The economics of IPTV - Roland Berger Strategy Consultants

20InfoCom Competence CenterThe middleware provides the entire IPTV functionality andmust be closely aligned with the business model. Investingin middleware has less of an effect on the three-year NPVvariance than upgrading the network, but it is entirely IPTV-specific and thus harbors certain ti risks ik should ldIPTV notprovide the desired results.The headend provides a live video signal to the entire network.Operators that already provide live video signals viasome other technology (such as DTH) can upgrade theircurrent headend for IPTV functionality. Headend acquisitionor upgrade occurs at the start of the project for a givennumber of channels; it then increases step-by-step asmore channels are added.IT is essential for linking the different parts of the projecttogether. It enables the operator to provide a seamlessservice to customers, including CRM, ordering and billing.Most IT costs are incurred at the start of projects, due to theitg integration ti work required. dLt Later IT costs stem from servicemaintenance and change requests.While IT integration's importance looks relatively low inour analysis compared to the "war stories" of many IPTVmiddleware integrations, the results are based on an averageintegration success without a major failure. In additionsome IT integration costs are part of the middleware implementation(e.g. consulting services) item or are covered byinternal resources where costs of integration are often noteasy to separate or assign proper price tags. Obviously ITintegration will play a more important role in terms of NPVimpact e.g. for incumbents with very complex and failureprone OSS/BSS systems or when IT integration is notmanaged properly and fails to deliver expected results.Other factors such as defining the correct processes,providing service and installation, and developing selfinstallpacks, call centers and help desks are essential forthe proper development of an IPTV service. While development,if properly carried out, accounts for just 3-6% ofoverall impact, failing to do so can have a significantadverse effect on financial results.4. Conclusions – Eight lessons to belearnedA wide range of business models, middleware platformsand technical infrastructure options supporting IPTV finallyrepresents an opportunity for telecom companies to enterthe media market with some initial success in terms ofsubscriber numbers.1. Financial profit, i.e. making IPTV as a product pay offfinancially remains a challenge.2. IPTV is no "silver bullet" and not suitable for everyoperator. Whatever their strategic reasons for choosingto develop IPTV, companies must also pay closeattention to the areas of subscription, content, CPE,middleware and infrastructure in particular to build thefoundation for success and robust stand alone financialreturns at least mid- to long-term.3. For the business model of a basic entry product andlater upsell analyzed here subscription revenuesshould be actively pursued through content pushing.This requires superior customer segmentation, ease ofordering and smart content bouquet design. Contentcan be positioned through interactive advertising andonscreen promotional offers based on customer profiles.One button push subscription can provide immediaterewards for marketing activities. The mandatory basepackage should not represent a significant barrier tohigher value buy-through packages. Obviously for "allyou-can-eat"type of IPTV products overall package"basic" penetration is much more crucial.4. Content costs must be carefully negotiated with contentproviders – especially for differentiating content, such asHD channels and on-demand content. As the customerbase grows there will be opportunities for reducing thecost of content and even negotiating content distributionfees for rating-dependent content providers.