Strategy Analytics' Ben Piper sees hope for an $85 billion IPTV industry… maybe

Strategy Analytics' analyst Ben Piper, Director of the firm's Multiplay Market Dynamics, last week cast some gloom across the IPTV landscape, saying he had revised his outlook for IPTV subscriptions by 2014 downward to just 68 million users worldwide because, primarily, of the platform's "undelivered promises." The problem? The "game changing interactivity and addressability, promised for so long, have yet to materialize on any significant scale." Nevertheless, Piper did say there was some room for optimism as San Jose-based BlackArrow, an addressable advertising provider, recently announced it had raised $20 million in its latest round of funding led by NDS, and backed by other ecosystem heavy hitters Cisco, Comcast, and Intel. On Friday, Piper took time to elaborate on his statements, on the SA study, and on those promises yet to be met. He also chatted about the Qwest-CenturyTel merger, the impact of 3-D TV and TV Everywhere efforts on the industry.

FierceIPTV: You revamped your projection to 68 million, how far down is that from your previous forecast?

Piper: Based on operator announcements, market excitement and impressive "out of the gate" adoption, we had previously expected much stronger growth in the U.S. market as recently as our last major forecast in 2008.  We have since revised that downward by about 20 percent.

FierceIPTV: Expand on your "undelivered promises" statement ...

Piper: For years, it seems, we've been hearing about how IPTV was going to change television as we know it. Proponents pointed at its inherent two-way nature, addressability and interactivity as key features that would blow the competition out of the water.  What we've seen delivered so far has been rather unremarkable. 

The marketing message has been, in my opinion, completely off, focusing on replicating the cable environment, rather than focusing on what unique features IPTV has to offer. So, if you look at the advertising today, it's a lot of checkboxes.  HD? Check. VOD? Check. That's not exactly compelling stuff.

FierceIPTV: As to game changing interactivity and addressability, does that apply specifically to advertising? Or is it a broader statement that includes viewer "lean-in" and engagement? Social networking and the like? 

Piper: The obvious example is advertising, though interactivity can be applied more broadly as well. The technology exists, though nobody seems to be able to make a viable business case out of it. 

I often refer to the "hotspotting" demo, which like Dancing with the Stars and cargo pants, implausibly resurfaces season after season. While I say this half-jokingly, there is an element of truth to it. The idea has been around for years--a consumer watching a TV show clicks on a pair of sunglasses that an actor is wearing, and is transported to a third-party web page and a t-commerce opportunity. The idea sounds nifty enough, the problem is it's a dog. It fundamentally ignores the way people watch television. As such, it has been unsuccessful. 

Interestingly, Sky, the U.K. satellite operator, just announced this week it that after nine years, it is finally going to humanely euthanize its "Red Button" advertising functionality, which allowed customers to push a button on their remote control to request more information be sent to them via mail. 

The idea of addressable advertising is a good one; now someone needs to make it work in a television environment. Conventional wisdom holds that people dislike advertising, but that's not true. People dislike advertising that is not relevant to them.

FierceIPTV: Why have operators been so slow to offer IPTV?

Piper: I think many have taken a cautious approach, waiting to see how it all plays out for the majors.

FierceIPTV: Are operators waiting for a TV Everywhere/Anywhere solution before jumping more aggressively into IPTV, or is that a chicken-before-the-egg thing?

Piper: I often point to the examples of the recording and newspaper industries as two "how not to approach technology change" lessons. The recording industry ignored the Internet, and ultimately sued its customers.  The newspaper industry, which initially embraced a paid model, caved to customer backlash.  Look where both are today. Hybrid, or "TV Everywhere" solutions seem to be the way to go, and we're starting to see more and more of this.  It's interesting to point out that Sky has been doing this in the UK since 2006 with its Sky Player service. 

FierceIPTV: Are there major technology hurdles/costs that are in the way of IPTV adoption?

Piper: High broadband penetration is key hurdle, though the US is actually making good headway in that respect. While the U.S. is still trailing in the rankings, we estimate over 66 percent of U.S. households will have broadband in 2010. The other major hurdle is not technological, but rather one of marketing. We've lost the plot on IPTV, and the story has gotten muddled. What exactly is the unique selling proposition of IPTV?

FierceIPTV: What's the market currently look like for IPTV dollarwise? 

Piper: We estimate that the total Digital Television market in the US will be around $85 billion in 2014.  IPTV is expected to account for roughly 15 percent of all digital TV subscribers that year.

FierceIPTV: Can you break out any U.S. stats for IPTV adoption?

Piper: Residential take-up in the US has been around 20 percent to 25percent, meaning that a about quarter of houses that could potentially get IPTV actually do. 

FierceIPTV: Will the Qwest-CenturyTel merger push IPTV further?

Piper: That's an interesting example of two companies with two very different video strategies. I'm not convinced everyone is singing off the same sheet music.

Qwest's CEO, Ed Mueller, has long said that he has no interest in pursuing an IPTV strategy; Qwest's video strategy, he points out, lies with DirecTV. CenturyLink, on the other hand, has been much more vocal about its IPTV ambitions. Mueller says CenturyLink's IPTV expansion will only be "additive" to the combined network, and that there will be no infrastructure changes. CenturyLink, on the other hand, is talking up its Fiber roll outs, and the enhanced ability to roll out IPTV. Qwest envisions some sort of a managed OTT down the road, which explains squares well with its FTTx broadband and DirecTV strategy.

FierceIPTV: Will the acceleration of OTT delivery prompt operators to act--or react--and more aggressively offer an IPTV option or not? Doesn't it have them a little nervous about missing the boat?

Piper: The biggest mistake a service provider could make today would be to underestimate the potential of OTT. Granted, today it represents a tiny sliver of all revenues, but there is an entire "digital native" generation--one that has never known a world without the Internet--waiting in the wings. We're already seeing how behaviorally different this generation is. They consume content differently, and don't give much thought to how it's delivered. When today's high schoolers start making economic decisions in the next five years-like whether or not they actually need a $60 cable subscription now that mom and dad aren't paying  for it-service providers will have to listen.

FierceIPTV: What about 3-D? Will it accelerate/retard/have no impact on IPTV offerings?

Piper: I don't really see it having much an effect on IPTV offerings in the short run.  There's a lot of hype and excitement about 3D, but there are huge barriers as well.  I think many are making the mistake of calling it the "next" HD-it's not.  Despite the hype, I don't see it gaining full mainstream adoption any time soon. 3D is going to be much more transactional and event-driven than HD.   I might be willing to pay $20 to watch the Superbowl or the Olympics in 3D, but I'm not sure that's how I want to watch the six o'clock news.

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