Connected TV: the storm approaches

Mike Grant Founder & CEO 12th May 2011

Introduction to Caru Ventures

Caru Ventures helps telecoms and media companies prepare for and then deliver successful innovation to the benefit of the company and its shareholders The company provides consulting and interim management services to organisations of all sizes within the telecoms and media space Founder and CEO, Dr Mike Grant, has spent twenty years working at the leading edge of technology and service developments within the sector:

Four patents in new optical transmission technologies Led the development and deployment of 3D graphics technology within the mobile

phone industry Built one of the worlds largest mobile games publishers Supported the creation and deployment of IPTV services by broadcasters and telecoms operators Advised media regulators on PayTV and TV Advertising policy Provided business planning and finance support to mobile operators acquiring 3G mobile network licences Supported governments seeking to licence spectrum to the mobile phone industry

Mike is currently working with three start-ups developing image recognition technology, innovative solutions for connected TV, and new content business models. He is also raising a Venture Capital Fund to support innovative organisations in the IT, Telecoms and Media space.

Agenda
What is Connected TV?
1. 2. 3.

Basic two way connectivity Home network connectivity New types of TV experiences

Market dynamics and changes in the value chain Issues arising:

1. 2. 3. 4. 5.

Who owns the screen and, hence, the consumer? Can TV revenue levels be maintained? The impact on production and distribution costs Liability, privacy and consumer protection What future linear TV?

Agenda
What is Connected TV?
Market dynamics and changes in the value chain Issues arising:

What is Connected TV? 1: Basic two-way connectivity

Adding an IP
Broadcast Linear TV

broadband link to your TV receiver:

provides direct,

INTERNET

IP Broadband service

enhanced interaction between viewer and platform operator Supports delivery of catch-up TV, and tailored web sites/services to your TV
The receiver can be a

Catch-up TV Web Apps Ad server (apps store)

TV, set top box, console or any other device connected to a TV screen

Accessibility of services on the device home page is key

Source: YouView

Indicative You View Home Page

Where possible, customers are being led step by step into new functionality
Broadcast Services Connected TV Services

Sky HD/Anytime menu

Source: BSkyB

Sky Anytime+ VoD menu

However, adding web apps makes the interface issue much more complicated

How many apps can a customer manage on his TV?

Source: Samsung

How many different ways of accessing content can a customer cope with?

Manipulating content also becomes more challenging

Manufacturers are providing solutions with full qwerty keyboards

Source: Sony, Logitech

What is Connected TV? 2: Home network connectivity

Home networking

Broadcast

Linear TV

connectivity allows mobiles and tablets to be integrated into the TV experience:

Eases manipulation of

INTERNET
IP Broadband service Home network

Catch-up TV Web Apps Ad server (apps store)

more complex content menus Provides improved search capability Supports more functional content experiences (e.g. social media integrated with TV programs, synchronous content apps)

Connected TV platforms are specd to support home networking

Source: Google

What is Connected TV? 3: New types of TV experiences

The introduction of IP changes the nature of TV content. Content

will become time insensitive, interactive, and richer

companion sites, made more relevant by dual/multi screen use social media components. multilayer program elements overlays leading to other content elements,

Content will become context sensitive Programs that present different content elements depending on

when or where you are watching, Program and application elements that change to match user values and preferences Program that are aware of more than one device in the hands of the viewer Programs that are aware of the location of the consumer
Content will also be device sensitive

New experiences will be based on a new relationship between producer and consumer
Content producer/program maker and consumer will

for the first time be able to engage in a direct conversation That conversation will enrich still further the new experiences connected TV will support These new TV experiences can be classified into three distinct categories :
Standalone experiences Asynchronous applications Synchronous experiences

Standalone apps provide new ways to interact with and consume TV content on a single screen

Lovefilm app on Samsung Internet TV

NBA Game Time app demo on Google TV

Source: Lovefilm, NBA

Asynchronous apps extend a franchise without interacting directly with live TV output

ynchronous apps on companion screens are linked by theme to live/catch-up TV but are programatically unconnected
Source: ITV

Synchronous apps enrich the program experience in real time

Multiple camera and sound feeds Video archive overlays Social media elements embedded into the program Additional program elements/ storylines or data

Forking playout Second screen playout

Social Media X Factor app

Football app on AT&T Uverse

Program control or interaction from second screen Overlaid information feeds Game extensions etc

Synchronous apps are connected by theme, time and application execution code with live/catch-up TV viewing
Source: AT&T, ITV

Content organisations of all types are developing apps for connected TV

Broadcasters
TV producers Film studios

Telecoms operators
Web retailers Music distributors

Newspaper companies
Social media

Premier sports rights

companies Government agencies Games companies Retailers

holders Weather agencies Travel companies Online auction companies Etc

Agenda
What is Connected TV?
Market dynamics and changes in the value chain Issues arising:

The media industry is moving from vertical silos towards horizontal structures
Traditional content market
Traditional Future content IP-basedevolution market

Rights holders Newspapers Broadcast TV Games

Rights holders
Production Radio Distribution

Aggregation
Consumption
Increasingly integrated multiplatform production, aggregation, distribution and consumption

Consumption
Vertical silos with dedicated, single format production and distribution processes

Proliferation of content and devices will fragment audiences and intensify competition in aggregation
Rights holders Production Distribution Aggregation Consumption
UGC and low cost means of production will create an abundance of content choice. Rights owners for scarce and branded content should benefit from broader distribution. Medium sized TV producers may well suffer. Production costs will rise as the number of target device types increases and the complexity of content rises Distribution - wireless and wired will become a commodity posing few barriers to entry Broadcasters, STB OEMs, TV manufacturers, platform operators and web players will all seek to be the default screen of choice. Branding, discoverability and usability will be key to success. Multiple screens, devices, and content choices will fragment audiences and drive down revenues

Agenda
What is Connected TV?
Market dynamics and changes in the value chain Issues arising
1. 2. 3. 4. 5.

Who owns the screen and, hence, the consumer? Can TV revenue levels be maintained? The impact on production and distribution costs Liability, privacy and consumer protection What future linear TV?

1: The number of connected TV platform providers is proliferating

Independent Vendors OEM TVs

Source: Sony

Fetch TV

Source: IP Vision

Source: theconnectedset.tv

As a result, the battle to own the home screen will intensify

Retailers, TV and STB OEMs, and Broadcasters may

seek to become service providers alongside the existing platform operators

Who will control the default set up of the screen and, with it,

default choices for consumers? Will YouView, Google, Apple, Sky and Virgin be the key power brokers?
How will content owners ensure they have primary

placement on all platforms of interest?

Will the BBC need to lobby every Google TV STB and

games console manufacturer to ensure iPlayer is one of the nine apps on the front page? Will EPG regulations on placement of PSB apps apply? How will smaller content aggregators afford the costs of being on all major platforms?

 and the challenge for content creators and aggregators to capture audience share will rise
Presented with this level of choice, will audiences

coalesce around existing channel brands or fragment across multiple channels and device types? Who will be seen as the TV providers of the future?

The BBC, ITV, UK TV? Sky, Virgin, BT? Apple, Samsung, Sony? Hulu, HBO, Disney, Endemol? Roku, Vudo, Fetch TV? Google/YouTube, Amazon/Lovefilm, Netflix? other, yet to be invented, content aggregators?

2: Connected TV will increase pressure on industry revenues

Online distribution is already putting pressure on the industry. In the US, users are already switching away from DVDs and

cable subscription services

Comcast video subscribers fell 3% in Q1 2011 to 22.8m Netflix is now the equal largest US subscription TV service with

22.8m customers
Netflix charge $15 per month vs Comcast - $71 per month

US DVD sales fell 18% in Q1 2010 compared to a year ago

In the UK, TV revenues have grown at only 2% per annum in

the last five years

Growth has been primarily in subscription revenues If connected TV propositions offer lower cost, richer TV

experiences, pay TV revenues will come under significant threat

New revenue models are likely to see less revenue flowing back to content creators
In a connected TV, environment the opportunity to build and

deliver PayTV subscription packages will diminish

The barriers to distribution that have sustained Sky and Virgin are

falling, and competition from other device manufacturers (e.g. Apple, Google OEMs)will increase Platform operators will have to work hard to justify premiums to their users
Platform owners/device vendors have the opportunity to

control on the consumer device how channels are composed and presented, and how advertising is rendered on the device
This may result in advertising revenue being lost to broadcasters

and rights owners

With competition to deliver connected TV increasing, users

can expect more content for lower costs

3: The cost of developing and deploying catchup services is already significant and its rising
The BBC supports around 40 platforms on iPlayer Set up costs estimated at >500k per stream
Producing multi-platform catch-up TV
Reformat Transcode Video
Multiple audio & video codecs and playout environments Different screen size, resolutions, browsers, i/o controls, DRM systems etc. Broadcast TV

Flash WMV

Windows Explorer
Sony PS3, Xbox, Wii Safari, Firefox iPhone/iTouch Nokia N95, ..etc Virgin STB BT Vision

H.264
MPEG2/4 Quicktime Silverlight

Production

Multiplatform play-out

Re-purpose Transcode

5 10 base variants approx 40 device classes

Source: Caru Ventures

Introducing web technology into programs dramatically increases production complexity

While content producer costs rise with device variations,

manufacturers secure volume growth through innovation in device feature set As previous plus processor Producing TV apps
Multiple code execution environments

Video variants
Java JavaScript Apps Flash iOS Meego Android

Port, QA, test, repurpose

performance variations, memory variations, software version evolution Sky,Virgin TiVo

YouView (BT,TalkTalk)
Connected TVs PCs Mobile phones

HTML3/4/5 Msoft Media

Intermediate Archive

Distribution server

Tablets OEM STBs Companion boxes

Creation

Rework

C++

etc

Tens of base variants across manufacturers

Source: Caru Ventures

Hundreds of device models/software variants

Android mobile evolution illustrates the challenge for program makers and TV app developers
Android OS releases (to Dec 10)
September 09: v1.6 February 09: v1.1 April 09: v1.5 October 09: v2.0

December 09: v2.0.1

January 10: v2.1 May 10: v2.2 Dec 10: v2.3

October 08: Android OSS Project, v1.0 launch, G1 on sale

2008
Source: Google

2009

2010

2011

Content producers are likely to be particularly hard hit

Shrinking production budgets

Commissioning, scheduling and production

Deployment costs

In the last five years, original content spend by the top five

networks has fallen 23% from 3.1bn to 2.4bn (5% p.a.)

Spending is likely to continue to decline as industry revenues come

under pressure
Distribution costs will rise in absolute terms and aggregators

look to service an increasing range of device types As a result, profitability will fall as distribution costs consume an increasing proportion of falling production budgets

4: A range of liability, privacy and consumer protection issues will arise

How will rights owners ensure the integrity of their content when

played out over connected TV?

Overlay of third-party content or commercial communications is possible at

the same time as the television broadcast without the broadcaster's consent. The broadcast playout signal (video and sound) could be altered in transmission or on the device itself without an active decision by the viewer or rights owners. How will platform owners/device manufacturers: Protect against viruses, malware or copyright infringement? Prevent access to applications or sites that link viewers to pirate websites ? Prevent exploitation of the broadcasters programmes and audiences by third parties? Protect children from exposure to inappropriate content? What procedures will be put in place for removal of those widgets or

applications that appear to facilitate access to pirated content? Who will gather customer data and how will that data be protected?

It is not clear how existing legal and regulatory frameworks apply to connected TV
Rights owners and platform operators are seeking to

ensure protection for their content in this ecosystem

Compliance with the EU Audio Visual Media Services

directive and enforcement of contractual obligations by rights-holders Protection against illegal distribution of content Protection of the integrity of the broadcast signal, including the right to commercialise the screen Clarity over data ownership and liability should a third party partner or independent vendor breach data protection regulation.
The ability or otherwise to secure those legal

protections/clarifications will in large part dictate the

5: What future linear TV?

Broadcasters have confidently predicted that linear TV as we

know it will be with us for some time The key issue, however, is that control over content presentation is moving from the broadcaster to the users device
Platform owners have the power to control how broadcasters' linear

and non-linear programmes and services are presented on EPGs and in search results

The implications of this are: EPGs will go backwards as well as forwards in time +1 channels will disappear Channels presented on EPGs will be virtual channels where

programs are streamed on demand when selected by the user either from the cloud or a local cache
Within ten years, we expect that only the PSBs and major (top 3)

commercial channels will still be broadcast real time in the manner

Conclusions [1/2]
Connected TV represents a major revolution in the TV

experience for users

Integrated TV + catch-up + web Mobile devices working in concert with your TV New content experiences and a new relationship between

viewers and producers

Power in the value chain is migrating to device

manufacturers and platform owners Increasing competition at the device/platform level is likely to drive costs up and depress revenues for platform owners and content producers

Conclusions [2/2]
Securing content rights and protecting consumers in

this new environment appears challenging

Significant uncertainty exists as to how existing legal

and regulatory frameworks can be both applied and enforced in a trans-national connected TV environment
The underlying economics of IP and local storage

suggests linear broadcast TV as we know it will have a limited role in the future The storm is coming be prepared

For advice on Connected TV issues impacting your business, contact mike.grant@caruventures.com +44 7785 227475 Sign up for my blog at www.caruventures.com/Caru/Blog/Blog.html Follow me on Twitter @caruventures Join my panel discussions on Connected TV themes at: The Open Mobile Summit, London, 8th-9th June 2011 www.openmobilesummit.com International Broadcasting Conference, Amsterdam, 8th 13th September 2011 www.ibc.org