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Television over telco

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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?

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On Demand

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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
such.

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
that.

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
work.

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.

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Broadband is an adjective

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Dylan Reeve and I were arguing about fibre uptake and the
role of television content as driver. Dylan doesn’t believe IPTV will drive
uptake of fibre as there are too few customers to drive a provider to deliver
and there’s a problem with our retail ISP market – too many resellers of
connectivity to make a fist out of offering a service. There’s also the small problem
of our content market and the limited choice in that market.

I don’t disagree with him on those points. There are only a
handful of customers using fibre today so anyone setting up in business
offering service to those customers will have a pitiful return on investment
for year one. The ISP market is fragmented and most do, indeed, resell Chorus
wholesale so unlikely to have the margin to buy content. And as we’ve noted
elsewhere, Sky dominates the pay TV market in New Zealand and the deals it has
with ISPs are under review by the Commerce Commission for potentially breaching
the Fair Trading Act.

All of which really tells me that IPTV is vital for a
successful fibre rollout and for the future of paid content in New Zealand.

Let me explain.

I’ve just been to Kuala Lumpur courtesy of Huawei to have a
look at its fibre to the home rollout (we also talked LTE in Hong Kong but I’ll
cover that elsewhere). Uptake of FttH services has been good – around the 30%
mark, which is among the best in the world, and customers get free national
calling, relatively fast internet access and 100 channels of television (many
in HD) for around NZ$100 a month.

The competition has come in with the same deal but has 250 channels
of TV.

Malaysia is very damp – it rains a lot every day – and because
of that, rain fade on satellite TV is a real problem. Moving TV on to a fibre
makes perfect sense, and the way it’s provisioned by Malaysia Telekom,  a 10Mbit/s channel is allocated for TV and
nothing else. The picture is crystal clear and there’s no hesitation or
buffering, even when changing the channel.

The speeds customers get are relatively low. Entry level is
20Mbit/s and it goes up from there, but that’s after you’ve taken out the
10Mbit/s channel for TV, which changes things somewhat.

What is clear is that customers aren’t signing up for broadband,
they’re signing up for television that is delivered over broadband. Many years
ago I met a chap from Ericsson Australia who talked animatedly about how we
should all stop talking about broadband as if it were a thing and start
treating it as an adjective – broadband describes something else, so broadband
internet access, broadband television and so on. I suspect he’s right.

A quick Google for “triple play drives uptake” reveals a
wealth of stories and releases from around the world on this subject. BskyB’s
May 2012 financial update points to the triple play package as delivering
increased customer numbers in the UK:

“The telco noted that the number
of triple-play subscribers on its books had risen to 3.2 million, up 24%
compared to end-March 2011, while adding that triple-play penetration had
reached 31%”.

Dutch telco Ziggo also reports higher growth which it puts
down to offering a triple play package.  Year on year from 2009 to 2010 it saw an
increase of 67.5% in subscriber numbers as a result.

Even our own Commerce Commission has concluded that
differentiated video content will help drive demand for UFB services.

For a customer like me, running a business from home with a
media-bent and a desire for faster access to all things electronic, moving to
UFB is a no brainer. I won’t see it in my street for the next five or six years
but I’ll leap at the chance.

For the average mum and dad sitting at home, there has to be
an incentive, a reason to move. Faster internet access isn’t it – but 250
channels of television and free national calling (for which you need UFB) might
just do it.

DISCLAIMER: I travelled to China and Malaysia courtesy of Huawei