IPTV missed expectations. Can regulation do the trick

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IPTV missed expectations. Can regulation do the
trick?

• Guido Tripaldi - Consorzio Voipex and Equiliber
  Scientific Board - g.tripaldi_at_equiliber.org
• Vincenzo Visco Comandini - University of Rome
  Tor Vergata and ISIMM - v.visco_at_unitus.it
  Eugenio Prosperetti - University of Rome Tor
  Vergata - e.prosperetti_at_studioprosperetti.it

Società Italiana di Diritto ed Economia - Italian
Society of Leaw and Economics III Annual
Conference Bocconi University, Milan 9-10
November 2007
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What is IPTV

• It is the modern version of the cable television.
  IPTV is the name we use when an IP broadband
  network is used to deliver both traditional,
  on-demand, interactive contents and services to
  the customer premise.
• IPTV is different from webtv because IPTV
  guarantees the same quality and user experience
  of traditional tv, on the same tvset. Web tv
  instead, is trasmitted "over the internet" with
  best effort quality, and in general is designed
  for a "snack fruition", typical of pc use.
• IPTV isnt just another platform to deliver the
  traditional tv channels (like satellite and DTT)
  but it allows to do a much more advanced form of
  television thanks to the bidirectionality and
  possibility of unicast trasmissions.
• There are few doubts that IPTV is the natural
  evolution of television and will therefore
  replace also its traditional application and form
  for the most advanced users.
• There is less certainty as to the validity of
  IPTV as a replacement technology when it comes to
  a very basic use of television, as there are
  several other competing standards, including
  DVB-T and satellite all of the basic standards
  may serve the general needs of most television
  users

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Triple Play in US

• IPTV and TriplePlay was born in USA, when cable
  tv operator updated from the old analog
  technology to IP, in their access networks.
• US Cable tv company discover that with a little
  incremental investment, they can use the renewed
  network to offer two more "play" in addition to
  the paytv offer voice services and internet
  access. And so, the TriplePlay was born
• As these networks were already entirely repaid by
  the tv subscriptions, and voice and internet use
  very little bandwidth (less than a magnitude
  order) than IPTV, the supplemental income is very
  profitable.

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Triple Play in Europe

• In Europe the triple play model is adopted by
  telecom operators, not by TV companies
• Telecom operators offer double-play services
  (voice and internet), but their revenue is
  falling because of strong competition, the shift
  from fixed to mobile voice services, etc, so they
  are in search of an alternate source of revenue
  and hope that IPTV the service will increase the
  average revenue per user (ARPU) and to keep
  customers from churning to other carriers.

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In Europe is still a niche service

• In France, where the service has the highest
  penetration in Europe, only 13 of broadband
  customers use it.
• In Italy Fastweb reaches about 170,000 IPTV
  active users (2Q 2007) with a penetration (18 of
  the retail customer base) almost stable over past
  quarters.
• Telecom Italias Alice Home TV has just started
  (summer 2007) to promote the IPTV service and
  estimate in 2009 just a 14 penetration on
  consumer broadband users

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Why current Triple Play is not the right model

• Telcos act as a content reseller
• Telcos compete on contents aquisition, but most
  of the best premium contents (Sky) are already
  delivered trough other platforms (satellite, dtt)
• people not perceived in current IPTV services
  enough significant added value (with respect to
  traditional TV) such as to justify higher total
  costs

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TV Broadcasters are (for now) out of the IPTV game

• At present time, complete vertical integration is
  the only model accepted and implemented by the
  telcos who run IPTV services.
• Both the business model and the technology are
  built exclusively around the telcos competition
  needs, relegating the television industry in a
  secondary position.
• TV Broadcasters need to address the biggest
  possible audience, they cannot care about the
  small niches constituted by the various IPTV
  gardens, and they cannot produce innovation if
  the required technical functionalities are not
  uniform among platforms.
• The production of next-generation TV contents and
  services, those who attract the main audience in
  the future, requires a pervasive and common
  standard along the IPTV technology chain.

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3 causes of insuccess

• First, the IPTV platforms which have been rolled
  out insofar, are proprietary
• Second, IPTV has failed mainly where a specific
  regulation has been absent or unclear
• Third, IPTV is currently focused only on telecom
  operators, playing both the content
  provider-aggregator-reseller role and the carrier
  role, therefore forcing traditional broadcasters
  out of the game, or using them just as a third
  party content providers with a completely passive
  role and no real added value in terms of
  innovation.

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IPTV is a two-sided market

• IPTV, like ordinary TV, fits well with multisided
  markets definition
• a multi-sided market structure is based on a
  platform enabling interactions with different
  groups of customers (sides)
• each side is get on board by an appropriate
  charging structure
• prices reflect externalities enjoyed by each
  side, either direct or indirect
• for a market to be two-sided, the two sides
  shall not be able to directly and efficiently
  bargain the price the Coase Theorem must not hold

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IPTV generates large value for advertisers

• as for traditional TV, the Broadcaster the
  platform side 1 TV viewers side 2
  Advertisers
• In IPTV, interactivity may generate some value
  for viewers, but surely a very large value for
  advertisers dramatic cost reduction for
  customers profiles gathered by the platform
• The choice between interoperable technical
  standard (for set top box, contents, software,
  and the like) and incompatible competing
  proprietary standards seems to be crucial
  network externalities will very likely to boost
  the market growth

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Incompatible vs interoperable standards
Dominant firms in the close related market for
broadband services (Telcos) are not necessarily
in favor of the standard competition option
Shapiro and Varian (1999) show why Your value
your share total industry value
The IPTV market is not tippy (e.g. when the
winner-takes-all-the-market because of technology
reasons)
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The Anticommons Tragedy analogy
In IPTV market players have incentives to start
negotiations, but each player prefers a standard
to no standard, but each prefers its own standard
to the others
Heller and Eisenberg (1998) call Anticommons
Tragedy when an excess of property rights
enforcement does not give the parties the right
incentive to maximize their welfare people
underuse scarce resources because too many owners
block each other and no one has an effective
privilege of use
The Anticommons tragedy may apply to IPTV, the
risk being an exile as niche value added service
regulatory incentives to stimulate standard
setting agreements may be a decisive boost for
the market to explode
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A content provider is a publisher

• Efficient content providers should act to
  maximize distribution of its editorial product
• To reach the maximum possibile number of viewers
• Acting to artificially limit the number of
  viewers limits the content providerss ability to
  recover the initial investment
• A content provider has editorial responsibility

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A service/network provider is a carrier

• its core business is providing user with access
  to network and to carry third-party services and
  content to users
• an efficient network provider tries to increase
  the number of deliverable content and services to
  include every deliberable content and service to
  any reachable user
• the principle of mere conduit no provider
  normally desires editorial liability for its
  online activity (Peppermint case, Scarlet case,
  Promusicae/Telefonica case)

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Regulation and IPTV

• The key to a new IPTV business model is a
  regulation providing an incentive for content
  providers and network providers to avoid hybrid
  business models
• Clear rules for editorial responsiblity on
  content providers
• Mere conduit for network operators who offer only
  a content delivery service
• A clear definition of scope and range (i.e. what
  is IPTV?)

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New Media without frontiers directive proposal

• Seems to be on the right track
• In its implementation on-net content providers
  (e.g. YouTube) will have to choose between the
  role of mere conduits for UGN and entities able
  to control editorial choices (therefore liable)
• IPTV Content Delivery Networks are mere conduits,
  therefore able to maximize efficiency in building
  an open standard

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Editorial responsilbility and role in the value
chain

• Whereas 17 The notion of editorial
  responsibility is essential for defining the role
  of the media service provider and thereby for the
  definition of audiovisual media services.
• Editorial responsibility means responsibility
  for the selection and organisation, on a
  professional basis, of the content of an
  audiovisual offer. ... an individual content or
  a collection of contents. ... composition of
  the schedule, in the case of television
  programmes, or to the programme listing, in the
  case of non-linear services. ... without
  prejudice to Directive 2000/31/EC

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Future scenario

• Content providers responsible from an editorial
  standpoint vis-à-vis the user providing content
  to
• Content distribution networks, providing access
  to users, and providing transport to content
  providers investment/competition in services
  related to interactivity and transport quality
• Choice, interoperability, efficiency