What Role for Mobile Video?

According to Yankee Group researchers, 34 percent of respondents who watch video on their mobile phone at least once a week say they watch user-generated videos. 


That isn't to say they wouldn't watch professionally-produced video as well, but those options are not generally easily available. 


These videos from sites like YouTube or Facebook are by far the most popular content. YouTube just recently announced it is receiving 200 million mobile views of its videos daily, a 300 percent increase from last year. The next most popular, TV show clips, are cited by just 20 percent of respondents. 


So how big a business could mobile video, in the form of a channel for the sorts of programs people now watch on cable, telco or satellite systems, get to be? Content providers ultimately will have to decide how much to support streamed or multicast video for mobile consumption. 


The current hope is that revenue from the existing linear business (cable, satellite and telco TV) will continue to grow steadily, while incremental and significant new revenues can be earned from over-the-top delivery as well. Whether consumers will accept that state of affairs is a growing issue. 


The whole assumption behind "TV Everywhere" efforts is that consumers get mobile access as part of their fixed-network video service. But if subscription costs keep rising four to seven percent a year, there is just some point at which consumers will be unable to afford the fixed-network product, much less pay more for mobile access.


The probable future disruption of the video business might not be caused so much by the availability of new delivery channels and devices as by a consumer revolt over high prices. So how could mobile video work in a future environment where willingness to pay hits a wall?


Fundamentally, providers would have to adjust either the "value" part of the equation or the "price" part, or both. If consumers can get "what they really want," while paying no more than what they already pay, we could see a significant shift to "on demand only" delivery modes. 


Mobile might then become a significant channel for subscribers with high needs to watch professionally-created programming, including sports and news, where they are. Those are the two "real time" genres with an "event" character. Movies can be watched on a highly time-shifted basis. Sports and news really are better when consumed "live and in real time."


Mobile is arguably the best platform for that, in terms of immediacy, if not "screen size" parts of the experience. 




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How Far Can Sports Programming Costs Escalate?

Sports cost per channel 2008

The major sports networks combined pay about $3.1 billion a year for the rights to the 16-game National Football League season, up 35 percent from their last deal. Although the NFL's contracts with CBS, Fox, NBC and ESPN still have two years to run, the league would like to have new deals wrapped up by the end of this season, in February. 


Sports programming costs matter greatly for leagues, sports networks, video distributors, consumers and the future of online video. 


The biggest question is how much further sports programming costs can rise, since those costs are passed along almost directly to end users, who are starting to show resistance to the annual price hikes on video service. 


The three broadcast networks could end up joining ESPN in paying 10-digit dollar figures per season in their next contracts. Testing the limits of rising sports programming rights fees - Los Angeles Times:

Video costs keep climbing

"It's not for the faint of heart," said Fox Sports Chairman David Hill when asked about the next round of NFL negotiations.


Already, ESPN and the regional sports channels are the most expensive basic cable channels on the dial — often costing distributors such as DirecTV Inc. and Comcast Corp. three times more than what they pay for news or entertainment networks such as USA, TNT and Discovery. Distributors worry that continuing to pass along sports costs to their customers could drive more away.

Content Ecosystems are Unstable: Watch Amazon

Most observers, looking at the matter of online or over the top video, and its potential impact on cable TV, telco and satellite video providers, will grasp the potential for disruption in the video business. Music and print content businesses already have been "disrupted." Could books be next?

Some will argue, with the rise of Amazon.com, and the demise of Borders, that the disruption already has happened. But some think additional far-reaching disruption is coming. After all, changes in distribution are one thing. But new patterns in product development and creation are perhaps more fundamental.

In Amazon's case, some would argue that the Amazon.com brand, back office, logistics operation and now Kindle devices allow Amazon to become a publisher, not just a distributor. To use the analogy, perhaps Apple iTunes becomes a music publisher; Google becomes a media company; Comcast becomes a studio; Verizon Wireless becomes a bank or TV network.

That should immediately strike you as a dangerous example of growing channel conflict, and you'd be right. Amazon has the distribution network and growing success in e-book publishing building blocks in place. Above all, the trade publishing houses seem to lack Amazon's ambition, some might say. Amazon might want to make money from the entire publishing chain, not just distribution.

Indeed, one reason content ecosystems are unstable is that as revenue and profit margins compress, expanding into an adjacency in any ecosystem starts to make more sense. There are potential conflicts, to be sure. But the lure of incrementally-important revenue and the ability to raise margins can be irresistible. 

Does Amazon Want to Monopolize The Entire Publishing Chain?

OSI is a Business Model

The Open Systems Interconnection model (OSI model) is the foundation for the way all software gets written these days. But the OSI model also is, in many ways, a way of describing the current communications business ecosystem as well.

The OSI model idea structurally separates seven functions, with "application" at layer seven and physical layer at layer one. That should strike you as describing the relationship  between  "over the top" applications of every sort and the network used to deliver the app.

As applied to any business using a software-heavy product, that means there can be a separation of facilities, entities using facilities to create "communication" or "content" services, and application creators. The form will follow the function, you might say. 

For software developers, service providers and consumers and users, the advantages of using the OSI model are numerous. OSI Model 

Features and apps can be created or changed without requiring modification of other parts of the complete communications "stack." In other words, a user can switch from one supplier of a word processing or instant messaging app to another without "changing networks." 

If a user wants to switch from Microsoft Office to Google Docs, that doesn't mean a PC or network access provider also has to be changed. 

A user can switch from one device to another without disrupting use of desired apps. Twitter should work on any brand of smart phone, or any brand of tablet or PC. 

At one level, everybody in the ecosystem wins. Because there is a compartmentalization of functions, changing one app for another, or a wireless network for a fixed network connection, should not disrupt use of an application. 

It's harder in practice than it is in theory. It still isn't easy to start a session of some type on a single device, then seamlessly transition to a different network and another device, without disrupting the session.

Some of you will quip here that it isn't always easy to sustain a single session, on a single network, using a single device, either. That's also true, but is not a defect of OSI! 

However, in principle, and over time, in practice, a user should be able to start a session of some sort (voice or video or Web app) and then maintain the session even when switching from one network to another, from fixed to mobile, for example. 

But there also are clear business implications. Though in the past networks got built to support one major application, these days networks are simply built to support any type of application, whether that is voice, video, Web sessions, text, documents, photos, music or any other types of digital information.

These days, it is technologically possible, and increasingly will be possible in business terms, to deliver anything, to anybody, on any device, in fairly elegant way at times, in reasonable ways at other times. That has serious business implications.

It means that firms "not in my business" can get into your business. Competitors increasingly do not need to "own and control" all the assets used at every level of the OSI software stack, including the physical layer assets. 

By the same token, think of collaboration using voice, messaging and web assets as an application. Webex is one example, but so are phone calls. A layer seven app can be run over any compliant network. You might note that bandwidth on every network is not yet consistently sufficient to support a collaboration app in such a way. That is true, but also changing. It won't be a problem much longer. 

And whether it is yet widely understood, or not, sooner or later app providers whose major products include entertainment video, voice, hosted PBX, videoconferencing and messaging will want to deliver those applications over the top. That also has implications.

In the legacy world, physical layer access was a matter of geography. A supplier needed permission from a government authority to operate a network, to support an application. Cable operators needed municipal permission to build a network to sell television. Telcos needed certificates of convenience and necessity. 

Cloud computing and OSI, plus widespread and universal broadband, changes much of that older model. A company that might also be a telco or cable company or ISP, might or might not "own" physical assets when creating and then delivering applications. 

A  product of the Open Systems Interconnection effort at the International Organization for Standardization, the OSI model is a way of allowing developers to create software in an abstracted way, without having to know all the details of other parts of how a particular network works. 

It also is an analogy for the way the communications and entertainment business already is starting to change. "Over the top" is not just something "other companies" do. It is something layer one asset owners also are starting to do. The only question, over time, is when over the top gets embraced more widely as "my" business strategy, not just "the other guy's strategy."

TV Viewing Fragmenting Across Devices

Fully 87 percent of users age 13 or older say they have played video games of some kind for Xbox 360 and Wii, with 80 percent saying they have done so for PlayStation 3. Much of this is the result of traditional offline play, but nearly half of Xbox 360 and PlayStation 3 users say they play games online.

read more here

But that might not be the most-important development in the gaming console space. The second-most popular use of consoles is for watching DVDs/Blu-Rays, most noticeably for PlayStation 3 but also for Xbox 360 (DVD playback is not a standard feature on the Wii.

PlayStation 3 users indicate that DVD/Blu-Ray viewing occupies 27 percent of their time with the console, about the same amount of time as users spend with offline gaming. DVD viewing occupies 11 percent of time on an Xbox 360

Video-on-demand and streaming services such as Netflix, MLB Network and ESPN3, account for 20 percent of Wii users’ time, 10 percent of Xbox 360 users’ time and 9 percent of PlayStation 3 users’ time.

In the second quarter of 2010, the average person watched more than 143 hours of television per month. What is perhaps new is the growing amount of time spent using gaming consoles for some of that viewing.

read more here

Online Video Will Probably Follow the Early Steamship Model

Over-the-top video clearly resonates with consumers. The big challenge is figuring out a revenue model for the content owners and providers that supplies the content people want, at prices they are willing to pay.

Some might predict that the interim business model will essentially be the same as was adopted by sailing ships as the "age of steam" arrived. At first, sailing ships were outfitted with boilers, and used both methods of propulsion. Only later did virtually all ships convert to steam-only propulsion.

That's probably going to happen with entertainment video as well.

Verizon's "Flex View for FiOS" is one example, as is "TV Everywhere." FiOS subscribers can rent or purchase on-demand content and watch it on up to five devices.

Netflix takes a somewhat similar approach, allowing consumers to rent either DVDs or stream content, all as part of a single subscription.

One suspects that is going to be a dominant pattern, for the time being. Content owners and networks will not want to move too quickly to essentially cannibalize one existing revenue stream while trying to grow the new one.

Yankee Group :: Research Report

Internet TV and The Death of Cable TV

Lots of people believe video distribution is going to change, and the only question is how long it will take. Some think the important thing is the number of alternative venues now available, or which will likely be made available, to view professionally-produced content users now associate with "cable TV."

All you need to know is what the content owners want to do, and when.

The networks aren’t blocking Google TV access to content because Google is uniquely disruptive. They are blocking Google TV access to network content because "web TV" economics likely would be incredibly disruptive to the current business.

Content owners want preservation of existing revenue streams--at least the magnitude of those streams--as "over the top" delivery modes develop. One might question whether that is possible, but there is no question the networks will attempt to maintain the existing business practices to the greatest extent possible.

Cable, for its part, claims the lowest-possible distribution cost, from an end-use standpoint. The objection many users will have is that the cost to deliver programming that is not wanted is not the important metric. What matters is the cost to view only the content any single viewer wants to watch.

The key is what content owners are willing to accept.

Internet TV and The Death of Cable TV

BBC Looks To Ban Over the Top Use of Its Content

The BBC, saying it seeks to maintain its brand, says it does not want to make its programs available to third parties for VOD distribution on an unbundled basis. In part, that is one more example of how the debate over content pay walls is being played out, and also an example of the broader ways in which the battle between open and closed ecosystems likewise has heated up.

BBC Looks To Ban Third-Party iPlayer Builds | paidContent:

All Video Over the Top in 10 Years?

"The reality is that within the decade, the Internet will become the vehicle for distribution of all digital content, including the video and TV services currently still delivered within the walled garden of proprietary distribution networks, mostly satellite and cable," says Philip Hunter over at BroadbandBreakfast.com. 

The physical network may still be cable or satellite, but it will be an IP-based infrastructure, with the content arriving “over the top” rather than within a walled garden, he argues.  Access to the service will continue to be controlled. However, content providers now will be in direct contact with the end customer, in effect cutting out the broadcast distributor.

"Current TV operators will either morph into Internet service providers, which many are already anyway, or into content providers in their own right," he argues.

BroadbandBreakfast.com: ISPs Struggle to Deliver Video Traffic While Imposing Bandwidth Caps

Will 13% of Video Subs Cut All or Some of Their Services This Year?

It probably would not surprise you if the Yankee Group suggested that younger people are more likely to stop subscribing to cable, satellite or telco video services.

It might surprise you to learn that Yankee Group believes 13 percent of current subscribers will cut all or some of their video services within 12 months.

That would be unprecedented in the history of multi-channel video.

Keep in mine that Yankee Group says the forms of "cord cutting" might take the form of terminating premium channels or halting use of video-on-demand services, as well as terminating all service entirely. Still, that would be a stunning development.

Small Cable Operators Think Dumb Pipe Might be a Better Business Model

Not every cable operator thinks over-the-top video is a worse business model than providing cable TV. In fact, some believe providing what might be wholesale services to third parties might actually provide better profit margins than cable TV now does.

"Our video margins are going down year after year," said Colleen Abdullah, the CEO of WideOpenWest Holdings.

Wave Broadband COO Steve Friedman also agreed that the profits from an over-the-top model might be better than the current cable TV business, especially if the new model simply substituted a bandwidth usage model for the current monthly subscription model.

While the dumb pipe model may in fact be better for small operators, that probably is not the case for larger providers.

Probably the worst of all possible outcomes is over-the-top competition from firms such as Comcast, where Comcast sells the video content directly to broadband users, and the local cable modem provider is not able to charge for the additional bandwidth consumed. That is one reason why the dumb pipe model would not work unless some form of consumption-based charging were adopted.

"Over-the-top video will eventually emerge as a challenge to the current model of large, expensive bundles of programming," said Blair Levin, the executive director of the FCC's Omnibus Broadband Initiative. Levin thinks such a move is "inevitable."

The basic tradeoff is that cable operators would essentially trade current linear video subscription revenue for higher broadband access revenues. That essentially was the business decision Qwest Communications made years ago, when it concluded it was better off outsourcing linear entertainment to DirecTV, and building its optical access infrastructure in a way that ultimately is conducive for over-the-top or on-demand video.

"The final inevitability is mobile broadband," said Levin. "We know it's coming. We know it's going to be very, very big."

"In 1994, you could envision as inevitable the Internet replacing existing platforms for communications and entertainment," Levin said. "And based on numerous metrics, that transformation is well underway."

Levin also warned that consumer anger over the cost of cable TV now reminds him of similar sentiment leading up to the 1992 cable act, and that there will likely be "some kind of response, either from the market or from the government," to address those concerns.

Any such move would further limit the upside from linear video and likely propel more movement towards an over-the-top approach.

http://www.lightreading.com/document.asp?doc_id=190749&site=lr_cable&f_src=lightreading_gnews