One of the issues service providers grapple with when weighing IPTV offerings is the financial return. Many executives who have done so say they actually lose money doing so, and others who think they will inevitably have to jump in likewise expect to lose money.
That is one reason some executives think an alternative approach, either based on streaming or downloading, might make more sense. Certainly that is what any number of video distributors are doing, or have done, with modest success.
But the economics of movie rental services might ultimately prove just about as challenging. The home video market represents about 54 percent of the U.S. film industry’s $45 billion in 2008 revenues.
Perhaps 49 percent of the revenue in turn is generated by DVD sales. Perhaps 21 percent is generated by video rentals. The issue, in part, is that profit margins are higher on sales than rentals, and higher for online-delivered products than physical media substitutes.
One wonders how long the content owners will sit by if distributors offering $1 rentals, low cost or even "no additional cost" streaming, continue to gain traction. There just isn't much margin at that price level, for anybody in the value chain.
At some point, lots of service providers without the scale economics of AT&T or Verizon Communications might conclude that online video is a "cost of doing business," not a "revenue" item.
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