ISPs - up to the IPTV challenge?

By Paul Hague, Managing Director, BiBC

IP and Internet TV is increasing in penetration at a truly rapid pace. Ever since YouTube began to reveal just some of the potential of the Internet medium, a race has ensued to create what will inevitably become the future of visual content provision. In all certainty all of us working in the exciting online and IPTV (next-gen TV) space are working toward what is the death knell of traditional ‘broadcast’ television. Whether complete convergence finally happens, as has been long predicted, or we end up using a hybrid computer/TV device to sort through the databases of shows as we desire, things are changing and they’re changing fast.

While the dawn of IPTV presents amazing benefits for TV audiences and advertisers alike we are still in a period of transition where nothing is yet fully set in stone. The technology, content, advertising strategies and of course, communication infrastructure are all evolving on a daily basis to meet the needs of users.

Owing to the industry’s ever changing nature and the overnight success of certain Internet TV services (read iPlayer) it is clear that the infrastructure needed to support next-gen TV also needs to evolve to avoid being left behind and causing logistical problems for all. The rapidly increasing audience for next-gen TV is putting a huge strain on Internet service providers and they are beginning to show signs of stress. The cost of carrying traffic from the BBC’s iPlayer in particular has been a sore point for ISPs, who are having to absorb the steeply rising traffic costs.

Regulator OFCOM's Market Impact Assessment estimated the P2P version of iPlayer would create up to £831m in extra costs for the Internet industry. And this is before one considers 4OD, ITV Catchup and the planned Kangaroo service. In just the first month of the "low bandwidth" iPlayer, ISPs saw streaming costs rise 20 per cent. This isn’t something that ISPs can just brush away – use of the Internet is changing and ISPs have to recognise this quickly and make changes to mitigate cost pressures and proof themselves for the future – otherwise it will only get worse.

Another big worry for the industry came with OFCOM’s announcement that it plans to lay out a regulatory framework for a new generation of ‘Super fast broadband’. The regulation will be designed to encourage investments in new fibre optic UK-wide networks which, thus far, have been slow to take off. But the Broadband Stakeholder Group recently estimated that rolling out ‘fibre’ to the whole of the UK could cost up to £28bn - a huge amount to be borne by the ISPs. This gives some idea of why significant investment in this area has been slow to take off. BT, for example, has made a reasonable infrastructure investment but the benefits of this will not be seen for some time. Virgin Media, on the other hand, is offering fibre optics in some areas but even this doesn’t deliver the fully-fibre optic network that is needed to prepare the Internet for the coming IPTV boom.

The trouble is that ISPs are being expected to simply absorb these rising costs with little recompense from IPTV or Internet TV providers – those that are reaping the benefits of their investments. The demand for super fast broadband is also not yet present so ISP’s wont reap immediate benefits from new subscriptions. But what can ISP’s do other than sit back and take it? Users want to see online TV so they have to honour ISP contracts and let them do what they like.

But it’s not all doom and gloom. ISPs are in a unique and potentially lucrative position if they chose to strike at the right time. If they want to tap the IPTV boom there is one obvious route that will eventually offset the early expenditure and that is to get involved. Whether it be through a subscriber Internet TV service or through IPTV the rewards could be great. Most ISPs are making small moves in this direction such as providing handfuls of films alongside traditional digital TV but none have yet launched a fully developed offering. There are numerous obvious benefits to be had via this strategy:

1. Tapping a nascent market – theoretically anyone with a PC could end up watching a next gen TV service
2. Making an early entry into an area that has massive potential to expand – according to Motorola 45% of Europeans watch some online TV but all these are highly unlikely to be heavy users or to watch online more than through normal TV leaving massive potential open to be tapped
3. Securing wider revenue streams for the future – online and IPTV are growing rapidly so the cost for ISPs is only going to go up.
4. Creating a more attractive, ISP-controlled platform for advertisers – many ISP’s offer varying advertising opportunities thought their own online portals. Attracting an online TV audience gives advertisers more scope for targeting and engaging them with advertising messages. The crux – more revenue for ISPs

However, there are various things that need to happen before this can become a reality. Firstly the audiences have to grow in number to make sure advertisers, those who will have to foot the bill for much of the content, are sufficiently interested. Then ISPs need to make in-roads in this area working to develop partnerships with the right content providers to develop their offerings. Alongside this ISPs need to start making the initial investments that are going to fully prepare their services for the huge increase in bandwidth demand that will come when IPTV fully takes-off.

While it is still uncertain which companies will come out on top in the war for the future of visual entertainment the industry as a whole is going to look very different when the battle is done. What this future will look like in the end still remains to be seen, but as they say you have to be in it to win it and ISPs would do well to take heed.