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The May 14, 2006 Issue Provided by System Dynamics Inc.
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Cable in a Disruptive World--NCTA 2006

The video world is undergoing a radical transformation. Virtually every aspect of the traditional video service provider model is being challenged:

  • Who packages the video content? Who creates it? How is it paid for? Who bills for it--if anyone?
  • What device is video content viewed on? Where is it viewed? When is it viewed?
  • What media are controlled or displayed via the TV? What equipment does the TV connect to? How can the consumer see and select from all the available media choices, in a way that is simple and understandable?
  • How is the video coded and technically brought to the user? What new or different services or features does that enable?

The 2006 National Show (organized by the NCTA) was bubbling with these changes and reactions to them. They were discussed in formal sessions, talked about by attendees individually, and visible in many of the new products or capabilities being offered to cable operators (MSOs).

The video announcements and products divide into two categories. The first is video distributed by a video service provider such as a cable operator. The second is video (often from non-traditional sources) that rides "over the top" of broadband providers' data services. A similar division exists today in VoIP services, which divide into those provided by MSOs and managed to control voice quality, and those like Vonage, which ride on top of broadband operators "best efforts" data services. MSOs earn revenue from the video and voice services they distribute, but not from "over the top" services.

At the Sessions

Ann Sweeney, President of Disney-ABC Television Group --> Click for larger pictureIn the "View from the Top" session with top executives from the cable industry, Anne Sweeney, President of Disney-ABC Television Group, announced that ABC will stream free episodes of four top ABC prime-time series online at Episodes will be available the next day and archived for season viewing. Viewers can fast forward content but will be unable to skip commercials. Her announcement illustrates the changing business model for video content, the role of IP delivery and the home computer, and new arrangements with advertisers. Currently planned as a two month trial, it changes the business model by going directly to the consumer rather than via business arrangements with service providers, and represents one of the many "over the top" video services.

Sweeney was not the only content provider thinking about more business opportunities for their content. In another session, NBC Universal Cable's President, David Zaslav, also talked about reaching beyond the traditional broadcast and cable TV markets. After the show, NBCU announced it had formed a new business unit, the Technology Growth Centre (TGC), to focus on opportunities in digital media, and named Darren Feher, their Chief Technology Officer, to run it.

IPTV and the telcos were the subject of many discussions. A panel of four CTOs of major MSOs addressed the topic of competition from the telcos. These services are similar to the ones provided by MSOs in that the telcos are both the content and transport providers and can control the quality of the service. The spirit of the CTO discussion could be represented by a comment by Dave Fellows of Comcast: "There’s nothing they (telcos) can do that we can’t do.”

NCTA 2006 Show floor --> Click for larger pictureMany of the exhibits on the show floor illustrated the changes in the cable industry. Interspersed with the usual exhibits of cable channels and the latest in set-top boxes were new user interfaces, new ways to deliver video, and video on devices beyond the TV set.

Linking Internet and TV Content

On the show floor, ICTV unveiled a new architecture, called ActiveVideo Distribution Network, that links Internet content to live TV and VoD content. It uses cable's VOD infrastructure and any VOD-capable (digital) set-top and is navigated with standard remotes. The company promotes it as providing viewers "the best of both worlds: selecting and interacting with programming like on the Internet, but using a standard remote and enjoying TV video quality and responsiveness."

ICTV's user-customizable video mosaics --> Click for larger pictureAt the show we spoke with Ed Forman, EVP and COO of ICTV. Ed had been with ICTV from 2001-2004 and then was co-founder and CEO of Switched Media, which developed solutions for mass customization of live video streams. In 2006 the two companies merged in a marriage that seems to have blessed both groups. Switched Media's software enables processing and manipulation of compressed digital video streams without the inefficient and expensive decode and re-encode cycles. Combing this technology with ICTV HeadendWare resulted in the ability to blend interactive content with live video streams. These capabilities are behind a number of new ICTV capabilities, including end-user customizable video mosaics for improved video-based navigation. The mosaic provides live video from, and navigation through, multiple channels simultaneously. The technology permits the mosaics to be put together by end-user, operator or programmer choice, or automatically in response to a user's viewing habits.

ICTV is also pitching this to service providers other than cable. Their Web site says AVDN uses "existing Internet and on-demand infrastructure to deliver the broadband video experience to tens of millions of cable, IPTV and mobile viewers."

Prior to the show, ICTV signed up DriverTV and subsequently announced an agreement for AccuWeather to use the capability to deliver a fully interactive TV channel for weather. AccuWeather will be able to provide personalized, interactive content, including searchable local forecasts, animated satellite-generated weather maps and local television weather broadcast programming.

"Any Content, Any Device, Any Place, Any Time"

The total vision of most service providers, including those in cable, is to provide "Any content, any device, any place, any time". Many consumers have been introduced to elements of this vision by innovative customer premises equipment: "time shifting" by devices like TiVo PVRs, and "place shifting" by devices like Slingbox. Used together, they allow viewers to watch their own TV programming--cable, satellite or digitally recorded--from any place in the world.

Device Shifting

There has been an increasing focus on the second element: transporting content from one device to another. Examples include TiVoToGo, which facilitates the transfer of TV video content from the PVR to a portable media device and PocketDISH, which permits users to transfer up to 20 hours of programming from DISH Network DVRs to the PocketDISH portable media device. As smaller and less power hungry mini-drives become more widespread, we expect to see them integrated into mobile phones, which will serve a similar purpose.

Although these capabilities originated in stand-alone equipment and services, MSOs have been creating ways of offering them as part of their service bundle, generally without requiring the customer to buy their own special purpose CPE.

Network-based Time Shifting

Network-based time shifting gives viewers control over live programming by providing DVR-like functionality without needing to purchase DVRs. Cablevision has spoken about their successful trials of network-based PVR. A solution from BigBand Networks and Concurrent was demonstrated at the show and has recently been deployed by "a major North American cable operator".

Time Warner is currently offering an advanced feature called "Start Over", which depends upon network-based storage. It allows a digital subscriber to restart a program from the beginning - complete with commercials.

Place shifting

Motorola introduced "Follow Me TV media networking capabilities" in its small new digital set-top, the DCC100. They demonstrated the relatively straight-forward linking of the DCC100 to a Motorola DVR set-top through existing in-home coaxial cable, bringing video from the DVR to additional screens in the home. They also demonstrated the capability to move recorded shows from a Motorola DVR to a Motorola mobile device like the next-generation RAZR V3x. This "Follow Me TV" technology would enable consumers to look at TV listings on their cell phones and schedule recordings at home. Initially this will be only for Motorola mobile devices and must be preceded by agreements between cell-phone carriers and cable TV operators; it also will need models for selling the service, such as add-ons to cable TV or individual transactions, and requires rights to be negotiated for TV programs and movies.

Lucent demonstrated a more robust vision of place shifting in which cable operators could allow their video customers not only to take the video with them on portable devices, but also to allow them to view their cable content at someone else's home. The concept demonstration, provided to us by Tomas Nores, VP Cable Solutions, showed how MSOs would be able to extend their video customer relationship from inside the home into the broader world.

MSOs are already extending their customer relationships outside the home for voice and data services, through relationships like the Sprint partnership with Time Warner, Cox, Comcast and Advance Newhouse. Extending the video relationship beyond the home is consistent with this direction. The biggest obstacle to be overcome could be MSO's current contracts with content providers which generally have geographical limitations. The contracts would have to be renegotiated before services could be introduced to extend video outside the home.

CableNet Booth --> Click for larger pictureMatt Tooley of CableMatrix --> Click for larger pictureIn the CableLabs CableNet pavilion, Matt Tooley, CTO of CableMatrix Technologies, demonstrated how a cable operator could combine their technology with Slingbox to enhance the viewing experience for the remote viewer. This enhanced (and extra-cost) service would make additional upstream bandwidth available on the cable network and would also control latency and jitter. CableMatrix supplies the PacketCable Multimedia-based policy management platform that allows implementation of real time QoS and bandwidth management. MSOs would extend their reach by providing service to their users even when they are not on their home network.

TV Services on the PC

"TV on the PC" can have multiple meanings. Here we are speaking about receiving the same content you would get from a service provider, and having it delivered in real time from broadcast sources to your PC.

The cable and computer industries both have a strong interest in being able to support premium, digital content on the PC. The goal is to allow consumers to attach their coax cable from the wall right into their PC. Many Microsoft Windows Media Center PCs already have a receiver board, but cannot receive "premium" content such as HBO, which is encrypted to prevent unauthorized use. Many new TVs come equipped with a slot for a "CableCARD" provided by the cable operator (supporting the operator's conditional access system) so they can receive premium content without a cable box.

The OpenCable Unidirectional Receiver (OCUR) extends this capability to new PCs. OCUR is a new Cablelabs specification for products which will allow Media Center PCs running on the upcoming Windows Vista operating system to receive High Definition premium digital cable TV on the PC via high-speed connections and without a separate set-top box.

Any vendor that wants to build an OCUR device must take it through a CableLabs certification process. This verifies that the device transforms content protected by cable's conditional access into content protected by an approved digital rights management system (DRM). CableLabs has approved both Microsoft's Windows Media Digital Rights Management (WMDRM) platform and RealNetworks's Helix DRM for OCUR. OCUR-enabled Media Center PCs will be equipped with a CableCARD slot so the operator can provide a CableCARD to authorize digital services on the PC.

ATI's OCUR design --> Click for larger pictureIn the CableNet area at the show, John Swimmer of ATI Technologies and Mike Morrison of Microsoft demonstrated ATI's OCUR (HD) digital cable PC receiver which will be on the market when Vista launches early next year. They said the entire system as shipped by the OEM has to meet CableLabs criteria, so only new PCs from certified vendors will accept a CableCARD and the ATI product will only be available in OEM systems.

Virtual Digital Cable (VDC), which has just launched its service, represents a different way of delivering video services on the PC. At the NCTA show, we met with Bob Heymann (Chairman) and Mike Wolf (President/CEO) to understand their model. VDC provides IP-based multi-channel live and on-demand television broadcasting. It is a browser-based system that works with Windows PCs and Windows Mobile PDAs and smartphones, using the Windows Media Player embedded in the browser to play the streaming video. Content is obtained from VDC by buying a subscription, which costs $11.95 per month. All support is done by email; there is no phone support.

VDC's current channel selection is very limited and some, such as BBC America, Travel, Discovery and TLC, are only available on PDAs and smartphones. We expect these content providers would be reluctant to make their channels available in ways that conflict with their existing distribution channels.

In a separate but related effort to put video services on the PC, Time Warner has a trial in the San Diego area, called "Broadband TV". It delivers their expanded basic tier (but no premium services) via IP to the PC. It uses Real's DRM, media player and streaming servers to provide the service.

What's Displayed and What's Connected?

The Digeo booth provided an excellent opportunity to see one company's vision of what types of media will be displayed on the TV and what devices the TV will connect to. We met with Digeo's Mike Fidler (CEO) and Greg Gudorf (President and COO) to learn more about their current direction; both came from Sony within the past year, and have added other strong talent to the team.

Digeo has been focused on their Moxi Media Center products since Digeo acquired Moxi in 2002. While the company tends to be thought of as a provider of integrated set-top hardware and software, their core competence is in software and user interfaces. Digeo's initial deployments were with Charter Cable--Paul Allen is chairman of both companies.

Moxi's user interface --> Click for larger pictureMoxi's user interface provides an easy-to-understand, integrated view of all available video media. The guide shows both live and PVR-recorded video, using color to distinguish between the two (blue is live, gold is PVR). In addition to search by channel, time and title, the search feature also searches using any word or phrase in the show information. The "ticker" allows a user to select a topic and display information of particular interest to the viewer, such as sports scores or stock prices, along the bottom of the screen. Rather than asking users to populate a "favorites" list, the system populates the list based on what the user has viewed over time. For Digeo, "the User Interface is King" and easy access to any media is the target.

Digeo's Moxi Mate --> Click for larger pictureFor the cable industry, the Moxi Media Center provides a multi-room HD DVR solution and hub for whole-home distribution of digital entertainment. The master set-top box is connected over existing coaxial cable to a small Moxi Mate box in another room. Digeo says the $79 Moxi Mate provides the same user interface and "the full DVR experience" in the second room at a much lower cost than an additional set-top box. The current version of the Moxi Mate operates via analog signals and supports only standard definition; a promised Moxi Mate II will support high definition in up to three additional rooms.

Digeo demonstrated on-screen telephone features and access to PC-based MP3 music, photos, games and video libraries. Digeo also showed a USB-connected storage drive to provide consumers with greater storage capacity; subscribers will be able to purchase off-the-shelf hard disk drives and connect them to the Moxi Media Center through a USB 2.0 port. Moxi also has dual-tuner capability for HD (High-definition) video signals and allows two digital channels to be recorded simultaneously. This is a step beyond what is provided by CPE such as TiVo, which has announced dual-channel recording in which only one of the channels can be digital.

Other demonstrations included synchronization for "video on the go", IM on the TV, product placement and advanced advertising capabilities and the ability to customize skins.

Moxi with OCAP --> Click for larger pictureFidler and Gudoff said Digeo is focused on applying its core technologies to new markets and opportunities. In addition to new Moxi set-tops, their booth contained OCAP-compatible versions of the Moxi TV interface and guide running on multiple hardware platforms, including set-top boxes and TV sets. They are also developing products for telcos--their IPTV Media Center acts as a multi-stream SD DVR over DSL and a multi-stream HD DVR on a fiber-to-the-home network.

Digeo has been targeting the service provider market, and claims to have deployed 325,000 Moxi boxes. Digeo's products are more expensive than some other choices; the company says the additional cost is worth it because customer satisfaction results in a 25% improvement in churn over a conventional DVR, and the box can generate additional monthly revenue from some of the applications it enables.

Since cable operators tend to be very cost sensitive, we were not surprised when Fidler and Gudoff hinted that the consumer retail market might be next on their horizon. We like the Moxi user interface and would love to play with one in our house.

More Since the Show

News continues to pour out regarding the disruptions in the video world. A few examples:

  • Writer, actors and directors are getting on board with respect to putting their video content on platforms other than the TV. Disney-ABC TV's Touchstone Television is putting in place new agreements for future mobile content with these groups. The Writers Guild of America (WGA), the Screen Actors Guild (SAG) and the Directors Guild of America (DGA) reached agreement with Touchstone Television to produce Lost Video Diaries. The mini-episodes are inspired by ABC's popular series Lost and are being created for release on mobile devices.
  • Media that used to be dedicated exclusively to TV video are incorporating listings for video available for the PC. TV Guide Magazine has launched a "Downloads" column covering television shows available for download or online viewing each week. Gemstar-TV Guide International said the column will "provide guidance and ‘tune-in’ information for viewers who want to be able to know where on the Web they can find their favorite programs so that they can watch them at times, and in ways, other than on first-run television or through on-demand."
  • AT&T signed a distribution deal with Starz Entertainment Group for its Vongo Internet movie delivery site. AT&T and Vongo are building a co-branded site to market the service to AT&T's 7.4 million DSL customers. AT&T high-speed-Internet customers will be offered a special 14-day free trial of the service. After that, customers who opt to sign up will pay $9.99 monthly for unlimited access to Vongo’s library of more than 1,500 movie and video titles and a live streaming Starz TV channel. In addition, popular pay-per-view titles will be offered for $3.99 each. Vongo subscribers can download the video selections on as many as three devices they choose when they set up their account.
  • Last week, TiVo announced a deal with BrightCove, an Internet startup, to deliver videos to a TiVo box and display them on the TV. This will bring Web videos to the TV without going through a PC.

In Summary

There were other big topics at this year's cable show--OCAP-compliant cable boxes, IMS, simulcast, targeted advertising, and more--but we have chosen to focus on cable's core business, entertainment video. The future will bring even more entertainment content, going over more networks and playing on more devices. There will be will increasing competition for the consumer's mindshare and entertainment dollars and the advertiser's budgets. Consumers will see increasing choice but also dizzying confusion.

MSOs will need to be nimble and adapt many aspects of their business to this new environment--technology, marketing, customer service, content agreements, retail relationships and more. Good user interfaces will play a major role: integrated electronic program guides will be critical in helping consumers to make sense of the range of content choices and the many ways of receiving them.

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