Cultural divide leaves telcos, television a world apart
Apr 22, 2008 11:06 AM
Pixelmetrix president and CEO Danny Wilson says telcos are faced with significant disparities between their traditional business model and the one that's proven successful in the television business.
Last week during NAB2008 in Las Vegas, I ran into Danny Wilson, president and CEO of Pixelmetrix, and had an opportunity to catch up with him about how the IPTV market is unfolding.
Wilson recently has kept a hectic schedule speaking at various industry forums about the IPTV market, where it stands today and where it’s headed. What started out as a casual meet-and-greet grew into an extensive conversation.
In this first of two parts, Wilson discusses the unfolding IPTV market and how the entire mindset and culture of the telephone business to date shares very little with the television business.
IPTV Update: You’ve recently been making a lot of industry presentations on IPTV. What’s been on your mind during those talks?
Danny Wilson: What I’ve been talking about recently is if you look at the U.S. data and the growth of TV households over the period of 2001 to 2005, the number of TV households goes from 111 million to 118 million. That’s only 7 million — a 6 percent increase. There are no new TV customers being created, and therefore for IPTV to be successful, they have to steal customers away from somebody else. Where’s it going to be? It’s cable.
I have a chart for television customers by category, and it shows that pay TV and the growth for IPTV is spectacular. It is coming away from analog cable. So the analog cable operators want to get new kinds of services. Customers can either go to the cable company or the IPTV company. There is a bloody battle going on right now between those two industries to grab those customers.
IPTV Update: Actually, aren’t there some opportunities for those very cable operators to benefit from transforming their infrastructure into an IPTV infrastructure?
Danny Wilson: Absolutely. If you look at the transition to digital cable, the backbone can move from an HFC-type of topology to an IP backbone. You’ve got DOCSIS initiatives in the cable industry — packet cable. They talk about delivering right now a mixed package of services — data, telephony and television. Some of them will be on IP. Some will be on RF QAM, but at the end of the day, there is a wire going in the house.
As I say in the conferences, there really is only two ways you can get television. One is with a radio wave, and the other is with a wire. You have radio wave, and your antenna looks like rabbit ears or a bowl, and if it comes with a wire, that means you have the round metal connector, or the square plastic connector.
In managing the quality of experience, quality of service — an expectation for television — I always say the bar has been set. The standard was set 35 years ago. My mom knows and expects a certain quality of television because she has been watching television a very long time.
IPTV Update: Regarding QoS and QoE, given the competitive nature of what’s going on between cable and IPTV, what needs to be done to ensure acceptable service and reduce churn from an IPTV point of view?
Danny Wilson: Churn is exactly right. Right now there are a few million IPTV subscribers. Depending on whom you ask, it’s 5 million, 10 million or 20 million. There are 800 million television households in the world. That’s 0 percent for IPTV. For them to grow, they first have to pull the customers away from cable. It is a bloody war going on.
Actually, the richness of experience today is already in cable. How the telephone people can fight back is the first base. It’s to offer the same amount of quality of experience that my mom is used to. So that same quality of experience as from 35 years ago still has to be maintained for the IPTV companies, and that is their challenge right now.
The churn is going to be a killer. Fortunately, IPTV is digital television and cable is digital television, and they are both really the same. At the end of the day, I am going to watch “Jeopardy” or the Super Bowl or “American Idol,” and if there is exclusive content, that will largely drive where the customers want to go.
The phone companies have a challenge because they have never really operated in that business model. The phone companies have something to learn.
IPTV Update: What do they need to find out?
Danny Wilson: You have to think about the business model of television. It is like operating a shoe store. How do you operate a shoe store? You go to China and buy 20 million shoes and put them in a container. They arrive in the port of San Francisco. You’ve spent a lot of money for those shoes.
The very first question you have to answer is: Did I get what I paid for? Do I have red shoes, blue shoes, high heels, pumps and stilettos, all the rest of that stuff? The second thing as a shoe store operator that you have to do is package them nicely, put the little tissue paper in the toes, put them in nice boxes and then put them in a retail store. Mark them up and sell them at a profit.
Telephone companies aren’t about that. They never have been. A telephone company has always acted as a facilitator to allow me to talk to you, and they take a service fee for that. Actually, they call them a service provider, not a retailer.
Television is a product resale business model. I was in the ITU meetings, and we had huge arguments about what the topology of the network looks like. If you think about it, the content enters in the left-hand side of the network, goes through the headend, moves from left to right, goes through the core network and comes out to the customer on the right. The phone company guys said no. The customer is on the left. This is a major cultural difference here.
The customer is on the left. Why? Because historically and culturally, the calls come into the network so the input is on the left-hand side of the process and the output is on the right. They had huge discussions and arguments about this. It’s something they just don’t get.
IPTV Update: Does this unfamiliarity with TV show up anywhere else at telcos?
Danny Wilson: I was at an IPTV service of a major telephone company in North America. I was talking to guys in the office of the CTO chatting about their network, topology, and I asked, “What kind of encryption system do you plan to use for conditional access?”
He went on with this long thing about how they have VPN access with pinpoint router DHCP and all of this IP religious sort of dogma. Then he wrapped up by saying, “Because we have all of this technology here, we believe we can convince Hollywood that encryption will not be required.”
I don’t know what to say. I’m speechless. He’s in the office of the CTO of a telco. He’s probably never been to Hollywood and met those guys. It’s not like that.
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