Business Models, Operation Models and Service Development of IPTV

Yu Yifang

Abstract:IPTV, as a newborn service, is restricted on market operation by multiple factors. Therefore, exploration is required in respect of its business, operations and service provision models. First, an IPTV industry value chain can be formed by integrating the advantages of the existing business models of telecommunication, broadcasting and TV, and Internet industries, which helps realize win-win cooperation of all the parties on the chain. Second, plans for technology implementation and network deployment should be made after comprehensive consideration according to various development stages of the IPTV. Third, a reasonable profit allocation model may promote the growth of IPTV services. Last, market competitiveness will be improved by services bundling. Generally, IPTV will become a breakthrough point for the strategic transformation of telecom operators and meet their innovation demands. Therefore, IPTV is expected to be a promising technology helping telecom operators find more growth space in the information communication market.

      By 2005, the world had seen the transition of IPTV services from experiment to commercial rollout on one network after another. Over 30 telecommunications operators have launched IPTV services across the globe and among them, France Telecom has the most subscribers, reportedly hundreds of thousands. According to the estimation of MRG, a multimedia research group based in California, global IPTV subscribers will grow from 734 thousand of 2004 to 13 500 thousand through 2007. The related revenue will be rising to US$10.2 billion, accounting for a yearly compound growth rate of 125%.

      China Telecom and China Netcom are also turning to IPTV as a major solution to comprehensive information service provisioning, which is now being tried out on some pilot networks. The experiments have shown number of problems. The policy barriers of content control and operation division cause some cooperation jam. The network capacity enlarging brings problems to network structure optimization and QoS. In addition, market risks are brought by the new business model. Yet, they are being addressed somehow. The telecommunications operators and players on the value chain are taking a down-to-earth attitude in driving IPTV to serious commercial deployment.

1 IPTV Business Model
In the business model of IPTV, we see the combination of telecommunications, broadcasting and television, and Internet business models, which should be reasonable as IPTV is the integration of the 3 networks.

      Let磗 have a look at the business models of the original TV, Internet and Telecom networks first:
      (1) Broadcast and Television
      The broadcast and television industry has been providing video content to users by way of broadcasting. There is no communication between content providers and end users. The users can  accept whatever is given to them. The industry磗 most common business model is a low flat monthly rate via a unidirectional tree structure.

      In recent years, more television channels are opening interactive programs. For example, TV viewers are allowed to participate in a balloting or quizzer program by sending SMS or Interactive Voice Response (IVR). However, the unidirectional Hybrid Fiber/Coaxial (HFC) network of the broadcast and television system and the separate operating systems among regional TV departments are restricting the flexibility of TV industry. Realizing this, some TV agencies take measures such as annexations and network reform (from unidirectional to bi-directional) to bring more flexibility and profitability to the existing broadcast and TV industry.

      (2) Internet
      With the telecommunications network as its bearer network, the Internet has a business model that磗 totally different from telecommunication industry. Meanwhile, new models are still coming and being fine-tuned. The openness of Internet has put ends to old established rules while new rules are yet to show up. The penetration and evolution of Internet are not only connecting the originally independent "information islands" but also bringing changes to competition rules and business models. The current Internet is forging ahead in 4 directions.

  • Network communications, including IP telephony, email, instant messaging, and other miscellaneous ones.
  • E-commerce, that is, doing business/trading on the platform of Internet.
  • Intelligent information digging, through search engines.
  • Entertainment, including Internet TV, online game, and digital home.

      Without rules acceptable to all yet, Internet business model has to be worked out to make the industry sell profitably.

      (3) Telecommunications
      The telecommunications industry features operable and manageable services. The telecommunications networks are equipped with administration, authentication, and accounting systems to enable well-defined and detail-oriented operations.

      The IPTV business model inherits the operable and manageable features of the telecommunications industry, and spurns the anarchy of Internet as well as the rough operation of the broadcast and television industry for its profitability. Because of integrating 3 networks, IPTV is destined to take win-win as its ultimate objective which in turn requires the operation of all those concerned on the chain. Actually, all parties have their own position, as shown in Figure 1.

      The newborn value chain should follow a development-improvement path to multi-win. Specifically, telecom operators may take advantage of the video content resources and subscribers of the broadcast and television industry. The broadcast and television industry may use the telecom network to reform its own unidirectional service into bi-directional ones to attract more viewers. Finally, the Internet may penetrate into TV viewers to maximize its profit margin.

      It磗 noteworthy that on the IPTV value chain, telecommunications operators should take a leading position. The International practice has shown the mainstream IPTV business model as having telecommunications operators taking the lead. Markets have actually worked out this way. This is because operators own the network infrastructure for IPTV and boast financing capability as well as marketing experience. The IPTV business model with telecom operators taking the lead may have services packaged to maximize user benefits. This model accords with the long-term target of national policy.

2 IPTV Operation Model
Just like any service that has a life cycle, China磗 IPTV is now being tried out as its users accounts for less than 5% of total broadband users, and it will grow and mature. When the figure reaches 5%-10%, operators will have to optimize their networks and work out profitable business models. At the time, the figure rises above 10%, IPTV will be fast growing and mature value/production chain. Therefore, to adapt to different user groups and technical advancement levels along the development phases, IPTV needs to adopt differentiated operation models.

      It takes time to decide on a proper IPTV operation model. The whole process would involve various and uncertain factors. The following are proposed for consideration:

      (1) A Stronger Value Chain with Abundant Cooperation Modes
      The IPTV is different from Internet as telecommunications operators are portals of IPTV services and are core to the IPTV value chain. Yet, the IPTV service development needs personalized channels and colorful services to draw in more users. Players on the value chain have to conjure up attracting content and cooperate with operators.

      The telecommunications operators should plan, design and govern the IPTV service, and outsource tasks to specialist service providers. Telecommunications operators and service providers agree on a profit allocation scheme, keep their cooperative pattern stable, and set up effective awarding and penalty mechanism to drive IPTV popularity.

      (2) Enhanced Competitiveness with Service Bundling
      Telecommunications operators have the advantage over other service providers that they are able to bundle services, which makes it possible to make up package strategies for varied user groups. Users who are used to one service type will then have the chance to get on terms with other services in the same package.

      (3) Lower Initial Investment on the User Side
      Miscellaneous services are the precondition attracting users to practice IPTV. This may not be accomplished in an action. User growth will also take a systematic process. In initial stages, IPTV will have to face to the small user scale, insufficient and expensive terminals and to-be-matured value chain. However, operators will manage to lower the cost of set top boxes, provide allowance and lease out set top boxes for the sake of faster growth of user scale. With the lowered initial investment of users, it磗 believed the IPTV service access rate will increase quickly and users will finally get used to the IPTV services.

      (4) Technical Implementation and Network Deployment in a Coordinated Scheme
      Commercial IPTV networks have been set up in many countries and some operators are already profiting from IPTV services. However, the success stories may not be duplicable in China. The Chinese operators have to select technical solution, strike up their own network plans and deployments to fit into Chinese characteristics.

3 IPTV Service Development
The telecommunications operators directed IPTV services face to family users, and have these features.

      (1) The IPTV provides households with recreation and information services. These means IPTV services should be practical and pertinent to daily life.

      (2) The IPTV services are non-private and can be shared by all the family. These means the text chatting service currently popular on Internet may not be as much popular with household users.

      (3) IPTV can converge well with the current telecom services on users? household and operators? networks. The result may be reflected in lower user offline rate, higher Average Revenue Per User ( ARPU ) and better control by operators in the industry.

      (4) Ease of use. Household users can enjoy home theatre effect in IPTV video service. Users will find that IPTV video features operations that they are familiar with and at the same time they are enabled with some interactive capabilities. For example, the time-shift function, and the function of using a remote control to query about other games and the team status, to ballot, and to join a quizzer while watching a live football game.

4 Conclusions
The IPTV in China is undoubtedly facing some difficulties. Regulations, technologies, business models, and operation models are bringing uncertainties. Nevertheless, China Telecom and China Netcom are making big efforts in experiments and the industry value chain is expanding anyway. Dot-coms, IT manufacturers and even home appliance vendors are proposing solutions and providing products. The "eleventh 5-year plan" has for the first time ever put coverage on the significant technological trend of three network integration. This signifies that country磗 resolution to remove systematic barriers and IPTV will embark on a fast development tour in the near future.[1-4]

[1] ???. ???????????[J]. ??????, 2005,11(3):25-29.
[2] ???, ???. ????????????CN2?????[J]. ??????, 2005,11(3):1-5.
[3] ???, ??, ?. AVS?ISMA??IPTV????[J]. ??????, 2005,11(4):18-22.
[4] ??, ???, ???. NGOSS??????????????????[J]. ??????, 2003,9(3):13-16.

Manuscript received: 2006-03-15

Author Introduce:

  Yu Yifang  is General Product Manager for IPTV and multimedia product in ZTE Corporation. His major research interests are terminals, videoconferencing, and IPTV/multimedia.

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