Will Telcos Embrace OTT Video in 2010?

DFN: The outcome of this issue will have implications for NextG Networks.

Will Telcos Embrace OTT Video in 2010?

December 8, 2009 | Carol Wilson
http://www.lightreading.com/document.asp?doc_id=185505&site=cdn&f_src=lightreading_gnews

Will 2010 be the year broadband service providers add over-the-top (OTT) video services to their product portfolios?

A number of video services players are saying "Yes." They expect current customers to go public, and for more network operators to use their DSL or cable broadband pipes to offer value-added video services without building out an IPTV system.

But many of those pursuing service provider partners admit it’s still early days for such deployments, even though the OTT video specialists are hardly new kids on the block: For example, Sezmi Corp. has been around since 2006 and has been promoting its OTT platform since May 2008. (See Sezmi Aims Beyond IPTV.)

The challenge players such as Sezmi, ZillionTV Corp. , Roku Inc. , and TiVo Inc. (Nasdaq: TIVO) face in working with broadband ISPs is getting the business case right.

And these four players, at least, are also doing direct sales to consumers, while trying to avoid competing with their own partners.

"I think we’re all trying to figure this out together," says Jim Funk, vice president of business development for Roku, which has had marketing trials with telecom service providers for its over-the-top set-top.

"The important thing we’re doing is working with these companies to try to determine what the business model looks like," notes Funk.

What broadband ISPs can’t settle for, advises Danny Briere, CEO of the TeleChoice Inc. consultancy, is just selling a fatter pipe, while allowing other players to reap the rewards of selling value-added services.

"They need to have control of the platform," says Briere. "If you have a box on someone’s desk that can let you do other things — offer other services — and you have direct control over that box, then there’s a business case to be made."

Sezmi said in November that it already has service provider partnerships up and running and expects to make announcements in early 2010. (See Sezmi Launches Video Services Pilot in LA.)

And the company’s founder is already predicting major success next year in ousting satellite and cable providers. (See Sezmi Founder: We’ll Replace Cable & Satellite TV .)

Sezmi is also planning to announce a "major national retailer" as a partner, and will be selling its Sezmi boxes directly to consumers, who will then hook it up to their standing broadband connections.

ZillionTV’s mixed model
ZillionTV, meanwhile, is trying to keep its service provider customers under wraps for now, although one, Nsight in Wisconsin, broke ranks and went public. (See Nsight Takes ZillionTV on a Test Run .)

"We’re trying to be very thoughtful as to how we roll this out," says Mitch Berman, executive chairman of ZillionTV. "All of our telco partners are very focused on getting this right."

Berman admits the economic slowdown has hurt his company but maintains that ZillionTV’s decision to also sell direct in some areas isn’t a reflection on how well (or poorly) sales through service providers are going.

"We are targeting pods selected across the country," he says. "We haven’t flipped a switch and said, ‘Everybody come and get it.’ "

ZillionTV continues to focus on its strengths — no subscription fees or costs to get the consumer device, advertising support based on personalized interest choices, with reward points for viewing ads — and believes the shared revenue model will work.

But in areas where consumers have signed up on ZillionTV’s Website, and there are no service provider partners, direct sales are being done by direct invitation to interested consumers. "We won’t be doing that in areas where we have partners — it’s a controlled thing," states Berman.

Roku considers customization
Roku has been selling its popular players to consumers through Amazon.com Inc. (Nasdaq: AMZN), but it’s started pursuing partnerships with broadband ISPs as another way of getting its product to market, Funk says.

To date, there have been a few marketing partnerships, but no announcements. "We’re discussing ways we can customize what a service provider’s customer base would see: Would there be some content that is more closely aligned with what the service provider wanted to offer, or branding to give a better sense of a relationship between Roku and [the service provider]?"

Roku’s new open platform is expected to be of more interest to service providers, believes Funk, and TeleChoice’s Briere agrees. (See Roku ‘Channel Store’ Is Open.)

"What Roku does, at a very low price point, is have an open programmable platform that a service provider could put its own skin on, and offer links to local businesses and services," says Briere. "The idea is to get beyond providing TV to the masses and make sure you have a social and interactive and revenue-generating experience with your customers."

Roku’s Funk says his company is trying to help service providers find other kinds of things they can offer once they have a broadband connection in the home and a network established that links the PC and TV. The possibilities include local video content or even adjunct services, including security.

Don’t be dumb, says TiVo
TiVo is hardly known for its work with broadband service providers, but at Supercomm 2009 this fall, CEO Tom Rogers challenged service providers to team up with companies like his to offer content over their broadband pipes, or risk being relegated to dumb pipes delivering everyone else’s content.

TiVo already sells its content service — which now includes five million items, including Web-based video, in addition to consumer-recorded content — to cable companies including Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Cox Communications Inc. as a software upgrade to their set-top hardware. RCN Corp. (Nasdaq: RCNI) will be offering TiVo’s box next year. (See TiVo Adds Free Web TV Fare, RCN Makes TiVo Its Dominant DVR, and TiVo Covers Its Cable Bases .)

TiVo doesn’t yet have similar relationships with telcos, but it’s exploring those, says Tara Maitra, the company’s vice president and general manager of content services.

"What we’re looking to do is grow the TiVo distribution, whether or not it’s a TiVo hardware and software model, and telcos are certainly a big part of that strategy," says Maitra. "We have strong penetration with cable operators, and we have our relationship with DirecTV Group Inc. (NYSE: DTV). Telcos are the next logical place as [they are] a growing distribution channel." (See DirecTV & TiVo to Play It Again .)

The business model isn’t yet firm, but could include telco licensing of TiVo DVRs and distributing them along with their broadband services, according to Maitra.

— Carol Wilson, Chief Editor, Events, Light Reading

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