THE VOD DIFFERENCE

“Got entertainment? All rooms have every movie ever made, in every language, any time — day or night.”

That quote was part of what has become a largely forgettable Qwest broadcast ad that ran in 2000 at the height of the telecom boom. As it was then — like much of the tenets that the boom was built on — it's still pure fantasy. But if you do a little reading between the lines of public statements from the largest incumbent telcos and perhaps, even more important, the vendors that are supplying them the gear to roll out video services, perhaps it's not all that far off.

Most in and around the telco TV business recognize that for carriers to capture a significant amount of market share from incumbent cable and satellite operators, they must do more than pile cable networks onto the existing offerings. Initial indications are that one of the big differentiators will be video-on-demand (VOD).

SBC Communications' soon-to-be launched service using 2Wire's MediaPortal not only will combine high-speed Internet access and voice with satellite-based video through its alliance with DISH network; it also will allow users to select and view movies from the libraries of MovieLink and CinemaNow, which have been delivering content to PCs.

SBC, which originally signed the agreement with both providers as part of a content package for its DSL users, also is working on a video package with Yahoo, said Brian Sugar, vice president of marketing for 2Wire.

Combined, the libraries of both MovieLink and CinemaNow total a little more than 2000 titles. Hardly every movie every made, but one can see the thought process. The way large carriers are designing the networks that will feed video to the customer will be one of their inherent advantages. Both Verizon Communications and SBC, which have differences in the way they will provide video over the last mile, have opted to build national super headends where content from traditional cable networks will be encrypted. In SBC's case, that content will be converted to IP format. At the same time, that same headend will serve as the ingress for other content, including VOD, which could come from not only traditional sources but from virtually anywhere.

“The big differentiation that telcos can claim is that telcos are all about switched networks,” said Satish Menon, chief technology officer of VOD software vendor Kasenna. “Imagine the whole world available to you through one switch. That's the telco vision.”

Indeed, most carriers finally have been convinced that their video offerings must provide more than scads of video, said Jonathan Symonds, vice president of marketing and business development with ICTV, which is providing an interactive TV services platform to telcos and cable operators, including Hargray Communications in Georgia.

“The thing we find we're having discussions about most frequently revolves around, ‘what are those things that I can put up to differentiate my basic product?’” Symonds said. “Fundamentally, the telco guys get that the price of admission for a video product is not just linear stuff. It's on-demand, and in order to be attractive to subscribers, it has to have an element of interactivity.”

The telcos themselves are playing coy with their content strategy, not wanting to give away anything to cable competitors. At January's International Computer Electronics Show event, SBC demonstrated the satellite-based solution but also its U-verse service that runs on Microsoft TV's middleware. In that demonstration, the company showed how a user could have multiple windows open on their TV to watch several baseball games at the same time while a simultaneous crawl of statistics for a fantasy league runs across the bottom. Dan York, who is heading up the content strategy for SBC's video service said, however, it was too early in the process to discuss specifics, noting that legal and financial issues are just as important as technical ones.

“A lot of the deals that were done for TV never contemplated the IP world, and right now the biggest challenge is getting all of the business arrangements in place,” he said.

To understand the difficulty of getting those arrangements in place, think of a typical sitcom and the number of people involved in writing for, acting in, providing music for and directing a single episode. In order for a telco to offer something like “Seinfeld” on-demand, the carrier needs to have the IP rights, which can be different than traditional broadcast rights, of the entire cast, the production company and any musical contributor.

Assuming they can get those signoffs, many believe that carriers will quickly migrate to a largely unicast model. In that environment, users establish a connection between their set-top boxes and a video server to play content on-demand. The same concept is in play with some recent gaming services (see sidebar).

“The holy grail is really to essentially have all content flowing through an on-demand pipe,” said Channing Lai, director of broadband IP VOD products marketing at SeaChange International. “A lot of these visions are clearly just visions.”

The recently announced agreement between TiVo and Comcast should give telcos a little help adjusting the focus of that vision. As part of the agreement, under which Comcast will use a version of TiVo's software in the Motorola set-tops it's been rolling out, the companies say they eventually will allow users to download video from the Internet.

Providing the same in a telco multicast/unicast environment should be, at least in theory, even easier. Video pulled from the Internet could be stored in headend-based video servers, which should have the capability to connect directly to the wider Internet and be viewed by users using a Windows CE-based set-top browser. The reality, of course, is very different. Technical and legal issues abound.

From a technical standpoint, formatting video originally designed for PC viewing to the TV isn't overly difficult, according to several vendor executives. Still, some carriers in countries with little cable penetration are launching VOD via the PC because it allows users to pick and choose from a larger array of content.

“We've seen some regions of the world, some operators who want to go first on-demand for PC delivery,” said Thierry Fautier, marketing director for emerging markets for Harmonic. “They don't want to invest too much, and to be honest, I don't see that as a very successful service.”

However, doing the same type of service on the TV and formatting every potential piece of video content already on the Web could take time. Overriding that is a carrier's desire to maintain quality control.

At the same time, there is concern about legal liability if, for example, a telco video customer downloads a pirated version of a first-run movie from the Web.

Because of that and other concerns, many within the telco TV community believe carriers will offer a variety of options such as gaming and local content but provide more of a walled garden to video. Similar to the practice of wireless carriers, the walled garden will give users more than just traditional cable channels but only from a list of pre-approved sources.

“The walled garden approach is one that the operators and the content owners like,” Lai said. “If you take it to the limit where you've got video Internet, what ends up happening is you end with brands that appear on the network where people go for trusted content.”

GAMES MAKING IT ON MENU OF TELCO TV SERVICES

Among the myriad of services that carriers can offer to differentiate their video services from cable competitors, gaming certainly would rank as the most different. Though still in its infancy, combining games with an IP-based video service is starting to catch on with some of the earliest entrants.

Both Manitoba Telecom and Saskatchewan Telecommunications launched games services this year using Iacta's Games4TV platform and have found an immediate niche. According to an initial survey, almost two-thirds of the companies' IPTV subscribers have tried at least one game. Perhaps more important is who is playing.

“A third of the households have someone who has a serious interest in games,” said Laura Buddine, CEO of Iacta. “And quite often, it's the woman that signs the check for the bills.”

In fact, if early results are any indication, the market for gaming via IPTV is going to be significantly more female and older than what most people envision as the typical “gamer.” That's largely because IP set-tops aren't nearly as robust as a game consoles. And while some set-top box vendors will brag about their processing horsepower, it's only a fraction of the typical PC, so games are skewed toward single-player titles, puzzles, card games and video versions of familiar board games.

“It's primarily women, way over 50%,” Buddine said. “It's also a lot of older people. We've got a lot of them in their 70s and 80s.”

Iacta also operates its own Web-based service, but uses similar titles as those offered to telcos. In addition, it gets almost 85% of its uses via its partnership with MSNTV.

Some in the gaming market, though, believe the proper place for telcos to make money on gaming is the PC. Yoav Tzruya, vice president of products and markets strategy for Exent, which provides titles to Bell Canada's Sympatico DSL service, said there are numerous problems with trying to bring exciting games to the TV environment. There is no standard for the size and type of TV or set-top box, and there's a lack of input devices. And, most consumers don't have their TVs integrated into their broadband connections yet. But perhaps most important is the posture most people take when watching TV.

“Some things are just not made for the 10-foot experience,” Tzruya said.
— Vince Vittore