TV today is much like the personal computer of the early 1980s -- a useful but unconnected island of technology in the home with a limited ability to connect with other devices, users and services. Today, with widespread global deployments of Internet Protocol television (IPTV) underway, the television is poised to finally join the IP networking revolution. Television in the future will be personal and connected.

This transformation will not occur overnight. If you map out and predict the evolution of the IPTV market, you can discern three distinct phases, each of which will take us one step closer to unlocking the potential of TV and creating new connected and personalized experiences. Each of these three phases will drive gradual changes in telecommunications, entertainment and advertising, the three industries most impacted by IPTV:

• Phase 1: Shift the purchase criteria from price and channel line-up to overall user experience
• Phase 2: Change the rules by introducing value-added services that create new opportunities for service providers, content providers, advertisers and consumers
• Phase 3: Create new business models that grow the TV market in new ways and shift share from other media

Phase 1: Shift the purchase criteria from price and channel line-up to overall user experience

We are in the midst of the first phase right now, as service providers worldwide are successfully deploying IPTV and delivering “better TV” experiences today.

Even at this early stage, IPTV begins to redefine the TV experience with advanced capabilities such as more high-definition live and on-demand programming, next-generation digital video recording (DVR), fast channel zapping, integrated search across live and on-demand programming, and remote DVR management. Consumers exposed to these features begin to recognize that some TV services do in fact stand above the rest. They expand their purchase criteria to include the overall user experience and not just how many channels are available at a certain price point. They value an experience that helps -- rather than hinders them from -- finding something of interest to watch. They look for services that include content that is central to their interests. They want value-added features that give them more control of their own entertainment experience.

This is also the phase where the entertainment and advertising industries begin to understand how they can benefit from IPTV. IPTV’s inherent two-way connection enables advertisers to launch interactive, personalized campaigns similar to what consumers are used to via the Internet. Another advantage inherent in the IP network is the ability to provide “connected entertainment.” This not only gives consumers the ability to experience content across different devices but also gives content providers and advertisers the opportunity for multiple touch points to the same consumer.

To move into phase two, service providers will need to have perfected (1) the delivery of IPTV services and (2) the ability to streamline the delivery services in a way that ensures maximum profitability for the company. For the service provider, this means that the optimal approach to managing IPTV operations is one that focuses both on securing quality of service and on optimizing the delivery of the services that ensure quality of service.

Phase 2: Change the rules by introducing value-added services that create new opportunities

The second phase will take this service differentiation a step further, as IPTV providers begin to take advantage of their intelligent, two-way IP network and begin deploying “beyond TV” experiences. Consumers will be able to enjoy TV on their own terms with personalized services such as the ability to self-provision their own channel lineup or service tier, join community groups with your own interests (i.e., cooking, car repair, home improvement), VOD multi-view (ie. different camera angles, watching several games at once), customized channel lineups, interactive TV content, remote gaming, recommendations and easily finding and exploring long-tail content.

At the same time, the television experience will become more connected with cross-device TV services, as well as the integration of television with gaming, mobile and PC platforms. Some of these scenarios include getting caller ID on your TV screen, the ability to remotely program your digital video recorder using your mobile phone or personal media sharing on your TV can already be seen in phase 1 services around the world. In phase 2 this expands so Content providers can seamlessly connect entertainment and information programming from television to online to mobile, creating multi-device communities around programs and advertisers. See sidebar entitled, "Futuristic Connected Entertainment Scenarios" for more details.

Phase 3: Create new business models that grow the TV market in new ways and shift share from other media

As IPTV begins to reach maturity, service and content providers will promote new services and consumption models that grow the TV market in new ways – shifting share from other entertainment options. In this phase, the consumption of entertainment and information is almost entirely “on-demand” with painless and simple integration of content and services across devices and over both managed and unmanaged networks. Advanced targeting technologies will allow content providers and advertisers to deliver highly targeted content and advertisements to viewers, and provide the ability to measure their effectiveness and impact in much finer ways. The business models that surround and support content creation and delivery will change and expand, as will opportunities for commerce applications on the TV and portable devices. In this phase we will not see traditional advertising as the primary way to fund the delivery of entertainment. It will be one of several choices including direct purchase and a la carte subscriptions. We may see channels dedicated to what we think of today as “commercials” emerge around specific interests and demographics.

In this phase, advertisers can implement advanced methods such as more advanced VOD storefronts, targeted ads, ad telescoping, ad bumpers, speed bumps, request for coupon/request for information and 360 reporting. All these are being explored today and those that survive will be fully integrated into the experience by phase 3. And we don’t discount the importance of T-commerce, which may come into its own as IPTV matures.

The leaders of the IPTV industry will unlock the potential of TV and create exciting new opportunities for service providers, technology suppliers, content providers, advertisers, and most of all, consumers.

IPTV – Changing the TV experience

Below are just a few of the potential scenarios that could emerge as IPTV becomes widely deployed and service and content providers channel their creative energies to develop new business models to take advantage of IPTV.

TV and content

Jenni is a horse enthusiast who likes to keep tabs on equestrian events. With IPTV’s Edition’s access to a near-unlimited universe of channels, Jenni keeps up on her sport and shares video and information with other “video bloggers.” Jenni also recently had her first baby, so she uses her IPTV service to watch ad-sponsored child-care programming and pediatrician tips for caring for newborns.

TV and media sharing

Al and Barb live far from their son and their newborn grandchild. However, they’ve already seen the baby, because when their son shot home footage and photos using his digital camera/camcorder, the photos automatically were sent to Al and Barb’s TV set and recorded to the hard drive. With a click of the remote, they turned the photos into a slide show that plays on the TV in screen saver mode when it’s turned off.

TV and gaming

Steve loves to do high-end gaming on the side. With his IPTV-enabled gaming console, he can watch high-definition NASCAR on one side of the screen, and on the other side, he can virtually race his own car against the real contestants. He can invite friends, who can watch the race and they comment on the game in real time, via instant messaging.

TV and mobile

Steve is frequently on the go. When he’s away from the office, he catches up on a few favorite programming clips downloaded to his Smartphone from his IPTV set-top box. . He also receives programming alerts based on his opt-in preferences, and uses his phone to program the Digital Video Recorder to record the shows he wants to see when he gets back home.

TV and PC

Steve is a satellite subscriber and does not have access to the advanced TV features IPTV enables. However, he signs up for IPTV on the PC and is able to watch the same programming and enjoys the same unique IPTV functionalities IPTV subscribers can experience on their TV.

Christine Heckart is general manager of marketing for Microsoft TV.