Saturday, May 3, 2008

All Eyes on the TV: What Will Define the Next Generation of Services?

by Kurt Scherf, VP & Principal Analyst, Parks Associates

The Evolution of TV: No Longer Just “Lay Back”!

For years, the tried-and-true television experience was very much the “lay-back” experience. Before cable and satellite services grew in significance, viewers had four main channel options. Even after the Fox Network was launched in 1986 and subscriptions to multichannel offerings became the norm, the model remained the same –viewers tuned in at specified times to watch a particular show based on a predetermined schedule. In other words, it was television on somebody else’s terms.

With the rise of digital video recorders, alternative content available through the Internet, and fierce competition among different television providers, control over when – and even more dramatically what – to watch is very much in the consumer’s hands. As the television audience becomes increasingly fragmented, consumers demand more in terms of the content choices they are offered and the overall value of their television service. More importantly, the value of entertainment services is not measured by one facet (such as the number of channels) but by providers’ success at offering blended services to their customers. In initial stages, this blending will include bundled services, in which one company provides voice, video, and data services (generally over one type of fixed-line connection), typically at a discount. However, the longer-term offerings will include actual convergence in offerings, in which end-user devices and home networks facilitate the delivery of services in new ways.

Television Gets Smarter: Stages of Evolution

As new entrants seek to attract and retain customers for broadband, television, and communications services, we see significant opportunity for a host of new services and applications to drive new revenue and serve as competitive differentiators. Television service, in particular, will transition from a relatively basic offering of several hundred channels and some interactive features such as video-on-demand to a fully interactive and distributed service that reflects key digital lifestyle attributes, such as home connectivity, a blending of services, and an emphasis on holistic applications, including home management, safety, and health.

Three stages of television’s evolution to a more personal and interactive medium are highlighted in the figure below. At the present time, the major markets in North America, Europe, and Asia-Pacific sit mostly between the near-term and mid-term opportunities. The basic services are in place, and the scene is set for some dramatic changes to video services in the next few years.

Development Path for Advanced TV Features

Efforts in the near-term stage will emphasize a more personalized television experience, with a key focus on DVR functionalities, home networking (linking the PC to the set-top box), an enhanced level of information (through informational widgets), and rethinking the user interface. We are not expecting a wholesale evolution of the electronic program guide (EPG) during this phase; however, program guides will incorporate more advanced (32-bit) graphics to help sell additional services such as premium VoD movies (by displaying easier-to-read title boxes).

The second phase of advanced TV services deployment will rely more on two-way communication to provide even more Internet-like content. Companies will incorporate place-shifting features (such as those embodied today in what Sling Media or Orb Networks can offer) into television services, which will allow consumers to stream recorded content from a DVR and play it on any Internet-connected device. Social media enhancements will offer features like channel and/or program recommendations that come to viewers from a circle of friends and "virtual water coolers," where viewers can see the top-viewed shows for any given night or week.

The last stage of development will include more advanced entertainment and communications convergence. Providers will enable videoconferencing at the TV, and there will be applications tied to t-commerce (allowing consumers to order products directly from an advertisement using a remote control). We also expect to see features such as home monitoring and health (i.e., Web conferencing to check on an elderly relative). Community features will allow for a more customized information service related to local information (updates on city government and school events; allowing subscribers to connect to each other on Craig’s List or Angie’s List).

Are consumers ready for these features? As service providers seek to differentiate and add value to their services, the additional investments necessary to create these advanced features have come with significant questions. Telco/IPTV providers in particular have come under scrutiny for their investments in deep fiber technologies and their deployment of television and bundled services, but after some initial skepticism from Wall Street, these efforts are being seen in a more favorable light as subscriber numbers have increased.

Now that the basic offerings are in the field, the focus has returned to the consumer. As television services expand beyond “me too” offerings, do consumers see value in these additional features – interactivity, more programming, greater personalization, higher-quality content, etc.? Our data (most recently from Digital Media Habits II) indicate that premium video-on-demand services will be a key differentiator, followed by the ability to enjoy music and user-generated content (such as photos) on the TV.

This article was published for the 2008 CONNECTIONS™ Conference Industry Insights, the official publication of CONNECTIONS™.

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