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Retail Opportunities And Challenges Await IPTV

Internet Protocol TV (IPTV) offers a brave new world of opportunity and challenges to providers, manufacturers and eventually retailers, but the road to success will be rough for some.

Internet Protocol TV is a service, and only that. It involves the carriage of video signals via the infrastructure that also carries two-way Internet broadband services. IPTV uses that two-way broadband infrastructure — instead of a traditional one-way video infrastructure — to deliver content and services to the home.

Internet Protocol TV is not an automatic ticket to success for everyone who plays. A lot of shaking out must occur first.

Today, the latest generation of former Baby Bells is finally morphing from relative video obscurity to some degree of IPTV prominence. But reaching the masses with competitive services and content is still at least 12-24 months away.

On a related note, HDTV over broadband is a bit of a mixed bag. The good news is that HD transmits very well over IP, with high-quality resolution.

The Carmel Group believes that because of its content integrity and reliability, consumers watching HD IPTV will retain that “wow” effect that they already see over cable and satellite systems.

The bad news: HD over IPTV is unproven outside telecom labs, and telecommunications aren’t yet as positioned with high-quality HD content as their cable and satellite brethren.

By signing an IPTV deal with telecommunications provider SureWest, Amino Communications could become the first example of a U.S. broadband service provider to offer HD services over IP.

By the first quarter of this year, SureWest claims it will begin offering full HDTV services to its customers in the Sacramento, Calif., region.

Importantly, from a consumer electronics retail perspective, IPTV may hold greater promises and profits than even what the CE industry saw with DBS, as long as IPTV remains glued to an open standard, which DBS did not do and thus lost an opportunity.

Currently, the telcos appear to be leaning toward a cable-like model, as SBC announced that it chose Scientific Atlanta and Motorola for its planned “U-Verse” IPTV service.

Even without the telcos, however, IPTV will likely become a huge revenue source for CE retailers in the next five years as new, innovative operators reshape the TV industry and change how consumers get their content.

Everything from set-top boxes to mobile iPod-like video devices could be sold through such retailers.

In this vein, IPTV technology is also likely to help shift the content and distribution food chain, whereby content is created by many and distributed by many.

Take the example of video uploads, where independent studios have the ability to film and distribute content to millions without going through the traditional delivery food chain.

If this trend continues, IPTV operators may begin to monetize this niche via advertising or subscriptions.

As but another small example of the IPTV potential, rather than broadcasting a constant stream of all available programs as cable and satellite do today, IPTV might instead store a potentially unlimited number of programs on a central server, which users would then simply call up on demand, whenever and wherever.

One of the key strengths IP technology gives operators is the ability to offer content and services across multiple access platforms with innovative business models (e.g., a la carte). If it can be properly monetized, this presents a key possible advantage over cable and satellite operators.

In its current three to four year cycle, SBC is spending an estimated $4 billion to string optical-fiber cable to neighborhoods totaling as many as 18 million homes, and plans to deliver television services using IPTV.

Similarly, Verizon is spending an estimated $6 billion over five years to bring fiber directly to as many as 16 million homes in its service areas.

Verizon’s network will deliver programming more like a cable system, broadcasting all channels simultaneously, with additional on-demand offerings.

The telcos’ proclaimed strength is that they can bundle their services better than cable because they can combine phone service, two-way Internet and TV programming all in one set-top device. Reports suggest SBC will allow its customers to send programs to their TV sets, music to their stereos and photos to and from their PCs, all through a single set-top box.

Yet, on the other side of the analytical ledger, these Baby Bells don’t know anything about television today, unless they include what they’ve learned from partnering with satellite operators.

On the content side, the telcos are getting their feet wet by signing deals with television studios and myriad other providers, some of which they’ll likely pay an additional premium for (at least in the beginning).

And again, it’s important to note that the telcos’ IPTV infrastructure is largely untested and thus unproven.

Under controlled environments, the IPTV technology works and looks great. But the question remains whether it can support millions of customers as opposed to thousands of beta testers.

On just the financial side, there have been reports on the breakdown of telco costs associated with wiring a house for IP video, which includes two set-top boxes at $150 each, new CAT-5 cabling at $50 and approximately eight hours of skilled installation at $50 per hour, not to mention the service vehicle cost of about $50.

True or not, telcos will need to carefully navigate this potential “killer cost,” which could reach levels even beyond satellite TV installations, at more than $500 per subscriber.

IPTV operators, namely the telcos, need to build and stand on their own multichannel TV models in order to compete with the entrenched cable and satellite providers. The trial-and-error process will eventually bring about new, innovative business models that should maximize IP’s technology.

Yet competing head-to-head with the two video incumbents (i.e., cable and satellite) will prove difficult and costly, and will only slow IPTV’s growth potential during the next half decade.

In the end, IPTV operators must aggressively engage Hollywood studios and other content creators to better help them understand the multichannel video business, and avoid the costly mistakes made by their predecessors.

In sum, the brave new world of video is about to get braver, and CE retailers should do just fine.