Why hybrid TV is still hobbled in the US

Hybrid IPTV services are exploding overseas, but that won’t be the case in North America – at least not anytime soon. Operators that use either digital or satellite for linear TV and broadband for on-demand content could realize significant cost savings and the potential for decreased complexity and increased time to market, but in the United States, they are still approaching this market with caution.

Hybrid services are challenged in the US because the expectations of pay-TV subscribers in the market are too high, according to Steve Hawley, principal analyst and consultant for tvstrategies.com. The broadband service must have sufficient bandwidth for high-quality video, including high-definition content, before a telco should even consider the market. He sees five options for US telcos when it comes to TV:

1. Accept that a hybrid offer might leave some subscribers wanting and do it anyway.
2. Do nothing and hope for the best.
3. Do either 1 or 2 and add a Roku or Sezmi.
4. Partner with a satellite operator, as Qwest and other ILECs do.
5. Bite the bullet and implement full-blown IPTV.

“In the end analysis, the telco is really making a decision on how much they want to invest in this market in order to compete,” Hawley said via email. “And in the US, the bar is particularly high. This is why Verizon and AT&T are advancing against cable and satellite and have [average revenues per user] that are at parity with the likes of Comcast – because they have invested more than the tier-two and tier-three telcos have invested.”

IPTV is clearly the most expensive route a telco can take and, while perhaps most desirable, is not a viable option for many tier-two and -three providers. A hybrid model where on-demand is either done exclusively by the carrier or with an over-the-top partner promises significant cost savings, but Hawley said its success in the US hinges on the availability of free-to-air programming, a compelling pay-TV tier and a good library of on-demand content delivered at high quality. Without the quality, operators would have little differentiation. The European market has seen hybrid thrive because the operators are leading with their broadband service and offering on-demand and premium TV tiers as add-on services, Hawley said. In the US, operators are stuck in TV-first mode.

“For regular TV, multicasting is the most efficient, either satellite or DTV,” added Steve Oetegen, Verimatrix’s chief marketing officer. “The image you conjure up in your mind of over-the-air TV is a ghosting type of poor signal, but with DTV, you can get a perfect high-def signal; it’s the perfect way to deliver content to many. You can’t personalize it and deliver value-added enhanced services such as video-on-demand, so for that, the set-top box becomes hybrid with a DTV tuner for broadcast content and an IP connection for the rest.”