IPTV, Broadcasting, Global: Carl Gressum, Senior Analyst in Ovum's global consumer practice, believes that understanding the device market is crucial for Internet Service Providers (ISPs) looking at the prospects offered by IPTV.

The Walled Garden

Entering the content delivery market poses serious challenges to ISPs. ISPs face three options: delivering content through the set top box only, delivering to a wider range of devices (thus expanding the walled garden) or allowing third party devices to access their network.

IPTV is a popular subject among ISPs in the pursuit of increased revenues and margins. However, they face stiff competition from web TV, legal or not. ISPs are wedged between the flexibility of the open Internet market and the rigidity of content owners who insist on proprietary IPTV solutions guarded by walled gardens. ISPs therefore either have to embrace the proprietary business model and hope that their content and end-to-end delivery systems win through; or they have to expand the walled garden to include other pre-defined devices that provide the consumer with greater flexibility and value.

Pros and cons of expansion

Expanding the walled garden to include other home network devices will increase the complexity of the ISPs’ business model and make them compete head on with far stronger brands such as Apple, Sony, and Microsoft. Taking this route will be a tough and long uphill battle. Yet delivering content through the set top box only will become increasingly unattractive to the consumer. The TV set is no longer the only source of consumption of digital media, as the PC and portable devices have made their inroads into this market. An IPTV solution limited to the set top box will be at a disadvantage compared to other content distribution channels.

The third option, breaking down the walls of the garden so that any device can access the content, is not an easy model to navigate for ISPs. The main issues here are device interoperability and DRM. If ISPs choose a different DRM format from what is most common on the PC platform, ie, Apple’s FairPlay and Microsoft’s Windows DRM, they will face the challenge of incorporating a media player that can rival iTunes: with album art, ease of use, integration of music and video services, and the overall look and feel. This is not an easy task for service providers whose know-how focuses on optimising revenues and profits on broadband access and services.

Interoperability issues

If service providers do manage to interoperate with existing DRM solutions, it implies paying royalties not only to content owners but the owners of the proprietary DRM tools, thus further reducing the true revenue opportunity. Apple, often hailed as the pioneer of web distribution of music, does not need to make money on the content it distributes; it makes its money from iPods and accessories. Service providers will have difficulties making the same claim. Even if the PC market is covered, there is still to solve how to put content on portable devices. iPods, PlayForSure devices, Zune, PSP, and most mobile phones do not carry the same DRM solutions. Is anyone still in doubt as to why content that is not protected by DRM is popular among those who choose to download digital media?

What next?

It gets worse! By 2010 we can expect network enabled TVs on the market. For any pay TV provider this is of the outmost importance. Currently PCs and other IP-enabled storage devices cannot easily access unconnected TVs. This is why the set top box has control of what video and TV content is shown on the television. However, a network connected display panel breaks this model: as the panel then funnels content from all over the network, or in fact from the Internet, the set top box effectively becomes just another device in the home. Customers can then buy video or TV content from Apple, Glowria, Lovefilm, or Movielink instead of going through a pay TV operator. Connected TVs will give consumers choice, while taking control of the TV and the connected home away from pay TV operators.

more info: www.ovum.com