Prospects for market entry in Northern European broadband IP video markets

1. Prospects for market entry inProspects for market entry in
Northern European broadbandNorthern European broadband
IP video marketsIP video markets
Christopher T. Marsden,Christopher T. Marsden,
Harvard Information Infrastructure Project andHarvard Information Infrastructure Project and
Globalisation Centre, Warwick, UKGlobalisation Centre, Warwick, UK
Info and contact: http://www.ijclp.orgInfo and contact: http://www.ijclp.org
Internet TelephonyInternet Telephony
Consortium MITConsortium MIT
19 May 200019 May 2000

2. Building the ball park…Building the ball park…
but will they come?but will they come?
Analyses including those of next FCCAnalyses including those of next FCC
Chief Economist are positive onChief Economist are positive on
broadband prospects….broadband prospects….
– Christiaan Hogendorn (1998 and 2000);Christiaan Hogendorn (1998 and 2000);
Eisner and Lehr (1999); Greenstein (1999)Eisner and Lehr (1999); Greenstein (1999)
But don’t see streaming video as theBut don’t see streaming video as the
killer app - rather various shorter appskiller app - rather various shorter apps
We all remember the mid-90s convergenceWe all remember the mid-90s convergence
‘hype’ (John Malone TCI in 1997) and the‘hype’ (John Malone TCI in 1997) and the
QUBE and other VOD experimentsQUBE and other VOD experiments
– Faulhaber (2000)Faulhaber (2000)

3. Broadband in US and Canada:Broadband in US and Canada:
2.7m cable modem households 3 May 2000:2.7m cable modem households 3 May 2000:
50,000 new connections per week50,000 new connections per week
http://www.kineticstrategies.com/cable_count.html visited 18 May 2000http://www.kineticstrategies.com/cable_count.html visited 18 May 2000
End-2000:End-2000:
5.7m connections5.7m connections
3.6m cable modems3.6m cable modems (Q1 2.28m) CAGR 156%;(Q1 2.28m) CAGR 156%;
2.11m DSL lines2.11m DSL lines (Q1 0.88m) CAGR 266%(Q1 0.88m) CAGR 266%
(sources Telechoice; NCTA).(sources Telechoice; NCTA).
End-2003:End-2003:
25.5million connections25.5million connections
15.9m cable modem households15.9m cable modem households
http://www.kineticstrategies.com/docsis/http://www.kineticstrategies.com/docsis/
9.569m DSL lines9.569m DSL lines
http://www.xdsl.com/content/resources/deployment_info.asphttp://www.xdsl.com/content/resources/deployment_info.asp

4. Broadband Video in EuropeBroadband Video in Europe
8.23m 1999 (Ger, Ne, Fr, Swe, UK: ony 1.73m last 3)8.23m 1999 (Ger, Ne, Fr, Swe, UK: ony 1.73m last 3)
21.3m broadband access lines by 200321.3m broadband access lines by 2003
– Forrester Research (‘Europe’s Digital Decade’ 11-99: note ofForrester Research (‘Europe’s Digital Decade’ 11-99: note of
caution Forrester predicts 54.5m US broadband by 2003)caution Forrester predicts 54.5m US broadband by 2003)
Source: http://www.screendigest.com/yp_00-02.htm Special Issue 02/2000Source: http://www.screendigest.com/yp_00-02.htm Special Issue 02/2000
John Laycock,John Laycock, VP E-Commerce (Europe) Nortel Networks, and BCDVP E-Commerce (Europe) Nortel Networks, and BCD
Forum, 18 May 2000, ‘TV Meets the Web’ at http://live.tv3000.nl/tv_web/:Forum, 18 May 2000, ‘TV Meets the Web’ at http://live.tv3000.nl/tv_web/:
““many telecoms companies in Europe had delayedmany telecoms companies in Europe had delayed
the deployment of DSL because they were afraid ofthe deployment of DSL because they were afraid of
cannibalising their existing revenues. However, theycannibalising their existing revenues. However, they
are now beginning to respond to the development ofare now beginning to respond to the development of
the market and initiate rollout.”the market and initiate rollout.”
TiVo digital TV next-generation set-top servers usingTiVo digital TV next-generation set-top servers using
DVB standards (especially MMHP) and MPEG4DVB standards (especially MMHP) and MPEG4
compressioncompression

5. Chello (UPC) Broadband SubscribersChello (UPC) Broadband Subscribers
ITM Research Survey into broadband subscriber behaviourITM Research Survey into broadband subscriber behaviour
polled 1,500 chello subscribers and 2,000 non-chello users.polled 1,500 chello subscribers and 2,000 non-chello users.
http://www.chello.com/press_room/P/1130/index.html 17 March 2000http://www.chello.com/press_room/P/1130/index.html 17 March 2000
6 North European markets6 North European markets
– Norway, Sweden, Austria, Belgium,Norway, Sweden, Austria, Belgium,
France, Netherlands:France, Netherlands:
171,000 subscribers 31/3/2000171,000 subscribers 31/3/2000
spend twice as much time on line asspend twice as much time on line as
narrowband users - an average of 72 hrs/monthnarrowband users - an average of 72 hrs/month
(36 hrs/month for dial-up users)(36 hrs/month for dial-up users)
access the internet 4 times a day (twice a dayaccess the internet 4 times a day (twice a day
for dial-up)for dial-up)
spend 67% more money online than their dial-spend 67% more money online than their dial-
up counterparts - an average of 471 eurosup counterparts - an average of 471 euros
(£288) in the last six months as opposed to(£288) in the last six months as opposed to
283 euros (£173)283 euros (£173)

6. IP Video: KillerIP Video: Killer
Application forApplication for
Broadband InternetBroadband Internet
V id e o t o t h e P C
L e g a c y c o n t e n t
R a t io n e d a c c e s s
T V r o u t e - P C c a r r ia g e n e u t r a l?
H u g e A r c h iv e
V R H
b r o a d c a s t e r
T e c h n ic a l s o lu t io n
( C o n fid e n t ia l; in n o v a t iv e ;
c o n s u m e r - d r iv e n ; in t u it iv e )
M a r k e t in g in t e r m e d ia r y
V id e o p o r t a l
s it e d a t h e a d - e n d / lo c a l s e r v e r
c f. Y e s T V o n B T O p e n W o r ld
D o m in a n t m o n o p o ly
C o n t e n t - n e u t r a l
B a n d w id t h - h u n g r y
a p p lic a t io n s n e e d e d
B S P
t e lc o / c a b le c o
I n t e r m e d ia r y
M a r k e t E n t r y ?

7. Video over broadband IPVideo over broadband IP
– ABUNDANT:ABUNDANT:
– Scalability:Scalability:
infinitely expansible,infinitely expansible,
tailored for 1 viewertailored for 1 viewer
DISPERSED:DISPERSED:
– Scope economies:Scope economies:
content exponentially increasing;content exponentially increasing;
audience fragmentsaudience fragments
PERFECTLY REPRODUCIBLE:PERFECTLY REPRODUCIBLE:
– Scale economies:Scale economies:
information goodsinformation goods
copy costs zerocopy costs zero
SUM IS GREATER THAN THE PARTS:SUM IS GREATER THAN THE PARTS:
– Network effects entry barriersNetwork effects entry barriers
– Cumulative eyeballsCumulative eyeballs

8. European Video Rights Holders (VRHs)European Video Rights Holders (VRHs)
and Broadband Service Providers (BSPs)and Broadband Service Providers (BSPs)
Value Chain VRH content I ntermediary? BSP carriage
Stage 1
Rationed Legacy
Partners
• Broadcasters
• Film archives
• Music Majors
• Promotional
placement
• Merchandising
Click-through
• Telcos
• Cable MSOs
• WAPcos
Stage 2
Abundance
Partners
Originators:
• Independents
• New Media
• Cultural and
Sports Orgs
• Subscription
• Advertising
• Direct
Marketing
• TiVo-enabled
digital TV
• New BSPs
• 3G licences
• WLL/MMDS

9. Existing Content Libraries:Existing Content Libraries:
Disaggregated Golden EggsDisaggregated Golden Eggs
– Broadcasters and film distributorsBroadcasters and film distributors
have millions of hours archivedhave millions of hours archived
Vertically integrated legacies:Vertically integrated legacies:
– cinema-TV behemoths have traditionally rationedcinema-TV behemoths have traditionally rationed
consumption in collaboration with governmentsconsumption in collaboration with governments
The super-abundant world of broadbandThe super-abundant world of broadband
distribution and consumer sovereignty hasdistribution and consumer sovereignty has
exploded their monopolyexploded their monopoly
– Fear of cannibalising existing revenue streams inFear of cannibalising existing revenue streams in
mass audiences (Netspeak: ‘channel conflict’)mass audiences (Netspeak: ‘channel conflict’)
– 10 years of UK Gold, an appalling waste of talent10 years of UK Gold, an appalling waste of talent
The geese have little strategy for collating theirThe geese have little strategy for collating their
gold - they need an aggregator to bring theirgold - they need an aggregator to bring their
existing product to marketexisting product to market

10. Ever seen an elephant fly?Ever seen an elephant fly?
– Loss-leading websitesLoss-leading websites
– VRHs can take losses; new media cannotVRHs can take losses; new media cannot
– Carlton Popcorn website on BT OpenWorldCarlton Popcorn website on BT OpenWorld
– Integrated portalsIntegrated portals
– branded content achieves instant recognitionbranded content achieves instant recognition
– Cross-promotionCross-promotion
– broadcast channels permit subsidised advertisingbroadcast channels permit subsidised advertising
– Carriage-content agreementsCarriage-content agreements
– Branded funded portals leverage carriage terms:Branded funded portals leverage carriage terms:
e.g. Disney-ABC dispute with Time-Warnere.g. Disney-ABC dispute with Time-Warner
– Majority owned hothousesMajority owned hothouses
– VC but avoiding the dead hand of old media execsVC but avoiding the dead hand of old media execs
– Established advertiser relationshipsEstablished advertiser relationships
– Trust, recognition, networks, SoHo HouseTrust, recognition, networks, SoHo House

11. ‘‘Goose and Egg’ Scenario: Refusal toGoose and Egg’ Scenario: Refusal to
DealDeal
Content libraries refuse to license to broadbandContent libraries refuse to license to broadband
open portals;open portals;
– Only sell dead duck content, not golden geeseOnly sell dead duck content, not golden geese
Broadcasters ‘go it alone’ on branded sites:Broadcasters ‘go it alone’ on branded sites:
– putting all their analogue eggs in separate basketsputting all their analogue eggs in separate baskets
Carriage providers fractious: refuse to fair,Carriage providers fractious: refuse to fair,
reasonable and non-discriminatory termsreasonable and non-discriminatory terms
– Deal-making omelettes by breaking eggsDeal-making omelettes by breaking eggs
New media is scarce and expensiveNew media is scarce and expensive
– risk incubating original content when it doesn’t layrisk incubating original content when it doesn’t lay
– ‘‘Who are these guys?’Who are these guys?’
– media and telcos don’t talk to each other, or anyonemedia and telcos don’t talk to each other, or anyone
else, because few trusted intermediaries emergedelse, because few trusted intermediaries emerged

12. Plucking the goose: regulatory orPlucking the goose: regulatory or
market solutions?market solutions?
– Regulators confused, slow, incompetentRegulators confused, slow, incompetent
– Dominance of BSkyB (DGFT), BBC (Magill-DG4),Dominance of BSkyB (DGFT), BBC (Magill-DG4),
ONDigital (ITC) and BT (Oftel) shows limits ofONDigital (ITC) and BT (Oftel) shows limits of
litigation, even with 1998 Competition Actlitigation, even with 1998 Competition Act
– Dominant actors get their gander upDominant actors get their gander up
– Competition complaint is commercial suicideCompetition complaint is commercial suicide
– Cableco complaints against BSkyB and BT fromCableco complaints against BSkyB and BT from
19911991
– Solutions must involve:Solutions must involve:
trust and competence: relationship buildingtrust and competence: relationship building
financial inducementsfinancial inducements
targeted primary rights holders:targeted primary rights holders:
– anchor tenant model on Yahoo! And AOLanchor tenant model on Yahoo! And AOL

13. Intermediaries’ PartnersIntermediaries’ Partners
– Carriage with ‘closed but open’ BSPs:Carriage with ‘closed but open’ BSPs:
– Telco-cableMSO:Telco-cableMSO:
Dominant monopolyDominant monopoly
Content-neutralContent-neutral
Bandwidth-hungry applications neededBandwidth-hungry applications needed
Sweat equity?Sweat equity?
– offer maximum exclusivityoffer maximum exclusivity
– Content from ‘open but closed’ VRHs:Content from ‘open but closed’ VRHs:
pubservice, huge archive of legacy contentpubservice, huge archive of legacy content
Rationed accessRationed access
Sweat equity - why?Sweat equity - why?
– TV route - PC carriage neutral?TV route - PC carriage neutral?
– minimal exclusivityminimal exclusivity
– short term narrow format rights market

14. Future Research QuestionsFuture Research Questions
Infrastructure development?Infrastructure development?
– Europe late adopter modelEurope late adopter model
– European fixed line telcos in crisis:European fixed line telcos in crisis:
KPN, Telia, Telenor, Telefonica, BTKPN, Telia, Telenor, Telefonica, BT
‘‘Open access’?Open access’?
– current US concerns regarding BSPscurrent US concerns regarding BSPs
– US content market relatively competitiveUS content market relatively competitive
query: Time Warner and Disney fightquery: Time Warner and Disney fight
Video bottlenecks:Video bottlenecks:
– European pubservices lock-hold - EBUEuropean pubservices lock-hold - EBU
Market entry in Europe?Market entry in Europe?
– Let’s get cable separated from telcos firstLet’s get cable separated from telcos first