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1. A business model for IPTV service:
a dynamic framework
Harry Bouwman, Meng Zhengjia, Patrick van der Duin and Sander Limonard
Abstract
Purpose – The purpose of this paper is to investigate a possible business model for telecom operators
for entering the IPTV (digital television) market.
Design/methodology/approach – The approach takes the form of a case study, literature search and
interviews.
Findings – The IPTV business model always has to adjust to the change of external factors and
uncertainties in the exploration and the exploitation phase. The four scenarios presented in this paper
explicitly address the demand, regulatory and competition-related uncertainties. The scenarios
represent the different future possibilities in terms of regulatory environment, industry structure and
consumer attitudes towards (IP)TV service. By choosing the right business model, telecom operators
can sustain the market competition and deliver customer value and economic benefits. In the light of
limited resources, when balancing the requirement of IPTV business model design, telecom operators
have to focus on the critical design issues in each of the scenarios.
Research limitations/implications – This is a one-case study, so no cross-analysis with other cases
was possible.
Practical implications – The research does not stop when the critical design issues have been
analysed, but takes them a step further to shed light on the viability of the business model in an
exploration phase. This is done by integrating the business model framework analysis with scenario
analysis. Scenario analysis indicates various future possibilities and provides a platform for analyzing
the decisions regarding critical design issues that have to be made in an uncertain future environment.
The competing views on future developments are helpful in reducing the future uncertainties with regard
to viability and feasibility of business models for IPTV.
Originality/value – This is one of the first studies that looks into the relationships between business
models and scenarios. Also, the application on IPTV is quite novel.
Keywords Business development, Telecommunications, Cable television
Paper type Case study
1. Introduction
These days it is both technically and commercially viable to sustain multicast digital
television systems using IP networks. Faced by fierce competition from cable companies
offering triple play bundling packages some 80% of all large European telecom operators
have decided to investigate the possibilities opened up by deploying IPTV (www.
Alcatel.com/tripleplay/graphics/19320_iptvworld_600.jpg, retrieved March 17, 2007).
Telecom operators are entering the digital TV market but it is still not clear whether new
IPTV business models will be viable. Many analysts believe that the huge potential of the
IPTV market will give telecom operators the opportunity to develop this new market. There
are, however, experts who have their doubts about telecom operators’ capabilities when it
comes to competing with cable companies which, in many countries, have significant TV
market power. Since the days of telecommunication market deregulation cable companies
have been steadily filtering into the data service sector and recently also into the voice
PAGE 22 jinfo j VOL. 10 NO. 3 2008, pp. 22-38, Q Emerald Group Publishing Limited, ISSN 1463-6697 DOI 10.1108/14636690810874377
Harry Bouwman is based in
the Department of
Technology, Policy and
Management, Delft
University of Technology,
The Netherlands, and
Åbo Akademi, Turku,
Finland. Meng Zhengjia
and Patrick van der Duin
are based in the
Department of Technology,
Policy and Management,
Delft University of
Technology, The
Netherlands.
Sander Limonard is based
at TNO Information and
Communication
Technology, The
Netherlands.
Received 1 October 2007
Revised 7 December 2007
Accepted 6 February 2008

2. service market thus making the communication industry landscape more complex and more
dynamic. Hence the reason that it is vitally important for telecom operators to have a clear
and comprehensive IPTV business model. The problem is that at the moment there is no
template for defining the IPTV business model. Different market players emphasize different
elements. Doherty et al. (2004), for example, focus on the right IPTV architecture and quality
of services, while Liu (2006) is more interested in the financial aspects of the new IPTV
model. As yet, there is no shared business model concept.
We define IPTV as a broadcast or on-demand video service that makes use of the Internet
Protocol (IP)and is streamed to a set-top box that can be connected to a PC or a television
set. This involves the use of point-to-point networking infrastructure and the support of
broadcast video using multicasting techniques. The TV services of cable and satellite
companies are not included in this definition because they do not use IP-based networks
and are not based on point-to-point architecture. We also excluded web-based television
because, due to its different nature in terms of services, organization, service platform and
revenue models, it had to be left out when the decision was taken to focus on telecom
operators even though it is IP delivered (see for an overview of business models for digital
television, Limonard and Tee, 2007). Of all the actors in the IPTV value chain, it is telecom
operators that have a particular interest in developing digital television service via IP in order
to compensate for falling revenues in their traditional markets. Leveraging their brand equity
may enable them to offer attractively bundled products and create renewed consumer
loyalty that is not solely subscription-based. Their assets can also be leveraged to turn
multiple specialized networks into cost efficient networks in the process of upgrading of their
networks in readiness for next generation networks. Telecom operators are the true digital TV
market newcomers and their aim is to capture a fair amount of the market share. Let us
therefore start by examining the pivotal role that telecom companies have in IPTV.
The STOF business model framework, which was developed in 2003 (Faber et al., 2003),
proved to be successful when it came to designing business models for mobile services
(Haaker et al., 2006), for insurance intermediaries (Bouwman et al., 2005), for the analyzing
of e-commerce business models (Bouwman et al., 2006) and in the describing of critical
design issues and success factors (de Reuver et al., 2006). The business model concept in
the STOF framework is defined as a blueprint of how a network of cooperating organizations
can create and capture value from new innovative services. The STOF model consists of four
domains, namely the service domain, the technology domain, the financial domain and the
organizational domain, each of which interacts with the others and is affected by market
dynamics, technological developments and regulation (see Figure 1). Based on this general
model we discuss in this study whether and quite how the IPTV service and business model
can be structured.
The four domains of the business model interact with each other and with external drivers
during the exploration and exploitation phases (He and Wong, 2004). Exploration implies
that the behavior of firms is characterized by search, discovery, experimentation, risk-taking
and innovation, while exploitation implies that such behavior is characterized by refinement,
implementation, efficiency, production and selection (Cheng and Van de Ven, 1996; March,
1991). In this paper the exploration and exploitation phases are used to describe the
development of the IPTV business model. In the first part we will consider the design issues
in the exploration phase. IPTV developers are currently engaged in experimental projects
and are exploring the new market. We will then go on to use scenario analysis to examine
issues that may be relevant to future exploration phases. IPTV developers will inevitably
focus on issues such as service (bundles) and the question of how to make marketing
strategies more efficient.
The objective of this paper is to identify the design issues that are critical when it comes to
developing viable and feasible IPTV business models for telecom operators that deliver
customer and network value and to, using scenario analysis, test the robustness of these
choices in the exploration and exploitation phases.
VOL. 10 NO. 3 2008 jinfojPAGE 23

3. In this paper we discuss the IPTV market, we take a look at the origins of business models
and the STOF framework, and we address critical design issues and trade-offs between
design choices in the IPTV domain (Section 2). We use scenario analyses to describe future
developments in the field of digital television (Section 3) and to test the robustness of the
business models that will in future be characterized by a high level of uncertainty when
entering the exploitation phase (Section 4).
2. IPTV business models
Starting with the STOF model, we shall begin by discussing the external forces that influence
the choices involved in the business model. These include the technology drivers for IPTV,
market dynamics and regulatory conditions. We will then examine the elements of the
business model in more detail.
2.1 Technological drivers
Katz (2002) described the four technological developments that are crucial to shaping the
new television industry. They are: an increase in effective distribution capacity, an increase in
the ability to process user feedback, an increase in the storage and processing power
controlled by viewers, and the separation of applications from transport.
Increase in effective distribution capacity: with regard to the developing of video services
one of the main obstacles for telecom operators is the last mile. ADSL capacity is insufficient
to deliver streaming video services with a certain quality. Unlike in the case of small band
services (e-mail, web-browsing, file-sharing, VPN), television end-users are sensitive to the
quality of video services (Wang, 2001, Cisco, 2005). Recently, the capacity of the local loop
has increased dramatically with ADSL2, VDSL and VDSL2 making the best possible use of
the twisted line (Fijnvandraat and Bouwman, 2006).Meanwhile the maturity of fiber cable
technology has tremendously increased backbone capacity. Nowadays, a network that uses
at least ADSL2 can provide IPTV services of guaranteed quality to residential areas.
Increase in the ability to process user feedback: whereas watching a television program
used to be a predominantly passive activity recent technological developments have made
interaction in the digital home environment feasible. Return channels that carry messages
Figure 1 STOF model
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4. from viewers to service providers make it possible to develop new, tailor-made and personal
services for end-users, and new revenue models like interactive advertisements.
Increase in storage and processing power controlled by viewers. In traditional networks,
most of the ‘‘intelligence’’ is located at the center of the network. Today’s network intelligence
is increasingly being transferred to the edge of the network. Equipment installed in the
end-user’s living room has increasingly large processing power and storage capacity. The
introduction of the PVR (Personal Video Recorder) is just one example of such development.
The separation of application and transport: the Internet layer model allows for the
development of applications that are oblivious to the underlying transport infrastructure. This
architecture allows innovation to occur separately in the application and transport layers.
This means that technological innovations in the application layer are no longer affected by
transmission bottlenecks. The development of IPTV gives telecom operators the opportunity
to channel multiple specialized networks into a cost-efficient network.
2.2 Market drivers and conditions
It is various demand and supply factors, such as competition and industrial structure, that
determine the design perimeters of IPTV services and business models.
2.2.1 Market demand. Up until now Western Europe has been one of the world’s most vibrant
markets of IPTV. France (MalIgne TV, Free and Neuf Cegetel), Italy (FASTWEB) and Spain
(Telefonica’s Imagenio, Jazztel and Grupalia) are leading the way, each with a considerable
subscriber base in excess of 200,000 subscribers. IPTV is less visible in the remaining two
major Western European markets the UK and Germany. Although there are many initiatives
the impression is that most of them are still small scale. Other market forces include the rising
popularity of on-line web TV. It would appear that time spent watching on-line video
cannibalizes time spent in front of the television in broadband forerunner countries such as
the Netherlands.
2.2.2 Convergence of the information, telecommunication and TV industries. Although the
telecommunication and TV industries are converging, the television market is still dominated
by traditional broadcasters and by cable, IPTV ‘‘borrows’’ the IP-based transmission
technology from the IT industry and uses it to broadcast television content. IPTV Operators
are neither traditional television providers nor IP technology providers, they are telecom
operators. The decision by the telecom operators to provide video services has to do with
revenue stagnation in the traditional business, i.e. telephony. Video program special offers
are expected to generate new revenue sources that will more than compensate for any
revenue losses from voice.
2.2.3 Competition. The provision of IPTV services is also an important way of matching the
‘‘triple play’’ capability of cable companies while holding on to traditional customers who
may want to switch. It can be an effective business strategy, which is positively correlated to
customer loyalty (McAfee et al., 1989, Ahn et al., 2005). On the basis of an expert and
consumer survey, Wirtz et al. (2006) confirmed the importance of providing triple play. Most
experts estimated that the penetration rate of triple play would surpass 50 per cent by 2010
and 70 per cent by 2015. According to the same survey the bundling of video, voice and
broadband services benefits consumers from the point of view that pricing becomes
reasonable, configuration convenient and invoicing easy.
2.3 Regulation
The regulatory climate in the telecommunication sector has switched from old rules to new
policy. Technological developments have gradually transformed the world of spectrum
scarcity, dumb terminals and natural monopoly by turning it into a world of abundant
channels, intelligent terminals and unnatural monopoly (Galperin, 2004). Digitization means
that spectrum scarcity is not an issue in the television industry. Instead, thanks to the
inefficient spectrum use of analog TV (Peha, 2006), many regulators choose to eliminate
analog TV. Owing to digitization, the distinction between the various service platforms is to a
large extent blurred. As a result the distinctive regulations regarding the different sectors of
VOL. 10 NO. 3 2008 jinfojPAGE 25

5. telecommunications, cable and television are gradually disappearing. Already, the EU has
made a distinction between regulations regarding distribution and audiovisual content in its
recently approved directive on audiovisual media. Precisely what the impact of this directive
will be once it has been implemented in each of the individual member states remains to be
seen.
2.4 The IPTV business model
Technological, market-related and regulatory developments dictate the conditions under
which IPTV business models have to be developed. In this section we will discuss the IPTV
business model in the exploration phase on the basis of the STOF model. We shall analyze
the critical design choices in each of the four STOF domains, and specifically the trade-offs
and relationships between the relevant design options.
2.4.1 Service domain. Service domain design is defined as a description of a firm’s service
provision for specific customers in particular market segments. A service design should at
least match the requirement of the market segment, without exceeding the firm’s
technological and financial capability. The potential interest that users have in IPTV is
defined as the expected value for customers. In connection with technical and financial
restrictions and the lack of market information, telecom operators are not always capable of
delivering the expected value.
Telecom operators have to clearly state their value proposition and furthermore indicate how
they will realize that value proposition technically and financially. It is important to conduct
market analysis so that sufficient information about the market segment on which the firm has
decided to focus can be collected as well as about the requirements and preferences of the
consumers in that market. The firm should also leverage the design choices and resources
to minimize the mismatch between the intended value and the value that will be delivered.
The service components can then be designed in great detail in accordance with the match
established during the above-mentioned process, for example, by adding more channels,
adjusting tariffs, redesigning service quality level and improving user-friendliness.
Many telecom operators position IPTV as a mass-market service that competes directly with
cable and satellite companies. Telecom operators expect that they will be able to take
advantage of their expertise and the consumer loyalty in the telephone and broadband
markets, which they hope will give them a competitive edge. They have to leverage their
resources which means to say that they will need deep pockets to increase the
competitiveness of IPTV. The three possible types of leverage that can be distinguished are:
the bundling of video services with broadband and telephone services, offering more
value-added services (e.g. interactive services, Video on Demand – VoD, and Personal
Video Recorder – PVR) or having an attractive service portfolio by focusing either on
exclusivity or on a wide range of probably ‘long tail’ niche channels.
2.4.2 Technical domain. The technical domain has to do with the choices that are made on
the three different levels of transport, middleware and content. Transport layer design must
make sure that the infrastructures meet the transmission requirements involved in providing
video services. The infrastructures not only refer to the backbone or local loop network but
also to the sophisticated network equipment. In addition to transport layer design,
middleware and content design have to be given careful consideration because the service
design requirements are vital in deciding what capability is required if specific service types
(e.g. VoD) and value-added interactive services are to be offered. The middleware and
conditional access components manage the CRM (Customer Relation Management),
encrypt the video program and control the access authorization. The set-top box is used to
decode the program on the end-user’s side. Different IPTV providers choose different video
application components depending on service design demands and financial
considerations (see Figure 2).
Since the transport, middleware and content layer solutions have been well developed by
many equipment providers and software companies the technical issues are less critical.
PAGE 26jinfojVOL. 10 NO. 3 2008

6. The real issue is how technical design is related to the other domains. Technology places
certain constraints on service design, and vice versa.
The main issues are bandwidth limit, quality of service and level of middleware capability. In
the short term, bandwidth remains the major obstacle in IPTV development. Most local loops
cannot provide for IPTV, which requires about 3.5 Mbps, without upgrading. Even the
ADSL2 þ equipped local loop, which is sufficient for current video stream demand
compressed under MPEG 2, falls far short of the capacity needed for HDTV (High Definition
TV) video stream (16-18 Mbps). The telecom operators can choose different design
approaches, either by adding large capacity immediately before launching IPTV or by
gradually increasing the capacity. The former approach usually leads to an upgrading of a
large portion of the infrastructure in readiness for fiber optic cables while with the latter
approach most of the distribution network will first be updated to the ADSL2 þ standard.
The trade-offs telecom operators have to make lie between choosing more advanced
technology platforms and making a larger investment on the one hand, and adopting a more
evolutionary approach on the other hand (Fijnvandraat and Bouwman, 2006). Quality of
service is the second issue at stake here because video content is sensitive to signal quality.
Although some loss of quality does not bother many when it comes to audio transmissions
people do tend to be more demanding when the content is of a visual nature. To make sure
that degradation in video quality resulting from the IP transport network is negligible from a
subscriber’s point of view, IPTV providers only tolerate about one visible degradation every
two hours (Cisco, 2005). Ways in which the quality of service can be improved include
having better transmission infrastructure and encoding/decoding equipment, all of which
requires higher investments. An alternative design choice is to offer different service levels to
different customers. For example, the packages delivered to gold members may be placed
at the front of the queue, which can partly satisfy some demand for high QoS. Middleware
capabilities represent the third issue, particularly for the telecom operators that offer
broadcasting, VOD (Video-on-Demand) and value-added services. Middleware is crucial
when it comes to integrating platforms, enabling interactivity, conditional access and
customer relationship management. Future interaction modes in particular are very
uncertain, and telecom operators have to strike a balance between advanced STBs
middleware enabling a wide range of interaction, and cost effective technology which is
Figure 2 Technical domain designs
VOL. 10 NO. 3 2008 jinfojPAGE 27

7. more stable and offers consumers easier interaction. Advanced middleware would also
open the door to a larger number of revenue models, but whether or not the consumer is
ready for this kind of lean-forward behavior and new revenue models remains to be seen.
The choice also depends to a large extent on the QoS, since higher levels of interactivity
involve higher risk of dissatisfaction. Subscribers who experience an outage cannot come
back and continue watching from the same point when the outage is over. At the moment,
part of the request for video contents at peak times would be rejected without spare video
servers. Such experiences are certainly not attractive to most consumers.
2.4.3 Organizational domain. The organizational domain essentially describes the value
network that is needed to realize IPTV service provision. A value network consists of actors
who possess certain resources and capabilities and who interact to perform value activities
to create value for customers while realizing their own goals (Faber et al., 2003). Typical
actors in the IPTV value network are telecom operators, content providers, telecom
equipment providers, middleware providers, advertisers and consumers. Telecom
operators participate in the entire value delivery process. First they decide to either
produce or purchase the video contents. They have to maintain the physical network as well
as the hardware and software components of the video application together with equipment
manufacturers. The telecom operators’ core responsibility is to distribute the video contents
to customers. The middleware is of key importance to telecom operators, because it
determines whether or not they can provide seamless service to the end-users. Telecom
operators may try to work together with system integrators to establish a more efficient
middleware solution. Furthermore, telecom operators can be involved in negotiations with
advertisers to obtain revenue from advertising. Content creators and providers are located
at the upper end of IPTV value network (see Figure 3). The content aggregator combines
information such as news, sports, weather forecasts and reference materials from smaller
content creators and sells that on to content providers. Big content providers often focus on
content production and content aggregation. The advertising revenue from the IPTV value
network is relatively small compared to that of cable and internet advertising. Telecom
operators can, however, decide to add advertising to their services thus turning that into a
source of revenue.
An important issue in the organizational domain is the level of vertical integration or, in other
words, the level of ownership and control over successive stages of the value ‘‘chain’’. The
telecom operators who develop IPTV usually have to decide to what degree integration with
content production is appropriate. They may want to control or own the production and
Figure 3 Value network of IPTV
PAGE 28jinfojVOL. 10 NO. 3 2008

8. content rights or produce content themselves. As far as telecom operators are concerned,
the benefits of vertical integration lie in the reduced transaction costs, in being able to
broadcast their own contents, in the externalities and in being able to raise the cost for
competitors. The disadvantages attached to entering content production are also apparent
and mainly dwell in the likelihood of failure due to a lack of resources, knowledge of and
expertise in the new market. Careful cost-benefit analyses thus need to be made before any
decisions can be taken.
2.4.4 The financial domain. Financial performance is essentially what emerge when costs
and revenues are combined. The fixed cost level of IPTV projects is determined by the
technical and service design choices that are made. For example, high availability service
requires substantial investment in the setting up of redundant servers to secure abundant
video sources at peak times. Interactive services require financial support so that network
equipment can be upgraded and technical problems solved. Revenue models depend on
revenue sources like, for instance, advertisement or flat rate models and the relevant pricing
model. In that way revenues can than be calculated by estimating the size of the market and
the anticipated market share (see Figure 4).
In the current IPTV market most telecom operators are adhering to the subscription model
(flat rate) and are slowly adopting pay-per-view and advertising models by providing VoD
(Video on Demand). However, if more customized and personal services become available
a flexible pricing model will be more desirable and realistic in the future. Pricing results from
the evaluation of many different factors including market competition, operational costs and
company strategies. The pricing models and revenues of IPTV operators depend on all
kinds of risks regarding technology, the availability of resources, competition, supplier and
consumer behavior and political factors. Telecom operators must use a variety of methods to
reduce uncertainties and risks. The critical design issues in the financial domain are the
revenue/cost sharing and the revenue model. Revenue/cost sharing agreements can be
reached on the basis of tangible value objects (e.g. money, contents and services) as well as
through intangible value objects (e.g. branding, scheduling and customer information
rights). The advantages inherent in revenue/cost sharing are reduced investments and
reduced risk levels. The disadvantages are coordination costs, abuse of market power and
the risk of damaging a carefully conceived brand.
What emerges from these analyses is the fact that designing business models for IPTV
services is a complex undertaking which is technically complicated and requires multiple
Figure 4 Finance domain design method template
VOL. 10 NO. 3 2008 jinfojPAGE 29

9. actors to balance different design requirements. There are critical interdependencies
between service design, technical architectures, organizational arrangements and financial
performance. The critical design issues and trade-offs involved in the various design
choices during the exploration phase of IPTV development are presented in Table I. Telecom
operators have to balance the requirement in these domains and take the external factors
Table I Summary of critical design issues and tradeoffs
Tradeoffs
Service design issues Service domain Other domains Critical design choice
Service bundling Triple play, quartet play Complex organization
arrangement
Choice at discount bundling level
Choice of different products
portfolio
Value-added services
(e.g. interactive)
New and unique service Extra investment
Risk of failure
EPG
PVR
Other interactive components
Content portfolio Content only available through
the platform
Requires cost-effective network
and advanced middleware
Complex organization
arrangement
Platform exclusivity
Channel exclusivity and distributor
customer ownership
Tradeoffs
Technical design issues Technical domain Other domains Critical design choices
Bandwidth High bandwidth Large investment on
infrastructure
Adding large capacity (FTTx) with
high investment
Gradually expanding bandwidth
capacity
Quality of service High QoS Large investment or extra
customization
Deploying FTTx and advanced
quality guarantee equipment
Gold, silver membership
Middleware capability Extensive capabilities for
interacting, conditional access,
security, CRM
Large investment or low revenue
generation
Prioritizing the preparation for
advanced Electronic Program
Guide functionality, revenue
models based on customer
information such as advertising
Prioritizing lower CAPEX and quick
time-to-market in order to acquire
installed customer bases
Tradeoffs
Organization design issues Organization domain Other domains Critical design choices
Vertical integration Vertical integrated firm Bundling service Whether or not to become content
provider
How to enter the content
production market
Horizontal integration Horizontal integrated firm Cost revenue sharing Choice regarding the level of
discount of bundling
Choice regarding different product
portfolios
Tradeoffs
Financial design issues Finance domain Other domains Critical design choices
Revenue/cost sharing Horizontal integration
Content portfolio
Middleware capability
How to arrange revenue/cost
sharing with other players
Revenue model Value-added services
Content portfolio
Vertical/horizontal integration
Flat rate or more flexible pricing
model
Price the service at an appropriate
rate level
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10. and strategic interests into account when making if they are to make the appropriate
decisions regarding the design of an IPTV business model. Furthermore, these decisions
have to be sustainable when entering the exploration phase. When assessing the
sustainability of IPTV business models scenario analysis can be used to gain an
understanding of the trade-offs involved in the exploitation phase.
3. Scenario analysis
Scenario analysis is an effective way of reducing uncertainties and helping firms to formulate
flexible and sustainable strategies and policies. When employed as a tool designed to
reduce future risks scenario analysis is fundamentally different from the more quantitative
prediction methods. Instead of predicting, scenario analysis explores future directions from
a diverging perspective. Scenarios reveal various possible developments and show a
keener awareness of the uncertainty of trends (Bouwman and Van der Duin, 2003). The point
of scenario analysis is to understand, capture and describe possible future development
rather than to predict the future on the basis of a few selected variables. In the case of the
IPTV business model, scenario analysis will be used as a tool to pinpoint the uncertainties
that have a potentially high impact on the viability and feasibility of IPTV business models
during the exploitation phase (Limonard, 2006). Uncertainties often include elements that
are hard to quantify and model (Fijnvandraat and Bouwman, 2006). The results of scenario
analysis help IPTV operators to develop a clearer view of the sustainability and feasibility of
their business model. To construct the scenarios we used existing scenarios involving future
digital telecommunication and digital television. There are three reasons for selecting these
scenarios as reference scenarios. First, they have been created by institutes and experts
specialized in futures study, which means that the quality of the scenarios is guaranteed.
Secondly, each of the three studies was conducted in the telecommunications and television
industry. Thirdly, the time horizon of each scenario is the same (2010).
The scenarios used as a reference are:
1. The scenarios as published in 2005 by the European Monitoring Centre on Change
(http://eurofound.europa.eu/emcc/publications/2005/ef0567en.pdf, retrieved in August
2006). This scenario analysis was designed to ‘‘look at the future of the
telecommunication services sector’’ and take into account ‘‘the rapid evolution of
telecommunications and the technologies involved five years from (2005)’’. The study first
identified the three key dimensions of demand and usage, regulation and public policy,
and technology and industrial strategy. On the basis of these dimensions, four scenarios
were determined.
2. The scenarios created by the Bournemouth Media School and ITC (the former
Independent Television Commission in UK), see (http://media.bournemouth.ac.uk/
research/documents/fullreport.pdf). Here, scenario analysis was used to assist
electronic communication industries, especially television, to define and deal with
common future issues 10 years from 2002. The three dimensions constituting the scenario
were the way consumers use media, economic developments and the characteristics of
industry structure and competition. On the basis of these three dimensions four scenarios
for British television industry in 2012 were then presented.
3. Drop et al. (2000) developed a set of scenarios at the KPN research center. The aim was
to determine what ICTuse in the Netherlands will look like in 2005. Although the scenarios
originally had a time horizon extending up until 2005, experiences with other scenarios in
all kinds of KPN projects showed that the basic assumptions and scenario axis could be
extended to 2010 (Bouwman and Van der Duin, 2003). The two axes (dimensions) of KPN
scenarios are individual vs. collective (the degree to which consumers let their own
interests prevail above those of the group to which they belong), and active vs. passive
(the degree to which consumers explore and change their environment rather than
conforming to external influences). Four scenarios were identified and validated.
We identified, on the basis of these scenarios, ‘‘consumer attitudes’’ and ‘‘regulation related
to industry structure’’ as the most important uncertainties. A distinction could consequently
VOL. 10 NO. 3 2008 jinfojPAGE 31

11. be drawn between sophisticated and standard consumers. Sophisticated consumers are
those who are fully aware of the advantages of new media products and services. They are
the ones who want to pay a reasonable price for customized and personalized services.
Standard consumers are conservative when it comes to using new products. They are
satisfied with conventional TV, they prefer an easy service configuration and they are
price-sensitive. This means that this is a group of customers for whom bundling services with
a discount is very popular. At one end of this spectrum the regulator and industry structure
dimension discusses the hands-off approach of regulators and the domination of the market
by telecom operators in the voice and broadband market. At the other end of the spectrum
regulators fulfill the interventionist role and restrict the dominant players in the market. There
are therefore many players in the voice, broadband and television market. The two
dimensions identified by us resulted in the four scenarios presented in the following section
(see Figure 5).
4. The four IPTV business model scenarios
We shall now take a closer look at the four scenarios and we shall illustrate the kinds of
critical design issues that become relevant in the exploitation phase of an IPTV business
model.
4.1 Scenario 1: Telecom operators Mammoth
Economic growth is modest. Competition between incumbent telecom operators, new
entrants and cable and satellite companies continues to grow. The regulator has little doubt
about market efficiency and adopts a light regulation regime. Telecom operators are not
bounded by tariff regulations and are free to affiliate themselves to content providers. The
younger generations of consumers quickly accept the affordable new services. Most of them
like easily configurable digital TV, telephone and broadband services. Consumers show an
interest in bundling. The most popular packages are the discount offers from the
multi-service providers. Given the fact that consumers will value bundled services more than
the total separated value, the bundling of complementary products will be an attractive
strategy. Such bundles will not even require a discount. Telecom operators should avoid
offering substitute bundling without justifiable economic return. As a result, bundling
services becomes the priority for telecom operators. Telecom operators are the only players
Figure 5 Scenario dimensions, scenarios and critical issues
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12. capable of providing quad-play. Cable companies are triple-play veterans but find it difficult
to catch up with telecom operators. However, success does not come easily in a market
where several cable competitors are capable of offering comparable services. The success
of triple play is determined by factors like bundling type, pricing and content (Forrester
Research, 2006). Telecom operators should make use of the preference on the part of
‘‘simple’’ users for easy and quick configuration and entice more consumers by introducing
bundled products. They can decide to bundle the IPTV and broadband services. In most
cases, these are independent products which can be made cheaper by bundling them but
in some cases they become complementary and thus add value to end-users (see Table II).
Just because service bundling is the key critical design issue in this scenario that should not
diminish the importance of other design issues. However, in the light of limited resources,
telecom operators have to focus on service bundling and the associated critical issues when
they weigh up the requirements of IPTV business model designs. In the technical domain,
bandwidth is closely related to the offering of service bundles. The combination of
broadband and video services requires high bandwidth capacity (e.g. video service
requires at least 2-3 Mbps and broadband requires around 1 Mbps. The total is about
minimum 3-4 Mbps). This technical design issue regarding bandwidth will be the key
enabler of bundling services. It therefore becomes necessary to upgrade such networks to
fiber or hybrid types. In the organizational domain, horizontal integration is important if
service bundles are to be offered. One of the challenges facing telecom operators is that of
how to coordinate the newly established video business unit and the traditional broadband
voice business units in the back office if they want to be able to provide seamless bundles
and an efficient billing system to end users. In the financial domain, because of consumer
demand for affordable services, it is vitally important to choose the right pricing and discount
rate. Telecom operators have to balance technical and financial design to control the cost
level and to be able to offer a modest monthly rate to most consumers. This pricing strategy
can be converted to a more aggressive approach by offering larger discount rates than
those offered by cable operators and by taking advantage of economies of scale and scope.
This can create a competitive edge and entice more consumers to enter into the convenient
triple play configuration.
The key phrases in this scenario are bundling services, the aggressive discount rate of
bundles, horizontal organization integration and sufficient bandwidth.
4.2 Scenario 2: Head-to-head competition
Economic growth is high. The regulators relax constraints on telecom operators and
succeed in abolishing the regulatory differences between telecom operators and cable
companies. The regulatory framework leads to fair competition between equally strong
players creating an expanding digital TV market. Different players compete at national level
and thus gain fair access to the content market. Competition facilitates innovation and
strengthens the balance sheet of the digital TV industry as a whole. The market value of
digital TV companies keeps increasing. A virtuous circle is created. Consumers become
more sophisticated, which means they are more aware of the benefits of digitalization and
more experienced in selecting digital TV offers and programs. They prefer new services at
affordable prices, are less interested in choosing from a whole range of options and like to
create and share content. The victorious digital TV provider is the one that caters to the
personal tastes of consumers and enables them to create, publish and share their personal
stories. In this scenario telecom operators have several strong market competitors including
Table II Bundling option
Nature of products Bundling strategy Synergy effect
IPTV and DVB-T Substitute No bundling No
IPTV and telephone Independent Bundling No
IPTV and broadband Independent/complementary Mix bundling Yes
IPTV/broadband/telephone/mobile Independent(?)/complementary Mix bundling Yes
VOL. 10 NO. 3 2008 jinfojPAGE 33

13. cable, satellite and content providers. End-users have at least two options between which
they can choose. Most service providers offer mixed-bundling services at comparable
prices. Bundling is hardly a winning strategy.
On the other hand, sophisticated consumers search for the programs they prefer. Owing to
the growing prevalence of personal choice, the content market is becoming fragmented. In a
fragmented market, the most popular programs do not attract much attention. Most
consumers pick their own content regardless of the preferences of other viewers. This leads
to a large number of programs with small audiences, emulating a ‘‘long tail’’ for television
(Limonard and Tee, 2007). The success of any business model depends on whether or not
operators are able to satisfy people’s individual choices and tap into the value located in the
‘‘long tail’’. In order to do that television operators have to establish extensive cooperation
with various content producers, which also includes content generated by viewers and
aggregators, so as to obtain as many diverse programs as possible while pursuing their own
capacity to produce exclusive content. The key critical design issue in this scenario is the
ability to create content diversity.
In the technical domain, IP-based distribution technology provides a competitive
advantage, as such technology meets the requirements of the ‘‘long tail’’ to become
economically interesting. As the IP infrastructure makes it possible to interact and collect
detailed information on user behavior a powerful asset is created giving telecom operators
the opportunity to become an indispensable interface between the customer and content
producers and advertisers To make this possible telecom operators should make full use of
the advantages of IP-based transmission. The delivering of customized services requires
additional investment in content production and distribution. According to Noam (2002),
cable and internet TV operators face similar costs with regard to content production,
although distribution costs through the IP platform are much higher. Individualization
requires significantly larger transmission resources and consequently larger investments.
The business model key phrases in this scenario are content diversity, broad cooperation
with various content producers, balance cost issue, full use of IP-based transmission and
user-generated contents.
4.3 Scenario 3: Market deadlock
Several large merger deals create natural monopolies. Regulators propose bringing back
strict anti-trust policies. Telecom operators challenge the harsh regulations in court. Judges
agree with regulators and rule in favor of cable and satellite companies. Telecom operators
subsequently have to endure numerous procedures before they can receive TV franchise
permits and they are actually blocked from content integration. Cable and satellite
companies take advantage of the regulatory environment. They consolidate their businesses
and become dominant and vertically integrated national players. In this scenario,
consumers are already quite experienced with digital TV and they are interested in new
services.
It is hard to generate profit for telecom operators in a stagnating market. The key critical
design issue has to do with providing new value-added services. To achieve satisfying
penetration rates for IPTV services, telecom operators need to create a competitive edge by
differentiating their services not by opening up the ‘‘long tail’’ to content, but by opening it up
to value-added services, independent of content producers and aggregators using, for
instance, PVR (Personal Video Recorder) and interactive services (TV email, TV internet and
games). However, simply offering PVR or interactivity will not safeguard market success.
Choosing this strategy inevitably involves conflict with content-oriented firms. Service
providers may decide to implement various forms of copy protection but history indicates
that these measures will be defeated and consumers will be able to copy programs (Katz,
2002). Some value-added services give consumers the opportunity to schedule and edit the
programs. This may threaten the ability of content packagers to rely on the sales of
advertising (Loebbecke and Radtke, 2005). A notable choice example people have is that of
being able to push the ‘‘forward’’ button to avoid advertisements when watching recorded
programs.
PAGE 34jinfojVOL. 10 NO. 3 2008

14. The key resources for television distributors’ revenues reside in the relationships that exist
between content packagers and advertisements. The implication for value-added service is
certainly not insignificant. Understating the attractiveness of value-added service and the
possible loss of revenues helps telecom operators to select measures that are aimed at
reducing the disadvantages of offering value-added service. One such measure is to
embed advertisements in programs that consumers are willing to watch. The second
strategy is to provide entertaining or informative advertising that consumers do not want to
miss. Another strategy is to reward consumers who watch advertisements. In an IP-based
network the time consumers spend watching commercials is monitored. Telecom operators
can use the monitoring results to reward their customers financially or to give them
conditional access to premium contents (Katz, 2002).
Telecom operators can also agree to tolerate consumers copying contents and avoiding
advertisements if the value-added services manage to attract enough new subscribers.
According to Myers (2002) and Mogg (2004) these two features are actually the biggest
selling points for PVR. Telecom operators should allow the decision to be based on the
balance between customer value and economic benefits and they should ask themselves
whether or not the value added service can attract new customers enough to offset the loss
from advertisement and program reproduction and redistribution.
Business model key phrases in this scenario are offering value-added services, weighing up
service attractiveness and potential revenue losses, and flexible pricing.
4.4 Scenario 4: Back to basics
In this scenario, regulators adopt strict anti-trust policies toward the big telecom operators in
the market. Cable and satellite companies take advantage of the regulatory environment
and consolidate their business. Several vertically integrated and global companies
dominate the television market. Most consumers are satisfied with the television services
currently provided by cable and satellite companies. They are extremely hesitant to adopt
new services. A ‘‘wait-and-see’’ attitude prevails. There is little demand for interactive
services and internet TV. Consumers have decided to use bundling services for reasons of
convenience and to facilitate easier configuration.
In this scenario, regulatory barriers and consumer indifference make it hard for telecom
operators to offer IPTV services. There are few new opportunities for them to develop the
IPTV as defined in the exploration phase to become a successful service. Although bundling
may still be an effective strategy, it will be difficult to persuade consumers to switch from
cable companies to telecom operators. The potential market is limited. The content supply
side is dominated by several vertically integrated global companies. It is difficult for telecom
operators to enter the content market and compete with content providers.
The more realistic option for telecom operators is to make better use of the existing
technologies, services and resources that are there to support IPTV development. Firstly,
they can create a fresh image as new entrants, which will provide a high level of QoS and
service availability together with excellent customer service. Better program quality and
customer service are compelling reasons for consumers to switch from cable and satellite
providers. Secondly, telecom operators should leverage their customer base in the
broadband and telephony market. Thirdly, they can create complementary programs and
content on the television and broadband platforms. Ultimately though there is no dominant
strategy encouraging telecom operators to select within this scenario.
Business model key phrases in this scenario are QoS, leverage experiences and expertise
from broadband to television, and synergy effect.
5. Conclusion
The IPTV business model always has to adjust to changes in external factors and
uncertainties in the exploration and exploitation phases. The four scenarios presented in this
paper explicitly address demand, regulatory matters and competition-related uncertainties.
The scenarios represent the different future possibilities in terms of regulatory environment,
VOL. 10 NO. 3 2008 jinfojPAGE 35

15. industry structure and consumer attitudes towards (IP)TV services. By choosing the right
business model, telecom operators can sustain market competition and provide customer
value and economic benefits. In the light of limited resources when weighing up the
requirements of IPTV business model design, telecom operators have to focus on the critical
design issues in each of the scenarios. The critical design issues are of eminent importance
to the viability and sustainability of the business model under study (Faber et al., 2003).
The analysis has revealed the critical design issues telecom operators have to focus on
when faced with changing external factors. In the ‘‘telecom operators mammoth’’ scenario it
is asserted that telecom operators should take advantage of the economies of scale and
scope and offer more competitive bundling possibilities. The critical design choice to offer
bundling is the key to satisfying the demand of ‘‘standard’’ consumers for convenient
configuration and to helping telecom operators to establish a leading position in the
television market. In the head-to-head competition scenario, the ability on the part of telecom
operators to offer content diversity is important when it comes to matching increasing and
fragmented consumer demand. In addition to possible integration into content production
and into signing deals with multiple content providers, providing a platform for
user-generated content is also an effective way of creating content diversity at a low cost.
In the market deadlock scenario, telecom operators should focus on the critical design
choice of providing value-added services. The interactive and versatile nature of IP-based
networks suitable for carrying multimedia and interactive services should be fully explored.
This will possibly give telecom operators a way of differentiating their IPTV from cable and
satellites companies so that they can gain a competitive edge. In the back to basics
scenario, it is relatively difficult to implement the IPTV business model due to the indifference
of consumers and the presence of dominant cable companies in the market. The analysis
emphasizes the synergy between the telecom operators’ broadband and television
services. Telecom operators can leverage their advantage in the broadband market (e.g.
through branding, a large customer basis and sufficient cash flow) to include the television
market and increase value for both (see Table III).
The design issues we found to be critical in each of the scenarios do not necessarily diminish
the importance of other design issues. The fact is that telecom operators always have to
balance design choices if they are to generate both customer value and economic benefit
for their shareholders. For example, content diversity design is closely related to the finance
domain because the costs of producing tailor-made personal services are not minor. It is
important to find ways to control cost at a certain level (e.g. broadcasting user-generated
content is one way of reducing cost). Providing value-added services brings with it the risk of
losing subscriber and advertising revenue thus making the business model vulnerable if not
enough new customers are attracted. Telecom operators have to decide to what extent they
want to offer new services on the basis of market demand and cost forecasts.
Table III Summary of the critical design choices in different scenarios
Scenarios
Telecom operators
mammoth
Head-to-head
competition Market deadlock Back to basics
Domains
Service Bundling Content diversity Value-added service Bundling
Technical Sufficient bandwidth Middleware capability Middleware capability QoS
Organization Horizontal integration Partial vertical integration
to enable cooperation
with content producers
(professionals and
amateurs)
Partnering/partial
integration with ASPs and
OEMs
Consolidate
Finance Aggressive discount rate
offers
Balance increased costs
(CAPEX and OPEX) with
increased revenues
Balance content related
loss with revenues and
extra revenue from
advertisers and price
differentiation
Consolidate, focus on
internal synergy effect in
network
PAGE 36jinfojVOL. 10 NO. 3 2008

16. The existing fund of IPTV business model literature is limited. There is an extensive body of
research on IPTV technological development (Pfeffer, 2006 and Cisco, 2005) and there has
been much discussion on revenue/profit generation capabilities (e.g. Liu, 2006). A
systematic and balanced perspective on the various components of the IPTV business
model has, up until now, been lacking. The only previous investigation in this area has been a
working paper by Carney et al. (2006) who used Porter’s five forces to assess the IPTV
business models, and Limonard and Tee (2007), who focused on ‘‘long tail’’ business
models using the STOF model.
It would appear that the STOF model and, in particular, the critical design issues lend
themselves to IPTV business model analysis. This confirms the initial findings of Limonard
and Tee (2007) to the effect that such results are conducive to the decision-making process
involved in designing an IPTV business model. This research does not stop at critical design
issue analysis but takes matters a step further so that light can be shed on the viability of the
business model in an exploration phase. This was effected by integrating the business
model framework analysis into the scenario analysis. Scenario analysis highlights various
future possibilities and provides a platform for the analysis of decisions linked to the critical
design issues that have to be made in an uncertain future environment. The competing views
on future developments can aid the reduction of future uncertainties with regard to the
viability and feasibility of the business models available for IPTV.
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Corresponding author
Harry Bouwman can be contacted at: W.A.G.A.Bouwman@tudelft.nl
PAGE 38jinfojVOL. 10 NO. 3 2008
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