IPTV is the sexy topic on everyone’s lips right now, one of leading subjects for articles across the blogosphere, and something everyone crowds to our booth to ask about at tradeshows; but what does it take to play the game and start offering the service? Do I just want to sign up with a provider and enjoy being the cool kid with a new toy, or do I want to get on board and try to offer IPTV? Before we talk about what it takes to get on board, we need to understand a bit about IPTV, and how it should and does work.
Years ago, the TV was a monster box that sat in your family room, it sometimes had an antenna that mounted on your roof, or “rabbit ears” with tinfoil and your little brother holding them so you could get the black and white picture without static. Today, TV is ubiquitous, and on every device imaginable. But, how did we get from the black and white box to watching TV on our iPhones?
I won’t bore you with the history of the TV, but I want to focus on the past few years where IPTV came on the scene. The trail from the beginning of IPTV to today littered with the bones of companies that tried to do something innovative, but who lacked one piece or another to make it successful. There are those who lacked technology to make it work correctly and could never deliver a reliable product.
There are those who underestimated the capital involved in launching a product of this magnitude and simply could not get to market before their funding dried up. Finally, there are many who did not understand the legal requirements necessary to retransmit signals that the networks and their affiliates consider their lifeblood.
Make a mistake in any of the ways mentioned above, and your product is doomed to fail, and if the mistake is significant enough, your entire company may go down with it. But those that struggle with this are not limited to just the cutting-edge IPTV crowd.
Many smaller telcos who initially spent significant capital to get in the cable TV business are finding that the IPTV revolution is simply shining a bright light on the high costs required to stay in the game.
The cost of a head end can run you well into 7 figures, and if you are going to make $5-$10 per customer the ROI on that investment requires a very significant customer base. Add to that up-front expense, the cost of set top boxes and the ever-increasing cost of not only the content but the constant negotiation with providers, and before long it seems impossible to even break even, let alone make a profit.
Early in the evolution of IPTV, the networks and their affiliates did not understand the implications of an Internet based television product, and to be honest can you blame them? Streaming video of any quality is a very recent phenomenon, and these are businesses for whom cable TV is still a newcomer.
As bandwidth has increased, and the adoption of on demand services such as YouTube initially, and then Netflix and Hulu have become ubiquitous, the demand for a quality live streaming solution has exploded. Herein, however, is one of the challenges of the product; because 5 years ago there was hardly enough bandwidth for video, on demand users have always viewed buffering as an unpleasant, but normal, part of the experience.
In the live streaming world, consumers have a different expectation, they expect to receive the signal just like they would off air except with no static. Buffering is not acceptable and is one of the major causes of complaints across nearly all IPTV products. Caching to protect against buffering is difficult because people don’t want to see the results of a sporting event show up on their twitter feed before it appears on their TV screen.
There is also a debate going on now about how your TV content will be delivered. OTT (over the top) means that your content can be delivered to you over any Internet connection, public or private. Many of the recent entrants in the market are competing to offer an OTT product.
OTT allows you to watch anywhere you go on your device, and lets you take your TV with you when you travel. OTT can be used on your mobile phone using WiFi or the LTE connection. I have even had success watching it on an airplane via the in-flight WiFi, although it was pretty spotty.
One problem with OTT is that the quality of your video stream relies heavily on the quality of not only your Internet connection but also of the connections back to the content provider. Streaming video drags those network deficiencies into the limelight.
If you have a 100-meg connection but have previously unidentified latency issues, you may well see buffering on that connection. Buying more bandwidth may not help, because there are simply too many hops for your feed to jump across and the result is that dreaded circle on your screen.
In addition to the potential degradation of your feed, there is another problem with OTT, blocked content. Many of the content providers have constraints on what they can or will allow to go out OTT. NFL games and other sporting events are a prime example, but so are many primetime shows, and newscasts.
Closed network providers, or MVPDs (Multichannel Video Programming Distributors) are those that provide their feed over a closed network and not over the public internet. This requires that your content gets to you on a network controlled exclusively by the MVPD.
This typically means that the provider is either your ISP or has partnered with your ISP to get this content to you. In the past, this was your traditional cable TV company but has recently included those ISPs who have partnered with wholesale video providers. The content delivered this way includes everything you would receive via a traditional cable TV provider, but can only be accessed on the network, and only if you have an ISP that has partnered with an MVPD.
So now, we have all of these exciting new entrants in the IPTV market. Sling, Real Choice TV, PlayStation Vue, YouTubeTV, DirectTV Now, and much more. Comparing the offerings between the companies has been the subject of hundreds of articles and blogs, but there are a few things that are important to consider.
- What shows do you or your customers want to watch live? Think about the shows you need to watch live and find out if those shows are available through the provider you are considering. Read the fine print, just because a channel is available does not mean all the content of that channel is available. Can you imagine turning on your TV on Sat afternoon this fall and finding that your favorite college game is blocked out?
- Approximately 80% of live TV viewing happens on the “Big 4”, ABC, NBC, CBS and FOX. ABC, NBC and CBS were the only channels chosen by more than 50% of respondents as “Must Have” in a recent national survey. If those are the channels you want to watch, you need to make sure they are there, and that they are live. Some of the providers will show ABC and then in very small print below it will say “On Demand”. There really is no sense paying for that, it is simply the content that is already available via ABC’s website.
- If you own an ISP, or are a managed service provider and want to offer IPTV, you need to see which of the offerings will allow you to make money. If everyone on your network is using a retail product that does not create revenue for you, the only uptick in revenue you will see will be selling more bandwidth. If you do not want to sell supplementary products, then perhaps the revenue from increased bandwidth will be sufficient.
- Look at the DVR and other playback options. Often people focus on the quantity of channels in the lineup, which is important, but fail to notice the other functionality. Make sure it all meets your needs.
- If you are considering launching your own IPTV product, you need to be aware of the items listed at the end of this article. If you want to resell the service of another provider make sure they offer a reseller program, make sure they are reputable and have all agreements in place. Signing up subscribers and then having the signal go black is worse for your reputation than not offering the product at all.
One final challenge in the current market is that content providers have created contracts that limit your ability to offer what most consumers want, an ala-carte selection of channels. Most content providers will require that you carry all of their channels, even if you only want one. Since most of the more sought-after content on the “cable” channels is controlled by a few large content providers, bringing on a particular sports channel may require that you also carry (and pay for) anywhere from 2-10 more channels.
You can’t give a consumer just one of those channels without paying for all of them and that means that offering just the top 10-20 channels becomes very difficult. The walls around this are coming down, but are built with reinforced concrete and don’t topple easily.
The (multi) million-dollar question is: where is all of this headed? I have no doubt that OTT for all channels is coming, the question is when. Are you willing to wait to get that product? If you are interested in providing IPTV, do you want to miss the land-grab that is going on right now and wait for the playing field to be cleared before you launch?
The NFL contract (one of the most important components of any live TV offering) is set to expire in 2022. Whether those games will be made available OTT prior to then is anyone’s guess. Two years ago, I would have said no, then Twitter showed a game live last year, and who knows where it is headed. I can tell you that the networks paid a lot of money (nearly $40 Billion) for those rights and they protect them zealously.
Primetime shows are a challenge as well. Some are available online live, some the day after, some on the website of the network, some on Hulu. These are the shows people want to watch: these are the shows that they are willing to pay for each month. If you want to offer IPTV you need to understand your demographics and demand.
Premium channels are already moving to an OTT solution. You can sign up with HBO Go, Showtime Anytime, WatchESPN and many other directly online. They have obviously seen the need to offer a solution to cord-cutters and cord-nevers, and are adapting to that, but as they adapt that will affect the future IPTV provider as opportunities to increase ARPU (Average Revenue Per User) will be diminished.
A la carte programming is starting to break, and I believe this is the future. This will likely cause some marginal channels to disappear or to be forced to create more compelling content. Either way, the consumer will be the winner. The time is not far distant where you will be able to click to select the channels you want to include and create a custom lineup with the ability to add and remove channels as needed.
I look forward to adding TNT during basketball season, or USA Networks during the season for Suits, but not paying for it during the off months. That time is coming, but not quite here yet.
I have spent the past 18 months intimately involved in launching an IPTV service, Real Choice TV. We decided that we wanted to offer a wholesale full-fledged offering including locals and cable channels, so my experience is specifically in that arena.
There are many components involved in the launching of the service, and while I am happy to share my experiences and decisions we have made along that path, this outline is by no means comprehensive. I learned long ago that I don’t have a monopoly on good or bad decisions.
Probably the first thing you have to consider when launching IPTV is deciding what channels you will want to provide. You could offer only an IP feed of the local, off-air channels. This option is possible, although the margins after paying retransmission rights to the local providers are typically quite small.
You could pair the local off-air channels with other channels that are available at little or no content cost and charge slightly more and increase your marginal profit. You could offer only “cable” channels and not offer the locals at all, this would put you in the same market as Sling, Vue, DirectTV Now, and YouTube TV.
You could offer a full line-up of both the local content as well as the standard “cable” channels, this would put you in the market with the typical providers such as Comcast, Cox, Charter, Dish and Direct TV. You need to decide if you want to offer Premium channels such as HBO, Showtime, and others. You should also consider if you want to provide a PPV (pay-per-view) option. All of these things need to be considered and built into your business plan.
Head-End Hardware is an important consideration when launching IPTV. You will need to receive the content via a satellite feed, via an IP feed, or pulled off the air through a receiver. What method you use to receive the feed will be heavily dependent on the channel lineup you decide to offer. You will also need to provide transcoders to convert the MPEG-2 stream you will be receiving to an MPEG-4 or HLS format to reduce the amount of bandwidth you will take.
Transcoders can reduce the bandwidth requirements for a typical HD feed by about 70%, and are an important tool to ensure you provide a quality stream without excessive bandwidth overhead. We have calculated a rough cost for receivers and transcoders of about $2,000 per channel to add new channels, so there is an upfront cost just to get the feed. If you decide to offer DVR services, you will need to build a storage array to handle the storage in a way that complies with copyright laws. Our storage array started at 350 TB with built in plans for expansion.
The next thing to consider is the middleware that will allow you to deliver the content to the end user in a usable format. After much consideration, evaluation, and frustration with alternate providers, we decided to move forward with Conklin-Intracom as our middleware. There are certainly other options, but for us, the cost, reputation, and support provided by Conklin was what fit our needs.
We have been quite happy with that decision and the partnership we have developed. Whatever middleware provider you decide on needs to have DRM (Digital Rights Management) as well as all other content protection in place to ensure that you content is only delivered to paying customers.
Set top box hardware is also another consideration, there are many different streaming options out there, i.e. Roku and all their variants, Amazon Fire, rebranded Android TV box, Apple TV gen 1-4.
Do you require that your customers purchase or lease the box through you and rebrand an Android set top box, or do you allow a BYOB (Bring Your Own Box) model? Whichever option you choose, each box and their variants must be tested and certified to work as intended before it can be rolled out to the customers.
Retransmission rights are one of the biggest stumbling blocks to launching IPTV as rights have to be negotiated not only with the providers of the cable channels, but with each local station in each market you launch. You cannot show the Atlanta locals in Dallas, or vice-versa. The FCC has specific DMAs (Designated Marketing Areas) and the feed for those markets have to stay in those markets.
Your middleware provider should give you the ability to control that, but your retransmission agreements give you the legal right to include those feeds. Because we wholesale our services to providers all over the US, and there are at least 4 local providers in each of the 200+ markets, we have a filing cabinet filled with retransmission agreements. Some stations are easy and straightforward to deal with, others require persistence and patience.
Finally, when you have a working product you have to figure out your sales channels and how to support your customers. If you want to offer an OTT product to compete with those offerings you will need a substantial marketing budget, if you own your network, or apartment complex and want to do an MVPD offering you can often reduce your marketing budget because you have a friendlier group of potential clients to pursue.
At Real Choice, we made some good decisions and have certainly made our share of mistakes, but we believe in the future of IPTV, and have made a substantial bet on that belief. If you share our vision and want to pursue your own IPTV solution, we wish you the best, and please feel free to contact me for additional information and questions.
If you want to leverage what we or others have done and use a wholesale provider so you can just focus on the sales channel, feel free to contact us for information. Either way, we are excited about the future of IPTV and thrilled to see where the journey takes us all.
About the Author
The President and CEO of ServerPlus. Prior to founding ServerPlus, Layne was the founder of one of the first internet retailers selling products via newsgroups before the introduction of the World Wide Web. He then successfully migrated to be a major retailer on the Web.
He has a BS in Business Administration from the University of Phoenix with a minor in accounting. He has many diverse business interests and sits on the boards of several successful companies. Layne and his wife Kathy are the proud parents of 3 children and are active in both community and church.