Prospects for market entry Prospects for market entry in Northern European in Northern European

broadband broadband IP video marketsIP video markets

Christopher T. Marsden, Christopher T. Marsden,

Harvard Information Infrastructure Harvard Information Infrastructure Project and Globalisation Centre, Project and Globalisation Centre,

Warwick, UKWarwick, UK

Info and contact: http://www.ijclp.orgInfo and contact: http://www.ijclp.org

Internet Telephony Internet Telephony Consortium MITConsortium MIT

19 May 200019 May 2000

Building the ball park… Building the ball park… but will they come?but will they come?

Analyses including those of next FCC Chief Analyses including those of next FCC Chief Economist are positive on broadband Economist are positive on broadband prospects….prospects….– Christiaan Hogendorn (1998 and 2000); Eisner and Christiaan Hogendorn (1998 and 2000); Eisner and

Lehr (1999); Greenstein (1999)Lehr (1999); Greenstein (1999) But don’t see streaming video as the killer app But don’t see streaming video as the killer app

- rather various shorter apps- rather various shorter apps We all remember the mid-90s convergence ‘hype’ (John We all remember the mid-90s convergence ‘hype’ (John

Malone TCI in 1997) and the QUBE and other VOD Malone TCI in 1997) and the QUBE and other VOD experimentsexperiments

– Faulhaber (2000) Faulhaber (2000) http://rider.wharton.upenn.edu/~faulhabe/broadbandspace.pdfhttp://rider.wharton.upenn.edu/~faulhabe/broadbandspace.pdf

Broadband in US and Canada:Broadband in US and Canada:2.7m cable modem households 3 May 2000: 2.7m cable modem households 3 May 2000:

50,000 new connections per week50,000 new connections per weekhttp://www.kineticstrategies.com/cable_count.html visited 18 May 2000http://www.kineticstrategies.com/cable_count.html visited 18 May 2000

End-2000: End-2000: 5.7m connections 5.7m connections

3.6m cable modems 3.6m cable modems (Q1 2.28m) CAGR 156%; (Q1 2.28m) CAGR 156%;

2.11m DSL lines 2.11m DSL lines (Q1 0.88m) CAGR 266% (Q1 0.88m) CAGR 266% (sources Telechoice; NCTA).(sources Telechoice; NCTA).

End-2003:End-2003:

25.5million connections25.5million connections

15.9m cable modem households15.9m cable modem householdshttp://www.kineticstrategies.com/docsis/http://www.kineticstrategies.com/docsis/

9.569m DSL lines 9.569m DSL lines http://www.xdsl.com/content/resources/deployment_info.asphttp://www.xdsl.com/content/resources/deployment_info.asp

Broadband Video in Broadband Video in EuropeEurope

8.23m 1999 (Ger, Ne, Fr, Swe, UK: ony 1.73m last 3)8.23m 1999 (Ger, Ne, Fr, Swe, UK: ony 1.73m last 3) 21.3m broadband access lines by 200321.3m broadband access lines by 2003

– Forrester Research (‘Europe’s Digital Decade’ 11-99: note of caution Forrester Research (‘Europe’s Digital Decade’ 11-99: note of caution Forrester predicts 54.5m US broadband by 2003) Forrester predicts 54.5m US broadband by 2003)

Source: http://www.screendigest.com/yp_00-02.htm Special Issue 02/2000Source: http://www.screendigest.com/yp_00-02.htm Special Issue 02/2000

John Laycock, John Laycock, VP E-Commerce (Europe) Nortel Networks, and BCD Forum, 18 May VP E-Commerce (Europe) Nortel Networks, and BCD Forum, 18 May

2000, ‘TV Meets the Web’ at http://live.tv3000.nl/tv_web/:2000, ‘TV Meets the Web’ at http://live.tv3000.nl/tv_web/: ““many telecoms companies in Europe had delayed the many telecoms companies in Europe had delayed the

deployment of DSL because they were afraid of cannibalising deployment of DSL because they were afraid of cannibalising their existing revenues. However, they are now beginning to their existing revenues. However, they are now beginning to respond to the development of the market and initiate respond to the development of the market and initiate rollout.” rollout.”

TiVo digital TV next-generation set-top servers using DVB TiVo digital TV next-generation set-top servers using DVB standards (especially MMHP) and MPEG4 compressionstandards (especially MMHP) and MPEG4 compression

Chello (UPC) Broadband Subscribers Chello (UPC) Broadband Subscribers ITM Research Survey into broadband subscriber behaviour ITM Research Survey into broadband subscriber behaviour polled 1,500 chello subscribers and 2,000 non-chello users. polled 1,500 chello subscribers and 2,000 non-chello users.

http://www.chello.com/press_room/P/1130/index.html 17 March 2000http://www.chello.com/press_room/P/1130/index.html 17 March 2000

6 North European markets6 North European markets– Norway, Sweden, Austria, Belgium, France, Norway, Sweden, Austria, Belgium, France,

Netherlands: Netherlands: 171,000 subscribers 31/3/2000171,000 subscribers 31/3/2000 spend twice as much time on line as narrowband spend twice as much time on line as narrowband

users - an average of 72 hrs/month (36 hrs/month for users - an average of 72 hrs/month (36 hrs/month for dial-up users)dial-up users)

access the internet 4 times a day (twice a day for dial-access the internet 4 times a day (twice a day for dial-up)up)

spend 67% more money online than their dial-up spend 67% more money online than their dial-up counterparts - an average of 471 euros (£288) in the counterparts - an average of 471 euros (£288) in the last six months as opposed to 283 euros (£173)last six months as opposed to 283 euros (£173)

IP Video: Killer IP Video: Killer Application for Application for

Broadband InternetBroadband InternetV id eo to th e P C

L eg acy con ten tR ation ed access

TV rou te - P C carriag e n eu tra l?H u g e A rch ive

V R Hb road cas te r

Tech n ica l so lu tion(C on fid en tia l; in n ova tive ;

con su m er-d riven ; in tu it ive )M arke tin g in te rm ed ia ry

V id eo p orta ls ited a t h ead -en d /loca l se rverc f. Y esTV on B TO p en W orld

D om in an t m on op o lyC on ten t-n eu tra l

B an d w id th -h u n g ry ap p lica tion s n eed ed

B S Pte lco /cab leco

In te rm ed ia ryM arke t E n try?

Video over broadband IPVideo over broadband IP– ABUNDANT: ABUNDANT:

– Scalability: Scalability: infinitely expansible, infinitely expansible, tailored for 1 viewertailored for 1 viewer

DISPERSED: DISPERSED: – Scope economies: Scope economies:

content exponentially increasing; content exponentially increasing; audience fragmentsaudience fragments

PERFECTLY REPRODUCIBLE: PERFECTLY REPRODUCIBLE: – Scale economies: Scale economies:

information goodsinformation goods copy costs zerocopy costs zero

SUM IS GREATER THAN THE PARTS: SUM IS GREATER THAN THE PARTS: – Network effects entry barriersNetwork effects entry barriers– Cumulative eyeballsCumulative eyeballs

European Video Rights Holders European Video Rights Holders (VRHs) and Broadband Service (VRHs) and Broadband Service

Providers (BSPs)Providers (BSPs)

Value Chain VRH content Intermediary? BSP carriage

Stage 1Rationed Legacy

Partners

Broadcasters Film archives Music Majors

Promotionalplacement

MerchandisingClick-through

Telcos Cable MSOs

WAPcos

Stage 2Abundance Partners

Originators: Independents New Media Cultural and

Sports Orgs

Subscription Advertising

DirectMarketing

TiVo-enableddigital TV

New BSPs 3G licences WLL/MMDS

Existing Content Libraries:Existing Content Libraries:Disaggregated Golden Disaggregated Golden

EggsEggs– Broadcasters and film distributors have Broadcasters and film distributors have

millions of hours archivedmillions of hours archived Vertically integrated legacies:Vertically integrated legacies:

– cinema-TV behemoths have traditionally rationed consumption cinema-TV behemoths have traditionally rationed consumption in collaboration with governments in collaboration with governments

The super-abundant world of broadband distribution The super-abundant world of broadband distribution and consumer sovereignty has exploded their and consumer sovereignty has exploded their monopolymonopoly

– Fear of cannibalising existing revenue streams in mass Fear of cannibalising existing revenue streams in mass audiences (Netspeak: ‘channel conflict’)audiences (Netspeak: ‘channel conflict’)

– 10 years of UK Gold, an appalling waste of talent10 years of UK Gold, an appalling waste of talent The geese have little strategy for collating their gold - The geese have little strategy for collating their gold -

they need an aggregator to bring their existing product they need an aggregator to bring their existing product to marketto market

Ever seen an elephant fly?Ever seen an elephant fly?– Loss-leading websitesLoss-leading websites

– VRHs can take losses; new media cannotVRHs can take losses; new media cannot– Carlton Popcorn website on BT OpenWorldCarlton Popcorn website on BT OpenWorld

– Integrated portalsIntegrated portals– branded content achieves instant recognitionbranded content achieves instant recognition

– Cross-promotionCross-promotion– broadcast channels permit subsidised advertisingbroadcast channels permit subsidised advertising

– Carriage-content agreementsCarriage-content agreements– Branded funded portals leverage carriage terms: Branded funded portals leverage carriage terms:

e.g. Disney-ABC dispute with Time-Warnere.g. Disney-ABC dispute with Time-Warner

– Majority owned hothousesMajority owned hothouses– VC but avoiding the dead hand of old media execsVC but avoiding the dead hand of old media execs

– Established advertiser relationshipsEstablished advertiser relationships– Trust, recognition, networks, SoHo HouseTrust, recognition, networks, SoHo House

‘‘Goose and Egg’ Scenario: Refusal to Goose and Egg’ Scenario: Refusal to DealDeal

Content libraries refuse to license to broadband open Content libraries refuse to license to broadband open portals;portals;

– Only sell dead duck content, not golden geeseOnly sell dead duck content, not golden geese Broadcasters ‘go it alone’ on branded sites:Broadcasters ‘go it alone’ on branded sites:

– putting all their analogue eggs in separate basketsputting all their analogue eggs in separate baskets Carriage providers fractious: refuse to fair, reasonable Carriage providers fractious: refuse to fair, reasonable

and non-discriminatory termsand non-discriminatory terms– Deal-making omelettes by breaking eggsDeal-making omelettes by breaking eggs

New media is scarce and expensiveNew media is scarce and expensive– risk incubating original content when it doesn’t layrisk incubating original content when it doesn’t lay

– ‘‘Who are these guys?’Who are these guys?’– media and telcos don’t talk to each other, or anyone else, media and telcos don’t talk to each other, or anyone else,

because few trusted intermediaries emergedbecause few trusted intermediaries emerged

Plucking the goose: Plucking the goose: regulatory or market regulatory or market

solutions?solutions?– Regulators confused, slow, incompetentRegulators confused, slow, incompetent

– Dominance of BSkyB (DGFT), BBC (Magill-DG4), ONDigital Dominance of BSkyB (DGFT), BBC (Magill-DG4), ONDigital (ITC) and BT (Oftel) shows limits of litigation, even with (ITC) and BT (Oftel) shows limits of litigation, even with 1998 Competition Act1998 Competition Act

– Dominant actors get their gander upDominant actors get their gander up– Competition complaint is commercial suicideCompetition complaint is commercial suicide– Cableco complaints against BSkyB and BT from 1991Cableco complaints against BSkyB and BT from 1991

– Solutions must involve:Solutions must involve: trust and competence: relationship buildingtrust and competence: relationship building financial inducementsfinancial inducements targeted primary rights holders: targeted primary rights holders:

– anchor tenant model on Yahoo! And AOLanchor tenant model on Yahoo! And AOL

Intermediaries’ PartnersIntermediaries’ Partners– Carriage with ‘closed but open’ BSPs:Carriage with ‘closed but open’ BSPs:– Telco-cableMSO:Telco-cableMSO:

Dominant monopolyDominant monopoly Content-neutralContent-neutral Bandwidth-hungry applications neededBandwidth-hungry applications needed Sweat equity?Sweat equity?

– offer maximum exclusivityoffer maximum exclusivity

– Content from ‘open but closed’ VRHs:Content from ‘open but closed’ VRHs: pubservice, huge archive of legacy contentpubservice, huge archive of legacy content Rationed accessRationed access Sweat equity - why?Sweat equity - why?

– TV route - PC carriage neutral?TV route - PC carriage neutral?– minimal exclusivityminimal exclusivity– short term narrow format rights marketshort term narrow format rights market

Future Research QuestionsFuture Research Questions Infrastructure development?Infrastructure development?

– Europe late adopter modelEurope late adopter model– European fixed line telcos in crisis: European fixed line telcos in crisis:

KPN, Telia, Telenor, Telefonica, BTKPN, Telia, Telenor, Telefonica, BT

‘‘Open access’?Open access’?– current US concerns regarding BSPscurrent US concerns regarding BSPs– US content market relatively competitiveUS content market relatively competitive

query: Time Warner and Disney fightquery: Time Warner and Disney fight

Video bottlenecks:Video bottlenecks:– European pubservices lock-hold - EBUEuropean pubservices lock-hold - EBU

Market entry in Europe?Market entry in Europe?– Let’s get cable separated from telcos firstLet’s get cable separated from telcos first