Faultline: OTT fever stalks European set top deals – as old school collapses Mar 4, 2010 – By Rethink Research
There are a couple of deals that have been long announced which when more
deeply scrutinized, show the future shape of pay TV in Europe – and it
shows that Pay TV, in fact all TV, will be shifting to the web faster than
anyone realized and faster than anywhere else.
The two deals are straightforward – the launch of CuboVision in Italy
and the coming launch of an unnamed service in the UK built around the TiVo
DVR device, software and cloud services by Virgin Media.
Telecom Italia’s CuboVision was launched last December as a full on
consumer play, complete with retail partnerships countrywide, it attracted
everyone to the bidding, all the set top companies in Europe, and some from
outside. CuboVision offers DVB-T delivered terrestrial channels, as well as
interactive Web TV and on-demand pay-per-view video, including HD content.
The key combination in this is digital terrestrial broadcast TV being
combined with an over the public internet service, in a new way, in an over
the top fashion. We have been inundated with US surveys of late about if and
when over the top video will become a threat to existing broadcast TV. We
already know that the days of IP video only arriving over the Quality of
Service controlled connection, are over. It was that consideration which led
to “proper” IPTV, which could be supplied only by the network
owner, becoming a standard way for Telcos to fight back in Europe. But IPTV
has also led to a fantastic amount of network investment, both in metro wide
Ethernet deployment, to create a viable multicast loop, but mostly in access
network broadband upgrades, shifting the goal posts with each successive DSL
implementation class – from 500 kbps to 2 Mbps, on to 8 Mbps and
finally ADSL2+ and VDSL2, which can carry 20 Mbps easily and at short
distances 50 Mbps, to a home.
The more bandwidth that the various network suppliers delivered, and the more
reliably the broadband network worked, the more tempting it has proven to
send video over the top. At IBC last year there at least a dozen OTT efforts
from brand new start ups – mostly touting solutions for brand new free
to internet channels.
While the owners of the various telco networks in Europe fought tooth and
claw to keep any other service off their network, the European Commission has
consistently made it clear that it adheres to the principles of unbundled
loops, reasonably priced wholesale broadband and network neutrality.
So these new installations have zero truck roll and instead are based on
customers buying a device, taking it home and plugging it into their
broadband line, whoever supplied it.
But for Telecom Italia and Virgin, companies that both have captive networks
and customers this is a new strategy. It is an attempt to emulate what all of
those new OTT services offer, but at the same time leverage off their
existing customer base and network – to begin with at least. However it
is as much an attack on rival network owners, intended to go over the top of
rival offerings, as much as a way of selling more broadband lines or
preventing churn on their own network.
In the past most TV operators have felt that they would not rely on a
broadband line supplied by someone else for the provision of a TV service.
Consequently all the ISPs in Europe were up for grabs as all manner of
companies – purely cellular operators, retail broadband players,
satellite TV DTH services and mixed telcos with both fixed and broadband
– all felt they needed to offer TV service over their own lines. After
all Net Neutrality has not been established firmly in either US or European
Law, despite European Commission rhetoric, and there are many instances where
companies have tried to offer over the top services and been at least
technically successful, although mostly targeting PCs not TVs, if perhaps no
new brands have emerged.
Telecom Italia itself went on a number of international escapades in the
early 2000s, buying or building up ISP properties in places like Germany and
France and subsequently, as the parent did less well, selling them off. It
tried on each occasion to offer an Alice branded TV service – the last
just being sold to Telefonica a few weeks ago in the form of Germany’s
Hansenet. Other telcos around Europe have tried the same, and of note here
are Deutsche Telekom, Vodafone and Telefonica. Each foundered on trying to
run poorly branded experiences, using full multicast IPTV, outside their home
country. But successful over the top video transport could potentially do
away with all the extra cost and the need to own an ISP.
What stopped these operations from working was a shortfall in technology.
DVRs didn’t have HD capability nor the pure storage capacity to make HD
programming easy to store, for instance using push VoD. The broadband
networks themselves needed constant investment through each phase of DSL, and
increasing backhaul. Finally the set top processors were still coming down
the price curve. Set tops for over the top services need to be headed down
towards being as cheap as DVB-T set tops - $70 or so plus the price of any
storage.
Instead multicasting QoS IPTV set tops have continued to be more complex and
as they transitioned to HD, even more costly, by a considerable margin.
Helpdesks have also proven prohibitive to set up and the underlying broadband
technology was too unreliable and yet this is the technology of the moment
which is growing so rapidly in Europe.
Imagine if there were five or six separate over the top efforts for each
country in Europe and consumers could pick and choose between a variety of
over the top video services. Carriers don’t want this, because it cuts
them out of the loop and reduces them to being bit pipes, not leveraged
service suppliers.
The Cubovision deal will go a long way down this route – it is based
around a retailed set top that comes with a 500 GB hard drive, which can have
additional external disk storage added. It is thought that the supplier was
the UK’s Amino, which so far has specialized in full multicast IPTV,
and if that proves to be the case we are fairly sure that it has supplied a
device based around the powerful Intel Atom CE4100.
If it is this Amino Freedom device, then it is capable of supporting DVB-T or
DVB-T2 as well as DBV-S2, in HD and supports all major internet video
formats, including Adobe Flash and Microsoft Silverlight, and MPEG-2 as well
as MPEG-4 Codecs, and is DLNA compatible (which is a set of standards and
interfaces for the digital home) and allows TV to play media stored anywhere
in the home.
We know for sure that simply everyone was invited to tender, all the major
set top suppliers in Europe, because the volumes on this device are expected
to be huge. These devices will go into shops and be sold as a TV service,
using the same model as DVB-T Freeview style services except the delivery is
partly over the internet and it is not over a multicast. So while Telecom
Italia has about 330,000 IPTV customers, this new service is expected to have
millions of customers.
Our understanding is that there were as many as 19 bidders for the contract.
Now every one of those suppliers, and every rival telco in the rest of
Europe, especially in those countries where DVB-T services are strong, will
find themselves riveted to what now happens in Italy. This is a Canvas class
box, similar in nature to the HbbTV devices currently being specified. If it
takes off, everyone in set tops is going to want to shift to produce OTT
devices, whether they are proprietary in nature or based on Canvas or on
HbbTV.
It is understood that Canvas may indeed use the DVB approved HbbTV technology
as its lower layers when the standard is complete, which comes down purely to
how it parses IP traffic in the form of new applications and files, from the
video stream. But this on its own is not a service and Canvas and many other
services like it will open up the capability of HbbTV. We expect the arrival
of storefronts as applications, on HbbTV, initially for TV channels, then
later for off device portals like Google and YouTube. Broadcasters may see it
entirely as a way of adding interactivity and new applications to its
channels, but eventually it could lead to services like CuboVision, and the
Telecom Italia service might easily retrofit HbbTV software to its service.
And if the Intel chip is behind one major tier one winner, it is likely to be
behind many of them. In the process this will upset the accepted order in set
tops in Europe, making a big opportunity of high volume, low cost, for
companies like Amino, who until now had their fate resting on telco walled
garden businesses, which cost an arm and a leg to launch.
And if Intel began taking the lion’s share of this type of business,
that will be a pecking order change in the chip suppliers for the entire set
top market, with companies like ST Micro and Broadcom hit hard, and having to
respond with devices a little more like the Intel CE chip.
And for Intel, its first run at TV supplier with the CE 4100 chip may have
been unsuccessful at worst and inconclusive at best, but it now has a second
shot at breaking into the TV world on the back of set top makers, who will
shortly be queuing at its door.
The new CE 4100 is a significant SoC chip, made in 45 nanometer geometry,
aimed at driving the internet video to TV transition – it has a display
processor, graphics processor, video display controller, transport processor
and a dedicated security processor for DRM. It cycles at 1.2GHz but is low
power and small footprint and comes with a hardware decode for DivX and an
integrated NAND flash controller and the whole things supports new classes of
TV internet widgets.
The only other European CE specialist that has so far owned up to working
with it is Spain’s Conceptronic, which says it is working on reference
for a media server.
We have talked before about how over the top services could lead to the death
of triple play, and here you have the distinct possibility – OTT video
services would mean that investment in infrastructure anticipating multiple
revenues may have to reap its rewards purely by providing a broadband line
and thereafter services are sold over the top.
We Spoke to Virgin this week about its shock decision late last year to begin
offerings the TiVo DVR.
A spokesman told us, “The end product for us will be one that anyone
with a decent broadband line can buy into, they don’t have to have a
Virgin Media cable broadband line.”
Reading between the lines this is likely to be the entire multiple hundred
channel service that Virgin offers on its own cable service. Most customers
at Virgin, around 93%, have at least a 10 Mbps broadband line and we suspect
the company is targeting this level of broadband.
That would likely mean that anyone who has an 8 Mbps BT broadband line, could
become a viable target for Virgin, which would expand its TV options off its
network footprint, in the same way that Telecom Italia is doing. The BIG
difference here is that ALL of the TV is expected to come over a broadband
line and there is no DVB-T in sight.
Virgin once had plans to stop building out in cable in the UK and continue to
build out using DSL technologies. This got halted when the company began
losing customers at a time when it was in dispute with Sky over the rights to
carry certain programs. Now it is back and at the company’s results
meeting it talked about having already added 100,000 homes past with cable
and planning to add another 500,000 this year, while it said that it was
supplying service with unbundled DSL into 12,500 homes, and now reaches about
a third of the UK homes with DSLAM deployments that its cable does not reach.
The company now has 3.7 million TV customers and has one service or other in
almost 4.5 million homes.
But given that there are 24 million homes in the UK, going over the top is
the fastest way for Virgin to extend its network, almost overnight, while
rivals like Sky, BT, Orange, O2 and TalkTalk are still focused purely on
building out services on their own lines.
Virgin is still doing the classical cable offering to those who are within
its cable footprint – offering VoIP voice, DOSCSIS 3.0 super fast
broadband and TV that is moving first to HD (it has 24% of its based
converted to HD) and has 3D in its sights in the future. But the OTT service
will perhaps become the way into more homes, instead of simply pushing at the
door with a cable.
“Don’t think of an EPG for this new service,” said the
Virgin spokesman, “think zones and portals.” By this he is
talking about interactivity, and the ability to go from a broadcast linear
service (there will definitely be the concept of a linear service, which
shows at a particular time) and links either to back issues or catch up or
extra features and interactivity. That interactivity will even include
product placement and purchasing, so that if you see something you like in a
TV show, you will often be able to find a link to buy it, right off the TV
screen.
The service will launch by the end of the year, and the way TiVO will work
with Virgin is that it will give it all the tools that it needs to create all
the US style TiVo services – server based software for audience
measurement, recommendations and advanced program search – and all that
will be launched under the Virgin brand.
The upshot of all of this is that all of Europe’s Telcos, and Pay TV
services will accelerate into Over The Top video business models, and the two
themes for picking winners will be cheap and powerful standardized chip sets,
like the Atom CE 4100, and strong interactive brands like TiVo that can
differentiate the TV experience, and especially intelligently store and give
access to huge amounts of content on large disk based devices.
Does that mean that over time the rush to IPTV will turn into a rush for OTT
– well perhaps, but this could definitely mean that the
telecommunications suppliers, such as Alcatel, who forced the pace in driving
up the quality of telco access networks specifically for IPTV, may face a
backlash, as tons of equipment lies idle within telco networks, and the
internet access servers are found to be underpowered and a focus for new
spend.
All of this comes to the set top industry at a time when Motorola’s
future is hazy, Cisco’s Scientific Atlanta appears to have sunk without
trace, and French owned Technicolor has seen set top volumes fall 36.7% in
the last quarter, with a fall of 5 million devices shipped, during the entire
year, all of which has led to Pace overtaking all but Motorola in set tops
and the door being open for just about anyone else that has an OTT vision.
Faultline: OTT fever stalks European set top deals – as old school collapses
