European operators risk allowing Free-To-Air (FTA) and OTT services to gain eyeballs as they dither over how to deploy home networking for multi-room services. Unlike the U.S., where the average home has two or three TV sets hooked up to a pay TV service from DirecTV, Comcast, Time Warner or some other provider, in Europe it is rare for households to have more than one TV set fed by a pay TV package. At the same time, pay TV is less dominant in Europe, with just over 50 percent of households having a subscription, compared with over 90 percent in the U.S., where 66 percent of all TVs are connected to some pay TV service, according to pay TV analyst firm Screen Digest.
In the U.S., it has been common for homes to have more than one TV set almost from the dawn of mass market television in the 1950s, and for years most houses there have been wired with coaxial cable to distribute signals inside. This has made it relatively easy for cable and satellite operators to deploy multi-room TV just by plugging into the household cable network, running coax from the nearest cable crossing point or the satellite dish. In most European countries, on the other hand, the operator has to drill through the wall to install a point to point link to the first TV, and then has to come in again to extend to a second TV or deploy a home network.
The historical difference in number of household TVs between the U.S. and Europe is not so much down to a disparity in disposable income, but the average size of rooms, according to Tom Morrod, author of the Screen Digest report Next-generation television: The need for home networking in Europe. This was a key factor in the era of Cathode Ray Tube (CRT) TVs, which became very big and heavy as price per unit screen size came down and demand for large TVs increased.
“The underlying driver was that US houses tend to be bigger, and could fit a second or third CRT because the rooms were 50 percent larger,” said Morrod.
But, this all changed with the emergence of more compact flat screens and rapid disappearance of CRT TVs around 2003. This has led European homes to catch up with their US counterparts as flat screen TV prices have fallen, but with one big difference — the second or third screens are mostly supplied by FTA services even when the primary TV in the living room is connected to a pay TV service. At the same, these secondary sets are increasingly being connected to the Internet, either directly if they are smart TVs, or via some intermediate box. The result, according to Morrod, is that European pay TV operators are threatened much more than U.S. ones in the short term by erosion of viewing time to FTA and video on demand OTT services such as iTunes, Netflix and LoveFilm, with the options varying between countries. There are also emerging threats from catch-up TV portals, such as the BBC iPlayer, which provides free content in the UK, and is available on subscription for 49 Euros per year (about $65) in some other European countries. This provides content from a range of sources, at least in the UK where it has become a very popular aggregation portal. One pay TV operator, Virgin Media, has countered this particular threat by providing access to BBC iPlayer through its pay TV service.
Increasingly though, OTT services that deliver both catch-up and VOD will become available via set top boxes that can be connected to both primary and secondary TVs. These will include YouView to be launched in February in the UK with backing from the BBC and incumbent Telco BT among others, and various equivalent services using the Hybrid Broadband Broadcast TV (HbbTV) standard, strongly promoted by France and Germany in particular.
Pay TV operators need to act quickly to ensure they capture a good proportion of Europe’s population of secondary TVs, because there is a danger that the combination of FTA services over digital terrestrial and sometimes satellite, and various OTT services, will become sufficiently compelling to trigger significant cord cutting. The more immediate threat for many operators, though, is of consumers downgrading to cheaper packages on the basis that they can for example obtain premium movies on demand from some other source such as LoveFilm.
Some operators, such as BSkyB in the UK, have built success through obtaining a stranglehold over premium sporting rights, especially football. But, even that is under threat following a European High Court of Justice ruling in Oct. 2011 that European Union (EU) law does not prohibit commercial premises such as public houses showing live football games run by the UK Premier League from overseas broadcasters. The Court also ruled that the Premier League could not claim copyright over its football matches, as they could not considered to be its own "intellectual creation" and, therefore, to be "works" for the purposes of EU copyright law. The combined effect of these rulings could be that European broadcasters can no longer buy exclusive rights to sporting events held in their countries, weakening the position of pay TV operators such as BSkyB.
Therefore, it becomes even more essential that such operators attempt to maintain a monopoly over their customers’ viewing by connecting second TVs. According to Morrod, coaxial cable, probably conforming to MOCA standards, is most likely to be the preferred physical medium, because satellite and cable operators already send the signal to the set top box or PVR (Personal Video Recorder) serving the primary TV over coax, and quality of service can virtually be guaranteed.
But, in Europe this is by no means a done deal. One alternative favored by some purists is to use Ethernet Category 5 cabling, which is lighter and cheaper to install than coaxial. But, it does not dovetail so well with the existing coaxial feed, and does have some disadvantages, such as greater reliance on the quality of the installation to protect against electromagnetic interference. There is potential for signal skew, caused by differences in the lengths of the twisted pairs within the Cat5 assembly, which has been shown can cause degradation in color separation at the display.
However both Cat 5 and coax suffer from one common problem in Europe — the truck roll — since, in almost all cases, the home effectively has to be wired, even when there is already a coax feed to the primary set top box or PVR. For this reason, there has been greater interest in Europe than the U.S. in using power cables via the HomePlug AV Powerline standard. In the UK, for example, the BT Vision IPTV service has promoted powerline adapters made by Comtrend for second screen viewing. The attraction is that powerline does not require any cabling, although it will not be guaranteed to work on all home electrical wiring.
The growth in interest in Europe has stimulated the powerline supply industry, leading the major home networking chip vendors to step into the field through acquisition. For example, Wi-Fi chipmaker Atheros bought Intellon, integrated System on Chip vendor Sigma Designs bought Coppergate, and communications chip market leader Broadcom took over Gigle. Atheros in turn was then taken over by Qualcomm for $3.5 billion in January 2011, which is now vying with Broadcom for leadership in the expanding powerline chip market.
More products have followed, such as routers from both Wi-Fi routers from D-Link and Netgear with Homeplug ports. This development is significant, since there is a growing conviction within the Powerline world that its future lies through integration with Wi-Fi to provide a combined robust home network capable of delivering broadcast quality HD video. Wi-Fi will be part of all home network infrastructures for in-room transmission to provide service to wireless devices such as tablets, but is unlikely to be capable on its own of serving larger houses. Therefore, MOCA is pitching coaxial networks as backbones providing connectivity to Wi-Fi access points within the home.
The Powerline camp would like to do the same. But, with many European homes having multiphase electrical supplies, it means that Powerline will not be able to connect every power outlet on the same network. However, by combining with Wi-Fi, not as a backbone but more as an equal partner, Powerline has the potential to deliver reliable TV services.
Despite all these activities, the jury is still out on powerline as a technology for delivering premium TV services, since this combination with Wi-Fi has yet to be fully proven. There are lingering concerns over interference, both as a source causing problems with Digital Audio Band (DAB) radio services, and on the receiving end from electrical devices in the vicinity. But Broadcom and Qualcomm are convinced that their latest SoCs will deliver the high performance and reliability needed by incorporating improved signal optimization and wider spectrum transmission.
At first sight, it appears Europe is well poised for this Wi-Fi/powerline combination. At the end of 2010, according to the Screen Digest report, wireless and power line between them represented 95 percent of home networking deployments by operators. But, almost 80 percent of these were by IPTV operators needing to reach across the home from the router to the primary set-top box. For cable and satellite operators, plus more advanced IPTV operators, the decision now is how to reach out from the primary TV set. Multi-room penetration in Europe is currently about 30 percent, and only 16 percent, for example, at Belgian IPTV operator Belgacom. Most of these operators will decide between Powerline and MOCA as companions to Wi-Fi.
The home of course is no longer the only place where TV is consumed, so pay TV operators also need to extend reach to external wireless or wired devices. Here again Europe lags behind the US, but not by so much in this case, with BSkyB illuminating the way forward with its SkyGo package.
“This is the first serious effort in Europe to position against the potential fragmentation of pay TV audiences,” said Morrod. “It can be used to watch on tablets, iPhones and PCs, and stream over Xbox to second TVs in your bedroom or den, through a single subscription to all these devices.”
That really is the key to success for pay TV, enabling access to all the content a consumer has subscribed to everywhere on all devices. The level of subscription should relate to the content, not where it is viewed. The connected TV or TV Anywhere proposition is about shoring up audiences and combating churn, not increasing ARPU directly in its own right.