Telecom and media companies used to operate in their own silos, with clear divisions between what each offered to consumers. Media players produced or managed content; telecom companies provided telephone and broadband services. With increasing competitive pressures, as well as technology-driven industry convergence, players on each side are moving into each other’s space. Media companies have moved into content and voice delivery; for example, Comcast, a cable TV media player in the US, currently offers Internet and phone services. Likewise, telecom operators have responded to declining fixed voice revenues and saturating broadband markets by stepping into multimedia services.
One promising such move by telecom operators is their venture into Internet protocol TV (IPTV) — a digital television service delivered over a broadband connection with a dedicated IP address. IPTV’s greatest value proposition to customers is its offering of premium content, in addition to greater control over that content. IPTV allows customers to personalize their TV experience with features such as time shifting, in which viewers can record programming to watch it later or pause, rewind, or fast-forward during a movie, and rich and user-friendly electronic program guides that allow them to navigate programming more easily. Operators also offer access to tens of thousands of video-on-demand titles that can be watched at any time. Aside from television services, IPTV applications include TV gaming, music, text, commerce and user-generated content. For example, viewers could have one-touch access through their remote control to real-time local weather, traffic updates, stock market fluctuations and horoscopes on their TV screens, without interrupting the program they are watching.
Verizon’s IPTV service offers a good example of IPTV’s features. It has a library of 14,000 video titles and its TV program guide provides viewers with integrated on-screen control of several applications. Customers can find and manage a vast array of digital content, including television programming, movies, Internet video, games, music and photos. This allows a customer, for example, to watch a movie about an action hero, play a video game about the same character, and buy retail items associated with the character, all on the same home system.
All of these features have contributed to IPTV’s popularity with subscribers, whose numbers are slated to reach approximately 40 million worldwide in 2012. This represents approximately 11 percent of broadband subscribers.
IPTV’s Prospects in MENA
In the Middle East and North Africa, the existing television landscape presents both a challenge and an opportunity. It is dominated by free-to-air (FTA) satellite service and illegal distribution. On one hand, these free options could make it difficult to convince consumers to pay for TV; on the other hand, these services offer consumers no real interactivity. Video on demand and pay-per-view, especially, could be popular in the region and convince consumers that IPTV is worth the money.
Cable TV, which offers many of the same services as IPTV, has limited network reach in the region with penetration of only around 5 percent. By contrast, the number of broadband connections is expected to multiply, with household penetration forecasted to increase from 9.4 percent in 2008 to around 30 percent in 2012, driven by telecom incumbents’ asymmetric digital subscriber lines (ADSL) and fiber optic networks. A large broadband subscriber base will position the MENA region to leverage the advantages IPTV offers. A few telecom operators have recently launched basic IPTV ventures, and more are in the pipeline. Yet IPTV household penetration at the beginning of 2008 was still low in the region — just 0.2 percent, representing approximately only 2 percent of broadband connections.
However, IPTV may not be the right choice for all operators. Ventures are expensive and complex and, as noted, IPTV requires consumers to pay higher monthly bills than they are used to. Most homes receive television services from FTA satellites or through illegal distribution; these represent as much as 90 percent of TV subscribers in some MENA countries. Moreover, many FTA channels are able to transcend national boundaries, since MENA countries share a common language and culture; as such, there has been huge growth in their number, which reached around 500 channels in 2008. According to a recent survey, a majority of viewers are satisfied with FTA offerings.
Operators that decide to launch or expand IPTV ventures will face several additional challenges. First, although broadband penetration in the region is slated for growth, it is still low, except in Bahrain and the United Arab Emirates. Speeds are also slow, with insufficient bandwidth to support streaming television service.
Second, IPTV providers will need to offer premium content to attract subscribers. There’s little regional premium content production in MENA, so shows must be produced elsewhere — a considerable investment.
Another consideration is competition. Television over the Internet can offer non-linear services similar to IPTV’s, such as time shifting and video on demand. These competitors not only steal market share from IPTV operators, they do it using the operators’ own resources. By transmitting content using the operators’ broadband data connections, they are taking operators’ bandwidth while generating revenues for themselves.
Getting IPTV right in the MENA region
Telecom operators that decide IPTV is right for them must consider the following factors critical to successful rollout. For those that don’t have the ability to meet these criteria, IPTV is probably not a viable option.
- Hybrid solution: Operators should position IPTV as a complement to the FTA offering rather than a substitute. A hybrid IPTV-satellite set-top box could provide the dual benefits of IPTV services with FTA programming.
- Features: Innovative interactive services will have significant appeal and should be a key part of any IPTV offering. Digital video recorders, time shifting, video-on-demand and pay-per-view could be popular. Operators should constantly define, prioritize and introduce innovative interactivity features.
- Content: Successful IPTV entry requires operators to secure exclusive or premium content that can differentiate them from their competition. Premium content acquisition is expensive, but the investment is justified, so long as content is carefully chosen with the audience’s needs in mind so that they will be willing to pay for it, and if the operator has sufficient scale and a large enough customer base to secure a viable return. Operators need to carefully define their role along the content delivery value chain and establish the right partnerships accordingly.
- Operational and infrastructure readiness: IPTV imposes new requirements in customer care and field and video operations, which must be appropriately handled via in-sourcing, outsourcing, or “managed services” models. It is paramount that operators ensure they have the necessary access and core network resources in place for a high-quality customer experience.
IPTV presents a unique opportunity for MENA telecom operators. With little competition from cable on the supply side, careful positioning will boost IPTV significantly. On the demand side, consumers are likely to be receptive to IPTV and its benefits. To be successful, operators need to provide consumers with attractive content and significant control over it. They must make sufficient investments in premium content and infrastructure, and ensure they deliver a consistently high quality service. In a region where viewers are used to hundreds of free channels, only a compelling package will persuade consumers to start paying for IPTV.
Hadi Raad is a senior associate and Mahmoud Makki is an associate at Booz & Company
The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.