The most successful network operators will be those that facilitate and encourage over the top video. Those that seek to retain complete ownership of the commercial relationship with the consumer will ultimately be disintermediated, as they will never be able to keep pace with consumer demand. Look at the iPhone; it was successful because it offers a more open aggregation model and not just because it was cool – the open model encourages innovation.
I think there is an interesting parallel between the forthcoming battle for e-books between Amazon’s Kindle and Apple’s iPad and this question of Telco VoD or over-the-top video. It is more a question of proprietary models compared to – at least partly – open models than it is about managed networks and service quality. As bandwidth improves to respond to consumer demand, this becomes a lesser issue anyway.
Traditional pay TV platforms wrap up a complete bundle of content and services and sell it as a whole to consumers. Yes, there are multiple tiers and often individual channels or packages that you can add on top of the base subscription, but essentially you get what the pay TV operator is able to aggregate together at the price they determine and on the terms they dictate. There is value to consumers in this arrangement – it is simple and convenient – they can get most of what they want from a single provider, through a single experience. As IPTV has moved from concept to reality, most Telcos have looked to replicate this model. Sometimes, where there was a gap in the pay TV market (Hong Kong for example), this has been successful. In other markets, where there was healthy competition from “legacy” satellite or cable providers (like the UK) it has not.
However, no one organisation, however nimble or powerful, can expect to keep up with consumer demand for new content and services. This challenge increases daily and however many product managers and lawyers are involved, it simply isn’t possible to do deals with every potential provider of content or services in order to aggregate everything into your own product set. As devices become more sophisticated, a richer interaction is enabled and it would be impossible for all this to be managed through a single organisation – that organisation, however capable, becomes the limiting factor.
So the Kindle is like the proprietary Telco VoD model. It provides a good consumer experience for its designed purpose. Amazon has done deals with the major publishers to ensure that a good variety of eBooks are for sale through its online store and the second generation device improves the overall experience to be comparable to a paper book. The Kindle – and similar devices from Sony and others – have established a market for e-books.
Meanwhile, the iPad is like the over-the-top video model, or is at least like the first step towards this. Whilst Apple is still aggregating content through iTunes, it has also encouraged innovation through its App Store. Content publishers can create interactive applications that provide their branded experience, content or service. There’s a set of standard facilities to enable monetisation through Apple’s model or the ability to establish your own model, though Apple does not allow things that disintermediate it too much and this is why it is only like the first step to over-the-top video. In a way, a true over-the-top model would support multiple Apple-like environments.
Ignoring that for a moment, the App Store model has proved a real winner for the iPhone. 100,000 apps published and counting proves the value of the more open model. Apple has provided a value-added route to market for third parties and has made it easy to use. Over time, it may realise that blocking apps that apparently compete with part of its offering is likely to be counter productive and indeed some of these (for example VoIP) have now made it through. Others (like Google) have found ways to deliver their services without applications – through the browser on the iPhone. The iPad will no doubt prove attractive to even more application publishers and will enable a richer experience than the Kindle. It will allow a greater choice (of content and business models) for those that just want to consume the written word and it will also encourage innovation in multi-media entertainment for those that want more. This innovation will be so much richer because it does not entirely depend on Apple to do it. The (partly) open nature of the App Store delivers a huge benefit to consumers and in turn to Apple. As I write this, Amazon has just had a very public fight with Macmillan Publishers over the pricing of their eBooks, which neatly illustrates the point.
Let’s get back to the television and we can see that this approach is equally valid. The Kindle-like pay TV model has worked well in the past but needs to evolve rapidly to stay competitive. If consumers find that their bundled TV experience is inferior to more open offerings, they will churn. Perhaps, like Apple, it is possible for pay TV operators to partly open up their platforms, but unless they have critical mass globally, it is hard for those platforms to genuinely foster the innovation achieved by Apple. Globally, pay TV is highly fragmented which means that no-one has that critical mass. It is also characterised by massively expensive proprietary platforms that demand big systems integration projects to build and maintain them. Consumer electronics manufacturers have the global reach but currently seem intent on the development of proprietary platforms that are even less open than Apple’s. Internet players like Yahoo! with its TV Widget platform are interesting, though adoption by CE manufacturers seems half-hearted. Perhaps we will see some strategic partnerships between pay TV operators and consumer electronics manufacturers or software platforms that will allow access to globalised applications platforms? Perhaps Virgin’s deal with TiVo has this potential? Of course, Apple could still replicate its App Store for TV.
The real answer is that we will probably only deliver a truly compelling consumer experience through initiatives like Canvas or HbbTV. On paper, these initiatives have the potential to stimulate innovation without the Apple-style blocking of competitive applications. Any organisation will be able to publish applications to the App Store following whatever business model it chooses. BT and Talk Talk have both decided to support the Canvas model despite having invested heavily in Kindle-style IPTV in the past. Is this enlightened thinking or desperation in the face of competition from Sky? The success of the iPhone – and perhaps soon the iPad – says it is very much the former.
