The economics of IPTV - Roland Berger Strategy Consultants

More documents

Recommendations

Info

14InfoCom Competence CenterProper basic content offer can increase customers'propensity to opt for value-adding buy-through packages.The basic package is usually presented as the minimumpackage the customer has to purchase in order to accessthe service. This ranges from must-carry TV to, in somemarkets, dozens of channels. It might be tempting toincrease the content of the basic package and thus justifyhigher basic pricing in an attempt to increase ARPU.However, to do so would create an entry barrier to thehigher value buy-through package for customers withnarrowly defined interests.Although the ideal composition of the basic package variesin accordance with viewers' interests, successful TV deploymentsgive viewers themselves the choice. Companies canoffer viewers a basic package consisting of must-carry andfree-to-air channels at a price perceived as being almostfree. In this way they create the lowest possible barriers tocustomers moving up to higher-value channels and makingbuy-through choices.The interests of content providers drive companies towardincluding as many channels as possible in the basic package.After all, every provider wants as large a distributionas possible. Additionally, providers with one successfulchannel may make its distribution conditional on theinclusion of their other channels in the basic package.This often expands the basic package and creates barriersto specialized or exclusive content. Viewers interested inmovies, for instance, have to purchase the basic packagejust to get access to the movie package. Should the basicpackage prove too costly, they may end up rejecting bothpackages.While exploring additional revenue streams such asadvertising and VoD, companies involved in IPTV shouldconstantly check that their live TV package structure reflectscustomer preferences. Allowing users to choose specializedor exclusive content t without t the entry barrier of an overloadedbasic package can significantly increase bothoverall IPTV and buy-through package penetration.3.1.2 Premium packagesIn the analyzed business model (see 3.1) premium packagesare designed as bundled offers for premium users.These packages usually offer top-of-the-range content,functionality and options. This means exclusive content,HD versions, subscription Video on Demand, access toVideo on Demand, catch-up TV, network PVR and so on.This is where IPTV really comes into its own.Many features of premium packages have major costimplications, however. More expensive content, t costlierplatform licenses, higher network bandwidth requirements,more expensive STBs and residential gateways significantlyincrease the cost of premium packages. This can outweighthe superior revenue potential of premium packages.Figure 8 shows how subscription revenue contributes to thethree-year NPV variance. Premium penetration accounts forjust 0-5%, the increase in revenues being almost completelyoffset by the costs incurred. Clearly, many businessmodels peg the premium pricing too low.
The economics of IPTV – Making IPTV profitable 15Figure 8: SENSITIVITY – HOW SUBSCRIPTION REVENUE CONTRIBUTES TO THREE-YEAR NPVVARIANCEPackage pricingPackage penetration20-25%25-30%High Definition pricingHigh Definition penetrationPremium pricing15-20%14-17%12-15%Basic pricing5-10%Premium penetration0-5%Source: Roland Berger analysis3.2 The ultimate offer – Content cost is keyAs we have seen in figure 7, content makes a 15%-20%contribution to the three-year NPV variance. This makes itthe key cost. Unlike traditional TV, IPTV can offer both linearand on-demand content.Linear content is similar to traditional TV content. Here,telecom companies face the same tough negotiations thattraditional TV broadcasters have been facing for years.Content providers push for high subscription fees, highminimum guarantees and channel insertion into the basicpackage to reach all viewers. Carriers can sometimesalleviate content providers' claims by demanding contentdistribution fees.Subscription fees are usually charged per subscriber.They are high for a small number of subscribers and decreaseas the customer base grows. Minimum guaranteeshinder companies with low subscriber numbers and raisea barrier by requiring payments for a minimum number ofsub-scribers. Subscription fees depend on inclusion in theoperator's basic package, the package received by allcustomers.Some content providers, especially those relying onadvertising for a significant part of their revenues, pushfor inclusion in the basic package so as to improve ratingpoints. Three options are generally available: inclusion inthe basic package, extra basic, and à la carte. Inclusion inthe basic package usually costs less per subscriber, but itforces the operator to distribute the channel to its entirecustomer base. Extra basic option offers the operator morefreedom at a higher cost per subscriber. À la carte givescomplete flexibility, usually at the highest price and withthe risk of leaving value on the table by giving up bundlingopportunities.IPTV operators can leverage their increasing customersubscriber base by negotiating lower content prices andsometimes even demanding content distribution fees.Content providers that rely heavily on rating points arethe most willing to pay content distribution fees.
Page 1 and 2: The economics of IPTV - Making IPTV
Page 13: The economics of IPTV - Making IPTV
Page 23 and 24: Published by Roland Berger Strategy

The economics of IPTV - Roland Berger Strategy Consultants

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?