Monetizing Digital Content with Telco P2P TV

What the Internet has done to the telco and the music industry is about to happen to the television industry and eventually the movie industry.

VoIP destroyed the telco voice service cash cow. Napster, the original version, with peer- to-peer (P2P) free music distribution, decimated the sales of CDs. Now, TiVo and network PVRs are reducing TV ad dollars, and YouTube and other Web TV alternatives have arrived.

What you have now in the entertainment and media industry is tsunami-class disruptive technology—Web TV turning a multibillion-dollar industry upside down. The good news is that billions of new venture capital dollars are chasing investment opportunities. The bad news is that most of these new ventures haven’t figured out how to monetize the product, digital content.

What’s a telco to do?

Practically every telco in the United States has a video market entry program or at least one on the drawing board. And of course, all of the CEOs say the one-liner to the investment community—“Content is king”—when asked why they are interested in getting into the content business, or at least content partnerships. So what are their options? And can they take advantage of the Internet tidal wave hitting the entertainment and media business?

1. Become a Full-Scale Cable Company
Today, Verizon with its FiOS service is, for all practical purposes, a cable company. It has the same hybrid fiber-coax network architecture as cable. The difference is the coax part of FiOS starts at the side of your house and ends up at your TV. The FiOS set top box is a Motorola cable set top box. When Verizon upgrades its FiOS network with GPON and offers ultra-high-speed Internet access (100 Mbps?), cable can do the same by upgrading to DOCSIS 3.0 modems.

But telcos aren’t full cable companies, because they don’t own content of their own. The big cable companies—Comcast and Time Warner—own content and have decades of experience monetizing that content, or the content of their partners.

OK, what should telcos do to become more of a cable company and get into the content business as well? The answer is, they shouldn’t, given their content business track record. Remember back when there were seven RBOCs? All except US West (now Qwest) lost billions in their tele-TV and Americast investments. AT&T (the pre-SBS acquisition version) bought cable company TCI and, after stumbling with it, sold it to Comcast at a fire sale price. The bottom line: The telcos can hire good content executives, but the C-level managers still have a telco mindset.

2. Go the IPTV Route
There are two visions of IPTV. The first is the AT&T version, where IPTV is sent over a managed IP network (FTTN). Here, there is control over QoS and bundled services over high speed DSL (25 Mbps or more).

The second version is the Web TV approach taken by Google and Yahoo. Here, the user pays for regular broadband (cable or DSL), and the video is delivered over the public Internet with no end-to-end QoS guarantee.

The key video differentiator of IPTV versus the above cable approach is that all video is on demand, and the subscriber can have access to unlimited programming, including the “long tail” stuff.

The IPTV differentiation challenge comes down to three factors. First is search or navigation technology, second is unique content, and third is video quality.

The Googles and Yahoos of the world win hands down on search technology. Regarding content, they win again. With tens of million of subscribers to sell to advertisers, they can justify traveling to Hollywood and writing a $10 million check for content. Today the telcos, with only a few thousand subscribers, can’t financially justify doing the same.

So this leaves the third factor, quality. The telcos win this one with regard to the top 200 channels. But that’s not what the video buzz is today. The buzz is about the YouTubes of the world and the “long tail” market. In this market, good video quality TV doesn’t buy you anything. The material you find on YouTube and in the “long tail” is very poor quality.

Whereas you can transcode content down in quality (HDTV to SDTV to mobile TV), you can’t easily transcode content up (user-generated TV to SDTV to HDTV).

The only hope that telco IPTV has against Web IPTV is to win on net neutrality. If the telcos can block Web TV, or if they can price broadband for delivering Web TV out of sight, they will win here. However, I don’t think that will happen.

This still leaves competition with the cable and DBS companies. Here telco IPTV can only compete on price, and it is not clear that there is an ROI for the FTTN investment.

3. Invest in IMS
TeleStrategies is high on the promise of IP multimedia subsystems (IMS). IMS leads to reduced OpEx, a means to monetize the Internet and a way to introduce new services. The only problem with IMS is that it is a slow work in progress. First, consider the operational efficiency or reduced OpEx factor. This will happen for the telcos and cable companies, but only after there is almost a total replacement of legacy OSS/BSS. Second, the monetization of the Internet will require putting SIP-enabled devices in the hands of the consumer. SIP devices are finding their way in the enterprise market, but other than Vonage-type VoIP over broadband adapters, SIP devices haven’t had an impact on the residential market. Bottom line: IMS doesn’t do much for delivering digital content to the home any time soon. Add to that the fact that neither telco nor Google/Yahoo-type IPTV incorporates IMS.

So, is that it for near-term IMS as a differentiator, and is there no other telco TV option? Obviously not. Enter telco P2P, with an accelerated push for IMS.

Top 10 Reasons for Telco P2P TV

Here are my top 10 considerations making the case for telco P2P TV.

1) YouTube Economics: Everyone is excited about YouTube and the delivery of user-generated content. Here, the long tail story becomes reality. YouTube subscribers numbered 15 million in July and are growing 20 percent per month—a phenomenal success, considering the company has only been in operation for 18 months. Its current market value is between $600 million and $1 billion, with no significant revenue as of yet. But there is something else wrong with this picture. It costs YouTube an estimated 10 cents to 15 cents per download. This is where peer-to-peer comes in. It would be an order of magnitude less expensive for video content distribution.

2) The P2P Broadband Menace: Today 60 percent to 80 percent of DSL/cable modem traffic is P2P. Service providers invest in infrastructure with no added revenue from P2P users. Telco P2P TV is a means of monetizing this traffic.

3) Legitimate P2P: How can a telco legitimize P2P for video distribution? Distribute other parties’ content on their IPTV network and become the license processor on behalf of the content owner. It’s legitimate, and the telco has monetized P2P. It’s even better: the telco’s billing system would be used to collect the licensed revenue, as well as billing for user-generated content. The incremental cost for billing would be the cost of a drop of ink.

4) P2P QoS: Telco IPTV is different from Web TV because of QoS. Not only could telco P2P be used for downloading digital content, it could be used for live video streaming because of QoS.

5) Broadband Economics: P2P or mesh networks are more economical than point-to-point in terms of bandwidth.

6) Utilize Customers Storage: Users have terabytes of storage in their home (PCs, PVRs, etc.). P2P allows the telco to take advantage of this storage among consumers who subscribe to P2P TV. How do you do this? Telco P2P-enabled set top boxes will manage the consumers’ PCs and PVR storage, creating a storage cost savings for the telco.

7) Content Play: Content is king, but a telco doesn’t have to own it to sit on the throne. Telco P2P TV solves the digital rights management problem for the Hollywood crowd. They own the content and hire the telco to manage the license key for subscribers on their network.

8) The TV Differentiator: Now the telco, with its P2P TV network, can quickly offer up tens of millions of DSL subscribers to advertisers, because it can deliver content to the masses with numbers like cable, satellite and over-the-air broadcasters have.

9) P2P-SIP: Today the problem with P2P Skype, from the product vendor perspective, is that it is proprietary. The next step in P2P and SIP technology evolution is P2P-SIP—another P2P TV provider differentiator (NGN SIP and NGN set top boxes).

10) CALEA and IMS: The P2P revolution hasn’t fallen out of the radar screen of law enforcement. In a number of countries, Skype is not permitted. So how do you stop it? Deploy IP probes in ISP facilities. When a Skype packet is detected, it can be killed off with Skype sniper technologies. P2P video is the next target, because “terrorist” messages can be hidden in P2P video, making it even more problematic. So when does IMS come into play? The content license server is enabled with an IMS architecture, and SIP-based voice to the outside world goes though an IMS-controlled gateway. The telco P2P TV/VoIP network is managed, monetized and made CALEA-compliant with an IMS architecture.

If you need more information on telco P2P TV, plan to attend TeleStrategies’ “Understanding Legitimate P2P Networking for Content Distribution,” scheduled for October 10, 2006, in Los Angeles. For more information or to register, go to www.telestrategies.com.