Internet traffic to increase for online video

Cisco Systems Inc. is projecting that traffic on the world’s networks will jump 46% a year from 2007 to 2012. In 2012, Cisco claims Internet video traffic will be a stunning 400x carried on the U.S. Internet backbone in 2000. Video-on-demand, IP-TV, P2P and Internet video will account for 90% of all consumer IP traffic in 2012.

The networking-equipment maker, as part of a study called the Cisco Visual Networking Index, predicts that Internet video, which accounted for 5% of data traffic in 2005, will represent 30% of total data transfers by the end of this year. That will swell to 50% by 2012. Behind the trend is the surging popularity of Web sites such as Google Inc.'s YouTube, where users go to watch and share videos. Video already accounts for more traffic than the entire Internet generated in 2000, according to the study.

Cisco developed the study to help communications carriers make such plans. In recent years, the rapid growth of traffic has worried some Internet providers, which fear that the torrent of data could block their networks. Cisco prepared the study by collecting data from phone and cable customers as well as market researchers and internal experts. Web-based video is projected to overtake file-sharing as a percentage of Internet traffic in two years.

The study also found that Internet traffic is growing fastest in Latin America, followed by Western Europe and the Asia-Pacific region. The upswing in Internet penetration and the increasing number of universities and businesses with high-speed Internet connections will result in Latin America having the highest growth rate through 2012, according to the report.




Cisco Visual Networking Index

Business Week: Back from the Dead

Today, I won't be writing anything. I'm simply referring to Business Week's cover story from June 25th, 2007, written by Spencer E. Ante.

The article is an in-depth analysis of the bounce-back in the telecom sector after it hit rock bottom in the early 2000s. Not surprisingly, the popularity of IP/Internet-based video is seen as key factor for the telecom resurgence.

Very interesting data point from the article: "About half of the Internet's transmission capacity was going unused in 2002. Today that pipeline has almost doubled in size, and yet the unused portion is down to about 30%." Though significant challenges are in front of us, there is plenty of optimism in the market with a lot of growth opportunities, such as IPTV.

Enjoy!

http://www.businessweek.com/magazine/content/07_26/b4040001.htm

What is Qwest’s future?

Qwest Communications International Inc. CEO Richard Notebaert has announced plans to retire from the company he has run since 2002. He will step down once a replacement can be found. Notebaert took the helmet from Joseph Nacchio, now in prison, while the company was in the middle of an accounting scandal that left it $26 billion in debt. Mr. Notebaert helped Qwest stop the bleeding enough to return profitability. But the increase in earnings has come as a result of a cost cutting strategy rather than a growing business. While the company is certainly far healthier than it was a few years ago, it relies on partners to help it in the key telco growth areas of wireless calling (offered by reselling Sprint Nextel Corp. services) and residential video (offered by reselling DirecTV Group Inc. services). So, what is Qwest’s future?

While Qwest's peers AT&T Inc. and Verizon Communications Inc. aggressively pursue their own fiber based video strategies, Qwest has taken a conservative wait-and-see approach to see what customers will end up demanding the most in the future. The company says it’s watching the IPTV pioneers and will continue to experiment with several ways of delivering video services to its customers. Let’s take a look at the four main ways that Qwest sees to reach consumers with video service.

Traditional choices
ChoiceTV is Qwest's VDSL-based TV service that passes about 500,000 homes, mostly in the Phoenix area. It's offered over a fiber-to-the-node (FTTN) network with NextLevel hardware and software. Qwest doesn't have any big expansion plans for ChoiceTV. But Qwest does note that an IPTV network is the next generation of a service like ChoiceTV. There are no plans to upgrade immediately but an upgrade would give Qwest the ability to use stronger video compression technologies and more interactive services, as well as offering its own digital video recorder (DVR) service.

Qwest's satellite star DirecTV
Throughout most of Qwest's 14-state footprint, the carrier sells an assisted triple play, a voice, video, and data bundle of services, where DirecTV's satellite TV service makes up the video part of the deal. Qwest describes this as a very successful partnership but won't comment as to whether the reseller model is really a big revenue winner for anything other than DirecTV. What it does is give Qwest something to sell to prevent subscriber move to cable. But the relationship may change in the near future, Qwest says, as it could use its DSL connection to homes to provide a video adjunct to what DirecTV beams down from satellites. That is a video on demand opportunity, which would integrate broadband with DirecTV to provide additional integrated capabilities.

Qwest's broadband video plan
After a long period, Qwest says it will launch a broadband VOD service available to its customers who have PCs running Windows XP or Windows Vista operating systems. The still nameless service will be co-branded with Microsoft Corp.'s Windows Live platform. Qwest says it will be working on deals with content providers to make free, pay-per-view, downloadable, and searchable video content available through this upcoming service.

What about IPTV?
The company says it is preparing to be a "fast follower" in the IPTV space, as soon as it sees the technology and services catch on. Qwest's FTTN expansion will be big, but it will be gradual. And, as such, the carrier isn't saying much about the scope of its plant upgrades. Qwest’s fiber network can provide 20 Mbit/s of bandwidth. Obviously FiOS (Verizon) can provide higher. The question is how much bandwidth do you need? Clearly, Qwest and AT&T both think they can satisfy what the customer demand is. There is some good judgment to the Qwest "fast follower" approach. “If you are sitting on $13.4 billion of net debt like Qwest, you don’t have the luxury of thinking about a massive FTTH deployment", says Heavy Reading senior analyst Stan Hubbard. "And that may turn out to be a good thing from a strategic point of view in the near term, as this whole battle between IPTV and Internet TV plays itself out." Definitely, more to come of this, but I think the IPTV alternative will ultimately be the winner.

Here comes Warner Bros.

Warner Bros. plans to release selected movies to video-on-demand services at the same time they come out on DVD in a test that may probe whether Hollywood can expand one distribution method without hurting another. Today, Warner and other studios already release downloadable copies of movies onto online sales services such as CinemaNow and Movielink on the same day they come out on DVD.

The idea seems to be an attempt to influence consumers to rent movies from video-on- demand services rather than from retailers who rent out physical DVDs. Economically, it may make sense. Studios typically keep 15% to 20% of revenue from video-store rentals, compared to 60% to 70% of a VOD rental. So far, so good. But then it comes the tricky part. The studio wants to do that without cutting into the sale of DVDs to consumers, one of its most important revenue streams. In the past, we’ve seen never-ending stories of cannibalizing revenues at the expense of new products, so it’s hard to predict the outcome. However, based on data from several cities which already tested the service, Warner believes it won't cannibalize DVD sales, because the advertising it does for the VOD also boosts DVDs.

I think that Warner Bros.’s move into video-on-demand is just the beginning of something much bigger. And that is movie distribution using the Internet. The final result, again, is very difficult to foresee, but without question Warner is heading to the right direction.

What is going on with CableCARDs?

CableCARD, which most cable companies must start renting out on July 1 because of an FCC mandate, will let a variety of store-bought devices tune in premium cable channels. Simply by slipping the card into a slot on the back of any enabled equipment, such as a digital video recorder (DVR), a media-center PC, or a flat-panel TV, subscribers can get premium programming. It sounds too easy and interesting.

The problem is that cable companies, telephone outfits, and consumer-electronics makers are back at it, fighting over your TV set. The little credit-card-like device could determine how much money these companies collect when viewers in the near future can start downloading most of their premium movies and videos from the Internet. All these companies are throwing in all kind of extras to get you to use their gear, or not use the opposition's. For instance, TiVo Inc. is offering the Amazon.com Unbox movie-download service. Comcast, Time Warner and other cable providers are likely to do everything possible to keep you from buying a competing device at a store. New cable customers have to call them to get a CableCARD, no matter where they plan to use it. And, of course, cable providers are working hard to point to the downside of using separately purchased equipment. Some cable providers may charge as much for a card as you now pay to rent a box.

What is more intriguing is that equipment different from Set-Top-Boxes (STB) provided by cable companies such as DVRs and TiVo’s, doesn’t allow cable customers to watch on-demand shows. In fact, cable companies will license software to let such equipment makers offer on-demand and pay-per-view, but only if they agree to display prominently the cable provider's logos, ads, and programming. That's a deal-breaker for many companies that are trying to establish their brand and make money off downloadable content.

Makers of DVRs and other gear see CableCARD as the future. It would provide vastly more choices as companies strike deals to allow movies and other content to be pulled directly from the Internet. If that happens, it would be the end of cable. Honestly, I don’t see happening any time soon.

Welcome IPTV: Part II

Last month, CBS announced the imminent launch of the CBS Interactive Audience Network: a free, ad-supported network that will digitally deliver CBS programming and third-party content across digital media channels. CBS's ability to partner with leading next-generation interactive platforms is the best way to evolve from a content company to an audience company. The CBS Interactive Network's list of new content deals and online distribution partners in the emerging IPTV space is really long. Included are AOL, Microsoft, Cnet Networks, Comcast, Joost, Bebo, Brightcove, Netvibes, Sling Media and Veoh. Also, CBS previously negotiated content distribution arrangements with Yahoo, Apple's iTunes, Microsoft's Xbox, Amazon's UnBox and others. Mirroring its online strategy, CBS Mobile has concluded direct agreements with the three largest U.S. wireless carriers, AT&T, Verizon Wireless and Sprint, as well as leading next-generation platforms such as Qualcomm's MediaFLO.

What about cable providers? Comcast's strategy is to be the company that delivers entertainment, information and media on multiple platforms. The Fan, Comcast's broadband video player, is proving a successful enhancement to the TV experience as well. It is generating more than 80 million video views per month. Further, Comcast was quick to get involved in the DVR (digital video recorder) market. Their DVR is integrated with the digital cable service, which means that in addition to recording their favorite programs, customers have hundreds of channels to watch, and they can choose from more than 9,000 video on demand titles each month, many of which are not available on traditional, linear television. Speaking more broadly, Comcast is focused on developing applications built to take advantage of quad-play digital delivery. These applications will enable customers to receive television content, surf the Internet, make phone calls, and check e-mail or voice mail on multiple devices. They are piloting a new wireless service called 'Pivot' as part of a joint venture with Sprint that lets customers take their integrated home entertainment experience on the go. Through a new co branded wireless device, customers will be able to access TV content, music, video clips and games; access content on home DVRs and program their DVRs; use a single voice mailbox for home and wireless; surf the Internet using Comcast's Internet portal; and e-mail with Comcast e-mail addresses. That is amazing.

How about Hollywood? A number of film and tech industry superstars were among the earliest innovators in the digital video technology field, George Lucas' Industrial Light & Magic and Steve Jobs' Pixar notable among them. ClickStar, backed by Morgan Freeman's Revelations Entertainment and Intel, is digitally distributing first-release films by top industry names, as well as exclusive educational and documentary programming, before they hit the DVD and cable markets. A growing number of major studios, cable and TV production companies, including Sony Pictures Home Entertainment, Universal Studios Home Entertainment and Warner Bros. Home Entertainment, have agreed to provide films and programming in what might be viewed at least as partial acknowledgment that ClickStar has the right idea.

What about the people? It's the programmers and engineers working away at tech companies, cable and TV networks, telcos and equipment manufacturers who are collectively driving digital media convergence forward. A loose but resilient web of young entrepreneurial companies is playing an outsized role in the process. While companies such as Sling Media are offering new digital TV experiences through TV enhancement equipment and streaming wired and wireless IP services, companies such as Extend Media continue to work on increasingly powerful and flexible delivery platforms for digital content services. For example, the OpenCase solution from Extend Media is not simply an Internet TV distribution technology. The software doesn't simply distribute or push out video: It allows content and rights holders to control, secure, manage and, most importantly, monetize their broadband video assets. That's a key feature set for Internet TV deployments today, whether they make money via direct to own sales, rental, subscription or ad-supported models.

So, while threatening established TV networks, cable broadcasters and film studios, the emergence of IPTV and digital video also opens up a new world of opportunity. With more screens large and small popping up all over, people are watching more TV, films and advertising to the point where the danger may lie in over saturation. The battleground is less telco vs. MSOs (multi-cable systems operators), or even telco/MSOs against media and entertainment companies, than a sea change where open IP networks are taking over what was formerly requiring proprietary networks. Content owners and rights holders, as well as retailers, want to carve out a role that reaches the consumer directly without having to go through either Apple and its paid model or Google and its ad-supported model, the two opposing ends of the continuum in the industry right now. There is no question IPTV will be the next big wave in TV, entertainment and media. The big unknown, however, is how established and emerging providers of content and technology figure this entire difficult puzzle out.

Welcome IPTV: Part I

There's a new wave of changes headed for the TV and film industries: Television viewers can choose what they watch, when and how they view programs and where they catch up on their favorite shows. That's just the beginning. The interactivity of the Internet, the emergence of DVR (digital video recorder) technologies, easier access to wired and wireless broadband services, and the development of digital network distribution formats for streaming multimedia content are forces that are combining to provide viewers with more choice. The great Internet TV race is on, and the field is crowded and getting more crowded all the time. Welcome IPTV. But with that the TV and film industries are in the midst of a major shakeup.

Whether the heat now being generated by IPTV can be maintained depends on the performance of still-evolving digital services delivery platforms. They have to seamlessly manage a huge variety and amount -- and it's still growing rapidly -- of digital video content on offer. Then they must navigate through a maze of networks, wired, mobile IP, 3G and 4G cellular, to reach a broad range of stationary and portable media devices that utilize a variety of proprietary and open standard formats. Not an easy task.

There is little doubt that the emergence of interactive Internet and mobile TV offerings poses a threat for established companies and new market entrants all along the respective industries' value chains. Still, there are huge opportunities as well. Equipment manufacturers, distribution partners, content producers, TV networks and film studios are all struggling and experimenting with ways to tap into the rapidly growing Internet TV and film markets and get a handle on how viewers can, and want, to make use of them. Viewers themselves are struggling to come to grips with how to use set-top boxes and portable devices, and figure out which content and services are accessible and affordable.

The idea of watching appointment TV is being disrupted by the DVR, which has taken the 'water cooler' chatter out of the mix. Consumers now watch what they want to watch, when they want to watch it. Technologies like Slingbox from Sling Media take that a step further by giving consumers the ability to watch TV not only when they want to, but also wherever they want to. The interactive nature of IPTV, as well as the unsettled state of devices, formats and standards, stands in severe contrast to the passive nature of traditional TV viewing. Social networking sites such as YouTube have demonstrated the potential for interactivity to attract viewers and drive network traffic.

The key technological drivers pushing IPTV viability are high-speed bandwidth, powerful hardware, evolved codecs and DRM (Digital Right Management). There are numerous technical hurdles in the path toward widespread IPTV adoption, including the variety of consumer software and hardware options, the rapid proliferation of viewing devices, and the need to establish links between multiple vendors. But the major challenge is really about defining a business model that works. That's why just about every media and entertainment company is experimenting with Internet TV-related applications. The market is uncertain which models for delivery will prove profitable and sustainable: download, rental, subscriptions, ad-supported, or some combination of the above. This has created the need for companies like Extend Media that can supply and/or stitch together the many moving parts required to deliver these services. However, it's emphatically clear that IP-based distribution, instead of proprietary networks via satellite or cable, is now a viable video distribution mechanism with the potential to eclipse all other methods in the future. Refashioning and re-engineering themselves to deliver programming to fragmenting mass markets that are getting comfortable with various new media channels has not only led established players to ally themselves with numerous new content and distribution partners, technology providers in particular, but also to rethink their business models and devise new ones suited to the nature of digital channels.

On my next blog, we will discuss how different players are pushing IPTV in very diverse ways.