Television over telco

I remember attending the launch of JetVideo at the temporary America’s Cup village in Auckland in 2002.

Back then, it was an attempt to get customers to watch movies on their laptops to boost uptake of ADSL services. It failed, in no small part because ADSL1 wasn’t really up to the job, but also because back then it was all too hard to explain. Why would you want to watch a movie on your computer? It just didn’t make sense to a lot of people and the project was quietly shelved.

But of course it did make sense, it was just a bit early for some to really fully grasp.

The internet is the perfect delivery mechanism for high definition video content because it means the costly business of delivering the content is nullified. No need to ship tapes around the planet, no need to delay the launch of a movie and lose all that lovely marketing build-up, no need to deal with intermediaries at all – just go straight to the consumer and let them wear the cost of carriage.

That’s what makes Telecom’s other announcement on Friday so interesting. Changing the name is fine because Telecom was always supposed to be a temporary moniker anyway. I think it’s a good move because I still get calls about “Telecom” when the caller means “Yellow” or “Chorus” and because it draws a line under the bad old days of walking backwards slowly, to borrow a phrase, and means the company can now get on with the future.

And the future for the retail telco market is in making sure customers use your service, typically delivered over someone else’s network.

The move does bring a few matters to the fore, not least net neutrality; the issue of access to content and of course money.

First things first, net neutrality.

In the US this battle is just starting to really get serious, with Netflix signing a deal with Comcast to make sure Netflix customers get access to the service.

Some accuse Comcast of stand-over bully-boy tactics, especially when it became apparent that Netflix customers were being throttled one way or another in the past few weeks.

Others say the deal that’s been struck is simply a peering arrangement between a large content provider and its carrier so there’s no problem, nothing to see.

But it’s more than that. Comcast was supposed to be able to make money from its customers – end users, like you and me – and yet here it is demanding payments from the other end of the spectrum as well. Content producers, it seems, will be asked to fork out for delivery of their product to consumers. The telcos will get two bites of the cherry.

So what does that mean in the Telecom ShowMeTV context?

The first question is, will Telecom use television to create a walled garden and to differentiate its ISP offerings from the other players in the market?

The answer appears to be a resounding no. Telecom says it will make its TV content available to other ISPs. That is, it won’t be buying content exclusively for Telecom customers.

That’s quite interesting and not something the old Telecom would have considered.

There’s an aggregator role in the content world that is up for grabs. Sky TV wants it, TVNZ could do it, but it could also fall to a newcomer like Netflix or Quickflix, although both have issues. Telecom and Vodafone are two obvious candidates to add to the list and it would appear both are interested to some degree or other.

I’ll be very  pleased if Telecom resists the urge to use ShowMeTV as a way to shore up its ISP customer base because this is an entirely different market for the company, and takes it in a new direction.

Vodafone already offers TV over its telco networks, of course, but it’s chosen to cement its relationship with Sky TV and so simply resells Sky’s line-up.

Telecom is talking about a whole new approach, buying “subscriber video on demand” (SVOD) rights and offering a New Zealand equivalent of Netflix.

Currently only Quickflix is doing that legally in New Zealand and is struggling with a back catalogue and limited access to new content. That’s changing, and the company is starting to make headway in the market, but it’s taking a long time.

One of the reasons for that lag is access to content, and this is something Telecom will face as well. Although Sky TV tells me it doesn’t have any SVOD exclusivity, it does appear to have contracts with ISPs that prohibit them from making money out of non-Sky content. That is, if you want to offer Sky content you have to take the entire Sky TV package and you can’t add on anything of your own.

The Commerce Commission concluded there was a case to answer, but declined to press charges because of the costs involved. Clearly this is a piece of legislation that will need looking at if that’s the case because it’s not working terribly well.

Which brings up larger question about regulation – internationally telecommunications and broadcasting are starting to be merged together under one regulator. New Zealand is quite unusual in that it doesn’t have any form of broadcasting regulation to speak of. Should we go down that track?

I’d rather see the Commerce Act tidied up to begin with, but Telecom’s foray into television will result in a discussion about such things if nothing else.

Which brings us to the root of all evil, money. Telecom is putting up $20m for its content buy-up, which is a large chunk of change, but pales into insignificance next to Sky TV’s hundreds of millions of dollars spent each year. Will Telecom be able to compete?

In the UK, BT has also gone down this track with spectacular results. BT has bought the rights to Champions League football and made all 350 matches available to subscribers. In doing so, it has attracted 1m new customers, making it a tremendously powerful play.

But the rights cost BT nearly £1bn, so those new customers “cost” the company £1000 each. That’s a heck of a lot of cash to pay for a customer, and as Simon Moutter pointed out at a Commerce Commission conference late last year, BT can afford to do that because it’s a vertically integrated player. Telecom/Spark is not, and would take years to repay that sort of customer acquisition cost.

That’s probably why telcos like Comcast, which face a future where they can’t make money from toll calls, TXT messaging or indeed anything but data bundles, are looking to content producers as a new source of revenue. Sadly, the content producers face exactly the same crunch as the internet does to the content market what it’s also doing to the telco market – that is, cutting out the middle man.

What do you make of Telecom’s move? Will we see more of this kind of deal in the future, and where do you get your television from today?

Unintended Consequences

Content is king, and
will be the driving force behind any significant uptake of the UFB.

It’s a given – certainly among users – that without the
content there can be no success story for UFB. Why would mums and dads in
middle New Zealand bother upgrading given the current state of access to

Certainly in the UK the pressure for content has seen some
remarkable changes to the telco landscape.

BskyB, the UK’s leading cable TV provider, has bought
its way to number two in the ISP market and is now growing at an astonishing

To compete, BT has acquired rights to major sporting events
and given them away to fibre customers for free.  In less than a year it has added 1 million
customers to its subscriber base.

Clearly, content is what will drive demand and if buying
rights to the footy (or local variant thereof) brings in the punters, that’s
the way to go about business.

But the flip side of this story is quite sobering.

I was at a Commerce Commission conference on Friday on a
panel with Telecom CEO Simon Moutter when this issue came up. Moutter pointed
out the big difference between BT and any telco in New Zealand – we have
dis-integrated the telcos and in the UK they have not.

BT is a fully integrated player. It owns networks, it
wholesales and it retails directly to customers, in competition with its own
customer ISPs.

No telco in New Zealand in the fixed-line space can lay
claim to that.

Moutter pointed out that BT offset the cost of buying the
content against the profits it makes from the sunk-cost network, and that New
Zealand telcos don’t have the same ability. Profitability in the fixed-line
broadband market in New Zealand (let’s talk fibre as that’s the direct
comparison with the UK) amount to only a couple of dollars per line, after you
take into account call centre staff, buying backhaul and international capacity
and so on.

But these are high value customers, right? They’re the
future of the network, and BT was right to entice them over.

BT spent GBP1 billion on the rights to various sporting
events and has given those rights away for free to its retail customers. Sure,
it won 1 million new subscribers as a result, but that’s a purchase price of
GBP1000 per customer. The payback period at even $10 a month is not
insubstantial, let alone at the lower profit margins the telcos in New Zealand expect
to make.

If we look at the landscape in New Zealand there isn’t a
single fixed-line operator that could do to our market what BT has done in the
UK. Instead, all our telcos can do really is look to partnerships with content
providers in order to offer more to customers, and even then it’s more likely
that the ‘over the top’ (OTT) providers will sweep in with a more comprehensive
offer and scoop up most of the revenue that might be on offer.

This is one of those unintended consequences of market
intervention. By splitting Telecom into two parts, we secured a more level
playing field for the future, but the downside is a lack of cross-subsidisation
for the telcos.

On the plus side, that’s probably a good thing for
customers. I don’t want to find my content locked to a particular provider, and
I’m ever hopeful that the whole model of distribution that the content makers
are forcing on is eventually goes away. I don’t want to have to sign up to
Telecom in order to get rugby but Vodafone in order to get rugby league, for
example. Much better to sign up to the internet and get whatever sport or other
entertainment I require when I require it.

But his does pose a problem for New Zealand UFB retailers.
How will they entice customers to the shiny new network if sports and
entertainment content are out of reach?

It could well be that the only telco able to deliver the
content needed is already in the market today. It’s Chorus, the owner of the
copper network.

It’s an interesting old world, isn’t it?


Guest Post: Yes (please) Minister

Paddy Buckley is the Managing Director of Quickflix, the challenger in the online television content delivery game.

The rise of video on demand (VOD) is exciting for consumers.  Coliseum’s high-profile
acquisition of the English Premier League football rights has brought into focus the rapid worldwide transition from linear (scheduled) broadcasting to VOD. 

A few things are increasingly clear: we have less free time for aimless channel hopping.
We want to binge-watch TV two or three episodes at a time.  TV ads now feel like bizarre intrusions into our viewing time.  These changes have shown up first in the US, where the VOD leader Netflix generates 30-40% of all peak-time internet traffic.

Closer to home, technology is improving and the ultra-fast broadband fibre rollout is underway.  UFB isn’t exactly needed for VOD to work, but it will seriously improve the experience – content will be delivered fast, in high definition, across multiple devices at the same time, and it will be ubiquitous.  Well, nearly.  The rural broadband initiative will hopefully be enough to satisfy those that generate most of our national wealth. 

All good?   Moving boldly towards an exciting new world of convenient on demand viewing, on the device of your choice, wherever you are?   Actually there’s a problem. 

Let’s leave access to content to one side – at least until the Commerce Commission reports back on its current investigation – the problem is wider and more fundamental.

Before we launched Quickflix last year, I spent a lot of time trying to make sense of the contradictions in the legislation that would apply to us: the telecoms sector is regulated, but broadcasting is not.  It wasn’t clear to me precisely where VOD fitted in.  Fast forward to today and I’m none the wiser.  This uncertainty is leading to some strange things going on out there.

It turns out that on demand viewing is not covered by the Broadcasting Act because it’s not a broadcast to the public at large – each stream is to a single viewer or household.  This puts the broadcasters in a tricky spot with their ‘catch-up’ services which are technically VOD (and therefore not broadcasting) but which they are forced to treat like broadcasting in the absence of more suitable legislation.  There’s a similar story for online DVD retailers – they no doubt want to comply with the legislation but how can they when it can’t easily be applied to them?  The legislation we’re talking about was
drafted in the 1980s and 90s so it’s hardly surprising that it doesn’t envisage
VOD and other online services.

Technology and the development of these new services always move faster than regulation, so I’m certainly not finger-pointing. Nevertheless, our broadcasting and
telecoms legislation is contradictory, outdated, and gives the lie to any claim
that our public policy is keeping pace with the convergence of digital delivery
systems and content.  The whole thing needs a review.

In February, Amy Adams announced one: a review of the policy framework for regulating telecommunications services.  According to Ms Adams “regulatory certainty is an important factor in the ability of New Zealanders to have early access to high-quality communication services based on new technologies”.

The Minister will announce the terms of reference and timetable soon.  Let’s hope they deal with some public policy questions right from the start.

Can we agree on the technology neutrality of delivery systems and that content is still
content whether viewers get it by digital terrestrial, satellite or over IP?  Can we agree a coherent approach that takes in telecoms and broadcasting?  And can we agree that convergence has already happened and now needs to be reflected in legislation?

InternetNZ’s well-considered discussion paper on convergence is here and asks
all the right questions.  Those committed to the success of the telecoms and broadcasting sectors, and the taxpayers’ $1.3 billion UFB investment, should respond to it as well as to the Minister’s review.

Here’s another example of Alice in Wonderland that illustrates the need to think deep.   Quickflix will launch a channel on the Freeview platform later this year.  We’re very excited about it and it’ll mean that a viewer can be watching a free-to-air broadcaster and then change to channel 200 to watch Quickflix’s VOD.  

That’ll be a great experience for the viewer but the unforeseen consequence is that there will be different legislative regimes governing different ends of the EPG – broadcasting for the traditional channels and then, well, “not broadcasting” for the VOD channels.  In other words, a quick change of channel is all it will take to change regimes – surely not the “regulatory certainty” that we are striving for.

Copper pricing shouldn’t be the only priority issue for Amy Adams.  Convergence of digital ntworks and digital content has already occurred.  She has the chance
to save the Government from the embarrassment of outdated and contradictory
public policy.  And the parliamentary draftsman can be relieved of the task of nit-picking to take account of a future that everyone else has noticed is already here.

Over to you, Minister.

Anything can happen day

Wednesday, for those who remember the Mickey Mouse Club or
Angel Heart, is “Anything Can Happen Day” and yesterday was no exception.

In just two hours there were three announcements that
radically re-shape the telco space. Not too shabby.

First off the ranks we have Orcon’s Genius Go product, which
sparks the beginning of the end of a $3bn a year industry.

Genius Go allows you to have your landline number on your
mobile phone (or tablet, I presume). The call is forwarded to your mobile over
VoIP so works best on wifi as opposed to 3G but means you can be out of the
house and get calls wherever you are. Anywhere. Even overseas. Your caller will
make a local call to your number and only pay for that call (free from a
residential number) not for the call to your mobile or for the international

This isn’t new as such, but Orcon certainly makes it very
easy and very cost effective. There’s no call forwarding charge, you don’t have
to pay a set monthly fee – if you’re an Orcon Genius customer it’s yours for
the taking. Best of all, it integrates with your mobile phone’s contact list so
you have the advantages of a mobile device (caller ID etc) without paying those
ridiculous fees associated with these basic services on a landline.

Voice is now just an app on the device and, as we roll into
the 4G world, that will increasingly become the norm. That little green
telephone icon you see on your phone will be replaced with … a little green
telephone icon but instead of paying a per minute charge, you’ll just use data
for the call. Orcon says a five minute call (most calls last less than five
minutes) will take up about 2MB of data. In short, you won’t care terribly

So that’s voice calling. Not quite dead yet, but I bet in
five years’ time we’ll be looking back on it fondly (or similar).

Simultaneously, Slingshot rather cheekily launched Global
, a service aimed at US and UK “visitors” to New Zealand which will allow
them to access content “as they would have in their home country”.

That’s right, sign up for Global Mode and Slingshot will
fudge your DNS settings so it looks like you’re visiting websites from a US or
UK address, and so will allow “visitors” to view Hulu, Netflix and BBC iPlayer
content without those pesky geo-block problems.

It’s free for Slingshot customers.

I have no need of such a service as my aunt, who lives in
the UK, posts VHS tapes of the latest television shows to me on a regular
basis. Good on you, aunty.

Finally, but by no means least, Coliseum Sports Media
announced it has bought the rights to the English Premier League football (I’m
sorry, I can’t call it soccer) and will screen it online in New Zealand for
$149 a season. TVNZ will offer a highlights package on free to air TV, something which reminded Russell Brown of the history between TVNZ and Sky TV.

Finally, we have a real online-first content offering that
will provide a driver for UFB, something which has been sorely lacking until

Yes, it’ll work on copper but in a world where I’m watching
one online event, my wife is doing something else and the kids are both on
their devices doing their homework (or similar) we will absolutely need fibre.

There’s not a lot of detail about the Coliseum offering – we
don’t know whether it will be streamed in high definition as default for
example – but two questions spring to mind.

First off, what about the 25% of New Zealand that will never
get a fibre connection? What are they supposed to do when the vast bulk of our
content is finally made available primarily online? Can you imagine the uproar
from rural New Zealand if and when the rugby bosses wake up to the revenue
opportunity and offer a similar package for every All Blacks game? It won’t
just be tractors on the steps of parliament I can tell you.

Secondly, the price is a bit wacky. Sure, it’s for a year
(and as I mentioned we don’t know the ins and outs of the deal – will you be
able to watch any game at any time, for instance) but if I want to buy
football, rugby, netball and Canadian ice hockey I’m looking at the thick end
of $1000 a year before we even get to TV and movies.

I had a look at Sky TV’s offerings to compare prices. To get
everything (all the channels except for the oddball “specialist channels”)
including two magazines and a My Sky + box and HD you’re looking at just over
$2230 a year. Yes, you get a lot more but that’s really the point of all this –
it might not be stuff you want or would ever chose to buy.

The future delivery mechanism for video content is online –
that goes without saying (although I do find I have to keep saying it). If the
content owners want us to buy TV shows or series, sporting events and movies,
they’re going to have to move to a model that lets us pick and choose from what’s
on offer and they’re going to have to adjust the pricing to match.

The upside is that shows with a following will do very well.
Top Gear, for example, has nearly 300m viewers a week. At a dollar a show I
suspect even Jeremy Clarkson would be happy. Get it down to that kind of price
point and the move to online will move from a trickle to a flood.

Please let me give you money

Last week someone
tweeted about how good the BBC iPlayer is and I got very angry.

The iPlayer is
(despite the Apple-esque name) the BBC’s foray into providing its content in a
user-friendly, online manner.

The Beeb has its own
version of TVNZ’s defunct charter (well, more properly TVNZ had a version of
the BBC one) which they have chosen to interpret as requiring the BBC to make
its content available to Britons in any manner they can. No limits on this
service – that’s the benefit of having a TV tax that funds one free-to-air
provider I suppose.

Although I’ve got a
red passport still, I can’t see the iPlayer because I live outside the UK. Yes,
there’s a global version of the iOS app, but I can’t get it because it’s not
available in the New Zealand app store.

It looks lovely. Not
only can you search and watch TV shows but you can queue them up so you have a
set “channel” if you like. Some real thought has been put in to making it user
friendly and worthwhile.

Here’s the thing – I
would pay for access to the content. I would. I would help swell the BBC’s
coffers by giving them money which they, in turn, could use to make more
television programmes which I would then pay for.

Unfortunately they
don’t want my money.

Netflix is in a
similar position. It too cannot approach me directly, cannot sell me content
legally because of the asinine TV rights model which sees programmes sold to
regional players who on sell to local networks who onsell…

I’m reminded of the PC
channel wars of the late 1990s when Dell entered the market. Forget Dell’s
current market position (PCs are dead, didn’t you know?) – when it arrived on
the scene Dell swept the old world order aside.

A former head of HP
New Zealand once explained it to me like this. HP doesn’t sell PCs to
customers, it sells them to a regional distributor. The distributor doesn’t
sell PCs to customers, it sells them to a local distributor. That distributor
doesn’t sell PCs to customers, it sells them to a local retailer (a VAR or
“value-add reseller”). That VAR doesn’t sell them to customers, it sells them
to a retail partner (a “shop”) which finally sells the PC to the customer.

Every link in the
chain “adds value” by which of course we mean cost.

Compare that with
Dell’s model which was to simply sell computers to customers. Dell wouldn’t
even build the computer until someone wanted it, which meant it never had that
panicky moment when one model doesn’t sell particularly well and you’re stuck
with a warehouse full of them.

This is the TV market
as we have it today, except for one important difference. I can get my TV for
free within minutes of it airing in the US or UK or Guatemala because I can
pirate it. I don’t have to wait until the channel finally gets round to delivering
it to me – I can get it myself.

This poses a huge
problem for the people who make and sell television content in a way that never
occurred in the PC market. It was never easy to parallel import a PC but it’s
child’s play to parallel import a TV show.

Several people told me
to pull my head in and just use either a VPN service or some kind of DNS work
around to get to the content I want, but I refuse to do this. In effect I would
be lying to a company (committing fraud in my view) in order to give them money
and thus support a business model that is failing. I’d rather they acknowledge
the world has moved on and simply let me pay them directly for the content.
That’s obviously where all this is going so why not just get out of the way and
let me give them money?

A year ago, Netflix
accounted for one third of all US internet traffic. Today it’s closer to half.
Netflix is paying content makers to provide TV shows which it will air directly
to customers.

Netflix is bigger than
piracy and if the TV content makers don’t hurry up and figure out that we want
to watch television and are willing to pay for it, then the problem they face
is one of extinction, pure and simple.

Quite where that
leaves television in New Zealand is a vitally important issue. Television is married
to local culture in a way that no other medium can quite claim and if we’re to
continue to have a local TV service we have to figure out a way to fund it.
Personally I’d rather pay for that than pay for a dodgy VPN provider just so I
can watch television.

On Demand

I’ve just watched episode one of TV3’s new series, Harry and
it’s tremendous. It’s everything I like in a TV show. Unpleasant characters,
good story, people I can relate to, people I despise. Great language, great
setting, good camera work, wonderful acting. My hat is off to all involved, especially
to co-writer and actor Oscar Kightley, who really brings the character and
story to life. It’s subtle, it’s in your face, it’s appointment television of
the old school.

Unfortunately I missed the appointment and so am watching it
“on demand”. Doubly unfortunately, I’m guessing about a lot of the nuance
because I watched the most grainy pixelated version possible and I only watched
the first 20 minutes because I have to watch it on my PC in my tiny little home
office on the world’s oldest office chair.

I did try to watch it on my iPad which I suspect would have
been a better experience, not least because I was in bed but also because size
wise, the “700k” stream (whatever that is) would hopefully have given me a
better picture. As it was, on my 21” computer monitor it was as if Auckland was
recreated in Minecraft especially for this series.

TV3 did have an iPad app, but some trouble with streaming
versus downloading meant they pulled it off the Appstore a while back. It hasn’t
been replaced, and trying to play the HTML5 stream on the iPad simply didn’t
work. Swapping browsers to a Flash friendly one didn’t help either – after half
an hour of downloading apps and upgrading/downgrading my iPad (depending on
your view of Flash) I got the dreaded “Due to licensing restrictions, his
content is not available on a mobile device” and that was that.

Yes, I probably should have watched it on the telly (on
Wednesday evening, TV3 at 930pm if you’re interested), but I missed it. Yes, I
probably should be glad I can watch it online at a later date, and I am – please
don’t get me wrong – but this is quality television and should be shown as

The content model is broken. There’s simply no other way to
look at it. If digital rights management, licensing, geographical restrictions
and all the rest of it were taken away I’d be able to watch the show and they’d
be able to play ads to me so I could reward them for their great work. Better
than that, I’d pay to watch the show. Something like this I’d probably drop the
money down for a whole season sight unseen, but for something untested I’d be
keen to buy the first episode (or here’s a thought, give it away free as a
taster) and then upgrade if the mood took me.

I’d want to watch it online. I’d want to watch it in HD. I’d
want to watch it when I want, although I’m happy to have a time limit on that
if you like. If it’s a keeper I’ll buy the DVDs and stack them on my shelf,
unmolested by human hand or laser eye just like all the others I’ve got. They
don’t even come out of the plastic wrap these days, but I buy them because it’s
the only way I can see to reward the artists for their work. I’ve long since
watched the shows the way I want and we’ve discussed before the legality of

This isn’t TV3’s fault entirely. Nor is it Sky TV’s fault or
TVNZ or any of our local content distributors. It’s much larger than that, it’s
a critical failure of the initial content owners to understand the changing
nature of their market and sadly, unlike the music guys who have finally got it
(albeit very late on), the TV guys simply refuse to budge.

Sadly, content is the critical element that drives uptake of
faster broadband services among the mainstream customer base. Home owners tend
not to buy “broadband” internet, they buy “broadband homework” and “broadband gaming”
and “broadband TV” all of which just so happens to require the internet to

If we want a faster broadband network in New Zealand that
connects SME and corporate alike, we’re going to need to have the home owners
see value in it and want to connect. In order to get them to connect, so they
can use eHealth and eServices and eLearning, we’re going to have to give them eContent
first and foremost.

My fear is, we won’t address this side of the market until
it’s all too late. My hope is we get it done sooner rather than later, because
I want to watch more of Oscar Kightley’s Harry and more shows like it. I just
want to do it on my terms.