This is part 6 in the Leeds Unbundled ISP (LUI)
series that Keith McMahon
and I are producing. The aim is to deliver a view on the commercial prospects of a hypothetical ISP, serving a niche community (Leeds in our example).
Before we can properly present the numbers though, we need to describe what those numbers are modelling. We have already looked at backhaul, staffing and our short and medium term product set. Today we look at the biggest variable in the future of our made up ISP: video.
IPTV is better for viewers than broadcast because it is truly on-demand
. It gives viewers timeshift capabilities for BBC, ITV, C4, Five and Sky so that they can watch what they want on TV around the rest of their lives. So what is the variable?
While we are confident that video services like YouTube will continue to grow, we are not sure whether mainstream TV will successfully move online because of economic, marketing and technology challenges. IPTV is competing with established digital platforms (satellite, cable and freeview) that already penetrate 18m homes (more than have broadband). Getting mainstream TV online means replacing
these distribution networks with the internet.
Consider the scale difference between the two extremes of service adoption: YouTube consumption is a few minutes at a time, a few times a week. TV is 25 hours per household per week. YouTube is currently 200kbps, IPTV as a vehicle of HD means 10Mbps.
There is very little that LUI can do to make any money from YouTube, but conversely, once we have our gigabit backhaul links in place, we are not too concerned about the cost of carrying its traffic. If they cranked up the resolution to the levels used by Veoh
(700kbps), we might be a bit more concerned but as it stands, we are happy enough to carry the traffic.
What cannot be allowed to happen is for us to end up in a situation where we are a simple transport network for everyone else's broadcast-replacement services. Our commercial model, and that of every other ISP in the world, is based on carrying relatively small files (peak traffic over total users equals around 35kbps). TV viewing moving over to the internet and adopting HD resolutions will make this closer to 5.5Mbps (159 x the current dimensioning).
This needs to be paid for and the value is in the content: people buy music, video and TV. They don't buy bits and bytes. This means that we need payment for our bits and bytes bundled with the payment for the music, video and TV services. This means adopting a Fed-Ex model for superfast delivery of premium, newly released content and ad supported models for the rest.
Will this happen? Maybe, but only if the economics are right - we know that IPTV offers better functionality than broadcast because the internet uplink opens new doors for interactivity. With the public becoming disillusioned with telephone based interactivity on TV we think that the internet can rescue what had until recently been a popular genre of content.
Furthermore local loop speeds of 20M or so means HD at 1080p is practical and can be made available on demand. It's all technically possible but all these developments will only be attractive at a price point that is competitive with broadcast.
So where does that leave LUI?
Nowhere, right now at least. We just have a basic access service with some customers on CPS. Next up dev wise is the photo blog (due Q4 2007) and starting work on the softswitch (due 2008 perhaps). Enhancements to the photo blog and community stuff are mid 2008 launches.
We looked at buying in a wholesale IPTV service, even before we unbundled the access service. When Tiscali bought HomeChoice, we heard some suggestions that the HomeChoice platform would be wholesaled
alongside Tiscali's LLU platform. While the attractions were obvious, the differential advantage was not, so we rejected that option.
More recently, we have looked at Iliad's platform
and the service that Fastweb
offers with a view to buying that in lock, stock and barrel. These are not currently deployed in the UK and although we could overcome the competitive issue to some degree, we just felt a little underwhelmed by the idea of taking something that had been done before.
LUI wants to do something a little differently and has to exploit our core concept: our localness. For LUI, IPTV has to be build around the community, but we also have to remember that it is still essentially a distribution network for mainstream TV that replaces the satellite dish, cable or freeview aerial in the home.
LUI's problem is that our customers can get all that from other operators, notably Sky & HomeChoice, so where we need to be different is in the EPG. We need to offer social networking in the EPG that exploits our localness and the social groupings within our customer base.
We are a network company and a small one at that, we need someone bigger to bring us the content. That means the content won't be exclusive so we have to add value to it another way. Hence the EPG and social network mashup.
That means things like the ability to recommend a programme to your circle of friends and comment on what you have seen, perhaps with an SMS gateway tacked on for alerts. When you turn on your EPG you see the linear TV option and the timeshift scroll back for the mainstream channels plus a Friends Recommend Channel.
We also have the Leeds Community Channel which will be developed before our IPTV service, but which needs evolve onto the TV when IPTV does arrive. The Community Channel is where local interest groupings (schools, community education, sports teams etc) can post virtual private videos to their members - much like the Iliad offer
. All this is built on top of a core of content based on today's free local press.
We are already lobbying to force the publicly funded BBC content to be made available via public API so that anyone with a delivery solution can use it to deliver BBC content. The others are different because they are commercial entities, so why will ITV, C4, Five and Sky let us carry their stuff, sometimes in direct competition with their offerings?
Money. Pure and simple. They can get more from our subscribers if they deliver content via our network than they can via other means.
How? Because we know the customer's postcode and we can deliver that when we place the request for content. We also deliver the ip address of course, but they would get that anyway. With the postcode, they can then use Geo Mapping databases
to paint a very good picture of who the consumer is, so they can use a) demographic and b) personalised advertising. They can't get this postcode without the ISP.
We could also consider sharing any special interest profiles that the user may create on our social network but this raises some ethical issues I suspect, not to mention the technical challenges.
But all of this needs to be pulled together: content, advertisers, client software, DRM and CDN. We are looking for one party to bring this to us. LUI's plan is to work with them and vice versa to prototype the future of IPTV.
The prototype is based on Joost, or Babelgum or Veoh (we haven't stitched it all together yet, it's just a plan). Something that runs on either an AppleTV-like STB
or on the TV itself. Their job is to aggregate the content and provide us with an efficient distribution using P2P and local caching. They also handle all the advertising including the targeting and pay us a revenue share.
In order for this to work, Joost (or whoever our chosen partner is) must bring a deal with the major broadcasters. Joost does the deals with the content owners for us because they can and we can't.
Our BBC, ITV, C4, Five and Sky content comes through the deals that Joost has with them. Joost can pay better ad revenue than the producer can get by themselves from broadcast because we give them the postcode. As a result, they can target ads much more effectively. We get a rev share because we are adding value to their proposition.
Furthermore, we are solving one of Joost's problems - the EPG and social networking, which are currently lacking in their product - and we are leaving them to concentrate on their role as the IP TV operating system. We carry Joost's traffic and help them develop their intelligent localised P2P routing.
We provide the EPG (or at least our software partner behind the photo blog / community web stuff do that for us) and that has a two way API into Joost (or whoever). The EPG is our value add, our brand, our directory of content and the portal through which users can get to the array of services that we offer. Of course, they can go onto the open internet but with our gateway offering them RSS-based access to the world, we reckon that we can hold a fair proportion of the screen-time on our own services. Which is great for our ad revenues.
Of course this is all made up. LUI doesn't exist and there are holes in the plan and some very rough edges. With any luck though, this might give you a few ideas...
Part 7, back on Telebusillis is going to look at Hardware, which Keith will publish later this week!
Labels: Babelgum, catch-up TV, IPTV advertising, ISP Products, Joost, LUI, next generation networks, timeshift TV, video on demand