IPTV Monitor - Issue 3

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According to the latest Accenture/Economist Intelligence Unit IPTV confidence index, industry-wide confidence in the longer-term outlook for IPTV remains strong. A majority of respondents are confident or very confident that IPTV will generate significant revenue within three years.

In index terms, the long-term confidence level of IPTV industry executives is 7.38 on a 1-10 scale, which translates as "fairly confident." This number is slightly down but largely consistent with the score of 7.55 from our previous survey in May 2006.

Confidence levels are lower when it comes to 12-month revenue prospects: 4.44 ("a little confident") in the index. However, this score is noticeably up from the 4.06 level from six months earlier.

In general, executive sentiment today about the future of IPTV is best described as “cautious optimism”. In Accenture’s view, a degree of caution and careful planning is appropriate. A number of issues remain when it comes to creating a stable and scalable IPTV service over a broadband multi-service platform. Companies can address these challenges, but players in the IPTV industry will need to consider a broad range of technical, content and customer service factors as they proceed.

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Accenture and the Economist Intelligence Unit have completed a second wide-ranging global survey assessing the future of IPTV. The survey is based on responses from 341 technology, communications, high tech and media company executives. Comparisons between these survey results and those from six months ago cast an interesting light on both the promises and challenges of IPTV. They also provide some specific insights about trends, interactions among different industry players and the confidence executives have in the viability of the IPTV business case.

• Confidence is rising in IPTV services' ability to translate into major revenue growth. Despite the difficulty of persuading the mass market that pay TV is a good value, 43 percent of all survey respondents cite revenue growth as the principal business advantage from their involvement in IPTV. Confidence levels are fairly even across all global geographic regions.

• Advertising is believed to offer the greatest source of revenue. The IPTV industry as a whole believes targeted advertising will generate the lion's share of IPTV revenue. That's according to 47 percent of surveyed executives. Network operators, however, believe subscription fees for premium content will provide the largest stream of revenue.

• Customers’ understanding of the IPTV value proposition is low. One obstacle to growth is a perception that customers do not fully appreciate the value of IPTV. Only 11 percent of all respondents think that customer understanding of the IPTV value proposition is high enough to support a solid business case. And this figure sinks to 3 percent among network operators.

• Quality of service is a concern. Quality-of-service issues are seen as the largest obstacle to consumer adoption of IPTV over the next year. These problems should recede in the longer term, however.

Forming content partnerships is a major priority. Operators are looking to partnerships rather than joint ventures or other vehicles to source content. Signs are that a lack of compelling content is receding as an obstacle to household IPTV adoption.

Resolving provisioning difficulties is important. Surveyed executives indicate there is much to gain for both content providers and telcos from resolving provisioning difficulties. A full 87 percent of respondents believe that content providers have the most to gain from IPTV in terms of revenue. Meanwhile, 72 percent think telcos will be the biggest winners. But if content companies and telcos are to meet these expectations, they first have to loosen customers’ and advertisers’ purse strings.

Lining up advertisers now is important. IPTV providers should begin signing up advertisers immediately, as strong competition for ad revenue can be expected to come from the likes of companies such as Google.

Marketing and pricing capabilities need to improve. The success of IPTV business plans depends on customers spending on basic and—most importantly—premium subscriptions. For that kind of spending to occur, however, providers must have not only attractive content, but also realistic marketing and pricing plans. That is cause for concern, as only 15 percent of those surveyed judge IPTV marketing and pricing strategies to be fully ready.

Offering IPTV as part of a bundle is one viable option. IPTV as part of a bundled service is now proving to be an effective weapon against churn and is supporting new customer acquisition. Furthermore, it is only when a company reaches a large enough customer base that the economies of scale, particularly in content acquisition, can kick in. This reinforces the need for providers to think about IPTV in the context of their overall video strategy, so that they can exercise their rights across multiple distribution channels.