This year is shaping up to be a key year for IPTV. Verizon and AT&T are launching IPTV services. In Europe, BT is launching and France Telecom is seeing take-up of its offerings. These aren't telcos' first forays into TV, nor their first attempts at content. The earlier moves generally have not been successful, so how can telcos succeed at offering IPTV services?

There is a clear indication from consumers that they want a TV experience that is more flexible than current Pay TV and Free-to-Air TV options. CSMG ADVENTIS research indicates that consumers are dissatisfied with their current TV experience: more than 50% of consumers miss more than one program per week, while 85% frequently find there is nothing on TV they want to watch. In addition, success of digital video recorders also points to interest in a flexible TV viewing experience. Overall US DVR penetration is now 6.5%, and 17% of DirecTV’s subscribers use DirecTV DVRs.

Leveraging advances in technology, telcos that offer broadband are aiming to meet this demand by offering IPTV services. Now that cable operators are offering voice services, many telcos feel they have no choice--they must offer TV services to survive. While the definition of IPTV varies, it typically includes a mix of traditional broadcast TV, on-demand TV and other content and applications.

Despite demand for new TV services as well as improvements to technology and costs, telcos face a number of challenges in IPTV. Competition for TV viewers is fierce--there is a real risk that telcos will become competitively squeezed between incumbent pay-TV operators moving to meet the demand for new TV services and online players such as Yahoo and Google.

Based on our work with IPTV providers, content providers and enablers; CSMG ADVENTIS has identified key success factors for telcos:

• Be realistic about IPTV: Early rollouts of IPTV missed their targets. Providers need to be realistic about ARPU, profitability and take-up. As IPTV itself is unlikely to generate much, if any, margin, indirect benefits such as broadband price support and churn reduction are likely to be far more important than any direct cashflow benefits. IPTV providers also need to be realistic about which segments they can target--IPTV entrants are unlikely to churn pay-TV subscribers without premium content.
• Make IPTV easy for consumers: IPTV offers need to stand out from other free or pay-TV options. IPTV providers need to think carefully about differentiators such as exclusive content, electronic programming guides, a la carte pricing, interactive applications and emerging concepts such as personalized TV. As Figure 1 below illustrates, “low barriers to entry” for consumers such as a free/subsidized set-top box and flexible pricing make a significant difference to take-up.
• Understand country differences--what works in one may not work in another: While certain operators worldwide are noted for their IPTV success, each country has very different TV dynamics. In the U.K., for example, any IPTV provider will need to account for the dominance of Sky and the BBC. However, cost (and time) pressures may push some IPTV providers toward cross-country replication. This can be done selectively. France Telecom Wanadoo, for example, plans to roll out its LiveBox in-home gateway in multiple countries.
• Leverage partnerships: IPTV providers need to carefully select where they play on the value chain and where they partner for content, technology and distribution. For distribution, many IPTV players are partnering to deliver linear broadcast TV rather than distributing this over expensive, legacy networks. For example, AT&T plans to leverage satellite; while BT, KPN and others plan to deliver linear TV via digital terrestrial TV.
• View IPTV in light of all consumer offers: All too often, IPTV is treated separately by telcos because it is a “new” business. To be effective, IPTV must be viewed as a key element of an overall consumer value proposition; including voice, broadband and other services.
• Scale matters--many IPTV providers will not survive: IPTV is a scale game--both for acquiring content and for building out infrastructure such as video servers. A large broadband customer base must be a key starting point for IPTV scale.

Figure 1.

Consolidation will occur in one form or another: either early on as smaller players adopt a wholesale model or later through M&A once all players have invested significantly in content & infrastructure and do not have enough customers to justify this investment.

IPTV providers should anticipate this industry shake out--and effectively position and differentiate their IPTV offers to maximize their chances of success.

Bob House is a senior vice president and Keith Coe is a principal in the London office of CSMG Adventis, the management consulting division of TMNG. They can be reached at +44 207 399 4700 or Bob.House@tmng.com and Keith.Coe@tmng.com.