For IPTV, a mostly bright 2011 leads into a brilliant 2012


It's hard to believe another year is almost in the books. Last year at this time we were talking about cord cutting, over-the-top delivery and Netflix (Nasdaq: NFLX). They were, arguably, the three of the biggest issues facing IPTV operators.

How things have changed. Kind of. It's been a busy one for IPTV and online media. Here's a look at some of the top stories.

The rise, and fall, of Netflix
The once high-flying Netflix, which saw its share price top $300 in July, is now trading in the mid-$60 range, no longer enough of a threat to make anyone sweat.

But the company has some 22 million subscribers and its international expansion is ongoing; the company celebrated its one-year anniversary in Canada, launched in the Caribbean and Latin America this year and is planning a rollout in the United Kingdom and Ireland early in 2012. But Netflix, as its panache on Wall Street tarnished, had to ask investors for money this fall. CEO Reed Hastings, just a few short months ago lionized, now has been pilloried in the press. He and his company have been painted as arrogant and out of touch with an audience that once took delight in being part of the Netflix family.

Netflix in 2012 will be a different animal. While it's slowly recapturing its subscribers, it is likely to never be the darling of consumers again.

It may, however, be consumed itself.

Both Verizon (NYSE: VZ) and Microsoft (Nasdaq: MSFT) have been mentioned as possible suitors. Both acknowledged they kicked the tires of Hulu when the online video site was up for sale. But both, however, are long shots. Netflix, after all, has content liabilities alone that are running neck and neck with its market cap. Not a very pretty picture.

Cord cutting a double-edged sword
Cord cutting was another ongoing story for the pay-TV industry in 2011. It has, at least for telcos, been a double-edged sword. While cable TV subscribers are giving up their subscriptions at rates high enough to make even bankers blush, the two biggest IPTV players in the U.S.--Verizon and AT&T (NYSE: T)--have benefited. Some analysts say the trend isn't so much one of cord cutting, but of service swapping and most expect the trend to continue until FiOS TV and U-verse have a more balanced share of the ecosystem.

As Julija Jurkevic, media and communications analyst at SNL Kagan, said in a report in May about IPTV: "The platform is fueling hyper-competition and video service innovation in major markets globally. Telcos often provide the spark igniting consumer interest in multiscreen services, HD and VOD, generating in parallel support for investment in next generation broadband networks."

The economy, though, has certainly had an impact on the amount of pay-TV services being consumed. For every Eight Ball that's come up "Ask again later" on cord cutting, there's been one that has said "It's decidedly so" as far as cord shaving goes.

Consumers have discovered online video and increasingly are searching for, and consuming, over-the-top video.

Netflix, after all, still accounts for the largest share of prime-time Internet bandwidth consumption, and it's being joined by cousins like Amazon (Nasdaq: AMZN)'s Prime Instant Video service, Apple (Nasdaq: AAPL)'s TV, Vudu, Roku and even a resurging Google (Nasdaq: GOOG) TV.

Operators scramble to get a handle on OTT
Over-the-top delivery of video has become an alternate currency for service providers, nearly all of whom, to varying degrees, have jumped on board with some sort of service offering designed to dust off a concept that had fallen out of favor: subscriber loyalty.

Increasingly, OTT offering like Comcast (Nasdaq: CMCSA)'s Xfinity, are a way to keep the wire in the house, and to pave the way for expanded services. For others, notably Verizon, it's an opportunity to expand service outside the operator's current footprint.

Verizon CEO Lowell McAdam left little doubt that the telco would be launching a national service offering some time this year in a presentation this month in New York.

"(OTT) will be part of our strategy," he said at the UBS Media and Communications Conference. "It's one of those things that I want to be positioned to transition and take advantage of."

The increasing demand for OTT video content has also presented operators with another dilemma: bandwidth and usage.

Verizon's McAdam has said that it's pretty much a non-issue for the company... at the moment. FiOS, he said, is such a huge pipe that the telco isn't yet considering caps or fees for usage.

Both AT&T and Suddenlink, on the other hand, are deep into trials of bandwidth caps and fees for higher usage, and both have been taking their lumps from the public.

Sanford Bernstein Analyst Craig Moffett says pay-TV operators are seeing their video margins shrink as programming prices increase about 10 percent annually.

The future of the business, he says, could be broadband, which carries gross margins of nearly 95 percent.

Multiscreen delivery has multiplied
At this year's TelcoTV, AT&T's VP of video services, Jeff Weber, said multiscreen delivery was probably the most talked-about issue at the conference. His prediction for TelcoTV 2012? It'll be the most-talked about topic there as well.

In 2010, the focus was on getting video to three screens, with the living room the biggest hurdle to overcome. Today, that's a shadow in the rear-view mirror.

Multiscreen delivery, thanks in large part to Apple's iPad, has become the Holy Grail, and it has gone from three screens to as many as five.

When Cablevision (NYSE: CVC) and Time Warner Cable (NYSE: TWC) rolled out programming to the iPad, the consumer response was immediate... as was the agina it caused content owners, who worried that they'd never managed to get the genie back in the bottle.

They were right. AT&T and Verizon both added the iPad to their device mix, and both have promised more on the horizon.

The explosion of multiscreen content has been a windfall for businesses like video encoding company Elemental and content security watchdogs Verimatrix and Irdeto. What it means to operators, aside from more headaches, remains to be seen.

The cost of doing business went up drastically
A story that's just gathering speed, and one that reveals just how tenuous a hold the pay-TV has on the market, is the rising cost of content, and retransmission fees.

Throughout the year, service providers went to the brink as retransmission and carriage fee deals expired, in many cases leaving subscribers without access to content they thought they'd paid for.

But battles over rights to show U.S. Open Tennis or movies from content providers like Hallmark, have been minor compared to those fought over live sports programming.

About $5 of every pay-TV bill currently is earmarked for content from ESPN... and that's just basic tier programming.

Greg Maffei, chief executive of Liberty Media, likened the increase in sports programming costs to a "tax" on subscribers and said pay TV "has been the golden goose and what does it take to choke it? It's a scary proposition."

It's about to get scarier.

This month, the NFL signed a series of deals with broadcasters that has, as one commentator said, the potential to sack the pay-TV industry.

CBS, NBC and Fox agreed to a deal that will pay the league $27.5 billion from 2014 to 2022, a 63 percent increase from current deals.

The result? An almost certain increase in the cost of subscriptions. Some analysts say that 63 percent bump will increase subscriber bills $6.87 to break even.

"Congress and the Federal Communications Commission need to throw a flag, because rules and regulations shouldn't force consumers to bear the burden of broadcasters' profligate spending, which will surely enrich NFL owners and players just as much as it will impoverish all pay-TV subscribers, particularly those who will never watch an NFL game," said American Cable Association CEO Matthew Polka.

The price, said debt rating firm Moody's Investor Service, was one that had to be paid because, waiting in the wings were OTT players Google, Apple and Amazon.

Not ponying up the cash "would have been the watershed event that negatively changed the landscape for television entertainment delivery and likely led to more losses of exclusive sports programming."

And, a couple of runners up
The top five stories of 2011--there you have it. Runners up? How about the rise of social TV, AT&T going with wireless delivery of U-verse, Google's purchase of Motorola Mobility, the non-story 3D TV has turned out to be, and... ivi TV, the little virtual cable TV company that really shook things up earlier this year.

What are your top 5?--Jim

P.S. FierceIPTV is taking a hiatus for the holidays, but we'll be back in your In Box on Tuesday, Jan. 3. But, I'll be updating the website as news breaks. Have a safe and happy holiday season. And, stay warm!