Technology | Media | Telecommunications

Monday, May 24, 2010

New Segmentation: a Source of IPTV Innovation


Five years ago, I recall when the incumbent Telcos in the U.S. were making plans to launch their IPTV services, and I remember being hopeful that this could be the beginning of an exciting new chapter in the pay-TV industry.

The market opportunities for innovative video entertainment offerings were unlimited -- due to the lack of meaningful differentiation among the legacy cable and satellite pay-TV service providers.

Unfortunately, the results thus far have been disappointing to me -- since most IPTV offerings merely mimic the legacy channel-centric tiered approach to video delivery, with little inventive design that utilizes the inherent capabilities of IP-based platforms.

The introduction of Google TV last week -- a vision of an open platform that adds the power of the Web to the television viewing experience -- could be the turning-point, leveraging open standards and applying free-market principles that potentially lower the prior barriers to TV App market entry.

The likely beneficiary in the short-term is Amazon and Netflix. They will both benefit from the attention that Google will attract to over-the-top (OTT) IP video offerings. Why? Most consumers don't understand the value of these low-cost alternatives -- when compared to traditional pay-TV.

Good-Enough for the Evolving Micro-Markets

I believe the demand for "good enough" over-the-top video entertainment services is yet to be fully realized, but I sense awareness will increase as a result of the upcoming Google marketing campaign.

To date, few providers segment the consumer marketplace beyond the typical approach -- incremental clusters of channel groupings. With the exception of a few channel tiers and the addition of supplemental premium movie channel options, the U.S. pay-TV value proposition hasn't advanced much. Meanwhile, monthly subscription fees have skyrocketed.

On-demand pay-per-view offerings -- of recent movie releases -- were hastily added to the linear programming mix, which has historically resulted in marginal adoption by the marketplace. The minimal uptake is likely due to the limited content choice, and the high price of VoD services.

Given the Netflix growth phenomenon, and the implications to the U.S. competitive landscape, traditional pay-TV service providers must evolve their approach to segmenting the subscriber base -- into more consumer-centric and progressively eclectic content interest groupings.

Netflix uses a powerful recommendation engine and other proven methods to help subscribers compile an "Instant Queue" of video for streaming -- essentially the custom one-channel approach to individual or household content compilation and presentation.

Embracing the Market Segmentation Challenge

The opportunity: IPTV providers should create more meaningful offerings targeted at known consumer content preferences. The Family or Latin tier-based segmentation approach was a good start, but there are other unexplored ways to segment the mainstream market.

As an example, consider the potential for on-demand "themed entertainment" offerings that fill an apparent void in the North American marketplace -- between the typical basic pay-TV tier and the next "standard channel" tiered package. Also, let's consider the potential of delivering this new packaging concept to broadband-only subscribers -- as a proactive customer retention offer.

While providers won't deter most price-sensitive subscribers from downgrading pay-TV to the basic tier, a more appealing alternative OTT themed offer may halt the eventual migration to disconnect all subscribed TV services. My point: rather than fear service cannibalization, embrace the inevitable disruption now -- while you still have a window of opportunity to innovate.

IP video streaming enables forward-looking IPTV service providers to compile previously licensed content and store it within a cloud-based content delivery system. Access to the content can be initially targeted at common customer persona preferences -- such as action & adventure, sci-fi & fantasy, or any other theme that has a sizable psychographic segment.

Also, while much of the industry analyst commentary tends to focus on new connected TV sets, let's not forget about the huge installed base of current generation sets. Connecting those legacy devices to a reliable IP video stream -- via a purpose-built low-cost STB -- is a significant near-term market opportunity.

As I look to the future, I'm reminded of the storyline in "The Matrix Reloaded" -- where the Keymaker produces keys that can open portals hidden within the Matrix. Perhaps the creative skill of independent application developers can find the keys to open the full potential of IPTV. Truly, I'm hopeful, once again.