of this some IPTV service providers, for example Vudu, are using a P2Pbased network architecture where each users STB can act as a source of content for other users who are, in networkcostterms,nearby.theimpactisthatinsteadofanewuserbeingservedfromaremote Vuducontentdeliveryserver,thesameusercanbeservedusingthebroadbanduplinkofanother user. Whilethiscancertainlysavealotofcost,perhapsasmuchas75%insomedeployments,itdoes not really solve the quality challenges noted above and, in addition, while Vudu might have avoidedpayingthecontentdeliverycost,someoneelseishavingtopay.Inmostcasesthisisthe ISPwhosebroadbandconnectionisbeingusedfortheredistribution.Tous,itseemsunlikelythat P2Pbased delivery of video content will be viable in the long term (which means truly scalable andofasufficientquality)withoutproperagreementsbeinginplacebetweenISPs8. WelookatP2Pcontentdeliverinmoredetaillaterinthissection. Workisunderwaytodefinearrangementsthatwillfacilitatecomm3rrcialgradeP2Pcontentdistribution(e.g.P2PNextandP4P)but theseprojectsarestillatafairlyearlystage.
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 IPTVServiceCategories

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In the previous section we explained what IPTV is and how it differs from traditional forms of television.InthissectionwewilllookatthethreedifferenttypesofIPTVwhichwehavecalled: OnlineVideo TelcoTV InternetTelevision
CategoryofIPTV OnlineVideo Content Mixtureofprofessionally producedandamateur content. PCandmobiledevice. AlsoTVsetwithappsand widgets,butthisisless important. Invariablyadsupported. TelcoTV Professionallyproduced contentonly.Branded contentisessential. TVset. InternetTelevision Professionallyproduced contentonly.Branded contentisessential. (i)PC;(i)PCconnectedto aTVset(withsuitable cable);(iii)STB+TVset, or,(iv)aspecialTVset. Combinationofad supported,payperview andsubscription. Currentlyamarginal businesscaseowingto highmarginalcosts.

Primary Consumption Devices BusinessModel

Subscriptionsimilarto cableTVandsatelliteTV. Bundlingwithbroadband isessentialtomakea businesscase.Indeed,TV propositionisusedtosell abroadbandsubscription tohomesthatwouldnot haveboughtthe broadbandsubscriptionas astandaloneoffer.

Primary Competition VisualQuality

Otheronlinevideosites Terrestrial,cableand andonlineactivities(e.g. satelliteTV. Socialnetworking). Lowest:ageneraltrendto Highest:Telcoproviders HDand3D,butgenerally owntheaccessnetwork lowestquality.NotQoS andcan,inprinciple, assured. providethebestquality.

Terrestrial,cableand satelliteTV. High:Deliveringhigh qualityrequirescareful attentiontotheCDN solution.Qualitycanbeas high,orhigher,thanTelco TV. MainlyaTVproposition.

Paradigm

Mainlyaninternet proposition.

MainlyaTVproposition.

Source:GeneratorResearch

Table3:ComparisonoftheThreeDifferentCategoriesofIPTVOnlineVideo,TelcoTVand InternetTelevision(ComparisonMetrics:Content,ConsumptionDevices,BusinessModel,Primary Competition,VisualQualityandParadigm)

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Asfarasthisreportisconcerned,onlinevideoconsistsofshortformatvideoclipsthataremostly created by ordinary users. Most clips are uploaded onto the site intended for public viewing although,insomecases,ausercanchoosetorestrictdistributionoftheircontentotanetworkof friends. Most or all of these sites contain a mixture of usergenerated and professionallyproduced content. Branded providers can set up their own channel on the site within which they can controlthelookandfeeloftheiroffering. ThebestknownexampleofanonlinevideositeisYouTube.Otherexamplesinclude: Break.com Thisamaleorientedsiteaimedat1834yearoldmen. Heavy.com Another maleoriented video sharing an community site. Also includes a movie review aspect includingtrailers,butuserscannotstreamordownloadmoviecontent. Metacafe Thissiteclaimstouseapanelof80,000volunteerstoreviewnewvideosthatareuploadedonto thesite. CollegeHumour.com Thisisacomedysitewhichisasourceofhumorousoriginalvideos,picturesarticles,contests,plus someoriginalmaterialcreatedbyCollegeHumourstaff. Craveonline.com A youthorientated UK community site offering useruploaded video, comics TV reviews and commentaryandmoviereviewswithoccasionclipsandtrailers. RuTube.com First launched in 2006, RuTube is a Russian video sharing site similar to YouTube. The company wasacquiredbytheRussianmediaconcern,GazPromMedia,forUSD15millioninMarch2008. Atthetime,thesitestatedthatithad400,000dailyusersandwasserving40millionvideoviews permonth.

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TudoisanotherYouTubeclone,thistimefocusedontheChinesemarketwhereitclaimstobethe largestonlinevideosharingplatform.TheservicewaslaunchedinApril2005andnowserves300 million video views daily,according to the company. To date, the company has raised a total of USD85millioninventurecapital. Youku.com This is another YouTube clone, also based in China which was launched in December 2006. The companyclaimstohaveraisedUSD110millionfromarangeofinvestorsthatincludeSutterHill VenturesandBainCapital(Brookside).Contentincludesamixtureofusergeneratedmaterialand professionallyproducedmaterial.TudoisYoukusmaincompetitor. Online video content is mostly consumed on PCs (desktop computer and portables) and smartphones but we expect most online video services to also become available on the main InternetTelevisionplatforms,mostnotablyGoogleTV. TelcoTV ATelcoTVserviceiswhereanincumbenttelecomsprovider,likeAT&TorChinaTelecom,offers an IPTV service over an xDSL connection. Telco TV services offer nonexclusive content that is sourcedfromthirdpartieswearenotawareofanyexampleswhereaTelcoTVserviceprovider has invested in producing exclusive content (e.g. producing an episodic TV show or creating a newschannel). ControlofDistribution BecausetheincumbenttelcoownsandcontrolsthexDSLaccessnetworkandalsoprobablyhasa contentdeliverynetwork(whichwouldformthebasisofaCDNservicethatthetelcosellstoother digital content service providers), then the telco has direct or semidirect control of the assets requiredtocosteffectivelydistributethevideocontent. However strict regulatory rules in many markets have been put in place in an effort to prevent incumbenttelcosfromcrosssubsidisingdifferentbusinessunitsinthemannersuggestedabove. This is why most Telco TV services when viewed on a standalone basis would be no more profitablethanInternetTelevisionservice(below). TherealreasonwhytelcosareofferingTelcoTVserviceisthatitisanexcellentwaytoincrease salesofresidentialbroadband,whichishighlyprofitable.

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Within the residential market, the primary growth market for incumbent telecoms providers companieslikeAT&TintheUS,SingTelinSingapore,TelstrainAustralia,BTintheUKandFrance Telecom in France is residential broadband. Each broadband customer represents an annual revenuestreamofapproximatelyUSD30x12=360USDperyear. TripleandQuadPlay:Bundling Telcoshavetraditionallybeensellingbroadbandasastandaloneproductinitsownrightbutthe appeal of the offer is minimal to many households who do not understand what advantage a broadbandconnectionwillprovide.Itisafareasierselltoofferatelevisionservice,whichcomes withabroadbandconnection.Itisevenbetterwhenthetelcocanbundleanormalphoneservice with the offer, to create a socalled triple play offer. Because the telco makes money on the broadband connection, and hopefully on voice calls made using a telephone service, then it is feasibletoruntheTelcoTVpartofthebusinessatverylowmargin. Theotherreasonwhyincumbenttelcosareinterestedinofferingtelevisionandotherservicesis totrytomoveawayfrombeingasimpleaccessproviderwherecompetitionisbasedmainlyon priceforacommodityservicethatishardtodifferentiate. The strategy towards bundled services is of course not restricted to telecoms players: cable TV andsatelliteTVserviceprovidersarenowofferingsimilarbundles(atleastinmarketswherethey can obtain wholesale access to the incumbent broadband access product). These competitive dynamics are at work in every market around the globe with the result that, in each market, a relatively small number of cable, satellite and telecoms players are competing with each other usingservicebundlesthatincludebroadband,television&movies,phoneserviceand,insome cases,mobilephoneaswell. Telco TV is growing, with operators such as AT&T UVerse, Verizon Fios and China Telecom enjoyingstronggrowth.

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 InternetTelevision Definition

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As suggested in Table 3, an Internet Television service has a lot in common with a Telco TV service, except that there are some very important differences, the first of which being that accordingtooursegmentationofthemarket,telcosdonotofferInternetTelevisionserviceperse. InternetTelevisionservicesaremostlybeingofferedbycompaniesthathavetheiroriginsinthe internetorsoftwareworldsandotherswhooccupytheconsumerelectronicsarena,asopposed tothetelecomsdomain,whichisthecasefortelcoTVproviders.InternetTelevisionisnotbeing driven by the telcos, but by others who have different objectives, different strategies and a mindset. CompaniescomingatIPTVfromtheinternetareinterestedininternettelevisionbecauseofthe hugescaleofthemarket,bothintermsofthenumberofTVscreensandthepotentialadvertising revenue. In 2009 the worldwide expenditure on TV advertising was USD 160 billion, while worldwide expenditure on internet advertising was just USD 57 billion. Consumer electronics companies meanwhileforseealargeincremental marketfor consumerelectronics,eitherinthe formofSTBsornewtelevisionsetsthatincludeinternettelevisionfunctionality. Internet Television is today about taking the very best software technologies, design and developmentapproachesandbusinessstrategiesthatarealreadywellestablishedontheinternet tocreateatotallynewtypeoftelevisionexperience. ItisherethatweseeanothermajordifferencebetweenTelcoTVandInternetTelevision which wewillnowlookatinalittlemoredetail ComparingInternetTelevisionandTelcoTV Telco TV services are basically closed vertical platforms owned and operated by companies that havetraditionallytakenaclosed,verticallyintegratedapproachwhenitcomestotheintroduction ofnewservices,includingTelcoTV. We would argue that Telco TV services are relatively poorly differentiated when compared with existingcableandsatelliteTVservices.

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Theymaybeattractivetousers,whenviewedaspartofanoverallpackage,butthereislittlethat is genuinely new in the core television service, certainly not to the extent that will attract the younger generation of users who are growing up wellversed in the web and with technology generally. TheacidtestwouldbehowwelltheaverageTelcoTVservicewoulddoitinitsrespectivemarket ifitiswaspromotedonitsownrightasastandaloneservice,andnotaspartofaservicebundle that includes broadband, telephone and even a mobile service. We think that many Telco TV serviceswouldstruggletowinmarketsharefromsatelliteandcableTVserviceproviders. IfTelcoTVisprimarilyaverticallyfocussedphenomenon,weseethefutureofInternetTelevision asbeingfarmorehorizontalinnature.Herearesomeexamplesofwhatwemeanbythis: CrossserviceFeatures:Userswillbeabletosearchforandplaycontentthatisofferedby arangeofcompetingserviceproviders; Thirdparty Developers: Third party developers will be able to create applications and services that make it easy for content owners to publish their content to Internet Televisionplatformsandthenforuserstodiscoverandaccessthatcontent; SocialandCommunityFeatures:Televisionisastronglysocialmedia.Manyviewersfind thelatestdevelopmentsontalentshowsandepisodicshowstotallyengrossingandthey talk incessantly to friends about television, both in the workplace and elsewhere. When combinedwiththesortofsocialfeaturesthathavebeenpioneeredotheweb(e.g.social networking sites) Internet Television, will allow users to selforganise into communities thatarefocusedaroundspecificshowsandmovies; GlobalPublishing:BecauseTelcoTVservicesarebeingcreatedbyindividualTelcosusing theirowntechnologicalapproach,theyarefundamentallyincompatiblewitheachother. TelcoTVservicesarefocusedonindividualnationalmarkets.Forexample,thetechnology solution used by France Telecom is different to that used by AT&T. This means that technological barriers will prevent content providers from publishing their content to a globalTelcoTVplatform,astheycantodaywiththeweb.

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Licensing restrictions aside, Internet Television promises to enable the distribution of television and film content on a global scale, although this will require an underlying enablingplatform,themostsignificantofwhichsofaris,inourjudgement,GoogleTV. TheaboveserviceconceptsarefarfromthemindsofTelcoTVserviceproviderswhoaremainly using Telco TV as part of a Trojan Horse strategy to sell through lucrative broadband subscriptions. BeforewediscussInternetTelevisioninmoredetailitisworthnotingwhatInternetTelevisionis not: InternetTelevisionisnotWebTV InternettelevisionisverydifferenttowhatusedtobetermedWebTVwhichwasfirstproposed in the late 1990s. At this time, many companies thought that people would want to access internetwebsitesfromthecomfortoftheirlivingroomarmchair,usingaspecialkeyboardandon screeninterface,ratherthansittinginfromofaPC.ThoseproposingWebTVsawtheTVsetas simplyanotherchanneltoaccessthegeneralinternet. TherewerefourmainproblemswiththeWebTVstrategy: The first was that Web TV would have been that every website would have needed to be re purposedinordertobeviewedonaTVset.Ineffect,thoseproposingWebTVforesawasecond, parallelversionoftheinternetonethatwasdesignedespeciallyfortheTV. Secondly,thedramaticallyincreasedperformanceofmodernnotebookcomputerscombinedwith simpleandeasytosetupWiFibroadbandconnectivityhasmeantthatpeoplewhowanttowork intheirlivingroomcandosobysittingdownandusingtheirnotebookcomputer. Thirdly, website owners were resistant to develop special TV versions of their websites just so people could access those (reducedfunctionality) TV websites using a TV set, especially when therewassuchasmalldeployedbaseofcompatiblehardware.

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Finally, Web TV was simply years ahead of its time and the software technology, design methodologies and business models, simply did not exist in the late 1990s for Web TV to be executedproperly.Inessence,becauseWebTVwaspreWeb2.0itwascomplexandexpensiveto implementandtheresultinguserinterfacewasclunkyandgenerallyuninteresting. In summary, Internet Television is about how to use the best of the modern web to create a superiorTVexperience,ratherthansimplyportingthegeneralinternetotheTVset. WewillnowtakeacloserlookatwhatInternetTelevisionis.

Internet Television
Benefits: Service Proposition
OuranalysisisthattheInternetTelevisionmarketwillfailtodeveloptothematurephaseifturns outtobelittlemorethananotherwayofdeliveringthesamesortoftelevisionprogrammingto thetelevisionviewers. WeseeInternetTelevisionassomethingthatwillintheendbeintegratedintoeverytelevisionset sothatusershaveaccesstoInternetTelevision,whethertheywantitornot.Wethinkin20years time,itwillbeasnaturalforpeopletouseInternetTelevisionasitistouseacableTVorsatellite TVservicetoday. InthissectionwehavetriedtoexplainwhyuserswillbeinterestedinInternetTelevision.Laterin thereportwewillexplainmoreaboutthebusinessaspectsthatunderpinthedeliveryofInternet Televisionserviceswherewenotethattheworriesandconcernsoftheincumbentplayerswithin thetelevisionindustry,bothonthecontentsideandthenetworkside,willactasabrakeonthe rateatwhichtheInternetTelevisionmarketwilldevelop. Itisclearlyimpossibletobepreciseaboutaservicepropositionthatwethinkis20yearsaware fromreachingmaturity.Nevertheless,inordertogiveaflavourforthesortofserviceproposition we see when we look into the future, we have identified [five] aspects f the Internet Television servicepropositionthatwethinkwillbeveryinterestingtotheaveragetelevisionviewer:

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Improved On-Demand Viewing PersonalVideoRecorders(PVRs)reachedamassmarketstageoverfiveyearsago.Thesedevices areconnectedonlinebetweentheSTBandtheTVsetandallowtheusertorecordTVshowsfor playbackatalatertime. These devices have been immensely popular and have catalysed the introduction of socalled CatchupTVservices,suchasBBCiPlayer,whichoffersimilarfunctionalitywithouttheneedfora PVRbox. Internet Television has the potential to improve the catchup TV proposition is at least the followingways: Userscouldhaveanonlinemedialibrarywheretheycouldstoreandorganiseshows.This librarycouldbeaccessedfromtheirTVset,PCormobiledevice; Userscouldregisterwiththirdpartycontentdiscoveryservicesthatwouldaddcontentto theirmedialibrarybasedonuserdefinedpreferences(e..gdirector,genre,languageetc.); When this service was available within the context of a horizontal Internet Television platform,likeGoogleTV,thenthecontentuniversecouldextendtoaverylargevolumeof content,asopposedtothatofferedbyoneserviceprovider. Userscouldaddshowstotheirmedialibrarysimplybyclickingonalink;

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 Dramatically More Content

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In principle, and assuming that viable monetisation methods exist, it would be possible for all television and film content ever produced to be published to an Internet Television platform. StandardmetadatawouldallowthecontenttobeindexedanddiscoverablebyTVfocusedsearch, discoveryandrecommendationservices. Televisionproductioncompanies,televisionbroadcasters,filmproducersandintermediariesthat ownsthedistributionrightstotelevisionprogrammesandmovieswouldbeabletomonetisetheir content using a new channel Internet Television that has no capacity limit, unlike existing broadcastchannels. This explosion in the volume of content would be dramatically more than any previous developmentintelevision,includingtheintroductionofmultichanneldigitaltelevision.Insteadof a browsing 200 or even 500 channels, and finding nothing interesting to watch, in an Internet Televisionsettinguserswouldhaveaccessto10sofmillionsofcontentitems,whichwouldinour opinionhavetheeffectofincreasingtotaltelevisionviewinghours,increasingviewerengagement andincreasingtotalservicerevenues. Advanced Content Discovery Tools WethinkthatthecontentdiscoverytoolsavailabletoTVviewerstodayareverybasic,certainly comparedwithwhatcurrentlyexistsonline. TVviewersarecurrentlyusedtoasearchservicethatislimitedtocontentofferedbyaparticular service provider. So if, for example, a viewer wants to search for basketball on Sky then the resultswillbelimitedtocontentthatSkyoffers. Inadditiontothesevirtuallyfocusedsearchfunctions,thirdpartylistingservicesexist,suchasTV GuideandtheIMDB,whichprovideinformationoncontentspanningmultipleserviceproviders. However, in these cases, it is not possible to actually view shows one can only read about a show,orbuyaDVD. Ontheotherhand,webusershaveeasyaccesstoarangeofcontentdiscoverysolutionsincluding generalpurpose search engines (e.g. Bing, Google), content recommendation services (e.g. iLike orSpotifyformusic),socialnetworks(e.g.Facebook.com)andgenrebasedcommunitysites(e.g. Dogster.com)aswellasseveralpushtechnologies,suchasRSSfeedsandfeedreaders.

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Because some of these content discovery tools are relevant for television and film content we thinkthattheywillbecomeanimportantcomponentoftheInternetTelevisionproposition. If a viewer was watching a programme about seafood cookery that iwas being presented by a particularchef,thisitiscleartousthatthesameviewermightbeinterestedinusingaservicethat allowedhimtoseemoreshowslikethisorseemoreshowsfeaturingthispresenter. Again, if a person is watching a nature programme about the Rocky Mountains, then it seems likelythatthispersonwouldbeinterestedinaservicewhichallowhimtotypeasearchqueryinto a third party service such as, for example, Life Cycle Atlantic Salmon, or Holidays Rocky Mountains. This sort of contextual recommendation and search functionality is widespread on theweb,butisitcurrentlycompletelyabsentfromtheTVindustry. OnecouldarguethatTVviewerswillnotbeinterestedinchangingtheirviewingbehaviourfroma deeplyengrained,leanbackpatterntomoreofaleanforwardorweblikepattern.However, whenthetoolsexistandtheyareeasytousewethinkthatthisisexactlywhattheywilldoand onamassscale. Social and Community Features TV is a very social phenomena, especially when it comes to talent shows, celebrityfocused content,episodicblockbusters,likeLOST,andarangeoothercontentthatpeoplefindinteresting andtopical.PeopleenjoytalkingaboutTVtotheirfriends,intheirfamiliesandintheworkplace. Social and community tools and services have become immensely popular on the web. Today, practically every website now includes community features or a social networking function. The websitehasbecomelessofaplacetogotoreadpagesandmoreofaplacetointeractwithothers whohaveacommoninterest. Partly because TV is fundamentally a social phenomenon and partly because social networking andcommunitybasedserviceconceptsarenowdeeplyembeddedrightacrosstheweb,wethink thattheInternetTelevisionpropositionofthefuturewillincludeastrongsocialandcommunity aspects.Currently,thesefeaturesareentirelyabsentfromexistingtelevisionpropositions,suchas terrestrial,cableandsatelliteTV.

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 Unified User Interface

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MostviewershavetochoosebetweenaPayTVprovider(e.g.cableTV,satelliteTVorTelcoTV) whichthencomplementstheirfreetoair,networkTVviewing. Inmostcases,therefore,theviewingexperienceinvolveschangingbetweentworemotecontrols, one for network TV and the other for the PayTV service. There is no, or minimal, integration between the two remote controls or services. The exception to this is with companies like Logitechwhohavetriedtosolvethisproblembydevelopingauniversalremotecontrol. ThenonunifieduserinterfaceproblemalsocurrentlyappliestoInternetTelevisionservices. Taking the UK as an example, there are six Internet Television services available to UK viewers, eachofwhichisprovidedbyoneoftheincumbenttelevisionserviceproviders: 1. BBCiPlayer:offeredbytheBBC,theUKsmainPublicServiceBroadcaster,aterrestrialTV broadcaster; 2. FIVE OnDemand: offered by FIVE Television, a commercial, freetoair terrestrial TV broadcaster; 3. 4OD:offeredbyChannel4,acommercial,freetoairterrestrialTVbroadcaster; 4. ITVPlayer:offeredbyITV,acommercial,freetoairterrestrialTVbroadcaster; 5. SkyPlayer:offeredbySky,acommercial,PayTVsatelliteTVbroadcaster; 6. VirginMediaPlayer:offeredbyVirginMedia,acommercial,PayTVcableTVbroadcaster. Inaddition,thereareafewotherserviceproviderscateringfornichemarkets,suchasLiveStation, and a couple of aggregators that allow viewers to access content provided by a number of providers(e.g.SeeSawTV). TheresultisthatifaviewerwantstowatchInternetTelevisionthenhehastovisiteachservicein turnandusetheirproprietarycontentindexingandsearchfunctionstofindinterestingcontent.

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Although this is very frustrating, the same problems can be currently observed in all television marketswhereInternetTelevisionhasemerged. We think that the Internet Television market is not stable in this condition: because it is technicallyfeasibleforuserstobepresentedwithaunifiedinterfaceonethatdoesnotjustwork acrossalloftheservicesmentionedabove,butpotentially10softhousandsofInternetTelevision servicesavailableonaglobalbasisandthereisaclearuserbenefitthenwethinkthatisamatter oftimebeforeastandarduserinterfaceemerges,perhapsnotonaglobalbasisbutcertain Sofar,theGoogleTVplatformappearstohavethehighestpotentialtoimplementatrulyunified viewinginterface. WenotethattheBBChasrecentlystatedthatitintendstoopenupitsiPlayerplatforminorder toallowiPlayercontentstreamthroughthirdpartyservices,atleastintheUK. Second Screen Controllers SmartphonesandMediaTablets,alongwiththeassociatedapplicationsstrategythatisapplicable to both, suggests that it is likely that in the future the users preferred personal device will be integratedwithinalivingroomInternetTelevisionexperience,atleastforthoseuserswhowant this. Indeed,laterinthisreportwewillseethattheGoogleTVplatformalreadyprovidestheabilityfor developerstocreateapplicationsthatcanbedownloadedtoaniPhoneoriPadinordertocontrol theGoogleTVexperience. Onepotentialadvantageofusingasecondscreendeviceasacontrollerwouldbethattextentry would be better facilitated. Instead of the user having to use up/down, left/right cursors to navigateagiantkeypadthatisdisplayedontheTVset,theusercouldlookdownandentertexton theirsecondscreendevice. HereareafewexamplesofhowweseesecondscreencontrollersbeingusedwithinanInternet Televisionexperience.Userscould:

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Moreeasilyentercontactdetailsiftheuserhadseenanadforaproductthatofferedto sendasampleofbrochure. PostcommentsaboutaTVshowormovie; Entertheirregistrationdetailsiftheywantedtoviewpremiumcontent Entertheircreditcarddetailsinordertosubscriberotaservice.

Third-party Developers: Applications InternetTelevisioncouldenableawholelayerofvalueaddedservicesthatsitbetweentheuser and the content. Currently, with traditional forms of television, terrestrial, cable, satellite and TelcoTVcompaniesprovidetheservicesthatsitbetweenthesourcecontentandtheuser. Forthesecompanies,thevalueaddprimarilylieswithinthecontentitself,wheretheobjectiveis toobtainexclusivecontentforwhichtherewillbemassdemand,aswellasanyotherservicesthat are bundled in with the TV offer (e.g. where a Telco TV provider also offers a broadband subscriptionaspartofthedeal). However, as has happened with mobile applications and, more recently, Media Tablet applications, the existence of a properlyengineered and operated platform that is open on a levelplaying field basis to developers across the globe can usher in a completely new class of valueaddedservices. We think that the success of the mobile applications, and the visually stunning results that are possiblewithapplicationsthathavebeendevelopedfortheiPadindicatewhatcouldbepossibleif anequivalentapplicationsdevelopmentplatformexistedforInternetTelevision. Applications are a very important element of the Google TV offer. This means that every brand that wants to be on the TV has a route to market that does not require any discussions with existingbroadcasters.ItalsomeansthatalloftheInternetVideoandInternetTelevisionservices thatarecurrentlyrestrictedtothePCcanbeportedtotheGoogleTVplatform. Itishardtobedefinitiveaboutthesoftofapplicationsandservicesthatwillbepossible,butwe thinkthatlookingatplatformliketheiPhoneandiPadatleastsuggestthepotential.

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WethinkthatwhenitcomestotheproportionoftimetheviewersspendengagedwithInternet Television, several servicers will emerge which, like Google today, act as ;entry points; into the works of Internet Television. We think that it is unlike that any of the incumbent television serviceswillbeabletoadequatelyfulfilthisrole.

Benefits: Commercial
Targeted Ads In general, advertisers will pay a premium for the ability to target advertisements on specific marketsegments.Forexample,abroadcastercansellanaudiencethatcomprises18to24year old males at a higher price that an audience where the view profile is for more general. This is because,generallyspeaking,thehighertherelevance,themoreeffectivetheadvertising. Sofarintelevision,audiencetargetinghasbeenbasedon: TargetingbasedonContent A programme such as a music talent content will attract a different audience that a home improvement series. Independent audience analysis services provide the broadcaster with statisticsthatdefinetheprofileoftheaudiencethatiswatchingtheirshows.Thisthenallowsthe broadcasters ad sales team to sell the ad inventory relating to a specific show to an advertiser whowantstoreachthataudience.Thesameconceptappliesforotherformsofaadmedia,for examples,newspapers,magazines,radioandonline. GeographicTargeting Cableoperatorshaveforalongtimesoldadvertisingbasednotonlyoncontent(above)butalso on the geographic location where the ads will be served. Because the cable operators network connectsindividualhouseholds,itispossibletodefineaudiencesbasedonindividualstates,cities, towns and even the affluence of individual neighbourhoods, as well as content. Terrestrial broadcasters have more of a problem offering targeting but they neverthle4ss routines offer advertisers solutions that allow them to target individual transmitters so that at least regional leveladcampaignscanbeplanned. InternetTelevision,andalsoTelcoTV,allowstelevisionadvertisingtobetargetedwithfarhigher granularitythanbefore,inprincipledowntothelevelofindividualhouseholds.
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Some senior executives in the television advertising business regard this as the holy grail of televisionadvertising. InternetTelevision:ExampleAdtargetingScenarios Herearesomeexamplesofwhatwillbecometechnicallypossible: ContextualTargetingforOndemandViewing Contextual targeting has become commonplace in online advertising. The most wellknown example is Googles approach where text ads are served on a range of Google properties (e.g. SearchandGoogleMail)basedonthecontentoftherequestedpage.Thesameprinciplecanbe usedwithInternetTelevision.So,asanexample,becausetheInternetTelevisionserviceprovider will know what each household is watching at a given time, ads can be served based on the contentthatisactuallybeingviewed. ViewingProfiles IftheInternetTelevisionserviceproviderknowswhateachhouseholdiswatchingatagiventime, then it is possible to create a profile of a viewer based on what sort of television programming theyarewatching.Eachshowwouldneedtobetaggedwithmetadatathattheserviceprovider wouldthenbeabletousetocreateadatabaseofusersandwhattheyliketowatch.Quiteapart fromthisinformationbeingusefulasabasistorecommendotherrelevantcontentthatviewers mightbeinterestedinwatching,thesamedatacouldbeusedasabasistodelivertargetedads. TargetingBasedonOptionaladprofile Viewerscouldbeinvitedtovoluntarilycompleteanadprofilethatentitlesthemtoreceivesome servicebenefits.ThisallowstheInternetTelevisionserviceprovidertounderstandmoreaboutthe householdssituation:howmanychildren,whatages,familyincome,whereandwhenthefamily wentfortheirlastholiday,favouritemovies,birthdaysetc.Evenbasicinformationsuchasthisis highlyinterestingtoadvertisers. These advantages have not been lost on satellite and cable RTV operators many of whom have announced trials of similar adtargeting solutions for households that have a broadband connectedSTB.

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However,whenitcomestoadtargeting,thereisalinebetweenwhatconstitutesgreatmarketing and what consumers might regard as an abuse of their privacy. There have already been examplesofproblemsinthisarea,forexamplewithseveralfiledFacebookadtargetinginitiates (e.g. the illconceived Beacon) and ongoing problems at Phorm, which is a UKbased company thatallowspartnerstodelivertargetonlineadsbasedonthebrowsingbehaviourofusers. Global Publishing TelcoTVservicesareforthemostpartgeographicallybounded,whichmeansthatagivenTelco TVserviceissolelyintendedforconsumptioninthattelcosnationalmarket.Thisisbecauseeach telcosresidentialaccessnetwork(e.g.thebroadbandxDSLnetwork)thatisbeingusedtodeliver theTelcoTVserviceisrestrictedtoonemarketonly.Forexample,FranceTelecomdoesnothave anyresidentialaccesslinesinJapan. OneconsequenceofthisnationalfocusisthateachTelcoTVserviceisbasedonatechnological approach that suits that telco. For example, the technology solution used by France Telecom is differenttothatusedbyAT&T. The implication is that that Telco TV services are fundamentally incompatible with each other fromatechnologystandpoint. This means that technological barriers will prevent content providers from publishing their content to a global Telco TV platform, as they can today with the web platforms which are inherentlyglobalinnature. However, with Internet Television, we see that the global nature of the backend deliver infrastructurewillallowcontentownerstopublictheircontenttoaglobalaudience,shouldthey wish. Of course, television is currently not licensed on a global basis. The historical restriction of nationallybounbded broadcast platforms whether they be terrestrial, cable or satellite, have naturally forces content owners to think in terms of licensing each content item in terms of specificmarketsandthen,withineachmarket,tospecificplatforms. Thiscanbealaboriousandresourceexpensiveprocess.

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If a company developed an Internet Television platform that allowed any user anywhere in the workstoaccesstheservice,asiscurrentlythecasewiththeweb,thenaspecificcontentproducer sayaTVproductioncompanythatwantedtopublishtheircontenttothatplatformcouldusea simpleonlineinterfacetodefinethemarketswheretheywantedtheircontenttobelicensed.This would, of course, mean that the underlying platform would have an associated monetisation model that allows the TV production company to be adequately remunerated for when their contentwasstreamedordownloaded. Theimportantpointsarethat: Licensing restrictions aside, Internet Television promises to enable the distribution of television andfilmcontentonaglobalscale,althoughthiswillrequireanunderlyingenablingplatform,the mostsignificantofwhichsofaris,inourjudgement,GoogleTV. Thisiscurrentlynotfeasiblewithanyexistingtelevisiondistributionplatform(terrestrial, cableorsatellite) ThisisalsonotpossiblewithTelcoTVservices.

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Peer to Peer (P2P) Content Distribution

EarlierinthissectionwenotedthataP2Pbasedarchitecturecanbeusedtoreducethecontent delivery costs incurred by IPTV service providers. This section looks at this point in a bit more detail. Why P2P? Content delivery networks like that operated by Akamai have emerged as the defacto network solutionfordeliveringdigitalcontentonalargescale. Because these services are for the most part proven, robust and secure, it is natural to ask whetherthereisasustainableplaceinthemarketforP2Pbasedcontentdistributionsolutions? P2Pcontentdeliverynetworkoperatorscommonlymaintainthattheirsolutionsoffertwounique benefits9whencomparedwithastandardCDNthatisbasedonedgeservers: VeryLowCost Becausethebroadbandconnectionsofordinaryusersarebeingusedtoredistributethecontent theserviceproviderdoesnothavetopayforasmuchnetworkendbandwidthaswouldbethe caseifastandardCDNwasused.Anditistruethatthecostsavingscanbedramatic; GlobalReach AP2PbasedCDNallowstheserviceprovidertooffertheirserviceonaglobalbasis.EvenAkamai, the worlds largest content delivery network operator, does not currently have any network presenceinChinaandmanyofthesmallerprovidersarefarmorerestrictedthanAkamai.Thiscan meanthatthecontentserviceproviderscostsarelowinsomemarketsandhighinothers.Also, theglobalaudienceforU.S.Baseballmightbelessthanthatforcricket.Howeverthereiscurrently no easy way for the owners of the television rights to live cricket matches to distribute that contenttoaglobalaudiencewithoutnegotiatingmaybe100separatebroadcastcontracts.
9

Thekeydisadvantagesarequality(e.g.visualqualityinthecaseofstreamingvideocontent),scalability(someP2Pnetworkproviders

thinkthat100,000simultaneoususersisabigaudiencewhenTVpeopleareusedtotalkingintermsof10sofmillionsofsimultaneous viewers), rights management and general immaturity (i.e. reporting, support for different business models). However, ongoing enhancementsto theworldsbroadbandinfrastructureandthequalityofP2P contentdistributionsolutionswillservetolessenthe seriousnessoftheseissuesovertime.

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WhileweagreethatP2PCDNsofferareachbenefit,wearelesssureaboutanydramaticcost benefitor,moreexactly,aboutthesustainabilityofanycostbenefit. InourreportContentDeliveryNetworks:ADetailedAnalysisofDifferentStrategies,wepresented adetailedexplanationastowhythecostbenefitofferedbyP2PbasedCDNsisshortterm. Our rationale is that any solution that offers an 80% cost saving is not sustainable if that cost savinghasbeenachievedsimplybypushingthecostontounwillingthirdparties.Inthiscasethe unwillingthirdpartiesareISPsor,insituationswhereusershavetopayforthebandwidththey usetheendconsumersthemselves. In effect, P2P network operators have found an arbitrage opportunity which their clients are happytoexploitrightnow,andforaslongasthearbitrageopportunitylasts.But,asisthecase when investors and traders find an arbitrage opportunity in the capital markets, market forces alwaysworktoeliminatetheopportunityintheend.However,inspiteofthis,westillthinkthat P2Pwillemergetohaveaviableroleinthecontentdistributionmarketplacefortwokeyreasons: NaturalArchitecturalDevelopment EfficientUtilisationofNetworkResources

Optimising Use of Network Resources It seems fairly clear that when averaged across a whole network, the optimum content distribution solution would, on average, be the one that minimized the amount of network infrastructure used to achieve a particular contentdistribution objective. Weve prepared an examplethatillustratesthispoint. Figure2showsaverysimplenetworkconsistingtothreenodes(1,2and3)whichareconnected togetherbythreeequivalentlinks.Forthepurposesofthisexample,thenodescanbethoughtof asrouterswhilethelinksresemblefibreopticcables.Sixcomputers(AtoF)areconnectedtothe nodes.Theobjectiveistodistributea1GBfiletoallsixcomputers.

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Content Distribution (Server)

(A) Edge Server

c_router

1
F
c_inject c_server c_link

c_link

2 c_router

c_link

c_router

Infrastructure Utilisation

= + + +

(6 x c_server) (6 x c_inject) (4 x c_link) (10 x c_router)

Source: Generator Research

(A)ReferenceModel:Acontentserverisusedtodistributethecontenttoallsixcomputers Figure2 Figure 2 models the amount of network infrastructure used by including four elements: the number of times the server is required to stream the 1GB file (c_server), the number times the 1GBfileneedstobeinjectedintothenetwork(c_inject),thenumberoftimesthe1GBfilemust transitanetworklink(i.e.totravelbetweentwonodes,c_link)andthenumberoftimesarouter isrequiredtoprocessthefile(c_router). WehavethenshownhowthisinfrastructureintensiveapproachcompareswithaP2Papproach.

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However, as Figure 3 shows there are two options for how the P2P protocol could be implemented.Inonecase(OptionB:nonlocalised),theP2Pprotocoldoesnottakeintoaccount where the peers are located. In this example, the content is distributed once to computer (A), whichthenredistributesittoallothers.ThiswouldbeOKifthenetworkcouldberegardedasa zerocostcloudwherethephysicallocationofthevariouspeerswasunimportant. TheP2PprotocolusedinOptionC(localised),assumesthatnetworkresourcesarepreciousandso theprotocoltriestominimisetheamountofinfrastructureusedforeachredistributionprocess. Table4summarizestheresultswhereforextraclaritywehaveaddedsomecostnumberswhich are intended to model the underlying operational costs of each network element plus depreciation. Wethinkthedifferencesincostareprettydramatic.Fiveimportantstatementscanbemade: A nonlocalised P2P network might have NO EFFECT on the total volume of network traffic, even though it would massively reduce the cost of injecting (i.e. seeding) the content into the network. Ironically, even though P2P is commonly seen as a network efficientmeanstodistributedigitalcontent,therealityisthatunintelligentP2Pprotocols arenothingofthesortandmaydolittlemorethanmodifyexistingtrafficflows; AlocalisedP2Pnetworkcanreducethetotalvolumeofnetworktrafficloadbymorethan 50%,comparedwithaserverbasedcontentdistributionnetwork.AlocalisedP2Pnetwork canthereforeberegardedasameansofreducingthevolumeoftrafficflowingaroundthe networkor,alternatively,asameanstofreeupnetworkresourcesforotherservices; AlocalisedP2Pnetworkapproachhasthepotentialtoreducethetotalamountofrouter andlinkcapacityby50%orevenmore,dependingontheactualcosts,foragivencontent deliverytask;

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Total Traffic Processing Required (GB) Network Infrastructure (A) Edge Server Solution Component Content Server Content Injection Hop between routers Router 6 6 4 10 1 1 4 10 1 1 2 6 Ref. c_server c_inject c_hop c_router (B) Non-localised P2P Solution (C) Localised P2P Solution Network Infrastructure Cost per GB (1) $ $ $ $ $ 0.01 0.03 0.05 0.01 $ $ $ $ Component Content Server Content Injection Hop between routers Router Total Cost (6 users): Ref. c_server c_inject c_hop c_router (A) Edge Server Solution 0.06 0.18 0.20 0.10 $ $ $ $ 0.54 $ 0.01 0.03 0.20 0.10 $ $ $ $ 0.34 $ 37% Saving Relative to Edge Solution:
Note 1: Illustrative only. Source: Generator Research

(B) Non-localised (C) Localised P2P P2P Solution Solution 0.01 0.03 0.10 0.06 0.20 63%

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ComparisonbetweenedgeserverandP2Pbasedcontentdistributionstrategies Table4

generator


Content Injection (seed)
c_router c_router

Content Injection (seed)

(B) Non-Localised P2P (C) Localised P2P

1
E F
c_server c_inject c_link c_link c_link

F E

c_server

c_inject

c_link

A A

2 c_router 3
D

c_link

c_router

2 c_router

c_link

c_router

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C B C

Infrastructure Utilisation

= + + +

(1 x c_server) (1 x c_inject) (4 x c_link) (10 x c_router)

Infrastructure Utilisation

= + + +

(1 x c_server) (1 x c_inject) (2 x c_link) (6 x c_router)

Source: Generator Research

generator

ComparisonbetweentwoP2Pcontentdistributionapproaches: Figure3

(C)minimisestheamountofinfrastructureusedwhile(B)doesnottakenetworkutilisationintoaccount.

generator

Becauseofthedramaticreductionincorenetworkcapacityneeded(i.e.routercapacity, number of switch ports, capacity of optical switches), if localised P2P emerged as mainstreamcontentdeliverystrategy,theequipmentforecastsofopticalnetworkingand router vendors could be dramatically reduced (which could be bad news, depending on whatassumptionshavebeenmade);

Likewise, the capital expenditure programs of ISPs and network operators could be substantially reduced (core network side) because a high volume of traffic could be supported without much in the way of incremental infrastructure expenditure (which couldbegoodnews,againdependingonwhatassumptionshavebeenmade). Therefore, even when the arbitrage opportunity that is currently being exploited by many P2P basedCDNvendorshasdisappeared(seeearlierinthissection),westillthinkthattherewillbea strongcaseforlocalisedP2Pnetworksinthecontentdistributionmarketbecausetheycan: 1. Increasetheamountoftrafficthattheworldscurrentinternetinfrastructurecansupport; 2. Reduce the amount of investment needed to support new types of traffic (e.g. internet television).

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Review of Internet Television Services

Inthissectionwereview adiverserangeofInternetTelevisionservices.Itwillbe clearthatthe diversity of the range of services, both in terms of the underlying user proposition and the associated business strategy clearly indicates that the Internet Television market is at an extremelyearlystage.

Sony Internet TV
Service Outline Apart from being a partner in Google TV, Sony has announced its own proprietary internet televisionoffering,whichthecompanycalls,SonyinternetTV,inMarch2010.

Figure4:SonyInternetTVAppearanceofYouTubeandLoveFilmChannels

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 MajorSystemComponents

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Sony Internet TV is a proprietary, walled garden solution that consists of five major system components: CompatibleTVSets An onscreen content discovery system and user interface that allows used to find and view selectedinternettelevisioncontentanduseselectedonlineservices. UpscalingTechnology TheBraviaTVsetsthatsupportSonyInternetTVincorporateupscalingsoftwareandhardware thatallowsinternetvideocontent,whichisnormallyviewedonaPCscreen,tobeviewedonthe televisionscreenwithahigherqualitythatwouldotherwisebethecase. ContentAuthoringToolsets Content providers and online brands need to use proprietary software tools and authoring processestodistributetheircontentavailabletoSonyInternetTVusers. RightsManagementSoftware Serverbased software that allows content items to be presented to the user without infringing territoriallicensingrestrictions.Forexample,iftheuserislocatedinTurkey,thenYouTubewillnot evenappearintheEPG. PremiumContentandRevenueSharing Ameansforuserstoviewcontentthatisonlyavailableonapaypervieworsubscriptionbasis. Forexample,ifauseralreadyhasasubscriptiontoaserviceproviderscontentthentheycango totheserviceproviderswebsiteandentertheirdetails(e.g.name,addressandaccountnumber) inordertoobtainaPINwhichisthenenteredintotheSonyInternetTVplatformviaanonscreen keypad.ThiswillallowtheusertoviewthecontentviaSonyInternetTV.NOTE:Sonysharesthe revenuewiththeserviceprovider. ViewingModes SonyInternetTVcanbeviewedintwomodes:

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 BraviaInternetVideo(TVmode)

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Sony has signed up a number of content partners who have chosen to make their content available on about 80% of Sony Bravia models. All users can access the content subject to territoriallicensingrestrictions. BraviaInternetWidgets(Webmode) Inadditiontotelevisioncontent,selectedonlineservicescanbeaccessedusingwidgets.Example ofservicesthatarecurrentlysupportedareFlckr,Facebook,Twitterandebay. SonyInternetTVisaclosed,proprietaryplatformwhere,forexample,auserssearchquerywill belimitedtocontentavailableontheplatform. There is no associated developer community and no way to obtain or download third party applications. Sony does not host any of the TV content, which is streamed directly from the content providers servers, and the company is not involved in and of the technical aspects concerned with getting the content from the streaming server to the TV set (e.g. the content deliverynetwork,orCDN)whichistheresponsibilityofthecontentprovider. UserExperience Usingtheirremote,theuserfirstnavigatesacrosstheXcrossMediaBar(XMB)toselecttheVideo icon (see Figure 5). The user can then select a content provider (e.g. YouTube, LoveFilm or DemandFIVEseeFigure6).Theuserthennavigatestoacontentitem(i.e.acliponYouTubeora programmeonDemandFIVE)andselectsittoviewapreview(playpictureinpicturemodesee Figure9).TheusercanthenselecttheclipagaintoviewitinFullScreenmode.

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Figure5: SonyInternetTV To access Sony

Internet TV, the user uses their remote control across to the scroll Media

XcrossBar to select thevideoicon. Figure6: SonyInternetTV Having selected

Video the user can see a list of content channels which can then be selected

individually.

Figure7: SonyInternetTV In this example, the user has selected the YouTubechannel.The menu can be

customised by the contentpartner.

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Figure8: SonyInternetTV Having selected

featured, the user can scroll down a list of availablecontentitems.

Figure9: SonyInternetTV User selects a content item and previews that item(pictureinpicture).

Figure10: SonyInternetTV User views the content infullscreenmode.

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 Our Take

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SonyinternetVideoisthisisagoodimplementationofaverticalplatformbyaTVsetvendor.The serviceissimilartorivalservicesthatare(orsoonwillbe)offeredbyotherTVsetvendors,suchas Samsung,LG,Panasonicetc. However,wethinkthattheentireclassofinternetTVservicesbeingofferedbyTVsetvendorswill notmakeittothematurephaseofthemarketintheircurrentguise.Themainreasonsforthisis that they site in vertical silos and lack critical elements, such as an applications strategy and a developerprogramme.

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Google TV
Service Outline On 20 May 2010, Googleannounced10 Google TV which is an open platform that the company hopeswillchange thefutureof television.Theinitiativewassimultaneouslyannounced bysix launchpartners(seeTable5). In contrast to similar initiatives in the past (e.g. Microsoft WebTV and Yahoo TV Widgets) It is worth pointing out that Google is positioning Google TV as an initiative that is mainly about leveragingthepoweroftheinternetinordertoenableasuperiorTVexperienceasopposedtoa wayofdeliveringtheinternettotheTVset.However,whilethisistheintention,GoogleTVisnot to prescriptive about this and it remains to be seen what sortof services developers will create andwhichofthosewillbecomethemostpopular.WebelievethatitwillbetheTVfocussedapps that will prevail in the end, as opposed to TV versions of Facebook or the Washington Post, for example. GooglesOpenMediaProject:VB8CodecandWebM Throughits$120millionacquisitionofOn2TechnologiesinFebruary2010,Googleobtainedaccess toahighspecificationvideocodec,VP8.GooglehaspackagedanopensourceversionoftheVP8 videocodecwiththewellregardedopensourceaudiocodec,Vorbis,toproduceWebM,whichis thecompanysflagshipopensourcewebmediaoffer.WebMisnowavailabletodevelopersacross theglobeonaroyaltyfreebasisviaGooglesopenwebmediaprojectTheWebMProject(see www.webmproject.org). YouTube, a site which currently serves over 2 billion video views per day, is in the process of convertingitsentirevideocatalogueint6otoWebM,format.Thisinitiativewillbeofferedtousers under a new Google TV service called YouTube leanback which allows users to access their normalYouTubeaccountinawaythatisoptimisedfortheTVset. Importantly,Adobe,oneofthelaunchpartnersforGoogleTV,hasdecidedtoincorporatetheVB8 codecinthecompanysFlashplayer.GoogleTVwilluseFlashand,therefore,supportVB8.
10

See:http://www.google.com/intl/en/press/pressrel/20100520_googletv.html
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Google TV will be available commencing autumn 2010. Apart from TV sets that will incorporate Google TV and standalone set top boxes (STBs) called companion boxes, CE vendors, such as SonyandLogitech,willofferwirelesshandheldQWERTYcontrollersthatwillallowusertoenter searchqueriesandlimitedamountsoftext(e.g.tocompletearegistrationform,enteranemail address,orengagewithotherusersviaasocialapps).Thehandheldcontrollersarenotintended to be used to create documents, but only to provide text entry functions that are directly associatedwithaTVexperience. System Components RefertoFigure11. HardwareandSoftwareElements ConsumerElectronics GoogleTVincorporatesthefollowingconsumerelectronicselements: TVsetsthatincorporateGoogleTV(seeJonesFamilyFigure11); Blurayplayers; Companion settop boxes, which work with the users existing cable or satellite PayTV box, regardlessoftheoperator(seeSmithFamilyFigure11).Userscanconnecttheirexistingcableor satelliteTVsettobox(STB)totheGoogleTVcompanionboxusingaregularHDMIcable; Broadbandconnectivity(WiFiandEthernet); WhetherincorporatedinsidetheCompanionBoxorintegratedwithinaTVset,GoogleTVincludes amoreadvancedmicroprocessorthanthattypicallyfoundinTVsetsaswellasadedicatedDSP thatcanprocessvideoinHDandaudioinsurroundsound;

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 Company Intel Contribution

generator

Intels role is to deliver chips that allow CE vendors to introduce internettype performanceintoaCEproduct(e.g.aTVsetofsettopbox).Specificallythecompany isproviding: Atomprocessor(Netbook/lowendnotebookperformance) Support chips (HD video, encoders and decoders, highperformance graphics processing) However, none of the products Intel is offering have been specifically designed for SmartTV,whichisjustoneapplicationarea.

Adobe

Adobe is contributing Flash 10.1 technology which the company claims is more optimisedforlowerpower,CEtypedevices.

Sony

SonywillintroducearangeofTVsetsthatincorporateGoogleTV. SonysfirstGoogleTVenabledTVsets,willbelaunchedintheU.S.duringtheAutumn of2010andinEuropeduring2011(seeExe

Logitech

Logitech is developing a companion box and a handheld controller which will be launchedintheU.S.inAutumn2010. More broadly, Logitech hopes to develop a whole range of peripherals based on GoogleTV.

DISHNetwork

DISH Network, a direct competitor to DirectTV, is a satellitebased payTV service provideroperatingintheU.S.andMexico. The company has announced a plan to integrate Google TVbased within its PayTV offer. ThiswillallowviewerstoswitchfromviewinglinearTVtowebbasedtelevisionwithin theDISHuserexperience.

BestBuy

The USbased electronics retailer, who also has international retail interests, will providearetailfootprintforGoogleTV. However,thecompanywillalsoperformanimportantroleineducatingcustomers.At thelauncheventforGoogleTV,BestBuyCEO,BrianDunnsaidthatWhenGoogleTV is properly explained and demonstrated, customers will see that it solves real problems that they face today. I think there is going to be an enormous consumer appetitetodothis.Ithinkthisisnotjustanewaisle,itisacompletelynewcategory.

Table5:GoogleTVSummaryofMainLaunchPartnersandanExplanationoftheirContributions totheInitiative.

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Google TV input devices, all of which include a QWERTY keyboard and a pointing device so the usercannavigatewebpages.However,userswillmostlynavigateusingadirectionalpad,suchas that on a TV remote control, where onscreen navigation is limited to up, down, left, right, and enter; Software Google TV is based on Android 2.1, but it will be possible to downloads updates when these becomeavailable.ExistingAndroidappswillworkonGoogleTV,unlesstheyusedevicehardware andsoftwarefeaturesthatarenotsupportedontheTVset.Googleexpectsthatdeveloperswill wanttocreatenewappsthataredesignedfortheTVset; TheGoogleChromebrowser(version5.0)isalsousedwhichallowsuserstonavigateanywebsite. However,forthereasonsnotedbelow,wedonotthinkthatthiswillbeamajorusercase; TheuseofFlash10.1willallowGoogleTVtoplay720pand1080pFlashvideos(h.264).Thisdoes not mean that users will be able to navigate to websites that make heavy use of Flash and experiencethosesiteswiththesamequalityastheywouldonaPC.ThisismainlybecausetheTV Set/CompanionBoxhasreducedprocessingpowercomparedwithaPC.Again,Googlehopesthat developerswillcreatecontentspecificallydesignedforGoogleTV. Content:TVandMovies InternetWebsites UserscanviewconventionalinternetwebsitesusingtheChromewebbrowserthatisincorporate withintheirGoogleTVsetorGoogleTVCompanionBox.Todothis,theusercanenterasearch queryintotheGoogleTVsearchboxandsearchthewebinthenormalway,ortheusercantype inawebaddress. However, as mentioned above, while this will be possible, it is very unlikely in our opinion that many users will use the TV set to browse standard webpages. Quite apart from whether users wouldwanttousetheirTVsettobrowsetheweb,displayingpagesthathavebeendesignedfora PConaTVsetpresentssomeissues.Forexample:

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Evenaftertextsizeenhancement,thetextsizeonmanywebpageswillbetoosmalltobereadable fromtwoto3metres:TypicalfontsizesforTVarebetween18ptand21pt; Large blocks of text that look fine on a PC, will be difficult to read on a TV set: paragraphs will needtobelimitedtoabout100wordsandthenumberofwordsperlineneedstobelimited; As noted above, advanced Flashbased websites may appear slow or they may not even load properlyontheTV,whichhasmorelimitedprocessingpowerthanaPC; Colours that work well on a PC may not look right on a TV set: pure white can cause image ghostingonaTVandbrightorangeandredcancauseimagedistortion; SoundseffectsthatworkwellonaPC,whichtypicallyhaspoorspeakers,maybeobtrusiveona TVsetthathasanassociatedhighendsurroundsoundsystem. GoogleTVContent GoogleTVisreallyintendedtobeusedwithcontentthathasbeenspecificallydesignedfortheTV or,moreexactly,GoogleTV. AsGoogleTVgainsincreasingmarkettraction,weexpectthatmosttelevisionserviceproviders brands that are familiar to the TV user base in a given market will write apps specifically for GoogleTV. Accordingly, users will also be able to increasingly access websites (TV content) that has been optimisedforviewingwithGoogleTV. UserswillalsobeabletodownloadapplicationstotheirTVsetorCompanionBox,thathavethe potentialtoprovidearicherexperiencethanwhatispossiblebydesigningawebsitethathasbeen optimisedfortheTV(seebelow). DeveloperCommunity ThemostnotabledifferencebetweenGoogleTVand,asfarasweareaware,anyotherInternet TV initiative so far announced is the associated developer programme which means that third partieswillbeabletowriteapplicationsthatcanbedownloadeddirectlybyusersviaaTVversion oftheAndroidMarket.
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InthewordsofGoogle11TheGoogleTVplatformwillallowdeveloperstonavigateTVcontent. AndroiddeveloperswillnotonlyhaveaccesstomostoftheAndroidAPIscurrentlyavailablebut alsotoGoogleTVspecificAPIextensionsthattapintothepowerofTV.Thesignificanceofthisis that, in principle, developers will be able to create their own search, recommendation and discovery services. Therefore, in the future, a users primary interface with Internet Television contentmightbeviacompanyxyz,notGoogleandnottheirexistingPayTVprovider. GoogleispresentingGoogleTVtothedevelopercommunityasawaytogainaccessto4billion users.During2010I/ODevelopersSummit,whenGoogleTVwasannounced,RishiChandranoted thatthereare4billionTVusersintheworks,comparedwith2billionmobileusersand1billionPC users.MrChandrastated12thatForadeveloper,thereisnobiggermarketthantheTVmarket. While this is true, it is equally true that of the 4 billion TV users that Mr Chandra refers to, developerscanaccess0%ofthoseuserstoday.EvenifGoogleTVisaspectacularsuccess,itwill be many, many years, perhaps decades, before the number of Google TV sets available to developersiscomparablewiththenumberofPCsormobiledevices. While many developers will be film producers, television broadcasters and brands who want to connectwithuserviatheirTVsetessentiallylargewellknowbrandedplayerswhoarealready involvedittheTV businessitwill be possibleforanyonetowriteappsonalevel playingfield basis,asisthecasewithAndroid(mobileversion). However, the usefulness of these applications will depend on the richness of the API and, most importantofall,thesortofrelationshipthatGoogleTVallowsbetweendevelopersandbranded contentproviders. Forexample,considerthesepoints: ContentIndexingandMetaData Assume that at some Pont in the future ABC creates a site specifically for Google TV, either for directviewingviatheGoogleTVChromebrowserorviaanapplication.

11
12

See:http://www.google.com/tv/faq/

See:http://www.youtube.com/googledevelopers#p/c/CF01A789E62F2454
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ThenwouldGoogleTVmakeiteasyforathirdpartydeveloperstoknowaboutthatsite,obtain meta data about the shows and movies available on the site and then present that content to otherGoogleTVusers,viaavalueaddedserviceprovidedbythedeveloper? ContentDiscoverability:PreventionofUnwantedSyndicationwithintheGoogleTVPlatform Would ABC be able to prevent such a scenario? For example, by setting a flag (equivalent to robots.txt)thatinformedthirdpartydevelopersthatthecontentwasnottobeindexed? SharingAdvertisingandOtherRevenue Assuming that ABC was happy for its content to be indexed and syndicated by potentially unknown parties, then we think that it would be very unlikely that any associated revenue resultingfrominstream videoadsthatwereservedbyABCwouldbesharedbetween ABCand thethirdparty.WethinkthatABCwouldcollectalltheadrevenuewhilethethirdpartywouldbe responsibleformakingmoneyusingtheirownbusinessmodel. ThesameconsiderationsapplytootherformsofadrevenuethatmightbebeingearnedbyABC onGoogleTV.Forexample,thecompanymightchoosetooperateaPayperviewmodel,orsell subscriptionstocontentthatisexclusivelyavailableonGoogleTV. ImplementationofGeographicLicensingRestrictions WithintheGoogleTVAPI,therewouldneedtobeawayforABCtoexposethegeographiclicense rights for each video content item. So that, for example, a show that is not licensed for distributioninBelgium,isnotvisibletoGoogleTVusersinBelgium. AdTargeting:Geographic,DemographicandContextualCriteria In the event that ABC was happy its content to be indexed and syndicated by third parties who werepartoftheGoogleTVplatform,thenwouldtherebeanywayforABCtoknowwhere(i.e. state,country)theavideoitemwasabouttobeserved,whoto(TVset,anydataprovidedbythe users) and what the context was (what show they were watching previously, what the viewing historywas,whatthelocaltimeitwasetc.)sothatanappropriateadvertisementmightbeserved. We think that this sort of targeting data will be make available to advertisers under any future Ads for Google TV programme, but we are less sure that Google would be freely provide it to playerslikeABCwhowantedtoservetheirownads.

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GooglewouldclearlypreferthatABCuseditsadplatform,whichwouldmeansharingadrevenue withGoogle.ABCwouldprefertoserveitsownads,andjusthaveGoogleprovidethetargeting data. RevenueModelsforThirdPartyDevelopers Assuming that any ad revenue, payperview revenue, subscription revenue or ancillary revenue streamsearnedbyABCforservingcontent(e.g.moneytakendirectlyforusersviaandirectbilling relationship) was not shared with third party service providers (perhaps a search or content discoveryservice)thenitisunclearhowsuchcompanieswouldmakemoney. Therefore,GoogleTVwill,needtoincorporatetools,processesandotherenablersthatwillhelp suchthirdpartiesmakemoney.ApartfrombeingabletoselltheirappsviaAndroidMarket(TV version), Google might integrate Google Checkout into Google TV so that cash can be collected directlyfromusers,addingaformofAdSenseforVideointoGoogleTVsodeveloperscansharein theadrevenueearnedbyservingadswiththecontent(potentiallyalongsideanyinstreamvideo adsservedbythesourcecontentprovider). Depending on how Google has decided to address these questions (not publicly announced), GoogleTVmayprovideanunprecedentedopportunityforthirdpartyserviceproviderstodevelop relationships with users in a way that is not possible with any other television platform so far announced. Whilewedonotyetknowtheanswerstotheabovequestions,hereisasummaryofwhatwedo knowaboutthedeveloperprogramme: Google will provide an Android SDK addon with Google TVspecific extensions a few monthsafterfirstproductavailability(i.e.Q12011,orsooner); Google plans to publish the source code for Google TV during 2011 so that anyone can downloadthesoftwareforfree(opensourceapproach);

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TheChromebrowserwhichwillbeincorporatedaspartofGoogleTVisalmostexactlythe sameasthatusedonthePC,withsomeminorchangestotakeintoaccountthedifferent screensizeoftheTVset.Updateswillbeprovidedautomatically;

Androidversion2.1willbeusedinthelaunchversionofGoogleTVbutitwillbepossible toupgradethistofutureversionsofAndroid;

WhentheAndroidMarketforTVisavailable,existingAndroidappswillworkonGoogle TV,unlessthedeveloperoftheapphasusedhardwareorsoftwarefeaturesthatarenot supportedontheTV(e.g.videocamera,addressbook); Applications:ExampleAPIFeatures Rather like the app strategy that is becoming very popular with mobile and, we believe, Media Tablets,GoogleTVincorporatestheconceptofapplications. Google TV is the first attempt to extend the concept of apps to the TV set. Prior attempts, like WebTV, Microsoft Media Centre PC and Yahoo! TV Widgets have either meant that developers havehadtocreateanotherversionoftheirinternetwebsiteortheyhavebeenabletocreatea smallappthatrunsonaT%Vsetbutwhichjustcontainsasnapshotofcontentthatisalreadyon themaininternetwebsite., We think that Google TV apps have the potential to be very different because many of the API featuresthatarepartofAndroidwillbeavailableaspartofGoogleTV,whichisbasedonAndroid. HerearesomeexamplesofAPIfeaturesthatwethinkareverylikelytobeavailabletodevelopers: SharingDatabetweenApplications Androidprovidesastructuredwaytosharedatabetweenapplications. Therefore,aTVrecommendationapplicationcouldinterfacedirectlywithaNetflixappontheTV. However, as all Google TV sets will be connected to the internet, there is no reason y why one application on one TV set (service provider x) could not share data with another application (serviceprovidery)onanotherTVsetthatis,potentially,inanothercountry.

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Equally,oneserviceprovidercouldcreateanappthatisbasedontheheavyuseofsocialfeatures where users can interface directly with each other, with one app sharing data directly with the other. EventtriggeredApplications Androidallowsapplicationstobetriggeredbyexternaleventssuchas: The status of a web resource had reached a defined state (i.e. new content has just been publishedonasite); An incoming call or text message has been received (one obvious application area for Google TV is video calling and the inclusion of social features will make it possible to interact with other who are viewing the same show, or who have commented on that show,forexample); ThestatusofanotherapplicationonanotherAndroidTVsethasreachedadefinedstate (i.e.afriendiswatchingaprogrammethatiswithinacategorythatauserhasexpressed aninterestin). LocationMangerAPI LocationdoesnothavethesamemeaninginaTVsettingasitdoesinamobilesetting:aTVusers positiondoesnotchange,butamobileuserspositionisconstantlychanging InAndroidmobile,thelocationmanagerAPIprovidestwobasiccapabilities: AnapplicationcanbenotifiedwhenanyAndroiddevicearrivesataspecificgeographical location. InAndroid(mobileversion)locationisbasedonGPSorathirdpartyservicewhereasnTVitcould bebasedonIPaddressoruserentereddata(perhapsatregistration).
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Aspecifictime/datehasbeenreached;

ThegeographiclocationofanAndroiddevicecanbequeried;

 Bywayofillustration,thesefeaturescouldbeusedinthefollowingways:

generator

Basedongeographiclicensingrestrictions,auserslocationcouldbeusedtodetermineif ashowcouldbestreamedornot;

The users location could be used to help decide which advertisement to serve within a givenapp; A social TV app could query the location of other users to find other viewers who have similarviewinginterestsandwholiveinthesamecityortown. XMPPServiceAPI XMPP provides and easy way for an Android application to send data to any other Android application, or combination of applications where the recipient application/s are not on the originatingdevice. In effect, XMPP allows applications to communicate with each other without the developer needingtodesignandinstallnetworkendmessaginginfrastructure,whichwouldbecomplexand problematical or embed established internet protocols inside their applications which would be morecomplexthanusingXMPP. Thisnotonlyallowapplicationstosendmessagestootherapplicationsitalsoallowsuserstouser anapptosendamessagetoanotheruser.Thismeansthat,forexample,aGoogleTVusercould sendtextmessagestoafriendorgroupoffriendswhiletheyarewatchingaTVshow. NotificationManagerAPI OnGoogleAndroid,thisallowsanyapplicationtoinsertnotificationsintothestatusbaratthetop ofthephone.Wecanseethesamesortoffeaturebeinginterestingtousersanddeveloperson GoogleTV. ThenotificationManagerAPIcouldbeusedtoalerttheuserwhenanewmessagehadarrived,or when the status of an Android application on another users device had reached a predefined state.
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TheNotificationManagercouldbeusedbysocialTVservicestoinformusersabouteventssuchas friendrequestsornewpostsonafriendsprofilepageonasocialTVservice(forGoogleTV)thatis focusedonaspecialTVgenre,saywesternsormoviesbyaspecificdirector. Itseemsthatequivalentservices,whichalreadyexistonlinewouldbeinterestedinextendingtheir offertoGoogleTV. It is worthwhile pointing out that the XMPP and Notification Manager APIs could be used in combinationtocreatenewmessagingservicesservicesthecouldrivalthoseofferedbymobile serviceproviders. User Experience UsageModes GoogleTVhasthreeusagemodes: LinearMode Theuserwatchesregularlinearprogramming(cablesatelliteorterrestrial); AppMode The user views television content that has been specially designed for Google TV using an application.ThiswouldbewhereacontentproducerwantstodistributeTVcontentontheweb andhaddecidedtodevelopanapplicationforGoogleTV; WebMode TheuserswitchestowebmodesaytheuserisviewingthemovieAlexanderandwantstolearn more about the history of Alexander the Great. In this case, while the movie is playing in the background,theusercouldassessthewebandpulluptheWikipediapageaboutAlexanderthe Great.Theusercouldpausethemoviewhileheisreading. The challenge foe the TV set makers and service providers will be to integrate these three experiencesintoasimpleuserinterface.

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Apps DeveloperCommunity GoogleNetworkAssets

GoogleTV Websites APIs Apps

Content

APIs

APIs

StandardFileFormat&MetaData (ContentDiscoverability)

Regular Websites

JonesFamily:
WillingtoBuyNewTV (TVNeedstoSupportGoogleTV) +CEVendors

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HDMI

AnyHDTVSetwithan HDMIconnection

TVSetthat Incorporates GoogleTV

+CEVendors
GoogleTV Companion Box WirelessLink (e.g.WiFi)

WirelessLink (e.g.WiFi) GoogleTV RemoteTVController (CouldbeaSmartphoneor mediatabletapp)

SmithFamily:
WantstoUseExisting HDTV (HavetobuyaCompanionBox )

GoogleTV RemoteTVController (CouldbeaSmartphoneor mediatabletapp)

+DeviceVendors

+DeviceVendors

generator

Source:GeneratorResearch

Figure11:GoogleTVIllustrationofConnectivityOptionsintheHome

WorldwideComparison
2001 2002 2003 2004 2005 2006 2007 2008 2009 $ 85 $ 430 $ 1,437 $ 3,125 $ 6,016 $ 10,393 $ 16,262 $ 21,359 $ 23,177 n/a 407.5% 233.9% 117.5% 92.5% 72.7% 56.5% 31.3% 8.5% $ 8,816 $ 10,026 $ 12,177 $ 15,290 $ 21,887 $ 30,045 $ 40,585 $ 49,139 $ 57,495 n/a 13.7% 21.5% 25.6% 43.1% 37.3% 35.1% 21.1% 17.0% $ 109,993 $ 112,566 $ 118,534 $ 127,144 $ 131,861 $ 137,579 $ 142,351 $ 152,719 $ 156,044 n/a 2.3% 5.3% 7.3% 3.7% 4.3% 3.5% 7.3% 2.2%

USD,millions GoogleRevenuesfromAdvertising: AnnualChange: InternetAdvertisingExpenditure: AnnualChange: TelevisionAdvertisingExpenditure: AnnualChange:

Source:CompanyReportsandGeneratorResearch

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Table6:ComparisonbetweenGooglesWorldwideRevenuesfromAdvertisingandTotalWorldwideExpenditureonOnlineAdvertisingandTelevision Advertising

 ConnectivityOptions:CompanionBoxorIntegratedTV

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GoogleTVwillbeavailabletoanyuserwhohasanHDMIcapableTVset,ofwhichthereareabout 60 million installed in the U.S. today. In this case the user will have to purchase a Google TV Companion Box (see Figure 12). However, some TV set vendors, such as Sony, will be incorporating Google TV into their some of their TV sets commencing in the U.S. during the Autumnof2010andinthesecasesaseparateCompanionBoxisnotrequired(seeFigure11).

Figure12:LogitechsCompanionBoxsupportingGoogleTV SmartphoneController Although not an essential part of Google TV, the Logitech Companion box for Google TV (see Figure 12) is based on the companys Harmony13 technology and allows the user to control an entireA/Vsetup(includingGoogleTV)withasingle,universalremotecontroller.

13

See:http://www.logitech.com/enus/remotes/universal_remotes
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However, with the arrival of Google TV, Logitech have taken the Harmony concept one step further: users can now control their home A/V setup (including Google TV) using their smartphone.Todothis,theusercangotoeithertheAppleAppStoreortheAndroidMarketand download a free Logitech app which can then be used to control a games console (the ingame controlwouldstillbeviathededicatedcontrollerwhichisdesignedforthatpurpose),PVR,cable TV service as well as Google TV. A WiFi connection is used between the Smartphone and the CompanionBox.

Figure13:IllustrationsofhowSmartphoneApps(iPhoneandNexus1)thatcanbeusedtocontrol GoogleTV Iftheuserwantedtosearchfortelevisioncontentthenhecouldusethetouchscreenkeypadon theSmartphonetoselectWatchTVandthenGoogleTVandthenhewouldbeableenterthe searchquery. The user could also use the Smartphone keypad to enter a PIN in order to gain access to premium television content. If the user was viewing an interactive video ad then he could also use the Smartphone to enter his contact details, in ordertoreceiveafewsampleof enteraprizedraw,forexample.

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ThesearchfunctionalityincorporatedwithinGoogleTVallowstheusertosearch: TheGoogleTVsearchboxcanberequestedatanytimeand,whentheuserisalreadywatchinga show,thesearchboxappearsontopoftheshow(seeFigure16). Figure 14: Google TVSearch LiveTV:Contentthatisalreadyavailabletotheuserviatheirnormaltelevisionservice/s (e.g.cable,satellite,telcoTVorterrestrial); GoogleTV:OnlinetelevisionandmoviecontentthatisintendedtobeviewedviaGoogle TV; RecordedTV:ShowsandMoviesthattheuserhasrecordedonaPVR; TheWeb:TheusercanviewanywebpagewiththeChromebrowser.

Applications ApplicationscanbeaccessedfromthehomepageofGoogleTV,whichiswheretheusercanalso accessGoogleTVchannels,favouriteshowsandbookmarkedcontent. Figure 15: Google TVHomePage

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Step1:TheuseriswatchingaTVShow.

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Figure16:IllustrationofhowtheGoogleTVSearchFeatureAppearswhentheusersiswatchingaTVShow

 Our Take

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ThereisnodoubtinourmindsthatGoogleTVrepresentsbyfarthemostsignificantdevelopment intheinternettelevisionmarketsofar. Theproductisveryyoung,soyounginfactthatsomereadersmightbesurprisedthatwecanbe soopinionatedabouttheplatformsprospectsatsuchanearlyjuncture. Ourviewisbasedontworeasons: Whenviewedformataproductlevel,itiscleartousthattheGoogleTVplatformhasby farthe highestpotentialtoenable thetypeofservicepropositionand businessbenefits setoutintheprevioussectionbecomeareality. Google TV is strongly linked to Googles wider business strategy which is based on advertising and scale. To us, it was inevitable that Google would try to enter the TV industry at some point and we think that the Google TV platform has the potential to transform the TV ad market to a broadly comparable extent to how Google AdWords transformedtheonlineadmarket.

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Apple TV
Service Outline Inspiteofanoriginalattempttoallowuserstoaccessselectedthirdpartycontent,forexample HDYouTubecontentwhichisstillavailable(seescreenshotbelow),AppleTVistodaypositioned primarilyasawaytoviewHDmoviesthathavebeenpurchasedorrentedfromtheiTunesStore. The last update t the product occurred on October 29 2009 when Apple introduced version 3.0 whichimprovedsupportforwidescreendisplays,improvedintegrationwithiTunes,andallowed userstostreaminternetradiocontent. ...I think the whole category [internet TV] is still a hobby rightnow.Idon'tthinkanybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were tryingthingshavefadedaway. SteveJobs,October2008 AppleTVfirstwentonsaleinMarch2007atapriceof$299.TheproductisaWiFimediahubthat works in combination with a PC or Mac and allows the user to wirelessly play movies and televisionshowsonawidescreentelevision.Thedeviceincorporatesa160GBharddrivethatcan store200hoursofvideo,36,000songsand25,000photos.ConnectivityoptionsincludeHDMI. The Apple TV media hub can play content that the user has already obtained, or it can play contentthathasbeendownloadedfromtheiTunesStore.AppleTValsoallowstheusertoview picturesonaflatscreenTVsetandlistentomusicviaahomeaudiosetup. Users can also download an application for their iPhone or iPod Touch which can be used to controltheirAppleTV,insteadofusingadedicatedwirelesscontroller.

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TheproducthasnotbeenagreatsuccessandinspiteofcommentsbyAppleCEO,TimCook,in October2008thatquarterlysalesofAppleTVwere300%uponthepreviousyearsquarter,and comments he later made that 2009/10 that sales were up 30% on the 2008/09 fiscal year, we estimatethatsalestodateofAppleTVarelessthan5millionunits,implyinghardwarerevenues oflessthanUSD1.5billion.Afterthreeyears,forApple,thisisclearlyabigdisappointmentand explainswhyJobsreferstotheproductaslittlemorethanhobby.

Table7:AppleTVMediaHub Our Take

We think that internet television is one example perhaps the only example in digital media todaywhereasimpleverticalstrategyisnotthebestoneforanewentrant. It seems that Apple has one way of entering new digital media markets, such as music, mobile, applicationsandnowwiththeiPadportablecomputing.Ineverycasesofarcompanyssuccess hashadalottodowithhavingtakenaverticalapproach.Buttherearefundamentalreasonswhy InternetTelevisionrequiresadifferentstructuralapproachandwethinkGooglesopenplatform strategyisfarmorelikelytobesuccessfulintheend.Wediscussthisinmoredetaillaterinthis report.

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BBC iPlayer
Overview ThisisapubliclyfundedinternettelevisioninitiativewhichisbeingdrivenbytheBBCintheUK. Commercialrivals,notablyrivalbroadcastersincludingSkyandITV,havebeenfiercelycriticalof the project which they say is beyond the BBCs public service remit and is having the effect of distortingthemarket.Meanwhile,arangeofUKISPshavecomplainedthatthelargeincreasein internetvideotrafficwhichiPlayerhascatalysed14hasresultedintheircostsincreasingmarkedly. Nevertheless,wenotethatthearrivalofiPlayerhassubsequentlyresultedintheintroductionof SkyPlayer(Sky)andITVPlayer(ITV)andwehavealsoseenthecomparativelyrecentintroduction ofhigherpriced,guaranteedbandwidthbroadbandinternettariffsspecificallyaimedatuserswho enjoy watching internet television (e.g. Virgin Media). These premium broadband services allow userstowatchiPlayerandsimilarserviceswithouttheirtrafficconsumptionnecessarilyaffecting other users or damaging the commercial interests of the ISPs involved in delivering the video streams. OtherPublicServiceBroadcastersaroundtheglobearedrivingsimilarinitiatives,forexample,in Germany(DeutcheWelle),Norway(NRK)andCanada(CBC).

Figure17:iPlayerasitappearsona1080pTVset(simplyconnectingaNotebookcomputertothe TVsetwhichisusedasadisplay) InMay2009,theBBCreportedthatthetotalbandwidthneededtoserveusers(intheUK)peaksatabout60Gbit/swhilethetraffic deliveredduringatypicalmonthisabout7PB(e.g.7,000GB).

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iPlayer is an internet television service15 that is available to users who access the internet from within the UK16. The service allows users to access practically all television and radio content broadcastbytheBBCforthelastsevendays.Somecontentremainsavailableforalotlonger. TheBBCslicenseagreementswithcontentpartnersallowcontenttobecomeavailableassoonas 1min after it airs on the BBC linear channels. However it takes the operations team about 15 minutes,andsometimesalotmore,topublishthecontenttotheiPlayerplatform. Users can also download many programmes, which are protected with Windows Media DRM. However,downloadsonlyaccountfor10percentoftotalbandwidthconsumption.Eachweek,an averageof400hoursofnewvideoprogrammingbecomesavailable. A growing amount of video content on iPlayer is now available in high definition, or HD, (H.264 encodingat3.2Mbit/sand192kbit/saudio). For streaming content, the BBC uses a number of Content Delivery Network (CDN) partners, includingAkamai,Level3,Limelight.RealNetworksisusedformobiledevices.Fordownloads,the BBCusesitsownserverswhicharehostedbySiemens. BasedonFlash,theserviceitselfiscurrentlyonlyavailableintheUKandismainlydeliveredtoPC usersbutitalsobecomingavailableonarangeofotherplatforms,includingVirginMedia(where itappearsasaCableTVchannel),NintendoWii,andiPhone17andanexpandingrangeofothers. We expect that iPlayer will also become available on iPad and Google TV when these platforms becomeavailable.TheBBCappeartobeonamissiontoturniPlayerintoaglobalbrandthatwill be syndicated across multiple digigital platforms in a similar way to how linear television programming is syndicated. We understands that the BBC is also interested in licensing the technologyplatform,specificallytoothertelevision broadcastersaroundthe globewhowantto offer their users a leadingedge internet television experience, but who do not have the time, expertiseofbudgettodeveloptheirownplatform.
15 16 17

TheiPlayerservicealsoincludesradioprogrammingandpodcastsbutitisthetelevisionaspectforwhichtheserviceisbestknow. TheBBChasacquiredondemandrightsthatarecurrentlylimitedtotheUK.

TheBBChavehadtodevelopaspecial(nonFlash)versionofthestreamingservicetoallowiPhoneuserstoviewstreamingiPlayer content.WeexpectthecompanywilldothesametoallowiPaduserstoaccessiPlayer.
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Lookingahead,theBBCisintheprocessofdevelopingandintroducingarangeoffeaturesthatare wellalignedwithwhatwehavedescribedearlierinthisreport(seeBenefits:ServiceProposition): Contentrecommendation aredeliveredtousestotheirpreferreddevicebasedonuser definedpreferencesandpastviewingbehaviour; Users would be able to subscribe to services and programmes in return for receiving updatesandaccessingvalueaddedfeatures; Userswillbeabletostorecontentinanonlinemedialibrarywhichwouldineffectbea cloudbasedPVR; ItmaybecomepossibletocustomisetheappearanceofiPlayertoremovecontentgenres thatarenotinterestingandtoallowuserstomorequicklyaccesstheirfavouritecontent categoriesandonlinemedialibrary. WealsounderstandthattheBBCisdevelopinganinternationalversionofiPlayerthatwillallow usersfromoutsidetheUK,whoarenotrequiredtopaythetelevisionlicensetaxwhichfundsthe BBC,toaccessiPlayeronapaidforbasis. Our Take iPlayerhasbecomesomethingofabenchmarkforInternetTelevision:thisisaseriousservicethat workswelland,inHDmode,canbeimpressiveonanHDTVsetassumingtheuserhasatleast 4MBit/savailableontheirbroadbandconnection.Inourexperience,thevisualqualityofiPlayer HDisatleastasgoodaswhatisavailableonHDchannelsofsatelliteorcableTVintheUK. If the BBC continues to improve iPlayer by adding more features, internationalising the product andsyndicatingitacrossmoredevicesandplatformsthentheservicewillremainacentralpartof theInternetTelevisionlandscapeintheUK,where,forobviousfundingreasonsitwillalwaysbe bestknown. However, looking into the future, iPlayer will find a match in Google TV which we think has the potential to ultimately offer more content and richer features. Therefore, we see iPlayer being developed to incorporate Googlelike features such as, for example, an app strategy and associateddeveloperprogramme.

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Project Canvas
Overview

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Project Canvas is UKfocused initiative based on a proposed partnership between Arqiva, the BBC18,BT,C4,Five,ITVandTalkTalk.Atfirstsight,CanvasmightappearbroadlysimilartoGoogle TV but the project is in fact a completely different and it is not directly related to internet televisionatall. Instead,CanvasisfocusedontheUKFreeview19market,whereviewerscangainfreeaccesstoa range channels that are marketed under the Freeview brand name and available on a combinationoffreetoairandpayTVplatforms.TheFreeviewmarkethasbeenverysuccessfulin the UK but it is starting to suffer because it does not have an upgrade path for more advanced featuresandfunctionality,andthisisbecauseofitscommercialstructureandtherivalinterestsof the companies who run and operate Freeview (and who provide) the programming content for theservice. Essentially, because Freeview will not finance any technology development of its own the platformisfallingbeingthemarketforinstancethereisnoVoDcapability,noPVRfunctionality andnoHDoffer.In contrast,Skyand Virgin Mediaalreadyhavethesefeatures.Therefore,over thenextfewyearsasconsumersstartusingtheadvanceddigitalfeaturesnowavailableionPayTV platformsandbeginusinginternettelevisionservicestheywillstartlosinginterestinFreeview. Canvas is intended to take Freeview to the next level by putting in place a technical and commercialframeworkthatconsumerelectronicsandotherscanusetodevelopanew,allinone, internetconnectedSTBandassociatedserviceaspectsthatwillbringFreeviewuptodate.

18 19

TheBBCsproposaltotheBBCTrusttotakepartinCanvaswasapprovedon25June2010. Freeview is a freetoair service that is available toUK customers who purchase a compatible STB or who already have a Pay TV

subscription that incorporates FreeView. Freeview is the trading name for DTV Services, which is a company equally owned by UK televisionbroadcastersSky,ITV,andChannel4aswellthetelevisioninfrastructureoperatingcompany,Arqiva.TheFreeviewmodel hassubsequentlybeencopiedandisnowoffe4edinFrance,Italy,NewZealandandAustralia.

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Because Canvas is not driven by a strong commercial imperative20 we think that it is unlikely to haveamaterialimpactontheinternettelevisionmarketintheUK,letaloneinternationally.

Hulu
Service Description Founded in March 2007, Hulu is an adsupported streaming internet television service that is offered for free for PC users or under a subscription, Hulu Plus, which provides access to more contentonmoredevices.ThemajorityofthecompanyssharecapitalisownedbyNBCUniversal, NewsCorp.,TheWaltDisneyCompanyandProvidenceEquityPartners(whohassofarinvesteda totalofUSD100million). HuluiscurrentlyonlyavailableintheU.S.mainlybecauseoflicensingrestrictionsalthoughaUK version of the service was expected to be launched in 2009. However, this failed to materialise becauseofadisagreementbetweenhuluandITV,Channel4andFiveTelevisionoverwhowould selltheassociatedadinventory,whattherevenuesharewouldbeandwhatadswouldbeserved withinagivensteam. The companys most recent announcement came on 29 June 2010, when Hulu Plus was announced21, which is an adsupported, subscription service costing $10 per month that will be offered alongside the existing free, adsupported service which is now aimed at PConly users. Hulu Plus, allows users to access all historic episodes of almost all of the network TV shows currently available on Hulu for the current season. For some shows, for example The XFiles, HuluPlussubscriberswillbeabletogainaccesstobackseasonsaswell. AnotheraspectofHuluPlusistheabilitytoplaycontentonarangeofdevices,ratherthanbeing limitedtoaPCorMac,ascurrently.
20

For example, one of the projects sponsors, FIVE Television, has been recently put up for sale by its owner, the panEuropean See:http://blog.hulu.com/2010/06/29/introducinghuluplusmorewherevermorewheneverthanever/
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broadcaster,RTL.RTLhastoldFIVEtopulloutofCanvas,implyingthattheprojectisnotcontributingtoFIVEsenterprisevalue.
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HuluPlussubscriberswhoownselectSamsungInternetconnectedTVsandBlurayplayerswillbe able to download a HuluPlus application from the Samsung app store and start streaming Hulu PlusdirectlytotheirHDTV. HuluPluswillalsobeabletodownloadafreeiPadappwhichallowsHulutobeenjoyedoveraWi Fi or 3G wireless connection. Hulu have also created an app that is compatible with the iPhone 3GS,iPhone4andthe3rdgenerationiPodTouch.

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In many ways Hulu has become a gold standardforInternetTelevision.Thecompany isbackedbyheavyweightindustryplayersand, to the surprise of some, has consistently introducedservicesthathaveimpressedusers, both in terms of UI, visual quality, service reliability, content, and, most recently, support for viewing on multiple devices (Hulu Plus). Nielsen online viewing data shows that in September 2008, just six months after the public launch, Hulu has become the 6th most popularvideostreamingsiteonthewebinthe U.S.with142millionstreamsdeliveredto6.3 millionuniqueusers.Forcomparison,YouTube had5.5billionstreamsand81.9millionunique users while ABC.com had 45 million streams and5.2millionuniqueusers. By October 2009, according to ComScores Video Metrix, hulu was the 5th most popular video streaming site on the web in the U.S. with42.3millionuniqueviewers(YouTubeand MySpace were 1st and 2nd with 126.1 million and53.4millionrespectively). There is no doubt that hulus user base is growing strongly but the introduction of hulu Plus suggests that the company was struggling to make a business out of ad revenue alone and thereforefeltcompelledtointroduceasubscriptionmodel.

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Boxee
Service Outline

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Thisserviceisaccessedviaa40MBapplicationforWindows,MacandLinuxcomputersaswellas AppleTV.However,itisclearthatBoxeeisreallyintendedtobeusedonaTVset,whichmeans theuserwillhavetoconfiguretheirTVsetasasecondmonitor. Userscanalsoaccessvideocontent,suchasTVshowsandmoviesthatarealreadystoredontheir computers.ThispreexistingcontentcanthenbeaccessedundermoviesandTVShowsinthe Boxeemainmenu.TheservicealsoallowsuserstoplaymusicviaappslikeLast.fmandPandora.

UserscanaccessbrandedcontentviaBOXEEapps.

CNNcontentislimitedtoshortclips.

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BBCiPlayer:Boxee(TVVersion) Our Take Boxee is a reasonable implementation of an internet television aggregator service and the user interfaceworkswellonaTVset.Apartfromarelativelackofcontentinthewidersense,andin common with other aggregator services, such as SeeSaw for example, Boxee currently has two majordeficiencies: Nooffsitesearchfunctionality:contentislimitedtowhatisalreadywithintheservice; NotintegratedwiththeTVset:therequirementtoconnecttotheTVwithacablewillbe toocomplexformanypeople. However,bothoftheselimitationsareinmanyrespectsanaturalconsequenceoftheearlystage nature of the market and we think that Boxee will work to address these problems as soon as marketconditionsallow.

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SeeSaw TV
This is a UKbased streaming internet television service that aggregates a range of television content already available online at websites and services offered by the UKs leading television broadcasters22. SeeSaw, which does not currently host any content, consists of a unified user interfacethatallowsuserstoaccesscontentalreadyavailableatanumberofonlinelocations. SeeSaw is delivered using the technology that was jointly developed by the BBC, ITV, Channel 4 andFIVETelevisionfortheirownvideoondemandservicewhichwasbeingdevelopedunderthe projectnameKangaroo.However,KangaroowasblockedbytheUKCompetitionCommissionin February 2009 which said it would adversely affect the development of a healthy competitive marketforonlinevideointheUK23.SubsequenttothecollapseofKangaroo,Arqiva24purchased Project Kangaroos assets for around 8m in July 2009 and Arqiva now owns and operates the SeeSawservice. The SeeSaw service, which launched in February 2010, does not currently offer movies and is limitedtoPCusers.UserscaneitherwatchSeeSawdirectlyusingtheirPCswebbrowserorthey canconnecttheirPCtoaTVsetusingastandardVGAorHDMIconnector.Mostofthecontent available on SeeSaw is free but some, for example material provided by FIVE and Channel 4, incorporatesadvertisements.

Because of recent change of management at ITV, which is conducting a strategic review, SeeSaw does not currently include any contentofferedbyITV.
23 22

24

PeterFreeman,chairmanoftheCompetitionCommission,saidinitsfinalreportonProjectKangaroothat"Afterdetailedandcareful consideration,wehavedecidedthatthisjointventurewouldbetoomuchofathreattocompetitioninthisdevelopingmarketandhas tobestopped." Arqiva is also one of the shareholders in the UKs Freeview service, a freetoair digital, terrestrial broadcast television service availablethroughouttheUK.
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Amazon Video on Demand

Launchedinthesummerof2008,AmazonVideoonDemandinitiallyallowedPCandMacusersto buyandrent50,000commercialfreemoviesandTVshows.Morerecently,theservicehasbeen improvedsothatitcanalsobeaccessedusingarangeofcompatiblenonPCdevicesincluding: 68HDTVsetsproducedbyPanasonic,SamsungandSony; NineBlurayplayersofferedbyPanasonicandSony; FivemodelsofDigitalVideoRecorders(DVR)producedbyTiVo; Four dedicated Set Top Boxes (STBs) produced by, Roku (see

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 RokuandSony(viatheBraviaInternetVideoLink)).

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UserscanstreamAmazonVoDtotheirPC,Macorcompatibledevice(above).Inthe caseofPC and Mac users this requires the download of a client application which Amazon has called the UboxVideoPlayer.Userscanalsotransferdownloadmoviecontent(whichisDRMprotected)toa limitednumberofcompatibleportabledevicesproducedbyArchos,NokiaandCreative.

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Roku
FoundedbytheformerPresidentandCEOofReplayTV,Rokuisaninternettelevisionservicethat was launched in 2008 and currently offers users a choice of around 50,000 content items (companydata)includingmovies,TVshows,sportsandnews. The service, which is broadly similar to Vudu, is primarily positioned as a streaming movie service that works with any TV set. Users need to buy a Roku Digital Video Player in order to access the service (three Digital Video Player box options are available ranging in price from USD 69.99 to USD 99.99).

UserscanthenstreammovesfromNetflixandAmazonVideoOnDemandaswellascontentfrom MLB.com (U.S. Major Baseball League) and other providers. In the case of Netflix and MBL content,userswillneedasubscriptionwiththeseservices(e.g.Netflixonlinemoviesubscriptions startfromUSD8.99permonth).

SelectcontentProvider:AmazonVoD

SelectMovie:HarryPotter

Decidewhethertowatchtrailerorfullmovie

Wait for movie to start playing (Roku claims 30secs)

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ZoweeTV (formerly Zillion TV)

Service Outline InMarch2009,ZillionTVannouncedaplantolaunchaninternettelevisionserviceforTVsetsthat wasbasedonasettopboxwhichthecompanycalledaZbar.Atthetime,Zilllionclaimedtohave signeddistributionagreementswitharangeofbrandedcontentproviders,includingWarnerBros. Digital Distribution Disney, Sony Pictures, 20th Century Fox Television, NBC Universal and Sony Pictures.However,theservicewasneveractuallylaunched.

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Followingchangestotheseniormanagementteam,resolutionofongoinglegalwoesandaUSD 10millioninvestmentbyQwestCommunicationsandachangeofnametoZoweeTV,thecompany hasmostrecentlysaidthatitplanstostartbetatestingduring2010.WeunderstandthatQwest madeitsinvestmentinreturnforexclusiverightstooffertheresultingserviceinanyofQwests serviceareas. Our Take Serviceslikethiswillfinditveryhardtobuildasustainablepositioninthemarketplacepurelyon thebasisofofferingastandaloneinternettelevisionservice.Therearefourreasonsforthis: In cases where such services are offered by new entrants who are not already in the consumerelectronicsbusiness,thentheywillnothavethescaleoroperationalexpertise needed to make money by selling set top boxes, which are in any case usually sold by rivalsonacostcoveredbasisandwhoareshippinginmuchhighervolumes; Venturecapitalfundedcompaniesarecommonlycashconstrainedwhichmeansthatitis unfeasibletoselfproducehighqualitycontentandunfeasibletopayforexclusiverights tocontentthathasbeenproducedbyothersandforwhichtherewillbemassdemand; Even if the service provider was very wellfunded and did have a lot of cash to obtain exclusive content that had mass appeal, companies like Zillion do not have the brand equity or access to mass distribution that would allow the same ROI on a major investmentincontentaslarger,moreestablishedrivalscouldachieve; Unlike telcos who offer IPTV as a way to persuade users to take out lucrative fixed broadband subscriptions, companies like Zillion only have one aspect to their service offering which has to be monetised by serving ads or persuading users to pay to gain accesstothecontent(eitheronapervieworsubscriptionbasis).Inessence,companies likeZillionaredisadvantaged because they cannot offerabundleofservices (e.g.triple playorquadplay)inthesamewaythattelcoTVserviceproviders,suchasAT&T,BRTor FranceTelecomroutinelydo.

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We think that Zillion waswell aware of these shortcomings, which is why the company decided that its route to market needed to be via broadband providers. However we also think the companycametothetablewitharelativelyweakaftermostbroadbandproviderswerealready wellunderwaydevelopingtheirownIPTVservices. Insummary,wethinkthatthiscategoryisserviceisveryhardtomakework,aswasdiscoveredby the now defunct Akimbo Video on Demand service which launched in October 2004 but was closedin2008havingfailedtoattractsufficientnumberofcustomers.

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Clicker.com
Thisisanonlinetelevisionguidewhichaggregateslinkstoalargevolumeofwebvideospanning allpopulargenresoftelevision,film,musicvideonativewebvideo.Inthecompanyswords,the contentofferinincludesmorethan650,000episodes,fromover10,000shows,fromover2,000 networks,30,000movies,and80,000musicvideosfrom20,000artists.

Clicker:TVversion Clicker was relaunched in June 2010 as tv.clicker.com which the company hopes will encourage users to view clicker on theirTVset,insteadofaPC. SomecontentishostedbyClickerbutthe majority is hosted by from parent sites likeAmazonVOD,iTunesandABC.com.

Clicker:PCversion

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LiveStation

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Livestation is a newsfocused internet television service founded by news veterans which is focussed on the UK market. The service offers a range of news content drawn from across the globeincluding,forexample,AlJazerra(ArabicandEnglish),BBCPersianTV(Persian),CNN,CBNC, Deutsche Welle TV and Radio (English and German), France 24 and a range of related news content. All Livestation channels can be viewed using a standard web browser but if users want to downloadprogramsthentheyfirstneedtodownloadanapplicationtotheirPC(Windows,Mac andLinuxaresupported). Livestation also offers a premium version of the service for GBP 2.99 per month which allows userstoaccessadditionalchannelsandalsoallowsuserstoviewcontentinHD.

Vudu
This is an ondemand, HD streaming movie service that uses Peer to Peer (P2P) technology to minimiseVudusstreamingcosts.Thismeansthatoneusersdevicemightbeasourceofcontent foranotherusersviewing.Thecompanyhasfiledinexcessof30patentapplicationsfortheP2P technologyusedtodelivertheservice.Accordingtothecompany,Vuducurrentlyoffers2,000HD movietitles. Vudusbusinessmodelisbasedonadualpaytoownandpaytorentapproachwhichisoffered onamoviebymoviebasis.Asanexample,AvatarcostsUSD3.99torentandUSD19.99toown. Vudurecommendsthatuserhaveatleast2.2.5Mbit/savailabletoviewHDmovies. Vuduisfirmlypositionedatthetopendofthemarketanditsdownloadtoownmodelputsitin directcompetitionwithBluraydiscs. TheVuduserviceisincorporatedintoselectedtelevisionsets,BlurayplayersandHomeTheatre Systems offered by LG, two TV setsoffered by Mitsubishi, and a range other devices offered by Samsung,Sanyo,ToshibaandVIZIO.Ifusersdonothaveaoneofthesedevicesthentheyneedto purchaseaVUDUBoxwhichthecompanyreferstoasanInternetMoviePlayer. InFebruary2010,WalmartannouncedthatithadreachedadefinitiveagreementtoacquireVudu.

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Veoh.com
Veoh is really more of a video sharing site that an internet television service. However, the companyhasrecentlyaddedaTVaspectwhichallowsuserstoviewtheirfavouritevideosonnon PC,webenableddevices,includingtelevisionsets,viaasimplifieduserinterface. FollowingalongrunningandcostlycopyrightinfringementlawsuitfiledagainstVeohbyUniversal MusicGroupin2007,whichbankruptedthecompany,VeohwasacquiredbyaLosAngelesbased socialmediastartup,QlipsoinFebruary2010.ThefactthatVeohwasatthetimeattracting14 million visitors per month (ComScore) was presumably the reason for this unusual acquisition which was intended to accelerate the development of an audience for Qlipsos videosharing servicewhichisbasedaroundavatars.

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Crackle
Cracklewasfoundedin2004asavideosharingsitecalledGrouper.Thecompanywasacquiredby SonyPicturesEntertainmentforUSD65millioninAugust2006. The company was

subsequentlyrenamedCrackle and is now offers a range of on adsupported content

including fulllength movies and television shows owned by Sony Pictures Television as well as original web video content. Crackle(SonyPicturesTelevision):Dilbertanimatedshow Crackle is currently aimed at PC users and is not, as far as we are aware, integrated into any of Sonys internet

television projects (e.g. see Sony Internet TV) although aspects of the underlying technologyplatformmaybe.

Crackle(SonyPicturesTelevision):TheBridestarringSting

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FEARnet
Launchedin 2006,FEARnetisa communityandonlinevideositefocusedonhorror,thrillerand suspense.TheserviceoffersFREEondemand,streamingmovieseveryWednesday.FEARnetalso includessomeexclusivecontent(forexampleoriginalseries,directorsinterviews),movietrailers, and exclusive scenes and from upcoming films. FEARnet distributes it content via a number of onlineservicesincludingCrackleandVeoh.andMetacafe. FEARnet is jointly owned by jointly owned by Lionsgate, Comcast, Sony Pictures Entertainment andComcastandisavailableasaVODchannelinabout28millionjhomesthroughouttheU.S.via distributionpartnershipswithonanumbercableandDSLoperatorsincludingFiOSTV(Verizon), Uverse TV (AT&T), Insight Communications and Cox Communications. However, Time Warner CabledroppedFEARnetfromitscontentofferinginJuly2009. Most recently, in June 2010, FEARnet announced a plan to launch a linear network focused on horror.However,thiswillcompetedirectlywithanequivalentlinearTVchannel,Chiller,thatwas announcedbyNBCUniversalinJanuary2007.ApartfrommaterialownedbyNBCUniversalChiller also includes content from other studios including 20th Centrury Fox, Warner Bros, Sony and Lionsgate.

MUZU TV
This is a community site focused on music television. Users can watch, upload and share music video playlists. Apart from music videos the site also offers musicrelated documentaries, TV shows,interviews,behindthescenesfootage,musicproductiontutorialsand,accordingtoMUZU TV,exclusiveandrarefootage. Artists, bands and DJs can upload music videos which art then syndicated across a number of onlinesitesincludingFacebookandMySpace,plusalsothecontentprovidersownsite. MUZUTVservesadvertisementswithinthestreamandsharesrevenueswithrightsowners.

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TVCatchup

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TVCatchup25 is a UKbased restreaming internet television service that aggregates a range of freetoaircontent.Theserviceinvolvesaggregatinginternettelevisioncontentalreadyavailable in the UK and then reskinning and restreaming that content within a single, unified user interface.Originallylaunchedin2007asacloudbasedstreamingPVRservicefocusedaroundUK televisioncontent,theservicewassoonsuspendedfollowingactiontakenbythebroadcasters. TVCatchup was relaunched in 2009, without PVR functionality. However, despite attempting to differentiateitsservicebyaddingfeatureinadvanceofthosefeaturesbeingofferedonthesites offered by its content provide4rs for example iPhone and iPad apps the site ran into more problemsinJune2010whentheFTreportedthatITV,FiveTelevisionandChannel4weretaking legalactionagainstthesite.ItalsoemergedthatthesitewasincorrespondencewiththeBBC who is apparently concerned that the site is service preroll ads before programming that is fundedbyBritishlicensefeepayers.

TVCatchupsrevenuemodelisbasedonservingvideoadsonstartup.Basedonourtestsofthe serviceinJuly2010,theadsservicesareidenticalwithadsrunningonnetworktelevision.
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Inspiteofitsname,TVCatchupdoesnotcurrentlyallowuserstopauseandrewindprogrammes.
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PPLive

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HavingfirstemergedinDecember2004andnowwellknowninChinaandamongChineseliving abroad,PPLiveisaP2PbasedinternettelevisionserviceofferedbyShanghaiSynaCastMediaTech Co.,Ltd. (SynaCast). The service offers live streaming of familiar television content and includes over600channelsencompassingnews,sport,musicandmovies. AccordingtoSynaCast,82%ofPPLiveusersarebetween18and34andtheaverageuserspends 13hours per week on the site. In 2009, SynaCast claimed that an average 30 million users were usingPPLiveeverymonth,outofatotalinstalledbaseofover120million. Theserviceissupportedby30secvideoadvertisementswhilethecontent,90percentofwhichis Chinese,ismostlyst6ateownedandPPLiveclaimstohaveagreementsinplacewithmostfothe large startowned television content producers/broadcasters. The company does not have any agreementstoofferHollywoodmovies,forinstance,buttheseareofferedanyway. PPLLiveismanagedbyVincentTao,apriorMicrosoftexecutive,whobeforePPLivewasCEOof GeoTango,thecompanythatdevelopedthe3Dearthmappingtechnologythatwasacquiredby Microsoft in 2005 shortly after Google launched Google Earth. Synacast has in excess of 200 employees. TheservicecompetesdirectlywithPPstream,QQliveandUUSee.

SopCast
ThisisanotherP2Pstreamingtelevisionservicethatwaslaunchedin2004andismainlyknownin China and Asia as a means to access to over 100 television channels including. Compared with PPLive, SopCast is aimed more at tech savvy internet users who have the time and expertise neededtoconfiguretheirP2Pclient,asopposedtomainstreamtelevisionviewerswhojustwant towatchTVonline. SopCast allows users to stream Chinese, Korean and Japanese television channels and watch videosonanondemandbasis.ContentoriginatedfromotherSopCastuserswhopinttheirclients tomediastreamsandvideofileswhicharethenavailabletootherSopCastusers.

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CoolStreaming

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Another former P2P service that was shut down in 2005 due to legal action taken by rights holders, the underlying technology was sold to the internet streaming technology development company,RoxbeamMediaNetworkCorporation,in2005.Roxbeamprovidesthetechnologyused asapartofYahooJapansIPTVservicewhichwaslaunchedin2006.

Zattoo
Swissbased Zatoos primary market focus is continental Europe, especially Switzerland and Germany26. Zatoo is a restreaming service, similar to TVCatchup, which involves aggregating internet television content drawn from more than 80 internet television services, most notably services offered by national broadcasters, and then reskinning and restreaming that content withinasingle,unifieduserinterface. ZattooisbasedonaP2Parchitecturewhichrequireseachusertodownloadaclientapplication which converts their PC into a source of content for other Zattoo users. This has the effect of dramatically reducing Zattoos distribution costs. In 2008, the company claimed that its P2P approachallowedittoreducedistributioncostsby90%,comparedwithAkamai. Thecompanyclaimstobedeliveringover35millionstreamspermonthsto4.4millionregistered usersineightcountrieswhererightsclearancehasbeensought.In2009,Zattooreportedthatthe averageuserwasusingtheservicefor10hourspermonth,withsomemarketsexperiencingusage levelsupto12hourspermonth.Bycontrast,userstypicallywatchlineartelevisionforbetween 80and90hourspermonth. Although most of the content included within Zattoo is offered on an authorised basis, the company has run into problems in cases where it had decided to include content without the permissionofthesourcerightsholders27.

At the end of 2009 Zattoo was availablein Switzerland, Denmark, Spain, Germany, Belgium, Norway, UK and France with launch planningtakingplaceinafurther10Europeanmarkets. We understand that Zattoo has signed syndication agreements with more than 15 content providers in the UK, with the notable exceptionsoftheUKsmajortelevisionbroadcasters.
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For example, in April 2010 Zattoo had to remove programming sourced from the BBCs iPlayer following an objection by the BBC that Zattoo wasacting without permission. Similar objections havebeenraisedbytheGermanbroadcastersARDandZDFwhichresultedinacourtrulinginMay 2009forcingZatootoremovetheirprogrammingaswell.

Zattoo has also encountered legal problems in Belgium, when there company has been on the receivingendoflegalactiontakenbyUniversalandWarnerBros. Zattoo makes money by serving geotargeted advertisements during start up, during rebuffing periodsandalsowhentheuserchangeschannel.However,thecompanyhasbeenexperimenting withpremiumservicesandhassaidthatpaidforcontentwillbecomeanimportantaspectofthe Zattooserviceinthefuture.

Joost
Joost was launched in October 2007 as a free, ondemand video streaming service based on AdobeFlashthatmostlyofferedarangeofsocalledlongtailtelevisioncontent.Inordertouse the service, users first needed to download a client application to their PC. The technological approachwasbasedonaP2ParchitecturewhichmeantthatoneusersPCcouldbecomeasource ofcontentforanotheruserwhowantedtowatchthesameshow.

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The company raised a total of $45 million mainly from Sequoia Capital, Index Ventures, Viacom andCBS.Thesolesourceofrevenueswasfrominstreamadvertisements. The clientbased strategy was dropped in December 2008 when the company introduced a streaming(i.e.nonP2P),browserbasedversionoftheservice. InJune2009,barely18monthsaftertheinitiallaunch,thecompanysCEOMikeVolpihadstepped down and most of the companys 130 employees were laid off. Today, the service (www.joost.com)remainsusablebuthasdearthofcontent. WethinkthatJoostranintoproblemsforatleastthreereasons: Content and Marketing Joostwasalwaysaboutlongtailcontentandthatwasapparentfromthematerialonofferwhen the service first launched in October 2007. For example, the service included sports like cycling which are of limited appeal, at least when compared with mainstream sports which can attract broadcastscaleaudiences.Whileitmightinthefuturebepossibletocreateasustainableinternet television model based around content like this it was certainly not when Joost was launched: while the internet is the perfect vehicle to reaching a niche audience it is not possible without advancedmarketingsoensurethatthetargetaudienceknowsabouttheservice. Joost was, in effect, trying to create a largescale audience by aggregating hundreds of niche audiences. The content discovery and search infrastructure required to do this did not exist in 2007/8,andthisremainsthecasetoday. Execution We were very surprised when we learned that the companys headcount had exceeded 100 employees just 12 months after launch. With employees concentrated in three locations (New York,LondonandtheNetherlands),weestimatethatthecompanywouldhavebeenburningcash attherateofoverUSD1millionpermonth.

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Assumingthat130employeeswouldhavebeenenoughtomanageaplatformthatwasservingan activeuserbaseof870,000usersperdaythen,ouranalysisisthatJoostcouldhavebeenearning aboutUSD1.1millionpermonthinadrevenue(assumingthatthecompanyactuallysoldallofits adinventory,whichisdebatable).Therefore,thecompanywouldappeartohavebeenabletoat leastcoveritscosts. However,thisfailstotakeintoaccountthecostofdeliveringthevideos(streamingscenario,not P2P), which raises a serious question about the economics of all adfunded internet television services.

Akimbo
Akimbowasavideoondemandvideoservicedeliveredovertheinternettoasettopbox(STB). Users would browse content items using an onscreen programme guide, which was limited to Akimbosuppliedcontent.Havingfoundaninterestingitem,theuserwouldthenpayfortheshow which could then be downloaded to the Akimbo STB. All Akimbo content was encoded using WindowsMediaandprotectedusingWindowsMediaDRM.TheAkimboservicewasfirstlaunched in October 2004. The company was funded by a combination of venture capital and a trade investmentbyAT&T. 18 months after launch the companys customer based was extremely low and reportedly numberedjust250,asignificantpercentageofwhichwereemployeesandinvestors.Akimbowent outofbusinessin2008. WethinkthatAkimboranintoproblemsforseveralreasons: Price of STB The Akimbo set top box was priced at $300. This must have been a major barrier to adoption, especially considering that Akimbo was unable to offer any compelling, exclusive content. Rival cableandsatelliteTVservices,subsidisetheirSTBs,whicharesometimesprovidesforfree.

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 Content Catch 22

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Although Akimbo claimed to have around 200 content partnerships, the companys content offering was focused around second and thirdtier content for which there was no meaningful demand.Forinstance,showssourcedfromTurkishbroadcasterswerebeingofferedintheU.S. Thisistheproblemfacedbyallnewinternettelevisionservices:inordertocreatestrongdemand fortheservice,theserviceproviderneedstobeabletooffertopqualitycontent.However,the only way to gain access to topquality content which is very expensive is to be able to demonstrate strong demand for the service. The result is that the service provider is forced to build their service around a range of lowertier content, for which there is substantially less demand. Marketing UnlikeTelcoTVservices,wheretheserviceprovidercancrosspromotetheirservicetopotentially 10s of millions of telephony customers (e.g. by including promotional material in the monthly statement, conducting direct mail or email campaigns aimed at the existing customer base or includingadsonthecompanysinternetwebsiteetc.)anewserviceproviderfacesrealproblems andlargecostsinmakingpotentialcustomersawareoftheservice. No Bundling Akimbo was competing with entrenched cable and satellite TV service providers who had spent yearsperfectingtheirbusinessmodels,whicharefundamentally basedonqualitycontent.Such companies make money from subscriptions and, to a lesser extent, from advertising. The STB is oftengivenawayorsoldundera12monthcontractonacostcoveredbasis. As mentioned above (Content: Catch 22) It is exceptionally hard for a new entrant to compete with incumbent Pay TV television service providers using this business model, unless the new entrantcanbundlearivalPayTVservicewithotherservicesand/orhardware. For example, Telco TV services can be successful when viewed as a tripleplay play (where one serviceprovideroffersbroadbandinternet,PayTVandfixedtelephony)orquadplay(whereone serviceprovideroffersbroadbandinternet,PayTV,fixedtelephonyandmobileservice).

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Inthesecases,thetotalbusinesscanbeprofitable,evenifthePayTVelementwhenviewedby itselfonastandalonebasisisunprofitable. Akimbo did not have the option to bundle the PayTV element with anything else and so was forcedtousethebusinessmodelusedbyrivalcableandsatelliteTVproviderswhich,aswehave justexplained,doesnotworkunlessyoucanoffertopqualitycontentforwhichthereisalready massdemand. Pricing Model WithAkimbo,contentproviderscouldsettheirownpricesforcontentitemswhichresultedina wide range of prices, which were sometimes as high a $9 for a single show. This must have confusedcustomersandbeenasourceofannoyance.

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Market Analysis
Basedonthedefinitionusedinthisreport,InternetTelevisionisverydifferenttoanyotherform of television, including the two otherforms of IPTV (Internet Video and Telco TV). Although the introductionofInternetTelevisioncannotbecomparedwiththeintroductionofDigitalMusicthe twocategoriesareneverthelesscomparableinthesensethatmajorindustrychangeisinvolved.

Comparison with the Introduction of Digital Music

The primary difference between Internet Television and Digital Music is the pace and degree of industry change. In 2000, practically no digital music was being sold in digital format whereas today, just 10 years later, over 70% of the value of recorded music sales come from the digital format.Thisspectaculartransformationwaslargelypossiblebecauseconsumershadeasyaccess to the source content where anyone could copy a CD and upload the resulting songs onto unauthorisedfilesharingservices.Themusicindustrywas,ineffect,forcedtochangebyamass scaleshiftinconsumerbehaviour. TherearetwomainreasonswhythiswillnothappenwiththeInternetTelevision: Minimal Access to Content Consumersforthemostpartdonothaveeasyaccesstothesourcecontentsotheycannotforce industry change in the way they did for music. Content producers are very aware of what happenedwithmusicandtheyarefiercelyprotectiveoftheircontent.Also,legalprecedentsthat havebeenestablishedformusicnowmakeitcleartoentrepreneurswhatwillhappeniftheyset upabusinesswhosestrategyisbasedonprofitingfromthemonetisationofcopyrightprotected materialthattheydonotownandarenotauthorisedtocommercialise. Not a Replacement Format Internet Television is not going to replace existing forms of television because it is a not a substitutionalformat,liketheDVDforexample.ThebestwaytoviewInternetTelevisionisasa newtelevisionchannelthatwill,intheend,beavailableoneveryTVsetasastandardfeature. Notevery broadbandhouseholdwill usetheirInternet Televisionchannelandeventhosewho do use will not use it exclusively. Terrestrial, cable, satellite and Telco TV services will be used muchastheyaretoday.

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Impact on Viewing Hours

Inthefuture,weseemostbroadbandhouseholdsusingInternetTelevisionforsome,butnotall, of their viewing. Our projections indicate that by 2014, 38% of broadband households will use Internet Television services and that, for these households, Internet Television will account for 19%oftheirtotaltelevisionviewing.WhileweexpectthatInternetTelevisionwilleventuallybe accessibleinnearly100%ofbroadbandhouseholds,theusageperhouseholdwillnotrisetomuch morethan30%oftotalviewingtime. We think that the introduction of Internet Television will result in a modest increase in total viewinghours.Thiswillbebecauseitwillbecomeeasiertoviewfamiliarcontentatatimeandon a device that suits the user and, in addition, it will become easier to find and view unfamiliar content.Theresultwillbethat,fortheaveragebroadbandhouseholdthathasaccesstoInternet Television,totaltelevisionviewinghourswillincreasefrom21hoursperweekin2009to24hours perweekin2014. IntherestofthissectionwewilldiscussthekeybusinessandstrategicaspectsthatmarkInternet Televisionoutasbeingdifferentfromallexistingformsoftelevision.

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Content Producers

Stage2:
Multipletouchpoints. Example:individual providersdistributetheircontenton multipledevicesandscreens. Separationbetweeneachproviders content. Thesetouchpoints arewhere theserviceproviderhaschosen makethecontentavailableonly platformscontrolledbythe serviceprovider. Multipletouchpoints Providerssharesomechannelsand contentwithotherproviders.

TheServiceProviderhasadirectrelationshipwiththeuser:eithervia apropertyowned andcontrolledbytheprovider,orviaacarefully selected,known channelpartner.

TheServiceProviderstillhasdirectrelationshipwithuser:eitherviaaproperty ownedandcontrolledbytheprovider,orviaadesignatedchannelpartner. But,inaddition,andinparallel,arangeofthirdpartyservicesthatworkacross multipleprovidersandprovideuserswithincrementalbenefitshavetheservice relationshipwiththeuser

Stage1:
Multipletouchpoints Providerssharesomechannelswithothers. Thirdpartyservicesbecomeestablished

Stage3:

Stage4:

Singletouchpoints Example:alltelevisioncontentis constrainedtotheproviders internetwebsite.

MediaTablet
Thisuserisviewing contentfromoneprovider andisviewingthat contentbyvisitingthe providerswebsite.

PC

Thisuseris usingaservice thataggregates contentthathas beensourced fromavariety oflocationson theweb.

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Thesetouchpoints occurwithinshared channels(e.g.whereaWii isusedtoaccess contentofferedbydifferentproividers,or wherehulu andiPlayer aredistributedona cablenetworkorwhereaniPlayer andhulu embedappearsidebysideintheprofilepage ofaMySpaceuser.

Smartphone

TV

Game

Itistheemergenceofthirdpartyservices, providedbycompanieslikeGooglethat mostconcernbroadcasters,butwhichare mostlikelytotrulyenablethevisionof InternetTelevisionwehavesetoutinthis report.

ThirdpartyServices Providesearch,recommendationand discoveryandaggregation functions,as wellasuserexperiencebenefits.Also provideameansofmonetising content andthereforehaveameansofcollecting paymentfromusers(payperviewor subscription)and/oradvertisingrevenue.

Source:GeneratorResearch

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Figure18:EvolutionoftheInternetTelevisionDistributionfromSingleDigitalTouchpointstoDeveloperProgrammesandAPIs

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Sustainability of Value Proposition

InternetTelevisionisnevergoingtomakeitasasustainablemassmarketserviceunlessitoffers strongandsustainablebenefitstoordinaryusers. Key Benefits Earlierinthisreport(seeBenefits:ServiceProposition)weprovidedsomeexamplesoftheuser benefitsthatwillbedeliveredbyInternetTelevision.Thesecanbesummedupas: Moreconvenientaccesstofamiliarcontent:whentheuserwants,onthedevicetheuse wants; Awiderchoiceincontent:newmaterialthatallowsdeepercoverageoffavouritegenres andtopicsandnewmaterialthatopensnewdoors Valueadded services: thirdparty service providers will be able to enter the market to offer new features and functionality that will add a new dimension to the television experience. Wethinkthatthiswillbeapowerfulcocktailofuserbenefitsthatwillsustaindemandofthelong term. Intrinsic Quality OneproblemareawithIPTVinthepasthasbeenvisualqualitywheretechnicallimitations28have madeithardtodeliverDVDlikevisualquality.Theintroductionofhighdefinition(HD)television and, more recently, 3D television has raised the technical bar even higher and it is still a major challenge to reliably deliver the sort of visual quality that mass market consumers will demand, especially on a largescreen TV set: few users will be interested in internet Television unless it offersalevelofvisualqualitythatiscomparablewithwhatisonofferwithsatelliteandcableTV services. Inparticular,usersdemand:

Theunderlyingspeedofthebroadbandconnectionitself,videocompressionaswellasnetworkanddeviceendsoftwarethatcan improvepicturequalityandadapttochangingbroadbandconnectionspeeds.
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 FastStartup:minimalornonoticeablebuffering; FastDownloads ReliableStreaming(nojitterorpicturebreakup)

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High Picture Quality (e.g. HD, 3D and fullscreen format on whatever device or TV set is beingused).

Ourresearchstronglysuggeststhatthemarketiswellonthewaytoaddressingtheseissuesand that as the Internet Television market develops to the mature phase, the vast majority of broadbanduserswillbeabletoenjoyalevelofpicturequalitythatisatleastasgoodaswhythey canexperiencewithcableandsatelliteTVservices. Underlying Demand We think that there is a strong level of underlying demand for the sort of Internet Television proposition summarised out above and explained in more detail earlier in this report (see Benefits:ServiceProposition). Webelievethatthetelevisionindustryuptonowhasdoneagoodjobofservingusersbutwealso believe that Internet Television will offer incremental benefits and that, when users begin to understandthevalueofthosebenefits,theywillstronglyadoptInternetTelevisionservicesforthe longterm. Manyserviceseitherfailtodelivertheoriginallyenvisageduser benefitsor, wherethey do,the benefitsarenotreallyimportantenoughtokeepconsumerscomingbackagainandagain.Wedo notseethisasaproblemwithInternetTelevision.

Economics: Business Case for Internet Television

InternetTelevisionwillneedtosurmountthreemajoreconomicbarriersifthemarketistomove fromitscurrentformativestageintoamassmarket,sustainablecategory: ConsumerElectronics:UsersneedanewSTBorTVsetinordertoviewInternetTelevision services; MarginalRevenues:Therevenueperviewerhourneedstobeincreasedfromthelevelitis today;

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MarginalCosts:Themarginalcostsofvideodeliveryneedtobereducedfromwherethey aretoday

Consumer Electronics SomeobservershavemadethepointthatInternetTelevisionisnevergoingtobecomesuccessful because of the need for a new settop box (STB), which consumers are strongly resistant to purchase. ExistingsatelliteandcableTVservicessubsidisetheirSTBssothattheconsumerdoesnothaveto hand over, say, $200 in order to adopt the service. The satellite/cable provider locks the subscriberintoaminimumtermcontractthatallowsthecostoftheSTBtoberecovered.Thisis the same as case for mobile service where mobile operators subsidise the cost of the mobile phone. ThiscreatesaproblemfornewentrantswhodohavethefinancialresourcestosubsidisetheSTB or to acquire exclusive content for which there is mass demand. The result can be a service proposition where the user is has to pay, say, $250 to access a service that includes poorly differentiated,relativelyuninterestingcontent. It is better when the hardware and software functionality needed to offer Internet Television is incorporatedwithintheSTBbuteveninthiscasetheresultwillbeamoreexpensiveTVset. This is one reason why Apple has failed to make a success out of Apple TV: Apple is primarily a hardwarecompanywhereconsumerspayupfronttoreceiveinterestingproducts,likeaniPodor Maccomputer.Theonlywaythecompanycouldoffersubsidisedhardwarewouldbeforittouse apartnerwhichispreparedtodoso(andthisispreciselythemodelthatisusedfortheiPhone)or ifAppleradicallychangedtheitsbusinessmodelsothat,forexample,AppleTVwassoldwitha minimumtermsubscription.HoweverthiswouldalsorequireamajorchangetohowApplepays contentprovidersforshowsthatarepartofAppleTV,whicharecurrentlyofferedapayasyougo basis. Therearetwowaystolookatthisproblem.ThefirstistoconcludeasitseemsSteveJobshas that this is afundamental showstopper and that all attempts at innovation in television will be doomedtofailincludingGoogleTV.

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The other way of looking at this is to observe that similar problems were apparent in the early daysofpayTV: WhywouldanypayforaSTBinordertowatchalimitednumberofchannelswhenthere wasalreadysuchalotofchoiceonTV? Why would anyone pay a monthly fee to watch a television service when there was alreadyawidechoiceofcontentonnetworktelevision? At first few people were interested in PayTV. But some were. And then more were. This gave service providers the confidence to invest more in content, which attracted more users. This processcontinueduntil,today,thePayTVmarketisworthoverUSD300billion. Ultimately,themostimportantfactorintelevisioniscontent:peoplewanttowatchgreatcontent. Becausepeoplealsovaluechoiceandeaseofaccesstocontent,andweknowtheyvaluevalue added features and services, then when all of these aspects are combined into one service propositionwethinkthatpeoplewillbepreparedtopaytoobtainaccesstoInternetTelevision, whetherthatbeviaasubsidisedSTBorviaaTVsetthatcostsabitmore. However,aswenoteelsewhereinthisreport,wedonotseeInternetTelevisionserviceproviders limiting themselves to a direct relationship with users. Instead, we see many of them being incorporatedwithinthesubscriptionbasedoffersofexistingPayTVproviders. Marginal Revenues Internet Television service providers are in the same position as other PayTV providers in that theycaneitherearnrevenuefromsellingadvertisingorbytakingdirectpaymentfromusersinthe formofamonthlysubscriptionoronaPayperViewbasis. AdvertisingRevenues ItwillinouropinionbehardforsmallscaleInternetTelevisionserviceproviderstomakeenough moneyfromadvertisingtopaythebillsunlesstheycanpiggybackontopofathirdpartyservice deliveryplatformthatincorporatesanadvertisingbasedmonetisationmodel.GoogleTVcouldin the future be developed into such a platform but, today, service providers are pretty much on theirown.
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 TheadsupportedInternetTelevisionbusinessmodelfacesfourmainhurdles: CPMRates

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TheCPMratesforInternetTelevisionarebetween10%and30%lowerthanthecomparablerates for other PayTV platforms. This is partly because the ads are seen by advertisers to be less engaging(theaveragerunlengthislessthanthatformainstreamtelevision)andpartlybecause InternetTelevisionissomethingofanexperimentalmediumthatlacktheindependentlyprovided audiencemeasurementtoolsthathavebeendevelopedformainstreamtelevision., AnotherproblemisthatInternetTelevisionadinventoryisprimarilyseenaspartoftheonlinead world. This is understandable because most Internet Television content is still viewed on a PC, eventhoughthatPCmightbeconnectedtoaTVsetusingacable.Asanexample,ifatelevision broadcaster has developed an Internet Television service then the broadcasters main ad sales team,whoisfocusedonselling30secspotsonnetworkTV,willnotbesellingtheadinventoryfor the Internet Television service. The broadcaster will either have to hire people who are experienced at selling online ad media or hire a company that can sell the ad media on the broadcastersbehalf.30secspotsaresoldbydifferentpeople,todifferentbuyersusingdifferent processesthanonlineads.Whatsmorethepostcampaignreportingiscompletelydifferent. Unfortunately for Internet Television service providers, the pricing in the online channel has set theCPMratesfortheiradmediaatalowerlevelthantheywouldhavepreferred. ThispicturewillimproveasInternetTelevisionmaturesasanadmedia,especiallyastheformat startsmigratingtotheTVsetwhereitwillbecomemoreTVlike.Inaddition,thedevelopmentof adtargetingtechnologieswillhavetheeffectofincreasingCPMrates. But,today,CPMsarelowerthantheyareforsatellite,cableandnetworktelevision. AdFillperHour Allotherthingsbeingequal,onlineusershavelesstoleranceforadsoninternetTVthantheydo onnetworkTV.ThismeansthatifitisOKforanetworkTVprovidertoinsert,say,10minutesof adsintoevery1hourofprogrammingthenanInternetTelevisionserviceprovidermightonlybe abletoinsert2minutes.
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As Internet Television migrates to the TV set this will change but, like CPM rates, Internet Televisionserviceproviderscannotserveasmanyadsperhouroftelevisionprogrammingastheir competitorscan. PercentageAdInventoryFilled AnotherhurdlefacedbyInternetTelevisionserviceprovidersisthatnotalltheavailableinventory is filled. For example, we understand that Hulu has been not infrequently been running at a fill rate of 60%. However, we are also aware of some online video providers who claim to be oversubscribed. RevenueShare PartlybecauseInternetTelevisionserviceprovidersdonotproducetheirowncontentandpartly because they cannot afford to pay for exclusive distribution rights (at least not for content for which there is going to be mass demand) then they must share their ad revenue with content providers. Thepayoutratesarecurrentlybroadlyasfollows: Serviceprovider(e.g.hulu,BBCiPlayer29): Contentprovider: 20%to30% 70% 10%

Thirdparty(e.g.searchsite/aggregator):

SubscriptionandPayperViewRevenue For the above reasons we think that it will be hard to rely on advertising as the sole source of revenueforanInternetTelevisionservice.Inthelongterm,thispicturewillimprove,especiallyif and when we see the arrival of Internet Television platforms that incorporate a monetisation functionthatwillallowcontentprovidersandserviceproviderstomakemoney. Butcertainlyforthenextseveralyears,wethinkthatmanyInternetTelevisionserviceswillneed to supplement their ad revenue by taking direct payment from users, either in the form of a monthly subscription or on a payperview basis. However, this will be easier said than done withoutbeingabletooffertopqualitycontentoratrulycompellingserviceproposition.
29

InafuturesituationwheretheBBCchosetomonetiseiPlayercontentconsumeroutsidetheUKusingadvertisements.
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 Marginal Costs

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We noted earlier in this report that the cost structures of cable and satellite TV can be summarised as high capital cost, low marginal cost whereas the cost structure of Internet Televisionislowcapitalcost,highmarginalcost This is primarily because the cable and satellite TV providers have had to build their own distributionnetworksandso,havingbuiltthosenetworks,themarginalcostofdeliveryislow. InternetTelevisionserviceprovidershavenothavetogotothecapitalmarketstoraisethehuge amountofmoneyneededtobuildamassscaledistributionnetwork.Instead,theyusethelocal accesslinesandassociatedbroadbandinfrastructurethathasbeencreatedbyothers,thecostof whichismostlycoveredbyusersviatheirbroadbandsubscriptions. Buttheyincurongoingmarginalcoststousethosenetworks.Thesecostscanbeseenasfeespaid toContentDeliveryNetwork(CDN)serviceproviderslikeAkamai(HulusCDNpartnerisAkamai). This fundamental difference is why so many Internet Video service providers are currently strugglingtomakemoneyoutofonlinevideo,includingInternetTelevision. Therearetwocostelements: Hosting ForlivecontentthereisprobablynostorageelementandtheCDNpartnerwillpickthecontentup from the point of origin and then deliver to the requesting device using its delivery network. Whererequired,hostingispricedonaperGBpermonthbasis. Delivery ThisiswheretheCDNnetworkproviderpicksthecontentupfromthepointoforigination(which maybethecustomersserverfarm)andthendeliverstototherequestingdeviceviatheCDN. Delivery pricing depends very heavily on the total committed volume (e.g. GB per month), the lengthofthecommitment(i.e.asingleeventversus.anongoingrequirementthatmightextend formonthsorevenyears)andwhatotherservicesthecustomermightbepurchasing.

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Content delivery charges vary so wildly and are so scenariodependent that it is impractical to offeranynumbersthataremeaningful. However, our research strongly indicates that todays CDN charges have yet to reach their minimumlevelandthatthenextfiveandmoreyearswillseepricescomedowndramatically. FLASH chips, optical switches, microprocessors and connectivity priced are all falling in the wholesale market with the huge explosion in internet traffic, which is mainly driven by huge increasesinvideotrafficontheinternet.

AnnualReductionintheCostof HardDiskStorage
$1,000 $827.4

AverageRetailPriceperGBofHardDiskStorange (USDperGB)

$239.4 $112.5 $100 $65.9

$26.2 $12.4 $10 $6.2 $3.0 $1.7 $1 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $1.5

Figure19:AverageRetailPriceinUSDperGBofHardDiskStorage:1995to2004

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 Summary

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Mainly because of the above challenges we think that many standalone Internet Television serviceswillstruggleandonlythebestfundedserviceswillsucceedontheirown. OurprojectionsfortheservicerevenuesforInternetTelevision,whichweprojecttobeoverUSD 6billionby2014,includeamixtureofadvertisingrevenue,subscriptionrevenueandpayperview revenue. In addition we project that many Internet Television services will be incorporated within the serviceofferingsofexistingPayTVserviceproviders.

Content
Mainstream Shows and Exclusive Deals Atthisearlystageofthemarket,someInternetTelevisionserviceproviders30havediscoveredto theircostthattheyhavenorealbusinessunlesstheycanoffertrulygreatcontent,preferablyon anexclusivebasis. Unfortunately,itisimpracticalforanewentrantintotheInternetTelevisionmarkettorealistically think about being able to obtain exclusive distribution rights to a major TV series or sporting event. Quite apart from the cost, which would be very considerable, the respective content owners would be very unlikely at this early stage in the market to terminate their existing distributionrelationships,manyofwhichhavebeeninplaceforyearsdecadesevenandsign up with a new company whose distribution footprint is a fraction of what terrestrial, cable and satellitepartnerscanoffer. ThisproblemissummarisedinFigure20whereweshowthattheexistenceofalargedistribution infrastructure for mainstream television programming means that the best content, for which thereishighestdemand,willnaturallybedistributedusingtheexistingnetworks.Atthepresent timethereisquitesimplynobusinesscaseforanyonetodistributeatopqualityshow,likeGreys AnatomyonalittleknownInternetTelevisionchannel.
30

Forexample,Joost,whichcollapsedin2009.
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ItwillbemanyyearsbeforethedistributioninfrastructureforInternetTelevisionislargeenough andmatureenoughforittoofferagenuinealternativetowhatcurrentlyexistswithnetworkTV, cableTVorsatelliteTV. This means that the Internet Television services market will for some time be dominated by incumbent providers who will create their own Internet Television services that will be used to distributetheirowncontent. Later on, as these services start to become connected using thirdparty search and discovery servicesthatarebasedonplatformslikeGoogleTV,thenthemarketwillbegintoopenupbut, even then, there will be no shortcuts that will allow startups to gain access to highlyvaluable content which will remain fiercely guarded by the producers and higher sought after by major broadcasters. Long Tail Content Atthisstageofthemarketitisunclearwhethertherewillbestrongdemandforsocalledlong tail content, meaning content that is of high quality but not well known to a given domestic audience. For instance, imagine the hypothetical service where all of the television programming that has ever produced anywhere in the world was instantly accessible on a TV set via a simple user interface. Would a person whose life passion is gardening really spend hours and hours viewing gardeningprogrammes? Would a person who is fascinated by Madonna, spend long periods of their TV viewing timewatchingprogrammesaboutMadonna,ofwhichtheremuchbehundreds? And even if initially the above two individuals did shift their viewing behaviour, then wouldthesechangesbepermanent? Some broadcasters think that these socalled longtail viewing scenarios are imaginary and will nevermaterialisebecauseconsumersdonotconsumertelevisionliketheydocontentontheweb.

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However,wearelesssureaboutthisand,havingtalkedtomanypeople,wethinkthattherewill be a significant change in viewer behaviour when the sort of Internet Television service propositiondescribedearlierinthisreportfinallyarrives. However, even then, we still see mainstream television programming being delivered and consumedinmuchthesamewayasitistoday.

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BroadcastTelevisionModel
Rateofgrowthand ultimatemarket size ultimatelylimited by howfasttechnological barrierscanbe overcome. Platformoperatorshavewaysofcollectingpayment whenuserviewscontentonanydigitaldevice. Theplatformprovidermaythenbeabletoaffordtopay thecontentownerforexclusivedistributionrights.

InternetTelevisionModel

VerticalDistributionPlatform:LinearBroadcastModel

ExclusiveContentDealsBecomeViable Distribution:Type#2 InternetTelevision DistributionPlatforms (e.g.Googl eTV) Distribution:Type#1 InternetTelevision ServiceProviders Distribution:Type#1 InternetTelevision ServiceProviders
Today InternetTelevision serviceproviders cannotaffordtopayfor exclusiverightsbecause theirdistribution footprintistoosmall.
$$
InternetTV UserBase

QualityContent (i.e.PremierLeague,Wimbledon,Formula One,AugustaMasters,Olympics)

Defensibilityofthe broadcastmodel dependsonhow muchthe broadcastercan affordtopayfor exclusive distributionrights.

ExclusiveDistribution Rights:Livecoverage, Firstrunseries,movies etc.

Distribution (Terrestrialnetworks,CableTV Networks,SatelliteTVNetworks) Future Directdistribution dealswithlarge InternetTelevision serviceprovidersand platformsbecome economicallyviable becausetheyhave reachedbroadcast scale.

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$$$$
Today

$$$$
InternetTV UserBase
Future:10 20years

UserBase

generator

Today

Source:GeneratorResearch

Figure20:DevelopmentofaParallelModelforTelevisionDistribution(ComparingBroadcastModelwithInternetTelevisionModel)

Applications

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One of the most interesting possibilities offered by Internet Television is the potential for applicationthatwouldbesimilartotheapplicationsthatwearenowseeingonsmartphonesand, onMediaTablets.Welookatthispointinmoredetailinthissection. Emergence of Web 2.0 Around 2003 to 2006 the web mostly resembled a giant magazine with publishers producing contentwhichwassubjecttostricteditorialcontrolandthenloadedontoawebserverwhereit couldbereadbyusers.Theusersexperienceofthewebinvolvedusingawebbrowsertosurf fromonewebsitetothenextwhilepassivelyviewingpagesthathadbeencreatedbyothers. The market has now moved past this lean back, passive usage paradigm to a lean forward, engagedusageparadigm,whereconsumersseekinteractionwithwebsites,oftenbycontributing theirowncontentandengagingandinteractingwithcommunitiesofotherconsumerswhoself organisearoundwebservicestheyfindappealing. Thebalanceofpowerhasshiftedawayfromwebsiteownerstowardstheusers. Oneresultisthatformanysocialsitesitishardtoknowwhoisactuallyincontrol:Facebook,the worlds largest website, has had difficulty making changes to its core service because Facebook users, who no doubt feel that they have made Facebook that success it is, do not agree with changesthecompanyhasmadetoitsprivacypolicyandeventhewaythatFacebookgoesabout makingmoney.ThiswouldhavebeenunthinkableintheWeb1.0era. Thischangehasoccurredinparallelwithotherchanges,oneofwhichisamajorchangeintherole ofthewebbrowser.Onceasimpletoolfordownloadinganddrawingpagesthatconsistedmostly oftext,thewebbrowserhasmorphedintodynamicprogrammingenvironmentwhichhasallowed entrepreneurs to create web services that allow users selforganize into engaged communities wheremostofthecontentiscontributedbytheusersthemselves. Wehavemovedfromoneparadigmwhereuserengagementwasstaticandonthetermsofthe publishertoanewparadigmwhereusersaredeeplyengaged,notjustwiththesiteorservice,but with other users. This change has been well documented and Table 8 summarises some of the maindifferencesbetweenWeb1.0andWeb2.0.

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 Web1.0Model Mindset:WebsitesandPages

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Web2.0Model Mindset:WebservicesandAPIs

Website owner creates pages just likepagesinamagazine; Users browser connects to website andrequestpages; Pages are sent to browser over internet; Some page content (i.e. pictures, streaming video) is drawn from other websites, some page content (e.g. text) is sent to the users browserdirectly.Theusersbrowser is told by how to format the page (i.e.textsize,colouretc.); Browserbuildsanddisplayspage.

Websites make selected assets available to third parties by publishing an Application Programming Interface(API)whichprovidersthosethirdparties withprogrammaticaccesstovaluableinformation anddata(e.g.GoogleMapsAPI); User requests service (e.g. clicks on a link). User device could a mobile phone, PC or TV set. The media containing the link could be a normal website,alinkonablogorawidgetintheprofile pageofasocialnetworkingsiteoralinkinanadd that has been embedded in a video clip, for example; Users browser then downloads a program that contains instructions for what to do next. The browser might visit a range of web locations perhaps to download a codec update, download additional programs, request information from site/susingAPIs; Meanwhile, some processing and analysis can be downlocallybythebrowserusingAJAX; The execution of the programme downloaded by thebrowsermayresultinmultipleAPIcallsbeing madebyintermediateservicesthatarenotvisible totheuser; Theendresultisthebrowserprovidesthedesired entertainmentorinformationcontenttotheuser; The resulting page (if there is one) is not simply hosted on a server as was the case with theWeb 1.0model.

Userviewspage

Table8:MajorDifferencesbetweenWeb1.0ModelandWeb2.0Model
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Itislogicalthatthishugeshiftinhowthewebworksmustatsomepointhaveanimpactonthe television industry. Indeed, to us, it is inconceivable that the television industry will be able to carryonasifnothinghasfundamentallychanged. Emergence of Client Applications WethinkthattheapplicationsthatrunonthesmartphonesliketheiPhoneandAndroiddevices representanewdevelopmentinportablecomputing.Wearenowseeingtheintroductionofthe sametrendinthenewcategoryofMediaTablets,mostnotablyontheiPad. Whenwethinkofthewebtoday,weimaginetheprocessofbrowsingwebsitesusingaprogram called a web browser (e.g. Explorer, Chrome, Firefox, Opera or Safari). The browser acts as a windoworcontrolpanelthroughwhichtheuserexperiencestheweb.Thebrowserconnectstoa website using standard web protocols and then allows the user to experience the content available on the website, upload content to the site and interact with other users who may be connectedtothesamewebsiteviatheirownwebbrowsers. Asfarastheuserisconcerned,thekeydifferencebetweenanapplicationandabrowseristhatan applicationcanenableafarricherandmoreimmersiveuserexperiencethanwhatispossiblewith abrowser(seeTable8andTable9). The application needs to be developed by the same company that operates and controls the website(e.g.Guardian,Facebook,DerSpiegel).Althoughthismeansextraworkforthepublisher, thekeybenefitsarethatthepublishersbrandcanbedeeplyembeddedintousersdevicewhile offeringadeeperandmorecustomisedexperiencethanwhatispossiblewithawebbrowser. Critically, because the Application can talk to a number of other key programs on the users deviceaswellaskeyhardwarecomponentsitispossibletocreateauserexperiencethatisvery different to what the user would experience if they viewed the companys standard internet website using a Notebook or Desktop PC or, for that matter, a Media Tablets standard web browser. Combined with a second screen controller, this extra level of abstraction allows the brand or service provider to create a deeply embedded, more richlydefined and higherquality experience than what is possible using existing web design techniques, let along with existing televisiontechnology.

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RoleofBrowser:Web1.0,Web2.0andApplicationModel
Web1.0 Web2.0 Thebrowserisusedtoaccess,downloadandviewstaticpages.Companies buildisolatedwebsites. Thebrowserbecomesadynamicprogrammingenvironment(e.g.AJAX, XML,Microformats,XFN,OAUTHetc).Companiesbuildwebservicesthat arebasedonprogrammaticconnectionstootherwebsitesand webservices. Thebrowser,whichremainsadynamicprogrammingenvironment,now sitsinthebackground.Companiescannowdeeplyembedtheirservice intotheuser'sdevicewhileofferingaricher,higherqualityexperience. Companiesalsohavetodevelopclientapplicationsaccordingtorulesthat aredefinedbythecompanythatcontrolsthedeviceplatformor,inthe caseofaverticallyintegratedplatform(e.g.Apple),thewiderplatform.

Application Model

Source:GeneratorResearch

Table9:RoleofBrowser:Web1.0,Web2.0andApplicationModel

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Google
OuranalysisisthatGoogleTVisahighlysignificantdevelopment,althoughitwillbeyearsbefore Google TV gains any meaningful traction. Of all the internet television service propositions reviewed earlier in this report we think that Google TV has the greatest longterm potential to enablethesortofservicepropositionsthatweoutlinedearlier. Why Google is Interested in Television Thereareinexcessof3billionTVusersworldwide,comparedwithabouttwobillionmobileusers or roughly one billion PC users. Google is an advertising company currently focused on the PC market.Therefore,itseemsverysensibleforthecompanytothinkaboutenteringthetelevision market.Also,Googlessuccessasacompanyisbecomingincreasinglydependentontheeffortsof third parties (e.g. AdWords partners, AdSesne partners and application developers). For a developer,thereisnobiggermarketthantheTVmarket. 95% of Googles revenues come from contextual text ads that are served on Googles websites (e.g. Search, Google Mail etc.) and on third party publisher websites under the Google AdSense programme.Googlesonlineadrevenuesin2009wereUSD23.2billionbutthetotalworldwide onlineadmarketwasonlyworthUSD57.5billion,whichimpliesthatGoogleaccountsforabout 40%oftotalworldwideadvertisingexpenditures(seeFigure21andFigure22).Whiletheoverall online advertising market is still growing (see Figure 21), Google will find it increasingly hard to maintainishistoricperformanceofstrongproportionaterevenuegrowthifitrestrictsitselftothe onlineadmarket,whereits40%marketshareisuncomfortablyhigh. Quite apart from the execution challenges of continuing to find ways to extend the AdWords franchisestrategystillfurther,forexamplebyintroducingGoogleAdWordsforVideo,developing the mobile advertising market etc.), antitrust regulators, some of whom are already concerned about the companys growing dominance of the market, might decide that intervention is necessary.

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ProportionofWorldwideExpenditureonOnline AdvertisingAccountedforbyGoogle
$70,000 WorldwideOnlineAd Expenditure:Other Platforms WorldwideOnlineAd Expenditure:Google Platforms

$60,000

WorldwideExpenditureonOnlineAdvertising (USD,millions) (Includesallladformatse.g.Search,Displayetc.)

$50,000

$40,000

$30,000

$20,000

$10,000

$ 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure21:ProportionofWorldwideExpenditureonOnlineAdvertisingGooglePlatformandall OtherPlatforms(2001to2009) The television advertising market is attractive to Google because it represents a new business opportunitywhich,whenviewedatahighlevel,isfarlargerthatthecompanysexistingmarket: worldwideexpenditureontelevisionadvertisingin2009wasUSD156billion,comparedwithUSD 57.5billionforonlineadvertising. HoweverthestrategiesthathavebeensosuccessfulintheonlinearenawillnotworkintheTVad marketbecausethevastmajorityoftelevisionprogrammingisdeliveredviabroadcastnetworks, notovertheinternet.

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Google'sShareoftheWorldwide OnlineAdvertisingMarket
PerentageofWorldwideExpenditureonOnlineAdvertisingthatisSpenton GooglePlatforms(e.g.SearchAds,AdWords,AdSesne,Gmail etc.)
45% 40% 40% 35% 35% 30% 25% 20% 20% 15% 10% 5% 1% 0% 4% 43%

generator

40%

27%

12%

2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure22:Google'sShareoftheWorldwideOnlineAdvertisingMarket(2010to2009) However,ifGooglecanbesuccessfulincatalysingalarge,growingmarketforinternettelevision, then the company could in principle serve targeted advertisements to any television set that is connectedtotheinternet. In the long term, when TV sets in the majority of broadband households are connected to the internet,thenthismarketwillbecomeverylarge. ThisiswhyGooglehasintroducedGoogleTV.ThefirstseveralyearsofGoogleTVsdevelopment in our judgement needs to be viewed as a market development phase where the company is focusedprimarilyonenablingtheGoogleTVecosystemanddoingwhatisnecessarytogetthe marketgrowingstrongly.Then,atthatpoint,wethinkthatthecompanywillannouncearangeof adprogrammesthatwethinkwilllookquitesimilarthosethathaveprovensosuccessfulonline:

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Leverage the efforts of third parties to develop the market: developers and thirdparty publishers Creation of an automated online exchanges where buyers and sellers of internet televisionadinventorycanmeetanddobusiness Introductionofadtargetingusingcontextualandbehaviouraltechniques DevelopmentofPPCstylerevenuemodels

Of course, at this early stage in the markets development, such developments are purely theoretical.However,wethinkthatpeoplewho

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ComparisonbetweenGoogle'sAdvertisingRevenuesand ExpenditureonWorldwideTelevisionAdvertising
$180,000 GoogleWorldwideRevenuesfrom OnlineAdvertising ExpenditureonWorldwide TelevisionAdvertising

WorldwideAdExpenditureandWorldwideRevenuesforGoogle (USD,millionS)

$160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $

2001 2002 2003 2004 2005 2006 2007 2008 2009

Sources:Company ReportsandGeneratorProjections

Figure 23: Comparison between Google's Advertising Revenues and Expenditure on Worldwide TelevisionAdvertising(2001to2009)

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 Impact on Market Structure

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InFigure24,Figure25andFigure26wesummariseouranalysisofhowGoogleTVwillaffectthe structureandoperationofthetelevisionindustry. HistoricSituation Figure24showsthewaythingsarenow.Contentproducerslicensecontenttobroadcasterswho thenusetheirdistributionnetworkstomakethecontentavailabletousers. Phase1:ArrivalofOverthetop(OTT)IPTVServices InFigure25weshowtheintroductionofInternetTelevision(topoffigure)andTelcoTV(bottom of figure), both of which can be regarded as OTT services because they allow new entrants to delivertelevisionprogrammingoverthetopofexistingtelevisionserviceproviders. Phase2:IntroductionofGoogleTV GoogleTVisinouropinionmorethananotherOTTIPTVservice.Instead,itisaplatformthatwill bemainlyusedbythirdpartiesmostnotablywethinkbyincumbenttelevisionserviceproviders who are already involved in the Internet Television market to improve the quality of their services.HerearesomekeypointsthatareapparentfromFigure26: Servicesdeliveredusing GoogleTVarecomplementarytothose deliveredby incumbent broadcasters.Thatis,theyareconsumeronthesameTVset,inthesamehousehold; GoogleTVallowsfortheintroductionofsecondscreencontrollersthatuserscanuseto enhancetheirtelevisionexperience.DevicessuchasAndroidenabledsmartphones,anda future Android Media Tablet will allow users to enter text in order to enhance their TV viewingexperience. ContentownerscanvoluntarilyexposetheircontenttotheGoogleTVplatformbyusinga standardisedmetadataformat; Contentownerscanalsodefinetherightsfortheircontentusinganonlineinterfacethat willallowthemtocontrolwherethecontentisconsumed; JustlikebrandedtelevisionbroadcastersalreadyhavechannelsonYouTube,weexpect toseethearrivalofbrandedchannelsonGoogleTV; InsteadofInternetTelevisionserviceprovidersbeinglimitedtodistributingtheircontent using their internet websites, providers they will be able to deliver their content on GoogleTV.

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Distribution Companies: Broadcasters
Cableand Satellite Television Services TerrestrialTelevisionServices

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Content Producers

Content

ExistingTelevisionandFilm ContentProviders TVProductionCompanies TelevisionBroadcasters(those whoproducetheirowncontent) HollywoodStudiosandMovie Producers

TraditionalTelevisionBroadcastNetworks Terrestrial,Satellite,Cable

generator

Source:GeneratorResearch

Figure24:ChangesintheStructureofTelevisionDistributionMarket[Phase1:(HistoricMarketStructure])


Thisistheexistingusecasewheretheusershastousetheir PCtoviewinternettelevisionandwebvideocontent.

1
Regularwebsitesthatincludevideocanbeaccessedvia theTVsetusingtheChromewebbrowser.

Content RegularWebsites(e.g. ACB.com,ESPN.com, bbc.co.uk)

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Content Producers
Cableand Satellite Television Services

Content

Distribution Companies: Broadcasters

TerrestrialTelevisionServices

TraditionalTelevisionBroadcastNetworks Terrestrial,Satellite,Cable

2 Distribution Companies:Telcos
TelecomsPlayers Examples:FranceTelecom,BT,AT&T) IPTVorTelcoTVServices SetTopBoxes(STBs) PCs Desktopsand Notebooks

ExistingTelevisionandFilm ContentProviders TVProductionCompanies TelevisionBroadcasters(those whoproducetheirowncontent) HollywoodStudiosandMovie Producers

Source:GeneratorResearch

generator

Figure25:ChangesintheStructureofTelevisionDistributionMarket[Phase1:ArrivalofOverthetop(OTT)TelevisionServices]

generator

Decisionsthat allowcontent tobefindable bythirdparties

DistributionCompanies: ThirdPartyServiceProviders
API

Applications

API:Accesstodeviceassets(e.g.Browser,addressbook,favourite shows,PVRcontentetc.)overanAPI.

Android Market (TVApps)

Developers

Contentand MetaData

4 3

4 3
Google NetworkAssets

GoogleTVPlatform
Thisistheexistingusecasewheretheusershastousetheir PCtoviewinternettelevisionandwebvideocontent. Content RegularWebsites(e.g. ACB.com,ESPN.com, bbc.co.uk)

1
Regularwebsitesthatincludevideocanbeaccessedvia theTVsetusingtheChromewebbrowser.

Content Producers
ExistingTelevisionandFilm ContentProviders TVProductionCompanies TelevisionBroadcasters(those whoproducetheirowncontent) HollywoodStudiosandMovie Producers

Content

Distribution Companies: Broadcasters

TraditionalTelevisionBroadcastNetworks Terrestrial,Satellite,Cable

TerrestrialTelevisionServices

Cableand Satellite Television Services

Userscanuse theirpersonal devicestocontrol theirTVset.

2 Distribution Companies:Telcos
TelecomsPlayers Examples:FranceTelecom,BT,AT&T) IPTVorTelcoTVServices SetTopBoxes(STBs) PersonalDevices Smartphonesand MediaTablets PCs Desktopsand Notebooks

Source:GeneratorResearch

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Figure26:ChangesintheStructureofTelevisionDistributionMarket[Phase2:IntroductionofGoogleTV]

GoogleTVWebsites(e.g.Channelsaccessible usingGoogleTV

Applications

Applications

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Market Forecasts
Internet Television and Film
Worldwide User Base
WorldwideInternetTelevisionUsers(1) 2009 Users AnnualGrowth: 58 2010 95 63.9% 2011 137 44.8% 2012 185 35.1% 2013 239 29.1% 2014 298 24.8% 38.9%

Millions

CAGR

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionand filmcontentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthat isconnectedtotheinternet,eitherdirectlyorviaasettopbox(STB).Excludesuserswhoviewtelevisionandfilmcontent on mobiledevices.

Source:GeneratorResearch

Table10:WorldwideInternetTelevisionUsers(2009to2014) Regional User Base

RegionalInternetTelevisionUsers(1) 2009 NorthAmerica WesternEurope CentralandEasternEurope AsiaPacific LatinAmerica MiddleEastandAfrica Total: 12.6 12.8 5.3 22.9 3.2 1.0 58 2010 19.9 20.4 9.0 38.1 5.5 1.8 95 2011 27.7 28.7 13.6 55.8 8.5 2.8 137 2012 35.9 37.6 19.2 76.3 12.1 4.1 185 2013 44.5 46.9 25.8 99.7 16.4 5.8 239 2014 53.1 56.7 33.4 125.9 21.5 7.8 298 33.4% 34.6% 44.8% 40.6% 46.6% 51.2%

Millions

CAGR

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionandfilm contentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthatis connectedtotheinternet,eitherdirectlyorviaasettopbox(STB).Excludesuserswhoviewtelevisionandfilmcontenton mobiledevices.

Source:GeneratorResearch

Table11:InternetTelevisionandFilmUsersforNorthAmerica,WesternEurope,Centraland EasternEurope,AsiaPacific,LatinAmericaandMiddleEastandAfrica(2009to2014)

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 Viewing Hours

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AverageWeeklyViewingHoursperUserfor InternetTelevision(1) 2009 2010 2.9 14.9% 2011 3.3 13.5% 2012 3.7 12.4% 2013 4.1 11.5% 2014 4.6 10.7% 12.6%

Hoursperweek AverageWorldwideUser AnnualGrowth:

CAGR

2.5

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionand filmcontentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthat isconnectedtotheinternet,eitherdirectlyorviaasettopbox(STB).Excludesuserswhoviewtelevisionandfilmcontent on mobiledevices.

Source:GeneratorResearch

Table12:AverageWeeklyViewingHoursforInternetTelevisionServices(2009to2014)
WorldwideViewingHoursforInternetTelevision(1) Millions 2009 WorldwideViewingHours AnnualGrowth: 7,568 2010 14,248 88.3% 2011 23,418 64.4% 2012 35,566 51.9% 2013 51,185 43.9% 2014 70,733 38.2% 56.4% CAGR

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionand filmcontentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthat isconnectedtotheinternet,eitherdirectlyorviaasettopbox(STB).Excludesuserswhoviewtelevisionandfilmcontent on mobiledevices.

Source:GeneratorResearch

Table13:WorldwideTotalViewingHoursforInternetTelevisionandFilmServices(2009to2014)

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RegionalViewingHoursforInternetTelevision(1) ViewingHours,Millions 2009 NorthAmerica WesternEurope CentralandEasternEurope AsiaPacific LatinAmerica MiddleEastandAfrica Total: 1,650 1,680 689 3,004 416 129 7,568 2010 2,992 3,072 1,356 5,728 832 268 14,248 2011 4,730 4,899 2,328 9,531 1,447 482 23,418 2012 6,900 7,213 3,685 14,653 2,319 797 35,566 2013 9,520 10,053 5,518 21,344 3,511 1,239 51,185 2014 12,590 13,439 7,922 29,849 5,093 1,839 70,733 50.2% 51.6% 63.0% 58.3% 65.0% 70.2% CAGR

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionand filmcontentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthat isconnectedtotheinternet,eitherdirectlyorviaasettopbox(STB).Excludesuserswhoviewtelevisionandfilmcontent on mobiledevices. Source:GeneratorResearch

Table14:ViewingHoursforInternetTelevisionandFilmServicesforNorthAmerica,Western Europe,CentralandEasternEurope,AsiaPacific,LatinAmericaandMiddleEastandAfrica(2009 to2014)

ProportionofWorldwideViewingHoursforallTelevisionthatis 'InternetTelevision' 2009 2010 2011 2012 2013 2014 7,568 14,248 23,418 35,566 51,185 70,733 1,439,660 1,511,490 1,582,696 1,652,459 1,720,139 1,784,453 1,447,228 1,525,738 1,606,114 1,688,025 1,771,324 1,855,186

ViewingHours,Millions 'InternetTelevision'Services AllOtherTelevisionServices(Note1) TotalTelevisionViewingHours:

Note1:IncludesCableTelevisionServices,SatelliteTelevisionServices,TelcoTVServicesandTerrestrialServices.

Source:GeneratorResearch

Table15:WorldwideViewingHoursforInternetTelevisionandFilmServicesandAllOther TelevisionServices(2009to2014)

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SegmentationofWorldwideViewingHoursfor Televisioninto'InternetTelevisionandFilmServices'and 'AllOtherTelevisionServices'

PercentageofTotalworldwideTelevision ViewingHours
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0.5% 0% 2009 2010 2011 2012 2013 2014 0.9% 1.5% 2.1% 2.9% 3.8%
AllOtherTelevision Services(Note1) 'InternetTelevision' Services

Figure27:SegmentationofWorldwideTelevisionViewingHoursintoInternetTelevisionServices andAllOtherTelevisionServices(2009to2014)

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 Monetisation Models

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Percent PublicService'Broadcast'(PSB)Note1 AdvertisingNote2 PaidforNote3 Total:

SegmentationofWorldwideViewingHoursfor'Internet Television'ServicesbyMonetisationModel 2009 37% 51% 12% 100% 2010 35% 51% 14% 100% 2011 32% 52% 16% 100% 2012 29% 52% 19% 100% 2013 27% 52% 21% 100% 2014 24% 53% 24% 100%

Note1:Referstoservicesthatareprovidedbypubliclyfundedbroadcastersandwhichareprovidedfreeofchargetoviewersin the broadcaster'snationalmarket. Note2:IncludesfuturesituationswherePSBsprovideaccesstoviewersbeyondtheirnationaljurisdictiononanadsupportedbasis. Note3:Includesadhocrevenuefor'ondemand'viewingandsubscriptionrevenue.AlsoincludesfuturesituationswherePSBsprovideaccess toviewersbeyondtheirnationaljurisdictiononapaidforbasis. Source:GeneratorResearch

Table16:RelativeContributionsofDifferentMonetisationModelsforInternetTelevisionand FilmServices[(i)PublicServicefunded;(ii)Advertisingfundedand;(iii)PaidforServices],(2009 to2014)

Hours,Millions PublicService'Broadcast'(PSB)Note1 AdvertisingNote2 PaidforNote3 Total: SegmentationofWorldwideViewingHoursfor'Internet Television'ServicesbyMonetisationModel 2009 2,830 3,867 870 7,568 2010 4,942 7,321 1,985 14,248 2011 7,486 12,099 3,833 23,418 2012 10,403 18,477 6,686 35,566 2013 13,581 26,735 10,868 51,185 2014 16,846 37,147 16,740 70,733 42.9% 57.2% 80.6% 56.4% CAGR

Note1:Referstoservicesthatareprovidedbypubliclyfundedbroadcastersandwhichareprovidedfreeofchargetoviewersin the broadcaster'snationalmarket. Note2:IncludesfuturesituationswherePSBsprovideaccesstoviewersbeyondtheirnationaljurisdictiononanadsupportedbasis. Note3:Includesadhocrevenuefor'ondemand'viewingandsubscriptionrevenue.AlsoincludesfuturesituationswherePSBsprovideaccess toviewersbeyondtheirnationaljurisdictiononapaidforbasis. Source:GeneratorResearch

Table17:SegmentationofWorldwideViewingHoursforInternetTelevisionandFilmServicesby MonetisationModel[(i)PublicServicefunded;(ii)Advertisingfundedand;(iii)PaidforServices], (2009to2014)

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 Traffic Consumption

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PetaBytes(PB)Note1

WorldwideTrafficConsumptionforInternetTelevision Services(2) 2009 2010 12,823 121.5% 2011 24,238 89.0% 2012 40,012 65.1% 2013 62,189 55.4% 2014 95,489 53.5%

CAGR

DataConsumption AnnualGrowth:
Note1: 1PetaByte(PB)=10^15Bytes or8x10^15bits.

5,789

75.2%

Note2:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionand filmcontentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthat isconnectedtotheinternet,eitherdirectlyorviaasettopbox(STB).Excludesuserswhoviewtelevisionandfilmcontent on mobiledevices. Source:GeneratorResearch

Table18:WorldwideTrafficConsumptionforInternetTelevisionandFilmServicesinPetaBytes (2009to2014)
RegionalTrafficConsumptionforInternetTelevision& Film(2) 2009 NorthAmerica WesternEurope CentralandEasternEurope AsiaPacific LatinAmerica MiddleEastandAfrica Total:
Note1: 1PetaByte(PB)=10^15Bytes or8x10^15bits. Note2:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingtelevisionand filmcontentonthewebviaserviceslikeRoku,hulu,BBCiPlayeretc.(Seethesection"ReviewofInternetTelevisionandFilm Services"inthisreportwhichprovidesexamplesofinternettelevisionandfilmservices.Includesusecaseswheretheuser viewscontentona(i)DesktoporNotebookPC;(ii)ADesktoporNotebookPCthatisconnectedtoaTVset;(iii)ATVsetthat Source:GeneratorResearch

PetaBytes(PB)Note1

CAGR

2010 2,383 2,860 1,318 5,304 690 269 12,823

2011 4,353 5,211 2,608 10,112 1,396 557 24,238

2012 6,938 8,283 4,497 16,837 2,457 1,000 40,012

2013 10,398 12,376 7,289 26,393 4,055 1,679 62,189

2014 15,374 18,238 11,650 40,869 6,589 2,769 95,489 69.1% 68.6% 83.0% 76.7% 86.8% 90.6%

1,112 1,337 567 2,374 289 110 5,789

Table19:TrafficConsumptionforInternetTelevisionandFilmServicesinPetaBytes(PB)for NorthAmerica,WesternEurope,CentralandEasternEurope,AsiaPacific,LatinAmericaand MiddleEastandAfrica(2009to2014)

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 Service Revenues
USD,millions ServiceRevenue(Note1) AnnualGrowth:

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WorldwideServiceRevenuefor'InterentTelevision' Services 2009 2010 2011 2012 2013 2014 6,137 $227 $550 $1,132 $2,117 $3,700 $ 141.8% 106.0% 87.0% 74.7% 65.9%

CAGR 93.3%

Note1:Includesrevenuesfromadsupportedservices,subscriptionsandondemand(payperview)services.

Source:GeneratorResearch

Table20:WorldwideRevenuesforInternetTelevisionandFilmServices(2009to2014)
WorldwideServiceRevenuefor'InterentTelevision' Services 2009 2010 2011 2012 2013 2014 80.6%

USD,millions

CAGR

ServiceRevenueforAdsupported 186 422 813 1,419 2,310 3,566 Services AnnualGrowth: n/a 127% 93% 75% 63% 54% 42 128 319 698 1,390 2,571 ServiceRevenueforPaidfor Services(Note1) AnnualGrowth: n/a 207% 149% 119% 99% 85% TotalServiceRevenue: $ 227 $ 550 $1,132 $2,117 $3,700 $6,137

128.0%

93.3%

Note1:Includesrevenuesfromsubscriptionbasedservicesandondemandviewing,whereuserspaytowatchindividual contentitemssuchmoviesorTVshows.

Source:GeneratorResearch

Table21:SegmentationofWorldwideRevenuesforInternetTelevisionandFilmServicesinto(i) RevenuesfromAdsupportedServicesand;(ii)RevenuesfromPaidforServices(2009to2014)

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Percent

ProportionalSpiltinWorldwideServiceRevenuefrom 'InternetTelevision'Servicesbetween'Adsupported' and'Paidfor' 2009 2010 76.7% 23.3% 2011 71.8% 28.2% 2012 67.0% 33.0% 2013 62.4% 37.6% 2014 58.1% 41.9%

ServiceRevenuefromAd supportedServices ServiceRevenuefromPaidfor Services(Note1) Total:

81.6% 18.4%

100%

100%

100%

100%

100%

100%

Note1:Includesrevenuesfromsubscriptionbasedservicesandondemandviewing,whereuserspaytowatchindividual contentitemssuchmoviesorTVshows.

Source:GeneratorResearch

Table22:ProportionsofWorldwideRevenueforInternetTelevisionandFilmServicesArising from(i)AdsupportedServicesand(ii)PaidforServices(2009to2014)
ProportionsofWorldwideServiceRevenuefrom 'InternetTelevisionandFilm'Servicesthatarisefrom 'Adsupported'Servicesand'Paidfor'Services
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 ServiceRevenuefrom PaidforServices(Note1) ServiceRevenuefromAd supportedServices 81.6% 76.7% 18.4% 23.3%

28.2%

33.0%

37.6%

41.9%

71.8%

67.0%

62.4%

58.1%

Figure28:ProportionsofWorldwideRevenueforInternetTelevisionandFilmServicesArising from(i)AdsupportedServicesand(ii)PaidforServices(2009to2014)
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TV Households

Millions WorldwideTVHouseholds AnnualGrowth:

Source:GeneratorResearch

WorldwideTVHouseholds 2009 1,325 2010 1,358 2.5% 2011 1,391 2.4% 2012 1,424 2.3% 2013 1,456 2.2% 2014 1,487 2.1%

CAGR 2.3%

Table23:WorldwideTVHouseholds(2009to2014)

Millions 2009 NorthAmerica WesternEurope CentralandEasternEurope AsiaPacific LatinAmerica MiddleEastandAfrica Total:

Source:GeneratorResearch

RegionalTVHouseholds 2010 116 166 88 727 145 117 1,358 2011 117 167 91 749 149 118 1,391 2012 118 169 93 771 154 120 1,424 2013 119 170 96 792 158 121 1,456 2014 119 171 98 814 163 122 1,487

CAGR 0.7% 0.9% 2.7% 2.9% 3.0% 1.1%

115 164 86 705 140 115 1,325

Table24:NumberofTVHouseholdsinNorthAmerica,WesternEurope,CentralandEastern Europe,AsiaPacific,LatinAmericaandMiddleEastandAfrica(2009to2014)

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Fixed Broadband
FixedBroadbandSubscribers(Note1) Subscribers,millions 2009 NorthAmerica WesternEurope CentralandEasternEurope AsiaPacific LatinAmerica MiddleEastandAfrica Total:
Note1:IncludesxDSL,CableandFibre.

CAGR 2010 119 122 54 231 38 14 577 2011 125 128 61 255 43 17 629 2012 129 134 69 279 49 20 681 2013 133 139 78 305 55 23 733 2014 136 144 86 330 62 27 785 3.8% 4.8% 13.1% 9.7% 14.1% 18.2% 8.4% 113 114 47 207 32 12 525

Source:GeneratorResearch

Table25:WorldwideFixedBroadbandUsers(2009to2014)
USD,millions 2009 NorthAmerica WesternEurope CentralandEasternEurope AsiaPacific LatinAmerica MiddleEastandAfrica Total:
Note1:IncludesxDSL,CableandFibre.

FixedBroadbandRevenue(Note1) 2010 $32,901 $25,918 $11,938 $56,223 $7,350 $3,717 2011 $33,062 $26,762 $12,866 $58,999 $8,061 $4,329 2012 $32,882 $27,400 $13,700 $61,315 $8,862 $4,963 2013 $32,391 $27,843 $14,425 $63,303 $9,564 $5,615 2014 $31,615 $28,252 $15,025 $64,489 $10,270 $6,277

CAGR 0.5% 2.6% 6.6% 4.0% 9.6% 14.9% 3.6%

$32,373 $24,859 $10,934 $53,005 $6,495 $3,132

$ 130,797 $ 138,047 $ 144,078 $ 149,121 $ 153,139 $ 155,929

Source:GeneratorResearch

Table26:NumberofFixedBroadbandUsersinNorthAmerica,WesternEurope,Centraland EasternEurope,AsiaPacific,LatinAmericaandMiddleEastandAfrica(2009to2014)

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Cable TV
Subscribers,millions 2009 Subscribers AnnualGrowth:
Source:GeneratorResearch

WorldwideCableTVUsers 2010 398 1.0% 2011 403 1.1% 2012 406 0.8% 2013 408 0.6% 2014 410 0.4%

CAGR 0.8%

395

Table27:WorldwideCableTVUsers(2009to2014)

USD,millions 2009 ServiceRevenue AnnualGrowth:

Source:GeneratorResearch

WorldwideCableTVServiceRevenues 2010 2011 2012 2013 2014

CAGR 5.7%

$ 136,137 $147,803 $156,319 $164,420 $172,332 $ 179,974 8.6% 5.8% 5.2% 4.8% 4.4%

Table28:WorldwideCableTVServiceRevenue(2009to2014)

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Satellite TV
WorldwideSatelliteTVUsers Subscribers,millions 2009 Subscribers AnnualGrowth:
Source:GeneratorResearch

CAGR 2010 109 2011 115 5.4% 2012 117 1.5% 2013 119 1.8% 2014 120 0.8% 2.6% 106

Table29:WorldwideSatelliteTVUsers(2009to2014)

WorldwideSatelliteTVServiceRevenues USD,millions 2009 ServiceRevenue AnnualGrowth:
Source:GeneratorResearch

CAGR 2010 2011 2012 2013 2014 5.7% $ 56,821 $60,360 $65,249 $67,867 $70,772 $ 74,923 6.2% 8.1% 4.0% 4.3% 5.9%

Table30:WorldwideSatelliteTVServiceRevenues(2009to2014)

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Telco TV
WorldwideTelcoTVUsers Millions 2009 Subscribers AnnualGrowth: 27 2010 41 51.9% 2011 55 34.1% 2012 76 38.2% 2013 98 28.9% 2014 121 23.5% 35.0% CAGR

Note1:ATelcoTVserviceiswhereatelecomsprovidersuchasAT&T,FranceTelecomorBToffersanIPbased televisionserviceoverabroadbandconnection,whichmightbexDSLorFibre.

Source:GeneratorResearch

Table31:WorldwideTelcoTVUsers(2009to2014)

WorldwideTelcoTVServiceRevenue USD,millions 2009 ServiceRevenue AnnualGrowth: 2010 2011 2012 2013 2014 40.6% $ 11,048 $17,535 $24,539 $35,313 $47,346 $ 60,694 58.7% 39.9% 43.9% 34.1% 28.2% CAGR

Note1:ATelcoTVserviceiswhereatelecomsprovidersuchasAT&T,FranceTelecomorBToffersanIPbased televisionserviceoverabroadbandconnection,whichmightbexDSLorFibre.

Source:GeneratorResearch

Table32:WorldwideRevenuesfromTelcoTVServices(2009to2014)

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Internet Video
Millions Users: AnnualGrowth: WorldwideInternetVideoUsers(1) 2009 467 2010 518 10.9% 2011 570 9.9% 2012 622 9.2% 2013 676 8.6% 2014 730 8.0% CAGR 9.3%

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingshortformvideocontent ontheweb,whichistypicallylessthan5minutesinduration.InternetVideoexcludes'InternetTelevisionandFilm'servicesandall MobileVideo.Alsoexcludesuserswhojustwatchvideoads.

Source:GeneratorResearch

Table33:WorldwideInternetVideoUsers(2009to2014)
Millions NorthAmerica WesternEurope CentralandEasternE AsiaPacific LatinAmerica MiddleEastandAfric Total: 2009 109.3 103.3 48.1 168.7 29.0 8.9 467 RegionalInternetVideoUsers(1) 2010 116.2 111.4 54.4 191.2 34.3 10.8 518 2011 122.1 119.1 61.0 214.5 40.1 12.9 570 2012 127.3 126.3 67.8 239.2 46.4 15.2 622 2013 131.7 133.2 75.0 265.1 53.3 17.7 676 2014 135.1 139.4 82.5 292.0 60.6 20.4 730 CAGR 4.3% 6.2% 11.4% 11.6% 15.9% 18.2%

Note1:Thisincludesuserswhohavebroadbandinternetconnectionsandwhoregularlyspendtimeviewingshortformvideocontent ontheweb,whichistypicallylessthan5minutesinduration.InternetVideoexcludes'InternetTelevisionandFilm'servicesandall MobileVideo.Alsoexcludesuserswhojustwatchvideoads.

Source:GeneratorResearch

Table34:InternetVideoUsersforNorthAmerica,WesternEurope,CentralandEasternEurope, AsiaPacific,LatinAmericaandMiddleEastandAfrica

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WorldwideAssociatedRevenuesforInternetVideo(1) USD,Millions 2009 2010 2011 2012 2013 2014 13.4% CAGR $4,081.9 $4,629.5 $5,262.7 $5,980.5 $6,776.3 $7,640.8 13.4% 13.7% 13.6% 13.3% 12.8%

Revenue AnnualGrowth:

Note1:Thisreferstoadvertisingrevenueearnedbythesitethatservesthevideo.Includescompanionads(e.g. Bannerads,Skyscraperadsetc.)aswellasPPAadrevenueearnedbeservingcontextualtextoverlayadswith thevideocontent.

Source:GeneratorResearch

Table35:WorldwideAssociatedRevenuesforInternetVideo

Global IP Traffic
Global IP Traffic by Type
PBpermonth(1) Internet(2) ManagedIP(3) MobileData(4) Total: AnnualGrowth: 2009 10,942 3,652 91 14,685 GlobalIPTrafficbyType 2010 15,205 4,963 228 20,396 39% 2011 21,181 6,771 538 28,490 40% 2012 28,232 8,851 1,158 38,241 34% 2013 36,709 11,078 2,132 49,919 31% 2014 47,176 13,199 3,528 63,903 28% CAGR 34% 29% 108% 34%

Note1:1PB(PetaByte)is10^6GB,or(10^15)Bytesor(8x10^15)Bits Note2:DenotesallIPtrafficthatcrossesanInternetbackbone Note3:IncludescorporateIPWANtraffic,IPtransportofTV/VoD Note4:IncludesmobiledataandInternettrafficgeneratedbyhandsets,notebookcards,andmobilebroadbandgateways

Source:CiscoVNI,2010

ManagedIPandMobileData

Table36:GlobalIPTrafficfrom2009to2014inPetaBytesperMontSeparatedintoInternet,

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GlobalIPTraffic:SplitbetweenType
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014
Source:CiscoVNI,2010

MobileData ManagedIP Internet

Figure29:GlobalIPTrafficseparatedbyTrafficType

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 Global IP Traffic by Segment

PBpermonth(1) Consumer(2) AnnualGrowth: Business(3) AnnualGrowth: Total: AnnualGrowth: 2009 11,602 3,083 GlobalIPTrafficbySegment 2010 16,534 43% 3,862 25% 20,396 39% 2011 23,750 44% 4,740 23% 28,490 40% 2012 32,546 37% 5,697 20% 38,243 34% 2013 43,118 32% 6,801 19% 49,919 31%

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CAGR 2014 55,800 29% 8,103 19% 63,903 28% 37% n/a 21% n/a 34%

14,685

Note1:1PB(PetaByte)is10^6GB,or(10^15)Bytesor(8x10^15)Bits Note2:IncludesfixedIPtrafficgeneratedbyhouseholds,universitypopulations,andInternetcafs Note3:IncludesfixedIPWANorInternettrafficgeneratedbybusinessesandgovernments

Source:CiscoVNI,2010

Table37:GlobalIPTrafficinPetaBytesperMonthShownSeparatelyforConsumerandBusiness from2009to2014

GlobalIPTraffic:SplitbetweenConsumerand Business
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 Business Consumer

Source:CiscoVNI,2010

Figure30:GlobalIPTrafficRelativeContributionsofConsumerandBusinessSegmentsfrom 2009to2014

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 Global IP Traffic by Region

GlobalIPTrafficbyRegion 2009 5,115 3,495 4,988 493 157 438 14,686 2010 7,091 4,818 6,906 678 223 680 20,396 39% 2011 10,051 6,712 9,444 938 319 1,027 28,491 40% 2012 12,988 9,261 12,670 1,306 490 1,527 38,242 34% 2013 16,136 12,417 16,576 1,815 700 2,275 49,919 31%

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PBpermonth(1) NorthAmerica WesternEurope AsiaPacific CentralandEasternEurope MiddleEastandAfrica LatinAmerica Total: AnnualGrowth:

CAGR 2014 19,019 16,158 21,721 2,510 1,018 3,479 63,905 28% 30% 36% 34% 38% 45% 51% 34%

Note1:1PB(PetaByte)is10^6GB,or(10^15)Bytesor(8x10^15)Bits

Source:CiscoVNI,2010

Table38:GlobalIPTrafficinPetaBytesperMonthShownforGeographicRegionsfrom2009to 2014(NorthAmerica,WesternEurope,AsiaPacific,CentralandEasternEurope,MiddleEastand AfricaandLatinAmerica)

PercentageofTotalGlobalIP Traffic NorthAmerica WesternEurope AsiaPacific CentralandEasternEurope MiddleEastandAfrica LatinAmerica Total:

Source:CiscoVNI,2010

GlobalIPTrafficbyRegion 2009 34.8% 23.8% 34.0% 3.4% 1.1% 3.0% 100% 2010 34.8% 23.6% 33.9% 3.3% 1.1% 3.3% 100% 2011 35.3% 23.6% 33.1% 3.3% 1.1% 3.6% 100% 2012 34.0% 24.2% 33.1% 3.4% 1.3% 4.0% 100% 2013 32.3% 24.9% 33.2% 3.6% 1.4% 4.6% 100% 2014 29.8% 25.3% 34.0% 3.9% 1.6% 5.4% 100%

Table39:GlobalIPTrafficRelativeContributionsofGeographicRegionsfrom2009to2014 (NorthAmerica,WesternEurope,AsiaPacific,CentralandEasternEurope,MiddleEastandAfrica andLatinAmerica)

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GlobalIPTrafficseparatedbyGeographicRegion
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 Western Europe NorthAmerica LatinAmerica MiddleEast and Africa Centraland EasternEurope AsiaPacific

Source:CiscoVNI,2010

Figure31:GlobalIPTrafficRelativeContributionsofGeographicRegionsfrom2009to2014 (NorthAmerica,WesternEurope,AsiaPacific,CentralandEasternEurope,MiddleEastandAfrica andLatinAmerica)

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Executive Interview Transcripts

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FIVE Television: Kieran Clifton, Head of Strategy

DateofInterview:17June2010 FIVEisoneoftheUKsfiveterrestrialtelevisionbroadcasters.Thecompany is100%ownedbyEuropeslargestbroadcasterRTL,basedinLuxembourg. RTL is in turn majority owned by Bertelsmann, a German media conglomerate.RTLhasrecentlyannounceditsintentiontosellFIVE. AlthoughFIVEisaPublicServiceBroadcaster,thecompanyis100%funded commerciallyandderivesthevastmajorityofitsrevenuefromtelevision advertising.Thecompanysbusinessoperationsaresubjecttothetermsof a UK Public Service Broadcast license which defines a list of special requirements. For example, FIVE has to comply with quotas that have beendefinedforcommissioningcontentandthecompanyisalsosubject torestrictionsastheamountofadvertisingminsthatcanbeinsertedinto eachprogrammehour. Whereareyouwithinternettelevisionrightnow?Howengagedareyou? Idsaywerefullyengagedbuttheindustryhasalongwaytogoandtherearedifficultiesatthe moment because there are so many different people you have to deal with, so many different formats,somanytypesandwaysofdeliveringtheprogramming;whetheritsatourend,whether itslinear,ondemandorwhatever,orwhetheritisattheirenddifferenttechnologies,different distributionmethods.Itsacomplicatedenvironment. Andalsothereareuncertainreturnsand,potentially,someriskstoourcore business.Wecant just scatter gun and put our content everywhere all at once so we are looking to prioritise the mostvaluabledeals.

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 Doyouseeinternettelevisionasbeingthefutureoftelevision?

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Wearegreatsupportersofallformsofdistributionoftelevision.Wewantourviewerstobeable towatchourprogrammeswherevertheywanttowatchthemandwhenevertheywanttowatch them. The internet provides a great opportunity to add incremental viewing, to add more convenientviewingandtoaddfunctionalitytoallowpeopletoviewdifferently.Peoplecanshare viewing,theycancatchuponviewingandtheycandoallsortsofnewthings. So were extremely excited about the possibilities that internet television provides but those possibilitieshaveinmostcasesyettoberealised.Weareatavery,veryearlystageasyouknow inactuallyexecutinginternettelevisionpropositions. Someveryforwardthinkingequipmentmanufacturersarelookingtoputinternetcapabilityand functionalityintotheirtelevisions.SonyBraviahaslaunchedandtherearecompetingpropositions fromPanasonicandSamsung,andweareverykeentobepartofthose.Wehavedoneadealwith SonyontheBraviaandso,DemandFIVE,ourwebportalouriPlayerequivalentifyoulikeison SonyBraviaandwearelookingtododealswithotherequipmentmanufacturersaswell. There is also, separately, but still connected, some more closed IPTV opportunities. BT Vision is internetprotocoltelevision,butclearlyitdoesnotworkliketheopenweb.Wehaveadealwith BTVisiontoprovideourcontenttothem. Then there are linear channels that are sometimes provided over the internet. So Tiscali, what usedtobeHomeChoiceandisnowownedbyTalkTalk,isnowprovidedviatheinternet. Andagain,wearesupportersofprovidinglinearTVaswellasondemandTVovertheinternet. Sojustbymentioningallthosenamesandallthosewaysofdeliveringtelevisionovertheinternet anyonelisteningwouldgetastrongpictureofhowfragmentedandimmaturethemarketreally is. Whatdoyouunderstandaboutthesortsofpeoplewhoareconsuminginternettelevision,the users? We know that the people that are buying these televisions, internetenabled televisions the Bravias of this world are buying them as a status symbol purchase. People are buying them becausetheyarebig,attractivetelevisions.

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But we do not know if they are buying them because of the new functions that allow them to watch DemandFIVE or iPlayer. More importantly, we dont know whether when they get them homeandtheywatchthem,howmuchcontenttheyareactuallywatchingontheinternet.Itstoo earlytosay. Thinking ahead, about the long term, do you think that internet television will result in an increaseintotalviewingtime? Thatisagoodquestionwitharelativelycomplicatedanswer.Ithinkthatpeopleareusingmore media and spending more time with media than they did 10 years ago and I think that will increasefromnowon. AndIthinkacoupleoffactorsaredrivingthis.Oneistheavailabilityofmobilemediawhichmeans that you are able to watch things and interact with things Im talking about media in a wider senseherewhetheryourewatchingtelevision,playinggamesorengagingwithsocialmediaand thatwillincreasebecausetherearemoreopportunitiestoview. In addition, because of the nature of the devices there is an opportunity to multitask and to consume more than one media at the same time. Now whether that leads to the same engagementwithviewingisadifferentquestion,butitdoesmeanmoreoverallhoursspentwith media. But it does not necessarily mean that you watch less television. In fact, there are a couple of reasonswhyitismorelikelythatinthefuturetherewillbemoretelevisionviewing.Onereason for this is the devices, so you do not have to be stuck in the living room or bedroom to watch television. Also, because of peoples increased familiarity with multitasking of playing a game whileyourewatchingtelevisionthereislessneedinthefutureforonetosubstitutetheother, andagain,withthecaveatsaroundengagement. Televisions total viewing hours has largely remained the same over the last 30 to 40 years. It doesntmatterwhethertherearetwochannels,threechannels,fourchannelsor50channels itsabout25hoursperweek.Ithasbeenatthislevelandwillcontinuetobe.Ithinkitislikelyto dropalittlebecausethereismoreopportunitytowatchtelevisioninamoremobileenvironment butIthinkthatothermedia,asIsay,areunlikelytosubstituteforit.
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Infact,ifyoulookatthenumbersthenwhatyouseeisthatallofthosepeoplewhousealotof non television media are also the sort of people who watch television media as well. They are absolutelycorrelated,soyoudonttendtoseethatsortofsubstitution,youtendtoseepeople usingmoremediaandusingthosemediatogether. So I think media use will increase markedly and continue to increase as it has over the last 10 years.Ithinkthattelevisionwatchingwillincreaseslightly. What risks do you see? challenging facing the development of a mass market for internet television? Themainriskisthatthisisacontentdrivenmarket.Thisisaboutdeliveringgoodcontentandthe presumptionisthatwedevelopthebusinessmodelsthatwillallowustofundthedevelopmentof newcontent,andthatissomethingwhichismassivelyunderthreat,asyouknow. ForeverydollarthatyoureceivefromsomeonewatchinglinearTVtheniftheyarewatchingitby PVRthentheyarefastforwardingthroughtwothirdsoftheadsandiftheyarewatchingoverthe internetthentherearefarfeweradsandsowegetevenlessmoneythanwedofromPVRatthe moment.Althoughtheseeffectsaresmall,theydoindicateathreattoourbusinessmodelandthe moredifficultywehaveinfindingasustainablebusinessmodelforthisthenthemoreriskthere will be in funding the development of content and, therefore, to those things that I was talking aboutearlier. Doyouthinktheindustryneedsastandardisedwaytomeasureandmonetiseonlinevideowith ads,somethingthatworksregardlessofdeviceordeliverymethod? I think thats right. What I think we need is some sort of currency market to be developed in a robustandconsistentmanner.WehaveacurrencyatthemomentinTVairtimewhichisneatly facilitatedintheUKbyBARB. Butonlineadvertisingissoldverydifferentlytothis.Thewaycurrentlythatadsaremeasuredon theonlinechannelissuboptimal.Obviouslyyoucantellwhichadsareservedandwhich arent butfundamentallymostofthetelevisionthatiswatchednowandforthenexttenyearswillbe linearTV.Evenintechnophilehomes,sayinSky+homes,only16to17percentofviewingistime shifted.

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SoevenintheseforwardthinkinghomeslinearTVstillpredominatesandsothereisabsolutelya need that when linear TV is pushed out to mobile phones, or pushed out via the internet to differenttechnologiesanddifferentplatformsthenweneedtobecapturingthatadvertisingin the same way that BARB does for traditional TV. It all needs to be passed through the same system. Lookingatitpurelyassourceofrevenue,howattractiveistheonlinechannelforyourightnow? Wesimplyneedtofindawayofmakingmoremoneyoutofondemandads Atthemoment,alinearpoundofadrevenuecompareswithpenniesoftimeshiftedadrevenue andthatisgoingtoputusintodifficulties,anditisultimatelygoingtobebadfortheviewerwho isnotgoingtogetthecontenttheyareaccustomedto. The answer to that is better quality of advertising, and the internet can help here, and internet televisioncanabsolutelycan.Whetheritsgeographic,whetheritsdemographicorwhetherits behavioural, or a combination, targeted advertising would allow advertisers to be very efficient abouthowtheyplacetheirmessages. Andthisseemstometobeacombinationofraisingrevenuesinthatdirectionandcuttingcostsin theotherdirectionbymakingsurethatbandwidthischeap,thatyouhavestandardsthatmean that single types of ads are delivered, captured and measured in a single way, so there is a consistencybetweenplatformsandtechnologies. These are the things that are going to have to mature alongside the growing internet television market in order to make sure that internet television does not damage the traditional business model. Thinkingaboutincrementaladrevenueperviewerhour,howdoesterrestrialtelevisioncompare withonlineatpresent? Thisisaveryinterestinganalysis.Butthereisanotherfactoratworkherewhichisthatthereis marginal cost associated with serving video online, so its not just a revenue calculation it is a profitcalculationaswell.
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SotheinterestingpieceofanalysisistoworkoutfromoneviewingoftheFWord,forexample, what contribution is made to variable costs from someone watching that programme in a broadcastenvironment,onaPVRandbywatchingitondemandontheweb.Andthatisareally, reallyinterestingthing.Soifyouindexlinearat100,thenPVRwillbeabout33andondemandon the web at the moment will be somewhere between 20 and 30. Now that is unsustainable economics. Toclarify,yourenottakingpurelyaboutrevenuehere? Im taking about contribution, which is revenue minus costs. Or, more accurately, marginal revenueminusmarginalcosts.Thisisthemoneywegetfromtheadsminusthecostofdelivering theprogramme. Howareyoudealingwiththisfromabusinessperspective?Seemslikeabitofadisaster? Its not a disaster provided internet television is not substitutional. And obviously there is an elementthatisincrementalcontributionandanelementthatsnot.SoifyouwatchedtheFword onthewebthereisachanceyouwouldnothavewatcheditonlinear,simplybecauseyoumight nothavehadtheopportunity.Sototheextentthatitsincrementalthenthisisnotadisasterbut itismainlysubstitutionaland,totheextentthatwecangetthat25up,eitherbycuttingourcosts ondistributionwhicharegoingintherightdirectionorbyusingtargetedadvertisingwhichis somethinginthefuturethenitsisnotnecessarilyadisasterbecauseatthemomentitsvery, verysmall. Sothe100thatweregettingfromlinearstillremainsthebulkofviewingandthatwillcontinue. Thedangeristhatifthe25becomesamuchbiggerpartofourbusiness[whichwouldmeanour overallprofitabilitywoulddrop]. Soreturningtothe25number,thecontributionnumber,istheproblemthattheCDNcostsfor internet video are high, or that youve taken a hit on online CPMs? Or has something else changed? Theanswertoyourquestionisthatitsboththerevenueandthecostside.ButitslesstheCPMs. TheCPMsaregoodandtheyreactuallyholdingupquitewell.Theyrequitehealthyreally.

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Asforthecostline,well,werepayingmoreforonline,andwedontpayanythingatallforlinear. Soanycostabovezeroisgoingtobeaproblem,buttheonlinecostsaregoingdown. Butasfarastherevenuelinegoes,themainproblemisthefactthatyoudontactuallyservethat manyads.IfyoulookathowmanyadsyouhaveintheFWordduringalinearshow,thenyouve got12minsofadsletssaymaxwhichisamaxof2430secspots.Nowyoucantcompare that with two prerolls and maybe a midroll or two in on ondemand stream. Even though the CPMsarehigh,itsthattherearentthatmanyads. But why would 1 hour of television programming delivered over a broadband line to a TV set carry fewer ads than the same programme delivered to the same TV set via a conventional broadcastnetwork? The distinction here is not between broadband and broadcast. The distinction Im making is betweenlinearandondemand.Andondemand,whichtends tobe deliveredviabroadband,is wheretheproblemlines.IfyourewatchingscheduledTVthatjusthappenstobedeliveredover theinternet,thenprovideditscapturedbyBARBIdontmind.Butcurrentlyitsnotandthatsthe problem. Couldyouexpandonthistheeconomicvalueofonepersonwatchingoneprogramme? Thereareanumberoffactorscontributingtothis,bothintermsofrevenuesandcostandoneof thoseisthenumberofadsthattheviewerwillwatch. AndnecessarilyonepersonwatchingGreysAnatomyonlineversesbylinearTVjustwatchesfewer ads. But is this a policy division at your end? Meaning you dont think that its acceptable for the viewertowatchthesameproportionalnumberofminutesperhouronaPCastheycurrentlydo ontheirTVsetwhenwatchingbroadcastTV? Imnotsureitsquitepolicy.Imean,itsdefinitelywhatwedoandthereforeitispolicybecauseof that,butitsnotnecessarilythemarketspreference.Itsthatwearebeingdrivenbythemarket andcurrentlythatiswhatisconsideredacceptable.

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Therehasbeenquitealotofconsumerresearcharoundwhatviewerswillputupwith.Andwe knowhowmanyadsviewersareinclinedtowatchduringlinearTVbearinginmindthatviewers are[tryingtoavoidtheadsby]usingPVRstofastforward,ortheyjustgotomakeacupoftea.So youknowwhenyouwatchaprogrammewhatthescoreisandthatsnotthecaseforonline. Peoplesittingwatchingonlinestreamsarelessusedtoandlesswillingtoputupwithadvertising. NowIthinkthatissteadilygrowingandnecessarilyitwillincreaseitwillhavetoincreasebutit willneverincreasetowhatyouhaveonlinearTVwhereyouhave3mincommercialbreaksof6 averts.Thatwonthappenwithinonlinestreamseveninthemediumtermandthereforeyouare restrictedtosomeextentbythenumberofadsyouarebeingserved. Canyouchargemoreforthoseads? Yes you can because of the engagement you have and the fact you cant fast forward through thembecausetheyaresoldinaninternetmarket.Butinadditionthereisathirdcounterbalance forthatandthatisthatthereisonlyeverinmostcasesonepersonwatching,whereasonTVyou generallythinkthatthereismaybetwoorthreeorfourimpactsthatyouregeneratingperad.So againthereareanumberofbalancingfactorsoneitherside. Butwhenyouadditallup,youareleftwiththeconclusionthatonlinesubstitutesinanegative wayforlinear. Im a bit confused about this. Lets imagine two families Smith and Jones in two different homeswhoarewatchingTVatthesametime.TheSmithfamilyiswatchingGreysAnatomyon linearbroadcastonFIVEontheirTVset.TheSmithsaregettingthefull12minsofadsperhour. ButtheJonesfamilyiswatchingthepreviousweeksepisodeofGreysAnatomy,againontheir TVsetexactlythesameprogrammecontent,onehourletssaybutinthiscasethecontentis coming from a some other service is being delivered over the internet via a broadband connection.NowtheimportantquestionhereiswhethertheJonesfamilyisalsowillingtowatch 12minsofads? Ithinkyoureright,Idontthinkinthatcasethereisadifference.Inthecaseofthatatscenario you have melded two different markets. We tend to sell advertising in two different ways, one linear via the BARB currency in which we can tell how many people are watching, and its your standardlinearairtimeadmarket.
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Intheonlineworldweselladvertisingquitedifferently.Soyousellspecificcampaignstospecific advertisers, and you pay based on the number of times that the ad viewed and it is always assumedthattheadisviewedbyoneperson. Nowinaworldwhereyouretakingonetechnologyandoneadsalesprocessandmigratingthat onto a TV then, youre absolutely right, as far as the consumer is concerned there is no reason whytheywouldntbepreparedtowatchasmanyads. Its just that its not done like that today and the reason why is that there is no way, yet, and I stressyet,tomeasurethat. This is all about measurement, and its what we talked earlier about BARB catching up. If there was a way to sell those online ads in the same way and make them part of the overall BARB currencythenwecouldputinallthoseadsandyoudgetonepriceandso,yes,thatwouldbea wayofdoingit. Buttherearereasonswhyitisnotdonelikethat.They[theads]aresoldoftenbytwodifferent set of people your online team and your airtime team they are sold in different ways. The airtime sales market in this country (the UK] is sold on the basis of share of adverting budget whereasonlineissoldusuallydirectlytoadvertisersoragenciesandsotheyarefundamentally soldandmeasureddifferently. Nowintimethesetwoadmediawillcometogether,butatthemomenttheoverlapisvery,very small,intermsofaudiencesize. SoyourworldoftheJonesfamilyisjustaveryuncommonexperience. Therefore the infrastructure aspect, in terms of measurement and sales processes etc. has not beensetuptosupportthatyet,butinthefutureyoumayberightandthetwothingsmaywell cometogether.

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Lets talk about the long tail. Imagine a future when all of the longtail television content in existencehasbeenindexedandisaccessibleusinganinternetconnectedTVset.Doyouseethe viewinghoursforthislongtailcontentasbeingsignificantproportionofthetotalviewingtime forinternettelevision? No, no I dont. I absolutely dont. I think that the internet provides a fantastic opportunity for thosewhoareinterestedintriathlonorgardeningorwhatevertoviewcontentthattheywould nototherwisehaveabletoview.Butitsjustthatnotmanypeopledothatandsothislongtail viewingwouldformaverysmallpartoftheirviewing. Itisnotthecasethatthemostpopularshowsarethemostpopularsimplybecausetheyarethe most popular its not a selffulfilling prophecy the reason for the popularity is that a lot of money spent on producing the content and, because of that, they are good. Only a small percentage of shows can achieve the level of national consciousness that is required to make somethingtrulypopular. Iactuallythinkitismorelikelythatinsteadofhavinglessofaconcentrationofpeoplewatching themosthighqualityshows,youregoingtohaveahigherconcentration.Andthereasonforthat is instead of having to wait to watch your favourite shows when they are scheduled, you can watchthemwheneveryoulike,whereveryoulikeandthereforeitismuchmorelikelythatyoure notgoingtocompromise andwatchyour10thor11thmostfavouriteshowwhenyoucanwatch yourmostfavouriteshow. AndthereforealthoughthelongtailprovidesagreatopportunityfornicheprogrammingIdont think it necessarily implies a huge change to the commercial dynamic. In fact what this new functionality and technology allows people to do is that it allows you to not to have to compromiseonquality. AnddontforgetthewaythatTViswatchedandthewayTVisthentalkedabout.Peopleliketo watchtheTVshowsthatotherpeoplearewatchingandtheythenliketotalkaboutthoseshows. The social media around television is incredibly important and so the big, popular shows are, I think,arealwaysgoingtobebigandpopular.
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Wecanseejustbylookingatourwebsitethehugeconcentrationoftrafficaroundmaterialthat wasonTVlastweekandthemostpopularandthebestshowsonTV. Yes,wehaveprovidedpeoplewiththeabilitytoviewofarchiveofcontentand,yes,peopledoit buttheydontdoitverymuch.AndIthink[thispattern]willbethecaseforsometime. Peoplelikethenew,theylikewhatotherpeoplearetalkingaboutandtheylikethebestcontent. Whatsmore,givenallthisnewtechnology,itsgoingtobeeveneasiertofindit. SoalthoughthelongtailisinterestingIdontthinkitsagamechangerasfarascommercialreality goes. Wetalkedearlieraboutwhetherinternettelevisionwouldenablesomeamountofincremental viewingtime,doyouthinklongtailviewingmightaccountforsomeofthat? Thatsactuallynotabadhypothesis. Returningtotargetedadvertising,isitreallycrediblethatyouwillbeabletochargemorefor targetedinventory?Doadvertisersreallypaymorefortargetedversusnontargeted? Ithinkthatthereabsolutelyevidencethattheydothat,andIthinkthethingtolookatwouldbe thecurrentairtimeadsalesmarket. Wechargemorefor16to34sthanwedoforadults.Thatistargetedadvertising.Assoonasyou get into the very small [segments], housewives with kids or kids, which we do on a BARB basis, thenyoucanchargemore.Allwemeanbytargetedadvertisingistakingthattothenextleveland saying,actually,no,onlycanItarget16to34sbutIcantarget16to34swholikecars.Ithink, absolutelyyoucanchargemore. Lookatthesuccessthathashappenedintheonlineworldofpeoplesellingverticals.Lookatthe amount of interest that car or holiday websites get, for example. The reason is because advertisersknowthatthesearetargetedaroundpeoplesinterests.SoIthinkbothintermsofthe onlinedisplayadmarketandtheairtimesalesmarketthereisevidencethatiswhatadvertisers willpayforassoonasitcanbeproventothemthatitcanbedeliveredonsustainablebasis.

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We are talking here about bring two worlds together here an internet world which is free, open,andhorizontalandatelevisionworldwhichisstructuredaroundclosedverticalplatforms whicharefiercelyprotected.Doyouthinkthatinternettelevisioninthefutureisgoingtoendup beingmoreliketheinternetwhichismostlyopenormorelikethetelevisionindustrywhich ismostlyclosed? Ithinkthatisaterrificquestion.Ithinkthattheansweristhatitsalltoplayfor.WhatIwouldsay though is that the people that are playing hardest and fastest in this market are those in the verticalworldandthereforeitshardforthatfree,openworldtorallyitselfasacollectivebody. And so just simply for a structural point of view you would expect that a vertical world will emerge,althoughthatverticalworldwillhavetoincorporateanelementofopennessaboutit. The other point about this is that some of this technology is very expensive and so the vertical playerhasanadvantagebecausetheyhaveandabilitysubsidethatinitialoutlayandgetmoney backlateronandthatisaverypowerfultoolinworldofweb2.0internettechnology.Sowhether itisSkybeingablediscounttheirboxorwhetheritisBTofferingyouaCanvasboxinreturnforan internetline,thatverticalworldofhavingalowinitialoutlayinordertobeabletoabletolive insidesomeonesverticalworldisverypowerful. Having said that I think that people will want a world within which they can find a variety of differentcontentandhaveaccesstothatandIthinkpeopleappreciatestufflikeiPhoneapps,but ofcourseiPhoneappsarestillwithinaverticalworldwithintheiPhone. So I think probably the answer is going to be a small number of successful vertical players who operatorwhooperatesomewhatopenplatforms. Thankyou,Kieran.

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Sony: Tim Page, Technical Manager, Television

DateofInterview:22June2010 Founded in 1946, Sony is a global consumer electronics manufacturer whose main products span audio, video, television, gaming and PCs. The company also manufacturers electronics components and some semiconductors. In March 2010, Sony had 167,000 employees while the companys operatingrevenueforthefiscalyearending31March2009wasJPY7,214 billion(USD82.5billion). In March 2001, Sony announced an internet television offering called SonyInternetVideowhichisnowavailableonthemajorityofBraviaTVs, Blurayplayersandsomeaudiosystems. Canyousummarisewhereyouarewithyourinternettelevisionstrategy? Asyouknow,wevelaunchedthisBraviainternetvideoplatformonTVs,Blurayplayersandsome audiosystems.ThismeansthatthemajorityoftheBravialineuphasinternetconnectivityandan internetTVfunction.Werepursuingatwoprongedapproached.Oneisforyourinternetbased contentYouTube,Flicker,Facebookandsocialapplicationslikethatandtheotheraspectismore catchupTVwherewehavepartnershipswithleadingbroadcasterssuchasChannel5[a.k.a.FIVE Televisionseepreviousinterview),iPlayerandBBC.Wearetalkingwithleadingbroadcastersin manycountriestotrytogettheircontentonourplatform. This dual offer is on most of our Bravia TVs, all of the Blue ray players and a selection of a surroundsoundaudiosystemshavethisinternetfunctionbuiltinaswell. SothingshavemovedonsinceyouweretalkingaboutTVwidgetsacoupleofyearsago? Yes,theyhave.Thatwasourfirstattemptatsomesortofinternetconnectivitybutitwasquite restricted.Werenowextendedthistoincludeprettymuchanytypeofinternetcontent.

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SonyInternetVideowasintroducedbeforeGoogleTVandsoSonyInternetVideoisouroffering today.GoogleTViscomingintheStatesintheAutumnandwerelookingatitcomingtoEurope sometime next year. Sony Internet Video uses our own infrastructure; we have servers in San Diageoandarangeofcontentprovidersalreadylinedup. HowmuchcontentiscurrentlyavailableonSonyInternetTV? Weve got about 50 different contents online at the moment. Daily Motion, LoveFilm Video on Demand, and weve got the Berlin Philharmonic Orchestra on the music side of things, Sony PicturesTelevisioniscomingsoonwithcontent. InadditiontothatyouvegotkeybroadcasterslikeAntenna3inSpain,TF1inFrance,iPlayerison Blurayplayerscurrently,andwillbecomingtoBraviaTVsverysoon.FIVEOnDemandonChannel 5 is available. This is the current status on the content side, but were talking to all the major broadcastersonanongoingbasissoyoullseemoreandmorecontentonaweeklybasis.Soina coupleofweekstimeyoullseeaniPlayerlogoappearingontheBraviaTVs.Soalotshappening onaweeklybasis. WhatsortofservicedeliveryinfrastructureliesbehindSonyInternetVideo? Weare,ineffect,almostlikeaservicethatdirectstrafficdowndifferentroadsandeachofthese roads takes you to a different content provider. So when you turn on the TVs they access our serverstheysayOk,youreintheUKAndthentheysendbackalistofUKrelatedcontentthats been approved for viewing in the UK and when you click on iPlayer of Channel 5 or any of the other icons the it goes directly to the broadcasters website then they stream the content from theirsiteintoourinterface. Sowedonthostanycontentthatisalldonebythecontentproviders. So in effect its a front end, a way of aggregating content from many sources sand then presentingitalltotheusedinoneinterface? Yes,thatsrightwerereallyprovidinganaggregatorfunction. Isallthecontentfree? Goodpoint.Itsworthmentioningthatmostofthecontentisfreetoairbuttherearetwothings thatarepayperview.

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OneisLoveFilm,theUKmovierentalservice,andalsoBerlinPhilharmonicOrchestrawhereyou cangetaccessto10concertsonapayperviewbasis.Sothereisthepotentialtomoveformafree toairmodeltoapayperview,ondemandorsubscriptionmodel. Andontherevenueside,isSonytakingashareoftherevenue? Icantcommenttoomuchaboutthat,butthereissomerevenuesharinggoingon.Butitvaries accordingtothecontentprovider. So what does a content provider need to do to get their content on the Sony Internet TV platform?WhatstheToDolist,atahighlevel? The content needs to be in the right format to be playable, but its more focused on the commercialaspectsintermsofwhichcontent,howmanyhoursofcontent,howoftenitisgoing to be refreshed, are there any instream advertising models built around the content. But Im probablynotthebestpersontospeaktoonthistopic. Whataboutthemetadataassociatedwiththecontent;programmetitle,rightsandsoon? There is nothing exclusive to Bravia because the meta data is generic and it can work across a rangeofplatformssoaslongasthereisdataembeddedinthecontentthenitwillcomeuponany searches. For example if you type in FWord then it should appear on Bravia Internet Video assumingthatcontentproviderisalreadyontheplatform. WhataboutthetechnicalaspectsoftheTV?Whosuppliesthebrowsertechnology? Wehavedevelopedaproprietarysystemforaccessingcontent,asopposedtousingabrowserper se.Wedonthaveopenaccesstotheinternetsoyoucannottypeinbbbc.co.ukforexample;you arewithinaclosedenvironment.Weaggregatearangeofcontentandpresentthisinasimple, easytouseTVmenu. How do you see Sony Internet Video panning out now that Google TV has been announced, bearinginmindthatSonyisoneofGoogleslaunchpartnersforGoogleTV? You can consider that Bravia Internet Video is one source of content within Google TV which is kindofandumbrellaoverallsortsofthings;broadcastcontent,locallystoredcontentandBravia Internetvideo.SoifyouaretypingasearchintoGoogleTVthenitwillsearchacrossBBC,satellite channelsifyouhaveasatellitebox,BraviaInternetVideoifyouhaveacompatibleBraviasetand yourPVRifyouhaveanyrecordedcontentsoyoucanseealltheresults.
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So Google TV is more an umbrella across all the content that you have access to. So this really meansthattheconsumerneednotbeworriedaboutwherethecontentcomesfrom,i.e.which channel,whichplatformorbroadcaster,itsjustdisplayednicelyintheTVmenu. Doyouhaveanassociateddeveloperprogramme? ThecurrentBraviasystemisclosedsoyoucantwriteappsforit.ButGoogleisapossibilitybutwe dontseethatGoogleTVasreplacingBraviaInternetVideo,weseeGoogleTVasbeingmoreofan addedvalueontopwithBraviaInternetVideobeingjustbeonesourceofcontentthatfeedsinto theGooglesystem. Soeffectivelytherearetwolevelsofaggregationthere? Yes,thisisourcurrentview.Buttobehonestwedontknowenoughabouttheexactdetailsof howGoogleTVwillbeimplementedonnextyearsTVmodels.Itstooearlytosay. CanyoucompareInternetTelevisionwith3DTelevision,intermsofmarketpotential?Market uptake? Intermsof3D,thenyes,thisisveryexcitingatthemomentButtheresstillnotalotofcontent outthere.Yes3Disgoodforthecontentindustry,themovieandtelevisionproductionside,but forthehomeusethenitsstillveryearlydays.ButforinternetTVwefeelthatitisprobablygoing to be used more than 3D, certainly in the short term. Thats really because everyone wants to watchfamiliarTVprovidersontheirTViPlayer,YouTubeandsoonbutonanondemandbasis. 3DandInternetTVaretwocompletelydifferentmarkets,butalthoughwearefocusedheavilyon 3Datthemomentinourcurrentmodellaunches,certainlytheinternetsideofthingswillbemore usedthan3D. Do you see Sony Internet TV, and other similar initiatives, as something that is fundamentally about delivering a superior television experience? Or do you see all this as a way of allowing peopletoaccessthegeneralinternetusingtheirTVsets? WellIrememberWebTVbackinthe90sanditwasniceideabutitwasnotparticularlywelltaken up.IpersonallyfeelthatinternetTVisgoingtogiveyouaccesstomuchmorecontent,thanyou have access to on your terrestrial or satellite platforms. Personally, at home, if you want see whatsgoingonwiththetennisorthegolfthenIlookonEurosporttocatchupwiththeheadlines andinacoupleofminsyouvegotaccesstoallthelatestinformation.

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EurosportisactuallyagoodexampleofthisbecauseitsnotonFreeview,soifyouresportsfan andyouwantallthelatestheadlinesthen,yes,youcangoonlinewithaPCandlookontheBBC News website. But with Sony Internet Video, you can press the internet TV button on your remote control and then you get access within a couple of clicks to the latest sports news and headlinesonEurosport.Andthereisobviouslyvideothereaswell.InthecaseofEuropsportthere are about 15 different categories for different sports and when you go into golf it tells you all aboutthePGAtour,theUSOpenandtheUSMastersandarangeofothertournamentsthatare takingplace,andtherearevideoreports,almostlikenewsitems,or1minnewsclips,aboutwhat isgoingon;newsaboutTightWoods,orwhatever.Soitisallvideobasedbutitisdeliveredbythe internet. The challenge is trying to get good quality video over the internet. We have some technology insidetheTVsettotryanupscaleandimproveinternetcontenttomakeitalotbetterespecially whenyouarewatchingitfullscreen.Butwevefoundthatevenwith1or2Mbit/squitelowdata ratesyoucangetquitehighqualityfullscreenvideobeingstreamedtotheTV. What about the connection between the television and the streaming server itself? Is this independentofSonyBraviaInternetVideo? Yes,itis.Werecommend1Mbit/sto1.5Mbit/s.Ideally2.5Mbit/swouldbebetter.Butwithany kindofstreamingserviceyoudosomehandshakingandiftheserverrealisesthatyoucannotcope with the higher bandwidth because your ADSL is limited where you live then it will send you a lowerresolutionversionofthestreamsoatleastyoucanwatchsomethingsoyoudonothaveto watchahighresolutionpicturethatbreaksupofexperiencesstutterandsoon. Canyoutalkmoreabouttheupscalingfunctionalityyoumentionedearlier? There is upscaling from HDMI sources to SD and HD but also try to remove some of the compressionnoiseinordertoimprovethepicturequalityfromwhatyouwouldexperienceifyou justconnectedaPCtotheTVset. Itsthesameconceptasupscalingfromstandarddefinition(SD)tohighdefinition(HD),orfrom 2Dto3D.Ithinkthatnextyearsmodelswillfocusmoreonthisaspectalthoughthereisadegree ofpictureprocessinginthereatthemoment.Butnextyearwewillbeabletoofferamuchbetter visualexperienceonSonyInternetVideo.
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Firstyouhavetoconnecttotheinternet.ThiscouldbeusinganEthernetcableor,inthecaseof somemodels,youcanuseWiFibyconnectingaUSBWiFidonglesopeopledonothavetohave theirrouterrightbesidetheTV.Soitsquiteeasyforpeopletogetconnected.Afewyearsagothis wasaproblembecausewewedidnothaveWiFi. SohavingconnectedtheTV,youturnitonandtuneitinforthefirsttime.Thenyouhavetogoto thenetworksettingstochoosethetypeofnetwork.Ifitswirelessthenyouwillseealistofallthe wirelessnetworksinyourregion,thesameasifyouwantedtoconnectalaptoptotheinternet. You then type in your WEP key. Then you click a button that says Refresh Content and what happenshereisthatthedeviceaccessesourserversandreturnsalistofcontentsbasedontheIP address;essentiallywhetheryouareintheU.S.,Spain,FranceorPortugalorwherever. Thisisbasedonthecontentownerslicenserequirements? Yes,thatsright.Soasanexample,YouTubeisnotallowedinTurkeyforlegalreasonssotherefore thiscontentwouldbehiddenfromthelistofcontentthatcomesback.ButifyouwereinGreece thenyouwouldseeYouTubeappearinginthelistofavailablecontent. So we just send the list of content to the users TV set and then he can access those services individually.Soitsfairlystraightforwardtosetupanditonlytakesacoupleofminutes. So,howwouldauseraccessandcontroltheservice? IntheTVset,youwillusetheXcossMediaBarmenu,justlikeonthePlaystationwhereyouhavea photo icon, a musical note and a video clip. Under the video clip icon you would see all the streaminginternetTVchannelslisted.Andthenunderthemusiciconyouwouldhaveanymusic servicesthatarelistedandundertheTViconyouwouldhavealltheterrestrialTVchannels. So what you do is you either go into the menu and scroll up and down and select Film4 or whateverandclickonthatoryoupresstheBraviaInternetVideobuttonontheremotecontrol whichimmediately takes youtothatlistofcontentwhereyou canagainscrolldownand select thecontentyouwant. Andthenifyouwanttogobackthenyoujustpresstheinputbuttonanditswitchesbacktothe lastinputyouwerewatching;Sky,BBC2orwhateveritwas.

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Do you envisage in the future that the Sony Internet Video platform will incorporate an automatedmonetisationmechanismthatmightencouragesmallercontentproviderstopublish theircontenttotheplatform? ItdependsonthecontentproviderbutthereisalreadysomerevenuesharingbetweenSonyand thecontentprovider.Wecantrackexactlywhoiswatchingwhatisinagivencountry,andwhatis the most popular service and so on. And on the basis of that then you can make some sort of financial arrangement with the different providers but in terms of more detail then that is not something that we are in a position to discuss. It varies so much between different content providers. Is the revenue share limited to payperview content or does it also encompass invideo ads whereinsituationswheretheyareserved? Itcouldbeboth.IveseenademonstrationofwhatishappeningontheU.S.modelsandinthe caseofsomeseries,likeNBC,attheendofeachprogrammethenyoucanhavea30secadvert and then it goes to the next episode on that series and this can be a good way of obtaining revenue.AndthenwehavethepayperviewmodelswhichhowweareoperatingLoveFilmand theBerlinPhilharmonicOrchestra. Howdoesthepayperviewmodelwork? WellinthecaseoftheBerlinPhilharmonicOrchestra,youwouldsubscribetotheirserviceontheir internetwebsiteusingyourPCandthen,ontheTV,whenyougotoaccesstheircontent,whichis onlyavailableonapaidforbasis,thenitasksyouforaPINwhichyoudgetfromtheBPOwebsite. Thisallowsustocontrolusageandworkouttherevenuesharepayout. Doyouhaveanydataondeploymentoftheservicesofar? Bravia Internet Video is only available on selected 2010 Bravia TV models. Out of all the Bravia internetTVmodelsweveannouncedthisyear,about25%are3DenabledbutInternetVideois available on about 80% of the Bravia line up, really just excluding the lowerend models. Comparedwithinternetvideocapability,3Disquiteanexpensivestepupintermsoftechnology; thepanel,thecosttheglassesetc,soitsquiteabigjumponthecostside.ButinternetTVisfairly easytoincorporateontoaTVset. In total, for the 2010 Bravia models, Sony Internet Video is on about 30 individual models, includingallthedifferentscreensizesandspanning4series.

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How sustainable is the walled garden approach to Internet Video? Is the market going to developintoanumberofclosedplatforms,likeTVbroadcasttoday,orisitgoingtoturnoutto bealotmoreopen,likethewebtoday? Longerterm,IthinkyouwillseewebbrowsersbuiltintotheTVsets.Wevebeentalkingforalong timeabouthavingabrowsersoyoucanbrowsethewebbutuptothispointTVshavenotbeen suitable for web browsing because processor power has not been good enough, rendering of contenthasnotbeengoodandtheresbeennostorageinsidethesetssocertainlyGoogleTVwill helpaddresssomeoftheseissues. Lookingintothefuture,maybewewillbecomemuchmoreopensopeoplecancreatetheirown appsfortheTV.Ithinkthatsonthecards. InthinkthatintheneartermwewillcarryonwiththeBraviaInternetVideostrategythatwehave today, partly because of the deployed base of compatible devices, but we also see this service carrying on and the Google TV being an umbrella that links this content with other content sources, like local sources of content, other online content, broadcast content and so on via harmoniseduserinterface. Doyouthinkthatrestrictingthesearchfunctionalitytocontentthathasbeendesignedtowork withtheSonyInternetTVplatform,willbeasourceoffrustrationtousers? Well at the moment of course if you click on the YouTube channel, and you do a search in YouTube then you only get YouTube results and then if you change channel and do a search in iPlayerorChannel5thenyouonlygetthesamething,contentthatisavailableonthosechannels. We do have a generic search function built into the TV that does look across some of these differentsourcesofcontent.ButIthinkthisisoneofthemainbenefitsofGoogleTV;sowhenyou searchforTopGearitcomesupbackwithTopGear,itcomesupcontentfromiPlayer,itcomes up with HD and it comes up with YouTube results for Top Gear programmes. So its more searchingacrossallthedifferenttypesofcontentvisibletoGoogleTV,aswellaslocalstorageas welltomakeitaloteasierforpeopletofindthingstowatch. Ithinkitisgoingtogeteasiertoaccessmorecontent.

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Whataboutsocialfeatures?Forinstance,includingfeaturesthatallowviewersofagivenshow todiscusstheprograminrealtime,interactwithothers,providearecommendationtoanother userwhichwouldthenappearoftheirTVsetasanotificationandsoon.Rathersimilartowhat peoplecurrentlydoonline,butontheirTV? Thosearequiteinterestingconcepts,aninterestingarea.Currentlywehavewidgetsbuiltintothe TVforFacebook,Flickrbutwedonothavethefeaturesyoumentionedyet. Whatabouttheremotecontrol?Whatistheuserexperiencelikethere? Atthemomentwehaveamobilephonestyle,predictivetextdataentryfunction.Whenyouclick inthesearchboxthenanonscreenkeyboardpopsup.So,asanexample,ifyouwantedtosearch forTopGeartheeyouwouldpress867space4327,justasyouwouldifitwasamobilephone. Butinthefuturethiswillprobablybemadeeasier,soyoumighthaveaslideoutkeypadonthe remote,butthisisnotavailabletoday. WhataboutcontrollingSonyInternetTVusingaSmartphone?Isthatpossible? We do have some compatibility with the iPhone at present for the Bluray player. You can downloada SonyappfromtheApple AppStorewhichthenallowsyoutocontrolyourBlueray playerusingyouriPhone.Wewillprobablyintroduceasimilarappthatwillallowyoutocontrola BraviaInternetTVenabledTVsetnextyear. SothenyoustartseeingtheemergenceofasecondscreenwhereyoucanaccesstheTVsmenu structure using a touch screen interface. A Smartphone, maybe an iPhone, maybe an Android deviceoraSonyEricssondevicewouldallowyoutousetheSmartphonestouchscreenasatext entry panel. You would also have a way to display secondary content about programs you are watching.Ithinkhavingtwodisplaysinthelivingroomcouldbecomequiteinteresting. SoifyouarewatchingamovieonaBluraythenbecausetheBlurayplayerisconnectedtothe internet it could download a lot of information about the film, such as actor bios, screen shots, trailers,reviews,supplementarymetadataifyoulike,andyoucouldthendisplaythisinformation onyourTVscreenorontheusersSmartphone. And then you could use the touch screen interface on the Smartphone to control the TV start/stop/pauseetc.Youcouldnavigatethemenustructure,entersearchqueriesandsoon.This functionalityisavailabletodayonthelowestendBlurayplayer.

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IthinkinternetTVisbecomingalotmoreaccessibleandthereisalotofcontentcoming.Lastyear wehadonlyafewchannelsbutnowwehaveover30channelsandthenumberisincreasingevery week.IthinkthatintheendInternetTVwillbeastandardfeaturethatyouwillseeonallTVsets, so even if you went to a superstore to buy lowend TV set then that set would incorporate internetTVfunctionality,eveniftheuserdidnotwantit. I think the main barriers are making sure you have the content, which is key for everything. So makingsurethatthecontentisrichenough,refreshedregularlyenoughandupdatedregularly.I alsothinkthatthelimitationofpeoplesinternetconnectionsathomecouldbeanissue.Butthis islessofanissuethatitusedtobeasmostpeoplenowhave1or2Mbit/s.Andthenitsacaseof makingtheactualvisualqualityofthevideoashighaspossible. Whatdoyouthinkwillhappentototaltelevisionviewingtimeasthisinternettelevisionmarket develops? Thatsagoodquestion.Ithinkthatoverallitcouldincreasetomoreviewingtime.PersonallyIam finding that certainly over that last few weeks Im watching more TV than I used to, simply because it is a lot easier to watch the content. So if I have missed something on BBC then Ill immediately go to iPlayer and watch it there. So making the content more accessible is helping peoplewatchTVforlonger WhataboutPVRs?DoyouseearoleforthePVRinthefuture? WellyoucouldaskwhetheryoureallyneedaPVRwhenyouhaveaninternetconnectedTVset andallthesecatchupTVservices.Maybeyoudont.Butofcourseitdependsontheplatform.So ifyouhaveSkyathome,thenyourenevergoingtogetthe500channelsonSkyoninternetTV, but if youve only got Freeview, and youve missed Top Gear or the tennis then you can go immediatelytotheinternettowatchthat. ButwouldntitbepossibletomakeSkyscontentavailableonSonyInternetVideo,butonlyto Skysubscribers? Well,yes,withSkyPlayerthatwouldbepossible.IdonotknowifwearetalkingtoSkyaboutdoing thisatpresentbutthiscouldbeinteresting.Therearenearly10millionSkysubscribersintheUK at present and you could have a version of SkyPlayer inside every Bravia TV so that could be interesting. Thankyou,Tim.

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Akamai: Stuart Cleary, Product Marketing Director

DateofInterview:8June2010 AkamaiisintheContentDeliveryNetwork(CDN)business.Thecompany ownsandoperatesaninfrastructureplatformincludingtensofthousands of servers deployed around the world that allows client organisations to better deliver digital content and contentbased services to end users aroundtheglobe. HavingbeenintheCDNbusinesssince1999,Akamaisrevenuesforthe12 monthsendingDecember2009were$859million. In2009,AkamailaunchedtheirHDNetwork,whichenablesclientstooffer live and ondemand HD video. Akamais HD Network incorporates adaptivebitratestreamingwhichallowsclientstodeliverthebestquality toeachindividualuser. Whoareyoucustomerswhenitcomestointernettelevision? Were in a unique position because we work with a very diverse group of content providers; includingfolkslikeHuluaswellaslargebroadcasterswhoaretypicallythelargestplayersintheir respectiveregions.ForexampletheBBC,Channel4[intheUK]andhereinNorthAmericawere talking about companies like NBC typically large brand names or Tier 1 content providers. Because of our broad and diverse customer base weve been able to identify a number of key trendsthatarebeginningtospecificallyforonlinevideoorinternettelevision. Canyouexpandonthetrendsyoureseeing? Firstandforemostiscertainlyanincreaseinthequalityofvideothatisbeingoffered,andthisis notspecifictoAsia,theU.S.orEMEA,butitsatrendthatweareseeingworldwide.Sowhatwe areseeingisthatcontentprovidersarenolongerencodingtheircontentatthelowestcommon denominator. You know, going back a number of years content providers were encoding at anywherebetween400to600kbits/sec,becausetheydidnotwanttoexcludepeoplewhowere notabletostreamhigherqualityvideocontent.Buttoday,ifyoulookgloballyacrossAsia,Europe andhereinNorthAmerica,consumersareconnectingtotheinternetatawiderangeofspeeds. So you have people connecting at relatively low speeds and some are connecting at very high speedsforthatlastmilein[internet]connectivity.
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SocontentprovidershavebeenlookingatthisandsayingIdontwanttoencodemycontenttoo highbecausethatwillexcludesomeofmyaudience.Sotheyhavebeenencodingatlowerrates toensurethemajorityoftheaudiencewillbeabletogetaccesstothecontent. Butdoesntthatmeancompromisingonquality,atleastforsomepeople? Thatsright.Butthenegativeimpactofthisapproachisthatyouaregivingthesameexperienceto everyone,sosomeonewhoiscapableofstreamingvery,veryhighquality,highdefinitionvideo hastowatchthesamevideoqualityaspeoplewhoareontheverylowspeedconnections. Canyouexplainmoreaboutwhatbeenhappeningtoconnectionspeeds? Over the last four years the average connection speed has been increasing. So in Korea we are seeingconsumersconnectingatanaverageconnectionspeedof12Mbit/s.Andwerealsoseeing consumers connecting at higher connections speeds in Europe and North America. So we are definitelyseeingatrendtowardshigherandhigherconnectionspeedsandencodingrates.
Market United States United Kingdom South Korea
Source: Akamai

Connection Speeds (Mbit/s) Average 4.684 3.812 12.021 Maximum 16.206 12.346 32.708

Figure32:AverageandMaximumInternetConnectionSpeeds(UnitedStates,UnitedKingdom andSouthKorea) Onereasonforthisisthatthelastmileconnectivitywhichhasbeenincreasingandthesecondis theproliferationtodayofdevicesthatareactuallycapableofactuallyrenderinghighqualityvideo; ofcoursedeviceslikeaPCoralaptop,butnowalsodeviceslikeagamingconsole,likeaPS3for example,oraNintendodeviceoranXbox. Sotheenvironmentfordevicesisinamuchhealthierpositionthatitwasfourorfiveyearsagoin that there are many more devices available that are IP enabled and capable of rendering high quality video. These devices have the hard drive, software and other capabilities required to downloadandstorethissortofhighqualitymedia.

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 Canyoutakeusthroughanexampleofarecentdeployment?

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A good example is what we did with NBC Sports and the NFL last season where we streamed Sunday night football, which is a live event. This typically draws a large audience on traditional televisionsotheymadethisavailableontheinternetaswell.Theencoderatetheywereusingfor thelivegamewas3.5Mbits/sat720psothisisveryhighqualityforalivestream.Theinteresting thingaboutthisdeploymentwasthatitusedafeaturethatAkamaiofferscalledAdaptiveBitRate Streaming. HowdoesAdaptiveBitRateStreamingwork? The content provider will encode their content feed at several different bit rates; lets say from lowqualitytohighquality. Now, the consumers device the player theyre using to watch the game incorporates a heuristicsengine,whichisadecisionmakingengine.Whentheconsumerclicksplaytheplayer connectstothestreamingservertorequestastream.ThisserverispartoftheAkamainetwork thattheeventisbeingstreamedfrom. Theserverthensendsbacksomethingcalledamanifestfile.Thisfiletellstheplayerthatishas, say,fivedifferentbitratesavailable;perhapsoneat400kbit/splusothersthatgoallthewayupto 3.5Mbit/s.Whattheheuristicsenginedoesisitlooksatthebitratesthatareavailableanditalso estimates the speed that the users device is connecting to the service. It will also look at instrumentation data like the rendering capability of the device in other words, is this device actually capable of rendering highquality video? And it will take all these factors into consideration. Doyouactuallymeasuretheconnectionspeedofthelink? Itsisalittlebitofaninvolvedprocess,butperiodicallytheplayerwillasktheservertoburstdata anditwillviewthatbursttoestimatethespeedtheplayerisconnectingtotheserverat.Andthis isonecomponentofwhatitwouldusetodeterminewhatbitratetostream. Best practises today suggest that when you connect to the player initially you automatically configuretheplayertoconnectatthelowestbitratepossible.Bydoingthatyougetafastervideo startuptime,thanyouwouldifyoutryingtorequestthe3.5Mbit/sfilestraightaway,whichisa muchbiggerfile.Abigfilemeansthatitwilltakelongerforthebuffer[intheusersdevice]tofill andasaresultitwilltakelongerforthevideotoactuallystartplaying.
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Nowtheuniqueaspectaboutadaptivestreamingandhowitworksisthatitdoesnotjustdecide on what bit rate to use based on the initial request. Instead, it constantly monitors these conditions on an ongoing basis during the playback as they change and they always do. Wheneverwedemothisweactuallyexposethebandwidthmonitoringandbitrateswitchingand theyalwaysgoupanddown.Sowhathappensisthatastheseconditionschange,theheuristics engineisconstantlycommunicatingwiththeserver[torequestdifferentbitrates.] Thegoalwiththisistoeliminatethefrustrationofbuffering,whichisthenumber#1frustration thatconsumershaveindicatedwithonlinevideo;theyhaveastrongdesireforasmoothplayback experience. Doestheadaptivestreamingworkinfixedbandsoronaslidingbasis? Thatsagreatquestionandtherealansweristhatitisconfigurableandalotofithastodowith howthecontentisencodedinthefirstplace,whichwilldeterminehowoftenbitrateswitching willoccur. So say you have, for example, four bit rates available for the same video, say, 400kbits/s, 800kbits/s,1Mbits/sand2Mbits/s.TypicallywithFlash,eachofthosebitratesareencodedinto segmentscalledkeyframeintervals. Ourrecommendationis2secsegments,soeachofthefourfilesisbrokenupinto2secsegments. Butthecontentprovidermightdecidetoencodein1secor4secsegments;thisisadecisionfor thecontentprovider.Whatwehaveseenthathasworkedthebestistoencodeat2secperbit rate.IfyoulookatSilverlightthenMicrosofthasanothertermthatreferstothesamething. Thereareacoupleofvariablesthatdeterminehowfastyoucanswitchbetweenbitrates.Oneis thesegmentlengthandtheotheristhebufferlengthwhichisagainuptothecontentprovider. Letssayyourtargetbufferis4secsandyourkeyframeintervalis2secs.Thenthefastestyoure goingtobeabletochange[encodingrates]is6secs;youhavetowait4secsforthebuffertofill upandthenyouhavetowaitanother2secsplaybackbeforeitcanjumptothenextbitrate. Sothebufferplusthekeyframeintervalwilldeterminehowfastyoucanswitchbetweenthetwo differentbitrates.
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 DoesAkamaiprovidetoolsthatallowcontentproviderstodothis?

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Wedonotdotheencodingbutworkwithpartnerswhocandothat.Forexample,foriPhoneand iPad,agoodexampleofapartner,wouldbeInletTechnologies. WiththeiPhoneandIPadjustlikeFlashorSilverlightyouhavetorepackageyourcontentinto a segmented format that can be delivered to the iPhone. Inlet Technologies have a hardware appliance called a Spinnaker Box, which does the segmenting or chunking of the content and packageitintoaformatthatcanbedeliveredtotheiPhone.Thiswillthenbedeliveredtoanentry pointserverintheAkamainetworkandwewouldtakecareoftherest. Whatfeedbackhaveyouhadfromconsumers? Based on some research weve done, when you ask a consumer how they define a highquality online video experience online they cite four key areas. The #1 aspect is smooth playback, and wevejustbeentalkingabouthowAdaptiveBitRateStreaminghelpswiththat. The second point is resolution, or clarity of content. This means that if I have a broadband connection and I can access the highestquality video available and I also have a device that is capable of rendering the highestquality video possible then I should be able to experience the highestqualityvideo:Ishouldbeabletoobtainlevelofqualitythatmatchesmyenvironment:my bandwidthandmydevice. The interesting thing about smooth playback and resolution is that consumers are willing to compromiseonresolutioniftheycangetsmoothplayback. The third key area that consumers are concerned about is video size. This means that I do not wanttobelimitedtoaverysmallvideoonmydevice.Ifmyenvironmentallowsmetowatchin fullscreenthenIshouldbeabletowatchinfullscreen. Thefinalareaisstartuptime.SowhenIclickplayconsumersexpectthevideotostartquickly. Consumersdonotwanttoseethatbufferingsymbolthatweallfindsofrustrating.Andoneofthe wayswecangetaroundthisisbyAdaptiveBitrateStreaming.Ifyoualwaysconfiguretheplayback sothatthevideostartsupatthelowestbitratethenyougetvery,veryfaststartuptimeand then,aswetalkedaboutearlier,youmovetoahigherbitrate. Weareconstantlyrunningcomparisonsagainstourcompetitorsinthesefourdifferentareas.

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Whataboutfeaturesthatrelatetotheserviceexperiencingitself?Interactivityforexample? Consumers are expecting more from their online video experience that they have ever before. Consumers are watching traditional television and they are looking at the experience they are gettingthere. OnTV,consumersdonotexperiencebufferingeitherforliveorondemandcontentandthe experienceisfullscreenandhighdefinition.Thenthereareotherfeatures,interactivefeatures, like PVR so the ability to pause or rewind live video which is particularly applicable to live sportingeventsandisandareawherewereseeingthehighestdemand. WehavedoneanumberordeploymentsearlierwherewehavedeployedPVRthefeature.One exampleistheSundaynightfootballwetalkedaboutearlier.Soifyourewatchingalivefootball gamethenyoucanpausethegamejumpbacktodifferentpointswithinthegame. Isthisfunctionalityisdeliveredbythenetwork,asopposedtotheconsumersdevice? This is a capability that we support today on the Akamai network. Take the situation where someonewantstojump back towatchaparticularsequenceinthegameagain.To enablethat fromanetworkperspective,whatwedoisrecordthelivestreamsastheycomeintoournetwork toanotherserverwhichhandlesthePVRrequests.Sowetreatthisalmostasondemandcontent. Iftheconsumerpausesalivegameandthenresumesviewinglateron,thentheoriginforwhatis nowhistoricalcontentisactuallytheserverthatwearerecordingthelivestreamto. This is done at the network level versus any of the stream being written to the disc on the consumersdeviceandbeingcachedthere. WehavedonethisforanumberofdifferentcustomerstodateonourHDnetwork. DoesAkamaiofferanyothernetworklevelinteractivityfeatures? Oneoftheotherfeaturesthatweveenabledandthisissomethingthathasreallynotbeendone on traditional television is multi camera angles. This is really where IPenabled video can really excelbeyondwhatyoucandowithtraditionaltelevision.

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Letssayyourewatchingafootballgame,sayEnglandversustheU.S.Thebroadcasterwouldhave a number of different cameras in the stadium and would allow you to jump between those camerasduringthegame. Some of our customers have taken those individual camera angles as individual streams of the gameandtheyhavethumbnailviewsofeachcameraangle.Soletssayyouhaveagoaliecam,a midfieldcamandyoualsohaveaplayercam,onethatsfocusedonWayneRooney,forexample, throughouttheentiregame. SoyouwhatyouhavenowisPVRfunctionality,veryhighqualitycontentthatisbeingstreamedat 3.5Mbit/s,adaptivebitratestreamingsotherearemultiplecoderatesavailableandinaddition youalsohavethisotherfeaturethatallowsyoutoclickonanyofthesecameraanglessoyoucan seamlesslyjumpbetweenanyoftheviews.Soyoucanclickonthegoaliecamandthenthatview willbepresentedinfullscreen. Sowhatdoconsumersthinkofthesefeatures?Whatusagepatternsareyouseeing? Whatweveseenwheremulticameraanglehasbeenenabledisthat9outof10consumersuse thefunction,so90%oftheaudience willactuallyjump betweenthedifferentcameraanglesso thisfeaturehasareallyhighadoptionrate. Doyouhaveanythoughtsforevenmoreadvancednetworklevelfeatures,forexampleaddinga cloudbasedpersonalmedialibrarywhereuserscanrecordgames? Its not something that we here at Akamai has been thinking about specifically. All of those requirementswouldtypicallycomefromthecontentprovider.Justliketheseinteractivefeatures wevebeentalkingabouttoday.Typicallythesefeaturesemergefromthecontentprovidersand thenwebuildthosefeaturesintoournetwork.Thefeaturesyourefertohavenotbeenprevalent in the conversations weve had with our content providers yet, although thats not to say they wontinthefuture.

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Areyouawareofupcomingfeatures?Thingsthatcontentprovidersaretalkingabout? Rightnow,whatcontentprovidersareconcernedaboutisdeliveringthebestqualityexperience possibleandthatfallsintoanumberofdifferentcategories,whichwevetalkedabout.Sotheres thequalitycomponentandthentheresbeingabletodeliverthatkindofexperienceatmassive scale,whatwecallbroadcastaudiencescale. Sothatswhereouremphasisandoutroadmapisfocusedontoday. Anythingelseyoureplanning? Onthebackend,fromaroadmapperspective,ifyoulookatthegrowthofdevicesthatareout thereinthemarketthatarenowcapableofstreamingandrenderinghighqualityvideotheresa challengeforcontentproviders.Sowhatweretryingtodonowistohelpsimplifygettingcontent onto as many devices as possible. In the old world of streaming you had many, many different proprietary networks and also different proprietary formats for specific devices. So that would require content provider to encode their content into many, many different formats for the differentdevicesthattheywantedtodelivertheircontentto. Whatourstrategyisasacompanyistogettoapointwherewecandramaticallysimplifythisto the point where the content provider does not need to encode in multiple formats, so we will actuallybeabletorepackagecontentinournetworkandthendeliverittomultipledevices. Soifyoupicturethisvisually,thenonthelefthandsideyouhavethecontentproviderwiththeir existingcontentandtheirexistingformat,thenyouhavetheAkamainetworkinthemiddleand thenon the right handsideyou have allthesedifferentdevices.Whereweregoingwith thisis thatacontentproviderwilljustsendustheirexistingcontentinwhateverformattheyhave,we willrepackageitinournetworkandthendeliverthattomultipledevices.Andweredoingthisto someextenttoday. WeareactuallydeliveringFlashbasedcontentoverstandardHTTPservers.Sowhatwereactually doingittakinginacustomersexistingFlashcontentandthenrepackagingandtranslatingthatto another format in our network that can be delivered over HTTP and then delivered out to the consumerdevice.

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 Areyouseeinganyotherkeytrendsinthemarketrightnow?

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Theotherkeytrendisbeingabletodelivereverythingwevejusttalkedaboutatmassivescale, whatwecallbroadcastscale. What would you define as broadcast scale? 10 million consecutive streams, 50 million consecutivestreams? When we talk about broadcast audience scale we are typically talking about audiences that can measuredbytheequivalentofNielsensTVmeasurementsystemhereintheU.S.Wedelivered7 millionstreamsforoneeventlastyear,andweveneverreallyseenthesevolumesbefore. Thistrendactuallybeganquitealongtimeago.Ifyougoallthewaybackto1999thentherewas aVictoriasSecreteventwhichwasanadvertisedduringtheSuperBowl.Thiswasforfashionshow thattheyweregoingtostreamonline.Theresultwastheyhadoveronehalfmillionvisitorsgoto theVictoriasSecretsitewhichactuallycausedthesitetocrash.Thiswasaverysmallamountof traffic, less than 1Gbit/s in fact. Today, 1Gbit/s would almost be considered a laughably small amountofdatawhenyoucompareitwithsomethingliketheObamainauguration,whereweare lookingatpushing1to1.5Tbit/soverournetwork.Thatswhatwemeanbybroadcastscale. Thankyou,Stuart.

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Appendix
Methodology
Regardingmethodologyforourstandardreportsweusefivetechniques: 1. Deskbasedresearch:Thisisusedtosourceawiderangeofrelevantfacts,datapointsand informationfrompublicdomainsources(e.g.companyreports,tradeassociations,press releaseservices,RSSfeedsetc.); 2. Inhouse vertical search service: We have developed our own softwarebased tool that allowsustoquicklyextractrelevantnumericinformationfromover3milliontecharticles thatwecacheonadailybasis; 3. Premium online research resources: Additional data points are sourced from premium online databases and research resources that we have access to (e.g. Factiva, Hoovers, DialogPro); 4. Executive interviews: We also draw heavily in the results of a number of indepth executive interviews with people working in the sector (the 3D TV report you've just purchasedcontainssomegoodexamplesofthese); 5. Proprietary spreadsheetbased model: For our market forecasts, we build a dedicated model that draws heavily on a very large data set that we've developed over the last sevenyearsforawiderangeoftechmarketsandalsomakesuseofourownforecasting methodologyforemergingtechmarkets. Generators market forecasts are prepared using a standard approach which is outlined in this section: Framework Model Generator has been forecasting technologybased markets on a professional basis since 2003. Overaperiodofmanyyears,wehavedevelopedaproprietary,macrobasedspreadsheetmodel andmodellingapproachthatcanaccommodateanytechnologymarketandwhichweuseinevery forecastingsituation.
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OuroverallapproachissummarisedinbelowinFigure33:AdoptionModelUsedbyGeneratorto Forecast Technologybased Markets). This model is essentially one where we divide the total addressablemarketfortheproductorserviceintofivepoolsofusers(Pool0toPool4). TheprocessofviewingthemarketthroughthelensoftheFrameworkModelallowsustoobtain deepinsightintotheadoptiondynamicsofthemarketanditsultimategrowthpotential. ThefollowingparagraphssummarisetheessenceoftheGeneratorsFrameworkModel: PotentialUsers(Pool0) Pool 0 comprises users who have no awareness of the product or service. That is, before any marketing activities have commenced or before news about the product has leaked out. However,everyoneinPool0isapotentialuserandsoPool0containstheaddressablemarket. Whenwetalkaboutanaddressablemarket,wearenojusttalkingabouttheaddressablemarket asitstandsinthefirstyear,whenproductstendtobeclunkyandexpensiveandservicestendto lackssophisticationandfunctionality.Instead,wearetalkingaboutthetotaladdressablemarket when viewed over a 5 to 10 year horizon, taking into account the natural enhancements and improvements that the vendors will make to their product, and also as a result of the arrival of competition.

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Pool0 Reinforcing LoopR1c

Reinforcing LoopR1a

Reinforcing LoopR1b

STAGE1 Awareness

UserUptakeRate (Consumerspermonth)

FlowofUsers

Pool0 Potential Users

ReinforcingLoopR2

STAGE2 Desirability STAGE3 Practicality STAGE4 Indispensability Totaladdressable marketisdistributed betweenPool0to Pool4 Pool2 Pool4 Firsttime Users Euphoria; Novelty; Status. QUALITATIVE AND QUANTITATIVE MAINLY QUANTITATIVE Experienced Users Understanding; Acceptance; Harvestvalue. Pool3 Committed Users Acceptance; ConsistentUse; Familiarity; Certainty. Pool0 Pool0 Time

Pool1

Prospective Users Curiosity; Interest; Imagination; Perception.

MAINLY QUALITATIVE

Figure 33: Adoption Model Used by Generator to Forecast Technologybased Markets

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Pool0

Source:GeneratorResearch

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 ProspectiveUsers(Pool1)

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Users t hen move from pool 0 to pool 1 at a rate that is dependant on the level of prelaunch marketing, hype and buzz as well as any belowtheline marketing that may be carried out, or quietly encouraged by the supplier (such as deliberate or unauthorised leaks of snippets of informationthatcanfeed therumour mill). Usersinpool1are notyetcustomers,buttheyare awareoftheproductorservice.Therateatwhichusersmovefrompool0topool1isdetermined largely by their perception of the product or services relevance as well as its desirability and utility. ThereisalsoanegativeflowofusersfromPool1backtoPool0:someusers,uponlearningmore about the product (for example, bad reviews or bad word or mouth from friends) may loose interestintheproductorserviceandthenfallbackintoPool0.Theyarestillawareoftheproduct, buttheynolongerhaveanyaspirationtoadopttheproduct. FirsttimeUsers(Pool2) Once the product becomes available, users then begin to flow from Pool 1 to Pool 2. Pool 2 consists of users who have actually purchased the product or service. There is a big difference between someone who is merely aware of a product or service (Pool 1) and someone who has actually purchased it (Pool 2). The rate at which users flow from Pool 1 toPool is defined by a rangeoffactors,includingwhatfriendsthink,thedesirabilityofthebrand,whatthepopularand trademediahastosayabouttheproductaswellasthemarketingeffortsofthecompanyoffering theproductorservice.Andotherfactorssuchaspriceandhoweasyitistoactuallypurchasealso playavitalrole. Again,thereisanegativeflowofusersfromPool2toPool1:somepeople,havingpurchasedthe productorservice,maydecidethatitisnotreallywhattheythoughtitwasorthatthebenefits theythoughttheyweregoingtoenjoywerenotrealisedinpractice.Thesepeoplethenstopusing theproductand,atthispoint,reverttobeingpotentialusers. ExperiencedUsers(Pool3) These users comprise those who have bought the product or service and have used it for a prolongedperiodoftime.Thesepeoplearehappywiththebenefits,betheytangible,intangible oracombinationofthetwo,andtheyareprobablywillingtorecommendtheproductorservice toothers.Importantlythesepeoplehaveanongoingneedfortheproduct.

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For example, if we are talking about an online service, than an experienced user would be someonewhousestheserviceregularly.Forahardwareproduct,anexperienceduserwouldhave foundaneedfortheproductonanongoingbasis.Itwouldnotbeoneofthoseproductsthatis purchased on a whim, used a few times and then discarded, eventually being thrown away and neverreplaced. The rate at which users flow from Pool 2 to Pool 3 is mainly determined by how practical the productorserviceiswhichmeanswhetheritdeliverslastingbenefitsthatcanbeenjoyedagain andagain.Thebenefitsmaybetangibleorintangible. CommittedUsers(Pool4) Theseusershavereachedthepointwheretheyrealisethattheycannotbewithouttheproduct.A mobilephoneoratelevisionisanexampleofaproductwherethebuyersarecommitted:once one has enjoyed the benefits of a mobile phone, one cannot bear the thought of living without one.Internetsearchengineswouldbeanotherexample.Fixedbroadbandaccessisanother.These productsandserviceshaveallattractedlargepoolsofcommittedusers.Intheendtheseproducts areincludedwithinthecostofliving. Manysuccessfulproductsandservicesnevermakeittothecommitteduserstageor,iftheydo, thenitisonlyforaspecificdemographic. The truly big technology markets are those where the value proposition is generic (meaning it appliesforeveryone)whichinturnmeansthat,intheend,everyonecanbecomeacommitted user. Key Considerations Having a framework model that can handle any technology market is a good starting point is a necessary first step, but any model is only as good as the input assumptions and so we also analyseeachmarketusingastructuredapproachthatincludesindepthanalysisoffactorssuchas:

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 ValueProposition

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Oneofthemostimportantaspectstoconsiderwhenanalysinganynewtechnologymarketisthe underlyingvaluedeliveredtotheenduser,andthisisalsotrueforB2Bmarketsthatultimately relyonconsumeradoption.Forexample,someproductsahaveanovelty,orfadappealwhichwill notbeenoughtosustainrepeatpurchases.Insuchamarketoneusermaybeinterestedinbuying theproductperhapsbecauseheknowsthatafriendhaspurchaseditbutthen,becausethe underlyingutilityisnotstrongenoughheisnotinteresteddinbuyingagain.Inothermarkets, theunderlyingutilityissostrongforexample,wheremajorqualityorconveniencebenefitsare being delivered that the user wants to be able to enjoy those benefits permanently. For a hardwareproduct,thiswillmeanthattheuserwillbeinterestinginspendingagain,perhapsina yearstime,whenanewmodelisintroducedthatofferssmallersize,newfeaturesetc.Inthecase ofaservice,theusermaybewillingtopayamonthlysubscriptioninordertokeeponenjoying thesebenefits. StartingConditions Wewilllookatthecurrentpenetrationlevelandalsotheyearwhichrepresentsyear1 CurrentMarketDevelopmentTrajectory Inthecaseofmarketswherethereispriorgrowthdatawewouldlookathepreviousfewyearsto define the current market development trajectory in units of, for example, new customers per year,productsperyear,orcumulativepenetrationperyear AdoptionDynamics Thisconcernsthemechanicsthatdefinehoweasyitistoincreasemarketpenetrationbyoneunit. For example, one new customer, one new product shipped. This is very important in understandinghowquicklyamarketcangrow. SaturationLevelsandAddressableMarket We view saturation along two dimensions. The first is how generic the value proposition is. For example,isthissomethingthateverybodywilleventuallywant?Orarethebenefitslimitedtoa specific market segment (e.g. teenage boys)? The other dimension relates to what will happen witheveryoneinthetargetmarkethaveadoptedtheproduct? Wethereforealsohavetothink aboutreplacementpurchasesandreplacementrates.

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 GrowthDriversandInhibitors

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Examples of a growth driver would be a situation where the powerbrokers in the industry are united in bringing about change in order to introduce a new product or service (e.g. High Definition(HD)televisionand3Dtelevision).Anexampleofagrowthinhibitorwouldbewherethe industrypowerbrokersarenotinterestedinworkingtogethertofacilitatetheintroductionofthe newproductorservice(e.g.internettelevision).Otherfactorscanincludestandards,technology maturityandunderlingutility. BenchmarkingusingRelevantMarkets Especiallyinthecaseofabrandnewmarket,wheretherearenodirectlycomparablemarkets,itis vitally important to carry out a benchmarking exercise to sanity check the results. We will be looking closely at factors such as implied selling price, implied incremental expenditure (consumer,advertising,infrastructureinvestmentetc.),marketgrowthrateandtotalmarketsize. IndustryDataandInsight Regardless of the apparent sophistication of a modelling approach there is absolutely no substitutefortalkingtopeoplewhoareworkingatthecoalfacepeoplewhoareworkinghard day in, day out to create the market. This insight is primarily captured by reaching out to our network of contacts and you can see the results of some of that in the verbatim executive interviewtranscriptswhichareincludedinourreports. Constituent Markets: Worldwide and Regional Forecasts When we talk of a worldwide forecast we are really talking about 76 markets which together account for over 97% of global GDP (see Table 40: Constituent Markets for Worldwide and RegionalAnalysisandForecasts).These76marketsarethendividedintotwogroups:31Tracker Marketswhichwetrackonanindividualbasisandalsoanalyseonaprojectbyprojectbasisand 45othermarketswhichweanalyseonaconsolidatedbasis. TrackerMarkets The31trackermarketsaccountfor85%ofglobalGDP.Individualanalysesarepreparedforeach trackermarket.Factorstakenintoaccountheredependverystronglyontheactualproductor service being analysed but would typically include the presence of retail and distribution infrastructure, the distribution of wealth amount the population, the rate of uptake of related

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 productsinthepastandtheexpenditureonmarketingrelativetothesize oftheenvisagedtargetmarket. OtherMarkets

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The 45 other markets are added into the forecast using a number of scaling techniques which againdependonthemarketbeinganalysed.Weavoidusingmacrolevelscalingtechniques(e.g. populationandGDP)butinsteadusefactorsthatarerelevanttotheproductorservicethatwe areforecasting.Forexample,wemightlookatexpendituretrendsinonlineadvertising,consumer expenditureondigitalmusicorPCsalesetc.).Oftentimesweusedacombinationofthesefactors.
Region NorthAmerica WesternEurope ConstituentMarkets Canada USA Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK Belarus Bosnia&Herzegovina Bulgaria Croatia CzechRepublic Estonia Georgia Greece Hungary Latvia Lithuania Moldova Poland Romania Russia Serbia Slovakia Slovenia Turkey Ukraine TracketMarkets:ThoseWhereLocal FactorsareConsidered Canada USA

Denmark France Germany Italy Netherlands

Spain Sweden UK

Central&EasternEurope

CzechRepublic

Greece Hungary

Poland Russia

Turkey

Cont/

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Region AsiaPacific ConstituentMarkets Australia China HongKong India Indonesia Japan Malaysia NewZealand Pakistan Philippines Singapore SouthKorea Taiwan Thailand Vietnam Argentina Brazil Chile Colombia CostaRica Ecuador Mexico Panama Peru PuertoRico Uruguay Venezuela Armenia Azerbaijan Bahrain Egypt Israel Kazakhstan Kuwait Oman Qatar SaudiArabia SouthAfrica UAE Uzbekistan 76

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TracketMarkets:ThoseWhereLocal FactorsareConsidered Australia China India Indonesia Japan

SouthKorea Taiwan

LatinAmerica

Argentina Brazil Chile Colombia

Mexico

Venezuela

MiddleEastandAfrica

Egypt Israel

SaudiArabia SouthAfrica UAE

TotalMarkets:

31

Table40:ConstituentMarketsforWorldwideandRegionalAnalysisandForecasts

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generator

About the Authors

ThisreportwaswrittenbyAndrewSheehyinassociationwithanumberofsupportanalysts. AndrewSheehyisoneofthefoundersofGeneratorResearch.BeforeGeneratorhewasapartner inamanagementconsultancywhichfocusedprimarilyonventurefundedtechnologycompanies inthetelecoms,mediaanddigitalspace. Drawingupon20yearsoperationalexperienceinthetechnologysector,MrSheehy'sprofessional repertoire is unusually broad and encompasses business strategy, product management, marketing, market research, corporate development, sales management and technology development. In former years, Mr Sheehy has held the position of Director of Product Management at the WiMax vendor, PipingHot Networks, which became Orthogon Systems and was acquired by Motorolain2007.HehasalsoheldthepositionofGeneralManagerofMarketingatTelstraNew Zealand and Head of Product Development for the customer premise product range comprising Nortel'sProximityIrangeoffixedwirelessaccessproducts. MrSheehyisanamedinventorontwopatentsandholdsaB.Sc.(Hons)degreeinElectronicsfrom SalfordUniversity.HealsoholdsanMBAdegreefromLondonBusinessSchool.

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