IPTV and TV Battle

Peter's post here about the cash-heavy battle for the static market of TV subscribers brings up a couple of interesting points about the ongoing showdown in the video industry, although I don't agree with his pessimistic synopsis about the futility of throwing cash into the video market to fight over subscribers in a relatively static market that may potentially disentigrate on the submarine torpedo of Internet-based content.

I'm less inclined to think that the telco's are as stupid as we sometimes make them out to be. They have generally been a little bit slower on the technology side, but somehow, when the market is ripe, they show up onboard with the relevant technology and offerings. So why television? and why now? and why the rush and the expense?

One easy (and mostly accurate answer) is triple-play bundling packaging voice, video, and Internet together (and sometimes mobile) into one package. This is the new advertising gimmick of the industry and quite a brilliant one at that. Residential subscribers are a fickle bunch and triple-play packages have been a great tool for upselling a current subscriber base into a range of add-on services; doubling or even tripling the potential revenue for a given customer. Since (potentially) most, if not all of these services, can run over the same physical infrastructure, this also does a good job of more effeciently monetizing the expensive outlay of physical buildout.

The downside (or upside) of triple-play is that it is now almost a matter of survival in the telecom industry. In a world of triple-play, both the cable companies and the telephone companies are attacking each other's core markets; anyone not locking their customers into a triple-play package is leaving their customer base unprotected to competive market that can leverage the combined purchasing power of three to four services to undercut pricing on any given package. Given the commodity nature of the industry and the general mediocre customer satisfaction levels, price is a major factor, if not the major factor.

Of course, the battle is over a bit more than mere subscribers--the battle, after all, is for complete domination of the communications industry. In the end, the company with a near-monopoly on communications subscribers can leverage their subscriber to control content, absent, of course, some sensible Net Neutrality provisions. Over the next few years, as mergers, partnerships, and bankruptcies thin the already lean marketplace, Net Neutrality will become all the more important of an issue; from the AT&T merger conditions, 2009 will be the year to watch when their (meager) self-imposed Net Neutrality provisions expire.

Still, Peter's comments about the disentegrating marketplace do accurately describe a valid threat, and it is somewhat of a race to establish a significant market dominance that can control third party interlopers. Internet video is very much in its infancy, lacking enough substantial content that is compelling enough to replace CSI or Hero as weekly traditions in many an American platform: after all, how many people are ready to tune in on a weekly basis for an hour of "Coke and Mentos"? There are also significant problems with quality and the network providers are being very careful to choke the the amount of Internet bandwidth to kill the possiblity of realtime HD video content. The biggest obstacle to online video--and not a trivial one--is real monetization that can actually support a distribution network and content providers; current offerings can't even successfully create enough revenue to sustainably support the infrastructure cost of distribution, let alone content. There is a complete end-to-end business infrastructure for traditional television that cannot be replaced or co-opted overnight.

Still, all of these obstacles can change and are changing. Video technology is maturing and is now to a "watchable" level even at relatively modest bitrates; in a few years, HD quality is not unfeasible. And, made-for-Internet video content is maturing; while it is not yet good, it definitely surpasses the much of what is availble on television. Most importantly, the networks have had some success distributing both via direct-to-web ad supported models and pay-per-view via iTunes. Given time, Internet video will mature and be able to establish itself as a legitimate replacement for traditional television.

It is, in many ways, a race: if Internet video establishes itself in a very real sense before a single "victor" emerges, then the gamble has been lost and the telco's and cable companies will have to retreat to their current role of infrastructure. However, if a single or a couple of extremely dominent companies emerge (as will happen) before any real viable Internet video option emerges, then the telecommunication companies will become gatekeepers and premium content providers will have to pay dearly for access to their audience. It is precisely because they understand the nature of the game and the stock-holder hell awaiting the second place winner that the telecom companies are throwing big money after network upgrades and infrastructure overall. After all, a nice slice of a static market is still much better than no slice at all.