Getting Back on the IPTV Horse

The SES Americom announcement in December that it was shutting down its IP Prime IPTV wholesale service seemed to definitively cast 2008 as The Year Independent IPTV Died.

But a scant four months into 2009, that obituary can officially be declared premature, according to the companies selling IPTV equipment and services. In fact, 2009 seems to be shaping up as a year of IPTV rebirth among Independents. The reasons for this shift, made even more dramatic by the backdrop of a dismal economy, are several, starting with the reality of competition but including maturation of the IPTV market, the impact of AT&T and Verizon efforts in the space, and the availability of less expensive IPTV gear.

Companies such as Amino, Minerva Networks, Tandberg, Verimatrix and others are reporting surprisingly strong sales in the first quarter — and are pointing to Independent telcos as one main source of those sales.

“Consumers are still enjoying the services and buying better television services,” said Mauro Bonomi, CEO of IPTV middleware-maker Minerva. “There is a demand by the consumers. Some operators have been very cautious in embracing this technology, but finally after many years of pushing, they are realizing that an IP-based system can offer the reliability of cable but also functionality beyond what cable can offer, with more flexible personalized viewing, converged communications services, with widgets and advanced apps that are easier to implement in an IP environment. When they deploy an IPTV solution, they are pulling away from cable or satellite competition. We see good momentum. Given the economy, we are very pleased with the results.”

This market shift doesn't mean IPTV has suddenly become cheap and easy to deploy. Many challenges remain. But it appears to mean that market momentum has moved toward deployment versus non-deployment.

Some of the new IPTV impetus is driven by the real world of competition, said Tom Laird, vice president for IPTV business development for Mariner, which provides end-to-end service integration for IPTV deployments.

“Realistically, if you are a Tier 3 or Tier 4 telco, you either have to get the asset ready to sell or get into IPTV,” Laird said. Competition from satellite, cable and ISP operators is cannibalizing traditional revenues. “Telcos have to carve out their space by offering a more robust suite of services,” he added. “They need to get into entertainment because they are commoditized on long-distance, commoditized on access and commoditized on high-speed Internet.”

AT&T and Verizon are now at a point in building out their networks to offer video services where they are doing more mass-market advertising, raising consumer awareness of telco-based video products in general and IPTV specifically. The big telco efforts, combined with the explosion of Internet-based video services such as YouTube and Hulu, prove that IPTV can win consumers but also create some competitive issues, said Andrew Burke, CEO of set-top box-maker Amino and former CEO of BT Entertainment.

IP-based video services will create bandwidth issues for local ISPs and most likely force further investment in access and distribution networks, Burke said. “Broadband service providers are going to be forced to make more and more investment into their networks,” he said. Given the current opposition to efforts by companies such as Time Warner Cable and AT&T to launch usage-based billing, broadband operators could find themselves in a difficult position unless they have their own services to sell over those fatter pipes.

As Independents face this tough competitive reality, the good news is that, as technology matures and enables more functions, IPTV is getting cheaper, and this is true even for companies that choose to deploy their own headends.

“It's still more expensive [than outsourcing], but the payback period is much shorter,” said Craig Knudsen, director of product marketing for Tandberg. “What cost $5 million to $7 million to deploy five years ago only costs $2.5 million to $3 million now — and that's including [high definition].”

North State Communications, an Independent based in High Point, N.C., is launching its IPTV service from a Tandberg iPlex video processing platform and will start with 50 channels of HD, Knudsen said. “And with new ultra-compressed encoding, it is beautiful HD,” he added.

Tandberg has seen a decisive uptick in Independent sales, Knudsen said. “We were worried about a down year because of the economy; we thought it would be rather soft, but IPTV is moving full forward, and we are seeing more headend sales,” he said.

Cisco also recently introduced new digital content manager transcoders aimed at enabling smaller service providers to build less expensive headends.

Like other IPTV equipment vendors, Cisco is seeing Independent telcos come back into the market, said Steven Soenens, director of product management for digital media networks for Cisco. “We built these products to be very cost effective,” Soenens said. “They are high-density systems at attractive pricing.”

There still are options for Independents that don't want the burden of building their own headends. Avail Media, which still is offering IPTV wholesale services, announced last month it is teaming up with Cisco to combine the Cisco Next Generation Network IP platform with Avail's IP-based video service for an end-to-end offering.

“This solution greatly reduces the complexity of and time to market for service provider IPTV deployments,” said Dave Davies, vice president and general manager of IPTV solutions for Cisco, in a prepared statement at the time of the announcement.

Net Insight, a company known in the U.S. mostly for broadcast backhaul, now is offering a virtual headend option for U.S. operators, which already is being deployed by the Wisconsin Independent Network, a statewide fiber wholesale network owned by 31 Independent telcos. Net Insight's optical transport technology already is widely used in Europe for digital terrestrial broadcast networks.

“Virtual headends take content and distribute it outside the domain of the original IPTV footprint,” said Dan Lutter, director of North American sales for Net Insight. “Virtual headends can take content across a state or across state lines, even out of the country.”

By sharing the cost of the headend gear, Independents can drive down their individual system costs.

One of the biggest-ticket items in an IPTV deployment is the STB — a per-customer capital expense that has also come down in price while increasing in functionality. “Set-top boxes are much less expensive today than they were three or four years ago,” said Steve Oetegenn, chief sales and marketing officer of security software-maker Verimatrix, which works with a number of STB-makers. One reason for that is a simple economy of scale: As major operators globally push IPTV deployments into the millions, the cost of individual technologies is coming down.

“The technology is much clearer,” said Mariner's Laird. “The cost of set-top boxes used to be prohibitive, and now we are seeing $100 boxes.”

Independent telcos that pioneered IPTV deployments often ran into problems when their vendors couldn't keep pace with industry developments such as HDTV and the arrival of digital video recorders (DVRs). Before many had earned a return on their initial investment, they were faced with the dilemma of replacing large numbers of STBs or even changing middleware providers midstream.

Independents deploying today have a number of options, as a growing number of players — even large companies — are attracted to the market.

Even Microsoft, whose Mediaroom IPTV ecosystem initially was considered too expensive and server-intensive for Independents to deploy, is actively working to court smaller telcos.

“We are talking to a lot of Independent telcos in the U.S.,” said Shari Barnett, director of media services for Connected TV for Microsoft. “They are beginning to see that the [total cost of ownership] makes sense. We are also doing a lot to reduce the number of servers required, to combine functions. We are very aware that is an issue.”

Amino and Minerva demonstrated whole-home DVR capabilities in April at the NAB show, and Minerva will make them available this summer, Bonomi said.

Faced with many choices, Independents must look at their market, their capabilities and the services they hope to offer before deciding on a system — whether to knit together best-of-breed technologies or opt for an end-to-end method, Laird said. As a systems integrator, Mariner works with both open and closed systems.

“Often, what we do is protect people from themselves,” Laird said. “What Independents should be doing is deciding what they want their organization to be redefined as and do they have the skill sets they need to do this. You may not need to have the latest and greatest of everything to compete effectively in your market.”