Winning the digital bet:

>From order processing to content management, the digital entertainment >world is a new one. Those who thrive in it will need to be brave.

The scale, complexity, timeliness and value of digital entertainment services represent a truly different business than the analog world that now dominates. When the flexibility to addother new classes of services is included, digital entertainment requires radically different business systems.

Today, cable operators provide services that are really digital versions of existing analog services. Although that may work when introducing digital services, it probably doesn't lead to long-term profitability.

What will it take to make an economically viable digital business? There are no hard-and-fast answers yet, but the increased complexity and cost of a digital infrastructure, the potential for new revenue and the business processes to support a digital environment must be addressed.

Why is digital different? For one, it involves more systems and complex relationships. The number of subsystems involved in a standard analog delivery system is relatively small and their inter-relationships fairly straightforward (Figure 1).

Digital delivery requires more systems, greater levels of interconnectivity and more interfaces than analog delivery (Figure 2).

Digital entertainment also will provide more content. Broadband delivery technology can carry eight to 15 times the amount of digital content than analog content in the same bandwidth.

Because suppliers are not likely to increase production tenfold, new programming sources will appear. There will be more and different kinds of content, more competition to create it and greater marketing challenges to distribute it. In short, there will be more than just increased numbers of niche networks.

Digital environments present almost incomprehensible levels of flexibility.

Unlike analog networks, which have many passive network elements, virtually every digital network element is a computer. Each is capable of transforming-and in many cases creating-service components. Interactivity also introduces new complexities.

Digital services may be mixtures of video, audio and data, and they may be produced in advance, on the fly or both. They require new levels of support for their creation, distribution and management. And they need systems that manage the distribution network to the customer environment, as well as systems that manage the business activities that are essential for turning profits (Figure 3).

The digital service delivery plant is more expensive. Digital technology for program origination, network equipment and customer premises equipment costs more than analog equipment. The software and business process enhancements needed to create the services and operate these systems also will be expensive.

The dynamics of digital An expensive digital plant can be profitable if it carries services that customers value more than those of traditional analog. But improved picture quality, more networks of low penetration and faster pay-per-view access won't carry the weight.

Does this mean that digital is bad business?

A shortsighted answer would be yes, given these facts. But compelling reasons exist for operators to make the investment. It can be a profitable business.

Today, direct broadcast satellite "skims the cream" of the most profitable analog segments. Soon, the same situation will prevail among local broadband digital options, including wireless, hybrid fiber/coax and asymmetrical digital subscriber line. Yet even in this extremely limited view of digital, doing nothing isn't much of an option.

With digital technology, an operator can do more than merely respond to today's competition. Digital marks entry into a business with more products, more added value and greater opportunities.

In this view, today's digital deployments are more than just responses to cream-skimming and supplements to analog services. They allow operators to build the kind of organization, experience and infrastructure that will be necessary to successfully capitalize on tomorrow's market opportunities.

Making digital a viable business The competitive nature of the market forces cable operators to exploit digital's flexibility and capacity. The increased cost of a digital infrastructure both enables and requires cable operators to add more value. This combination of factors demands new business practices and systems that support them.

Business reengineering in marketing, customer support services, delivery management and network management is key to making digital delivery profitable over the long term.

It now appears the road to digital revenue is paved with a wide variety of narrowly targeted services. Marketing will require the skills, tools and relationships that let operators distribute varied products to smaller market segments. Also, product and pricing decisions will need better tools for analyzing more data in less time.

Tools also will be required to facilitate a closer and more effective working relationship between marketing and operations. Significantly greater numbers of products require better tools for scheduling activities, managing workflow and coordinating the electronic subsystems dependent on marketing outputs.

Customer support involves three primary issues. The first is order processing. On-screen promotional systems must lead customers to understandable order points. These presentation and order processing systems must be flexible enough to develop the packaging, discounting and special offerings needed for competitive responses.

All this must be coordinated with customer profiles, credit management, equipment capabilities and delivery constraints.

The second issue is billing. Current billing systems can't handle many individual elements bought in real time with more complex packaging options and localized segment targeting. Their replacement systems also must cost less per transaction than today's simpler systems. Operators must be able to charge according to a wide range of parameters such as duration or number of data packets.

The third issue is customer service. In addition to traditional requirements, cable operators must support the richer product set and respond to queries in real time about the status of service element availability, delivery and charges.

With more content, delivery management is more challenging, including controlling server play, managing server storage, distributing content to multiple play locations and purging obsolete material.

A new, expanded definition of workflow scheduling will emerge. It will include capturing content from off-air sources and converting media and formats. Two key aspects are tracking the required workflow for each content element and scheduling the use of critical resources such as video encoders.

For example, Bell Canada is using products such as the InvistaConn Scheduled services manager to address such concerns in its TotalVision trial.

Conditional access management becomes more sophisticated as larger numbers of smaller segments proliferate and the lifetime of protected content elements shrinks to per-session or smaller horizons. At the same time, more sophisticated packaging calls for new flexibility in these systems.

This combination of larger volume and increased complexity poses a challenge in this area. GloboCabo, Brazil's largest broadband operator, started approaching this issue by deploying a universal addressable control system.

The number of new devices and their increased flexibility pose new requirements for configuration and management. also, higher-value services require greater network reliability and shorter repair or recovery time.

System engineering and architectural issues Cable operators need new systems approaches to accommodate enhancements and integrate them into an effective, flexible business support environment.

Traditional analog environments deal with a few transactions a year per customer. Pay-per-view environments reached rates of several per week per customer. Digital services likely will generate several transactions per minute per active customer, with a huge effect on order, delivery, support and billing.

But cable operators must resist the temptation to create large and complete systems that answer every need. Until we know the need, it makes no sense to build such a large system.

Instead, Probita, a software products, consulting and development firm in Boulder, Colo., believes operators should devise well-conceived architectures for large but flexible systems. These architectures should be scalable and accommodate greater functionality as the market matures. Then a cost-effective implementation of that architecture, with the minimum amount of functionality necessary, will let operators minimize their financial, market and technical risks.

Finally, migration to these new systems must be low risk. It's not unlike upgrading an aircraft in flight, something one would do with great caution and planning.

In many cases, the best choice will be not replacing existing systems but containing them and isolating their functionality. This will allow new services to be implemented in the new architecture. In any event, cost control and risk management must be hallmarks of new system development. Virtually all of today's digital services are really digital versions of traditional analog services. This isn't just a risk-limiting strategy for verifying the technology; it's a constraint imposed by the analog industry paradigm.

Long-term winners in digital, however, will be those who manage to create environments that permit flexible, high-volume, tightly targeted services that are appropriate for a digital consumer world. With regard to infrastructure, now is the time to start establishing a new digital paradigm.