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Business Model for IPTV Service a dynamic framework

By Shannon Hill,2014-06-19 16:14
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Business Model for IPTV Service a dynamic framework

Business Model for IPTV Service: a dynamic framework

Meng Zhengjia Sander Limonard

    Harry Bouwman

    Patrick van der Duin.

    Delft University of Technology, Technology, Policy TNO Information and Communication

    and Management Technology

    Today, the multicast digital television using IP network is almost technically possible and commercially available. Facing the fierce competition from cable companies offering triple play bundling package, about 80% of the large European telecom operators are investigating the opportunities for the deployment of IPTV (www.

    Alcatel.com/tripleplay/graphics/19320_iptvworld_600.jpg, retrieved March 17, 2007). Mmany analysts believe that the huge potential of IPTV market will offer telecom operator opportunities to develop this new market.

    However, in the absence of established IPTV markets in most European countries, it is not clear, if new IPTV business models will be viable. Some other experts doubt that the telecom operators IPTV-offer will compete with the service-package transmitted by cable. Cable companies, in many countries have a significant market power in the TV market. After the deregulation of telecommunication market, the cable company started entering into the data service and recently the VoIP market. But the telecom operators did not go for TV market. The introduction of IPTV business model will break the asymmetric market scope. Both are now able to compete in each other’s market.

    A mature business model powered by appropriate technology was lacking until recently.. Facing the complexities and dynamics of the changing communication landscape, a clear and comprehensive business model for IPTV is critical. But there is no unanimous template in defining the IPTV business model. Different players in the market emphasize different elements. For example, Doherty et al (2004) focus on the right IPTV architecture and quality of services, while Liu (2006) is more interested in financial prospect of the new IPTV model. A common conception of business models is lacking. The STOF (an acronym for service, technology, organization, and finance) business model framework developed in 2003 (Faber et al 2003), proved to be successful in terms of designing the business model for mobile services (Haaker et al, 2006), insurance Intermediaries (Bouwman et al, 2005), the analysis of e-commerce business models (Bouwman et al, 2006), and critical design issues and success factors (De Reuver et al, 2006). The STOF-business model concept is defined as a blueprint of how a network of cooperating organizations intends to create and capture value from new, innovative services. It consists of four domains: service domain, technology domain, financial domain, and organization domain, each of whom interacts with the other domains and it is influenced by market dynamics, technological advancements, and regulation. Based on this model, this research will discuss whether and how the IPTV service and business model can be structured.

    In our analysis we focus on telecom operators. Among all the actors in the value system of IPTV, telecom operators have particular interests in developing digital television service over IP, to sustain long term profitability. It is a chance for telecom operators to leverage their brand equity to offer attractive bundled products and to create consumer loyalty. Also, it offers telecom operators the opportunity to consolidate multiple specialized networks into a one cost efficient network, as a step in the upgrading of their networks to Next Generation Networks. Telecom operators are the new entrants in the digital TV market and are aiming to capture a fair amount of market share. We start from the pivot role of telecom companies in IPTV and how they can build different visions (scenarios) of the future that support them in making the right strategic decisions in the present.

    Therefore, the objective of this paper is to analyze the critical design issues that are key to

    developing viable and feasible IPTV business models, that deliver customer and network value, and to test the sustainability in the exploration and exploitation phase based on scenario analysis.

    Table 1 Summary of critical design issues and tradeoffs Service design issues Tradeoffs Critical Design choice

    Service domain Other domains

    Service bundling Triple play, quartet play Complex organization ? Choice on the level of discount of arrangement bundling ? Choice on different bundling portfolio Value-added services New and unique service Extra investment, ? EPG (e.g. interactive) Risk of failure ? PVR ? Other interactive components Content exclusivity Content only available Expensive deal with content ? Platform exclusivity through the platform provider ? Channel exclusivity and distributor Complex organization customer ownership arrangement Technical design Tradeoffs Critical Design choices issues Technical domain Other domains

    Bandwidth High bandwidth Large investment on infrastructure ? Adding large capacity (FTTx) with high investment ? Gradually expanding bandwidth capacity Quality of service High QoS Large investment or extra ? Deploying FTTx and advanced customization quality guarantee equipment ? Golden, silver membership Service availability Video server always Large investment or low revenue ? Installing redundant video server to available generation ensure availability ? Allowing traffic jam and low customer satisfaction Organization design Tradeoffs Design choices issues Organization domain Other domains

    Vertical integration Vertical integrated firm Bundling service ? Whether or not to become content provider ? In which way to enter into content production market Horizontal integration Horizontal integrated Content exclusivity ? Choice on the level of discount of firm bundling ? Choice on different bundling portfolio Financial design Tradeoffs Design choices issues Finance domain Other domains

    Revenue/cost sharing Cooperation with other players ? How to arrange revenue/cost sharing with other players Pricing model ? Flat rate or more flexible pricing model ? Price the service in an appropriate rate level

In this paper we will discuss the IPTV market, and touch upon the conception of business

    models and the STOF framework. We will address critical design issues and tradeoffs

    between design choices in the IPTV domain (section 2 ). Scenarios analysis is used to

    describe possible future developments in the field of digital television (section 3), and to test

    the robustness (or future-proofness) of high uncertain business models when entering the

    exploitation phase (section 4).

Table 1 gives an overview of the critical design issues, and are a starting point for the design

issues as used in the scenario’s. The scenarios (see Table 2) are developed on basis of

    existing scenarios as used in telecommunication and the television industry. The scenarios

    represent the different future possibilities in terms of regulation environment, industry

    structure, and consumers’ attitude towards TV service. In the “telecom operators mammoth”-scenario, telecom operators should take advantage of the economies of scale and scope and

    offer more competitive bundling offers. The critical design choice to offer bundling is the key to

    satisfy “simple” consumers demand on convenient configuration and to help telecom operators to establish leading positions in the television market. In the head-to-head competition-scenario, telecom operators’ capability to offer content diversity is important to

    match the increasing fragmented consumer demand. Besides possible integration into

    content production and signing deals with multiple content providers, providing a platform for

    users generated contents is also an effective way to create diverse content with low cost. In

    the market deadlock-scenario, the critical design choice of provision value added services

    should be the focus of telecom operators. The interactive and versatile nature of IP-based

    network to carry multimedia and interactive service should be fully explored. By doing so,

    telecom operators can differentiate their IPTV from cable and satellites companies and gain

    the competitive edge. In the back to basis-scenario, it is relatively difficult to implement the

    IPTV business model due to indifferent consumers and the existence of dominant cable

    companies in the market. The analysis emphasizes the synergy effect between the telecom

    operators’ broadband and television service. Telecom operators can leverage their advantage

    in the broadband market (e.g. brand, large customer base and sufficient cash flow) to the

    television market in order to increase the value for both.

Table 2 Summary of critical design choices in different scenarios

    Scenario’s Telecom Head-to-head Market deadlock Back to basis

     operators competition

    Domains mammoth

    Service bundling Content diversity Value-added

    service Technical Sufficient IP-based transmission IP-based QoS; service

    bandwidth transmission availability Organization Horizontal cooperation with content

    integration producers

    User Generated Content

    Finance Aggressive Balance cost issue Understanding of Synergy effect

    discount rate possible revenue

    loss; flexible pricing

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