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Sunday, June 26, 2011

The IPTV Value Chain

The value chain (illustrated below), the organization of the industry working in IPTV, is not very different from that of traditional television, and today – since there are so few IPTV systems actually deployed – not very different from its big brother, digital cable. In some parts of the world, these two are positioning themselves as competitors, but in reality, digital cable is just one way of carrying IPTV.
A value chain reflects a chain of business models. The viewer pays a license fee to the broadcaster (directly in some countries, indirectly in others, not at all in some). However, to get the content from the broadcaster, there has to be an Internet provider, who provides the connectivity; and a service provider, who provides the servers from which the content is delivered. In some contexts, the viewer pays with his attention, not with money, to view the program. Advertisers pay for access to the audience that is watching the show. If the broadcaster is providing interactive TV today, they are probably using a service provider for the service.

 This is an aggregator of SMS messages or premium phone calls; the aggregation can be done at a national level, but if it is to be profitable, it has to be done for many countries and operators. The user pays for this, too, but over the telephone bill. If one of the middlemen could be dis-intermediated, it would mean more income for the broadcaster and the other parts of the chain. Video on demand is popular also for traditional television shows. Many public broadcasters are putting their programs online (some charging for it).

Most IPTV services – especially VoD services – are not free. They are based on the user paying a monthly subscription. In some countries, there are free to- air channels, which are financed by license fees or taxes on television sets or by similar means; they have to be shown to anyone who has a television set. Often, this means cable systems must carry them; and while the rules are not clear when it comes to IPTV, it is not unlikely that IPTV providers must also carry the free-to-air channels in countries where they exist. This is, of course, a constraint on the business model – on the other hand, the user has to have a network connection, and that has to come from a network provider.
At the beginning (or the end, depending from where you see it), there is a different group of companies: those who work with content. In the television industry, broadcasters outsource the production of television series and programs to independent production companies. Their role is to coordinate the programming, sell advertising, and act as an interface towards the IPTV service providers and network operators – they have established themselves in the role as a middleman. The media industry is based on maintaining copyrights, and while there may be other ways to measure and meter content usage, digital rights management (in the widest sense) has emerged as the favorite method of the industry. However, the methods that are applied today, tightly coupled to devices and charging, may be diminishing user interest.

The value chain of IPTV is not different from the value chain of television, especially interactive television, but the technology used to deliver it is different. The difference is most marked for two roles: the user, and the network provider. Another party that will see a significant advantage is the advertiser, since the interactive advertising models, which have emerged in the digital cable and interactive television industries, will get a significant push by the IPTV technology. The value chain looks different depending on who draws it. It depends on what you want to show, and who you are. As always, there may be national variations as well – different countries have different regulations, for example, how much advertising may be included in editorial content. Such regulations, as well as regulations on what data can be used and which audience can be targeted (in some countries, advertising towards children is forbidden), may put constraints on the system.

One constraint that has to be taken into account is privacy. Laws about which information can be given out to whom are nowadays strict in almost all countries around the world, except the US. The strictest laws when it comes to individual permission are those in Europe. These laws are based on an EU directive, and one of the provisions is that the express permission of the user has to be obtained before any data is used, and data may only be used for the purpose for which it is collected. So an advertiser either has to very painstakingly ask everyone to whom he wants to provide information whether this is allowed, or the service provider has to gather the information with the explicit purpose of providing it to advertisers. To get user consensus, it is probably sufficient if the subscription agreement contains a provision that the service provider can use the data; there is no need to ask for information every time. Periodic checkups may be required, but the laws vary in different countries – the European directive is a minimum stipulation. In the ecosystem of the earth the majority of life is driven by energy coming from the sun. In the ecosystem of IPTV, all the actors are driven by energy coming from the end-user.The end-user pays in threeways: a subscription fee; a connection fee; and with his attentionwhen he is provided with advertising. Interactivity adds a fourth way, which the broadcaster currently shares with a number of service providers.

The value chain ends with the viewer, since it is from the viewer that all the revenues come in the end. Users want to have the same services that they are getting today, but better and cheaper. Television is, despite the rise of the Internet, the most viewed medium. Attractive as it may seem to add the web to television, its not that simple.

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