STREAMING MEDIA: WHEN WILL IT TAKE OFF?

Streaming media services are defined in this context as rich audio/video content "played" over the Internet by streaming packets from the host location of the content, as opposed to downloaded content played from a user's hard drive.

Amid a period of industry uncertainty, network service and Internet access providers in particular are investigating whether streaming media will be the next big thing-and how and when. Being part of a profitable wave could secure key positions within this transforming value chain.

However, defining a winning strategy and executing against it are complicated by a chicken-and-egg situation: cash-strapped network and Internet service providers who have made recent, big infrastructure investments have little available working capital to reduce the service value chain's fragmentation and improve delivery or to engage in promotional activities to fuel end-user adoption. Unfortunately, without these activities, it will be difficult for industry players to provide the clearly compelling value proposition needed to make a market.

Constrained Growth

Streaming media adoption and its impact to date on broadband demand have been lackluster. Telecommunications service providers covering a broad range of services-from land-based broadband access to wireless to web hosting-ranked "lack of broadband availability" as the number one factor constraining streaming media growth. While some service providers have overbuilt their networks, resulting in idle capacity in certain geographic areas, consistently providing broadband access to end-users where required remains a challenge. Service providers cited "a lack of a clear and compelling value proposition" and "immature enabling technologies" as the next leading causes of slow growth in the adoption of streaming media.

The business end-users surveyed view streaming media's unclear or unproven value proposition as the leading factor preventing them from increasing their use of streaming media services. Poor viewing experience was ranked as business users' second leading reason for non-use.

Among the business user survey respondents, streaming media is used largely for education and training, conference meetings, and employee communications. A whopping 70% of business user respondents access the Internet via leased lines. The remaining 30% are split between DSL, ISDN, cable modem, and mobile wireless, in that order. Business users are highly satisfied with their broadband service, with 44% rating it excellent, 36% rating it good, 16% rating it average, and only 4% rating it poor.

Quality Issues

Both residential users and business users are unsatisfied with the quality of streaming media video. While most users were only marginally satisfied with picture resolution and stability, 70% expressed dissatisfaction with the available size of the viewing window.

Residential users also cited poor viewing experience, ranking it the top factor preventing them from using streaming media as often as they would like. For residential users, "sit forward" streaming media services cannot yet contend with the more comfortable "sit back" TV experience. While 60% of residential users responding have broadband access to the Internet, 30% indicated they access the Internet via dial-up modem, a factor greatly influencing their experience. Ten percent of residential users access the Internet through fixed or mobile wireless. Of the users currently using dial-up modem, 50% indicate that they plan to get broadband connection in the next 12 months. 

News is by far the most popular streaming media content in the residential market, accessed by about 75% of users. Nearly 65% of residential users are more likely to access on-demand programming versus live broadcasting. However, the average amount of time users spend per week accessing each type of content is roughly the same at 2.5 hours/week.

Improvements Awaited

Although current users express disappointment with current experiences, many expect to see new and improved services that will deliver value through streaming media. For instance, residential users expect larger scale viewing technology to evolve to allow streaming media services to become more similar to a TV "sit back" experience. They indicate that once this advance is developed, they would like to access more on-demand and live broadcast content, including movies and other theatrical content, product demonstrations, video chat/videophone content, and live and on-demand coverage of regional TV broadcasts from around the globe.

Residential users indicate that the top products/services they are likely to buy based on streaming media advertising and products demonstrations are: consumer electronics, music, movies, household goods, and professional services.

Additionally, close to 50% of end-user respondents indicated that, if available, they would access streaming media services at least 5-7 times a week on non-PC devices such as PDAs and cellular phones.

Business users see the key benefits of streaming media in its ability to reach a broad audience and reduce costs. Improvements in company-wide accessibility and large-scale viewing technology would increase multi-site and international communication and coordination at a fraction of the cost of employee travel.

All service providers expect part of future broadband growth to be derived from a steady rise in streaming media-related traffic, although they disagree on the extent of its contribution. About 65% of service providers believe streaming media will be the primary driver of broadband demand, 15% do not see it as the leading driver, and 20% are neutral or undecided. On average, by 2006 service providers expect 24% of network traffic to be related to streaming media. But the average percentage of service providers who strongly agree that streaming media will drive broadband growth is 2-3 times that of all service providers (see graph 1).

Contrary to the popular opinion among streaming media pundits, a full two-thirds of service providers believe that B2C will drive streaming media growth over the next five years.

This brings us to the million-dollar question: Will customers pay? Sixty percent of residential users indicate they would not pay for streaming media content. The majority of those willing to pay would prefer a combination of monthly subscription and pay-per-view, with the pay-per-view only model being ranked a close second. The monthly subscription only model is least preferred.

Steps Required for Adoption

Achieving a big payoff in broadband from streaming media demand requires increasing cooperation across service and technology providers to develop, broadly communicate, and deliver widely accepted value through streaming media services.

Develop: Collaborate with streaming media value chain players to address constraints limiting demand for streaming media services.

• Alliances will need to develop services that cost-effectively simplify and improve multi-site and global communication, larger scale viewing technology for business and residential users, and greater broadband accessibility for broad corporate audiences.

• Over the coming 12 months most service providers are planning to invest in increasing capacity and to a lesser extent improving the service level on the existing footprint.

• Over two-thirds of service providers recognized network congestion as a problem. These service providers are adding multi-casting routers, edge caching servers and streaming servers to alleviate network congestion.

Communicate: Broaden service providers' role in helping generate demand for streaming media services.

• Service providers are focusing their marketing dollars on customer education to help fuel end-user adoption and make the market.

• Following this, they are expanding their role in making the market by investing in co-promotion, and co-branding with streaming media services.

Deliver: Strengthen coordination across the value chain, likely through telecommunications industry players forming alliances and consolidating verticals to better position themselves to capitalize on anticipated growth.

• In an unstable economic period, companies' ability and willingness to acquire extended capability may be delayed, increasing the importance of cooperation through partnerships and strategic alliances.

• Over 70% of service provider respondents expect their primary approach to pursing new business opportunities to be through alliances, compared with 25% through in-house development, and virtually none through acquisitions.

• Over 50% of service providers are likely to expand into content distribution network services or/and backbone transport services to better position themselves in the streaming media value chain.

• While 20% of service providers see an opportunity in Internet access services, few would like to enter into web hosting or become Internet service providers.

Lisette Culinane and Jitendra Marwaha are from PRTM.

About the Survey

A total of 42 people responded to the survey. A majority of the respondents-29-were telecommunications service providers covering a broad range of services, from land-based broadband access to wireless to web hosting. Over 50% of these were nationwide service providers, while most of the regional players were from the Midwest, the Southwest, and the Southeast. Close to 25% of the respondents were global players with presence on every continent, and roughly 40% had a presence in at least one of the following: Canada, Western Europe, Asia/Pacific, and Latin America. Of the 42 respondents, 36 were users of streaming media services - in most cases, in addition to being a service provider, they identified themselves as either a business or a residential user or both.  Taking into consideration those who classified themselves as both, there were a total of 27 business and 26 residential respondents.