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Washington DC / Paris All materials Copyright 1997-2008 Current Analysis, Inc. Reproduction or distribution prohibited without express written consent.

The IPTV Explosion: Who‟s Positioned for Success?

Ron Westfall, Research Director, Access and Applications

Yoav Schreiber, Senior Analyst, Digital Media Infrastructure

Larry Hettick, Principal Analyst, Digital Home Services U. S.

Bernt Ostergaard, Research Director, Telecom Services Europe

Ben Tudor, Senior Analyst, Consumer Broadband Services Europe

June 4th & 5th, 2008


Section I: The Global IPTV and IP Video Infrastructure

Market and Competitive Terrain

Section II: The US IPTV Market and

Competitive Terrain

Section III: The European IPTV Market and

Competitive Terrain

Agenda: The IPTV Video Explosion: Who‟s Positioned for Success?

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Section I: The Global IPTV and IP Video

Infrastructure Market and Competitive Terrain

3

All materials Copyright 1997-2008 Current Analysis, Inc. Reproduction or distribution prohibited without express written consent.

The Major Drivers for the Overall IPTV and IP Video Market

Standards and Acceptance

Regulation

and

Competition

Back-Office and

Organization

Evolution

• MPEG-2/4• Open IPTV Forum• DOCSIS 3.0, tru2way • DLNA, Semantic Web • HD, PVR Mainstream• DVB-H

• SDP for Any Device, Any Content• Metadata Management/Semantic Web• Future IMS based services• Content and Workflow Mgmt

• EU Model Spur Content Innovation• Net Neutrality• Interactivity and Custom Ads• Regulators Need to Adapt

Applications and

Services

IP Video and

IPTV

• IP Video/IPTV• Any Play, Interactivity• PC TV, Mobile TV and OTT Video• Personal Ads• User-Generated Content

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IPTV and IP Video Market Evolution

Significant Factors IPTV Impact on Ad Models

– Unicast content such as VoD, DVR/nPVR

– Long tail content, non-linear content

– User-generated and personal content

Networking and Home Wiring– May prove most challenging technical issue in U.S.

– Regions beyond U.S. = single TV households

IPTV Standardization Efforts– Some progress, but still open-ended

– Open IPTV forum and others

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IPTV and IP Video Market Evolution (Continued)

Significant Factors IP Video and IPTV Business Case Evolution

– SD to HD = MPEG2 to MPEG4

– Pay models shifting

– MSOs already offering free VoD

– IPTV: a separate or bundled/hidden charge

IPTV Middleware Market Segment Fragmentation – Microsoft Mediaroom traction

– Wide variety of established players, independent players and

carrier-originated IPTV middleware

– Increased consolidation of players expected

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Current IPTV and IP Video Solutions Competitive Positioning Matrix

Vendor Middleware VHE/Encoding CDS/VoD Content Security

Digital Home/STB

Overall IPTV/IP Video

Cisco IPTV MW MIA

Very Competitive #1

Cable Security, but

IPTV = Partners

Linksys/STB Top Ranking

Alcatel-Lucent MSFTFriction Partners Portfolio

Hedge Partners Partners MSFT Dependent

Ericsson Kasenna Solid TANDBERG TV Respectable Portfolio

DiversityExecution

Key

Huawei Cascade N/A Limited N/A STB Assets Rebuilding Credibility

NSN Myrio Partners Partners Partners Some HE Assets

Lead Integrator Message Has Holes

Thomson Thales IPTVIPTV and Mobile

TV In-House Respectable Execution

Key

ZTE China Competitive Competitive In-House Decent Asia-PacThreat

Motorola CableCompetitive;

More Cohesion Though

Portfolio Streamlining

can Help

Cable Security, but

IPTV = Partners

Strong

New Re-Org = Many

Unanswered ?‟s

Positive

Neutral

Negative

Ratings Key

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IPTV and IP Video Content Security

8

Four components: Conditional Access Systems (CAS)

Digital Rights Management (DRM)

Encryption

Watermarking

Content security solutions require agility (i.e., renewability via hardware or software) to enable business model flexibility for operatorsARPU growth enabled by securing interactivity (via middleware integration)Key goal = seamless content portability across devices and networks, and securing “whole home” convergence

Pirates focus on systems with large numbers To date, IPTV numbers are smaller than either cable or satellite

Largest software-downloadable content security: PCCW and

France Telecom

NDS has the largest 17 million customer license for smart cards


IPTV and IP Video Content Security Competitive Positioning Matrix

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Vendor Footprint Technology Flexibility

End-to-end Strategy

Messaging & Vision

Overall Ranking

Irdeto1 billion+ devices &

apps secured; mostly cable/sat.

Smartcard + robust software

capabilities (Cloakware)

Subsidiaries: IDway

middleware & IBS Interprit B/OSS

Business Model Protection

Positioned to influence

converged market

Latens Few tier 1 accounts;

mostly telcoSoftware-based

Integrates own

ECOsystem

middleware

Integrated

CAS/DRM speeds

time-to-market

Lacks market

momentum

Nagravision78 million+ active

cards/devices; mostly

cable/sat

Primarily

smartcards;

chipset-based

software solution

Leverages content

management &

middleware from

sister companies

Securing content

aggregation,

delivery,

consumption

Can influence

hybrid market

NDS87 million+ active

devices; mostly

cable/sat

Primarily

smartcards, server-

based software

Owns middleware,

DVR & apps

Securing &

enabling content

Market leader in

scope and

influence

Secure Media Limited; primarily

telcoSoftware-based Relies on partners

Open platform

content protectionLacks influence

Verimatrix4 million+ screens

protected; 100+

customers; mostly

telco

Software-based

Layered security to

prevent cloning

(GeoAuthentication

& Quantum ID)

3-D content

security (multiple

networks, screens,

layers)

IPTV Leadership in

terms of system

scale and licenses

Viaccess13 million+ smart

cards shipped;

mostly cable/satellite

Primarily hardware;

has software offer

(Purple Box)

Turnkey offering

and acquired Orca

middleware

Securing digital

content

Still establishing

middleware

credentials

Widevine130 operator

accounts, few tier 1s;

mostly telco

Software –based;

has cable card

offering

Partner driven

strategy; multiple

SI relationships

Multi-format &

multi-platform

protection

Broad multi-

platform credibility

Positive

Neutral

Negative

Ratings Key


Competitive Actions to Improve Market Positioning

10

Irdeto

Latens

Nagravision

NDS

Secure Media

Verimatrix

Viaccess

Widevine

Needs to focus on interactivity enablement as key differentiator, leveraging

middleware, DVR and apps; IPTV execution is key

Needs to build mobile DRM differentiator, and leverage installed base to win the

hybrid cable + IP market

Needs to expand customer base to demonstrate market viability of Encryptonite

One system

Needs to consolidate offerings and vision to solidify IPTV lead and extend to new

markets, (i.e., Internet, cable, mobile)

Needs to demonstrate Orca middleware acquisition synergy as key for IPTV success

Needs to gain Tier 1 customers to demonstrate system scale, and leverage multi-

platform/format leadership positioning

Needs more system integrator partners to drive penetration, and needs to

demonstrate integrated middleware ECOsystem success

Needs to leverage integrated B/OSS capabilities for “whole-home” convergence and

Cloakware software as differentiators


Section II: The US IPTV Market and

Competitive Terrain

11

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Service Provider Drivers and Trends

Universal Service Provider Drivers Increase ARPU

Decrease churn

U. S. Service Provider Trends A zero sum game

Telcos: add video

MSOs: add voice

Both: increased speed, video options

(HD+++, DVR, etc.)

Both: double play / triple play

Up to 85% of U. S. Homes Pay to Watch TV


Telcos Losing Wireline Voice to MSOs, Wireless SubstitutionTelcos Losing the ARPU Battle but Targeting 30% Video Market Share by 2010

MSOs Gaining on Targeted 30% Voice Share by 2010MSOs Losing Little Video Share to Date

Verizon FiOS Driving Broadband Speed as U. S. Competitive AdvantageSatellite TV Driving HD Channels as Competitive Advantage

Business Case Drivers: Competitive Pressures (U. S.)


U. S. Consumer Drivers and Trends

Consumer Demand Drivers More for less

A little more for a lot less

Current Monthly A La Carte Prices Voice: Unlimited Domestic

Calling (including loop)

~ $20 to $45

Broadband: Downstream

@ 1.5 / 3 Mbps to 50 Mbps;

$19.95 to $149.95

Video: ~ 200 Digital

Channels = ~ $45 - $65

Consumer Demand Trends $99 triple play (up to 60% for new

subscribers)

– Unlimited voice

– 200+ digital channels, 40+ HD

– 1.5 – 6Mbps broadband

$140-$160 Premium Triple Play Unlimited voice

+ HD, + DVR, + premium Video

10 – 20 Mbps broadband

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IPTV Case Example: AT&T U-verse Service Delivery

Technical: Largely FTTN (FTTH for new

homes)

VDSL

IPTV/MPEG-4

Financial: Capex: $330 / home passed

CPE Cost / Sub ~ $550

APRU / sub: not disclosed,

however estimated

at > $115 / month

Subscribers: Q1 07: 13,000

Q1 08: 379,000

Source: AT&T


Section III: The European IPTV Market

and Competitive Terrain

16

Split European Broadband Infrastructure Strategies

Infrastructure Build-out Strategies: FTTH with Active Ethernet or Passive Optical Network

– Point-to-point FTTH: Free (FR), AMS Citynet & Reggefiber (NL), Neuf

in Paris,

– FTTB/FTTH + Ethernet backhaul: Fastweb (I) fiber to the customer

– FTTC+VDSL Gigabit Ethernet to the PoP: DT, Belgacom (B)

– FTTC/FTTB with GPON backhaul +VDSL (fiber + cabinet + copper):

TI

– FTTB AE with copper in the building : B2 & Telenor Sweden (S)

– GPON: Neuf outside Paris & Orange (F), Energi Midt (DK)

HFC Hybrid Fiber/Coax to subscriber

– DOCSIS 2.0: The standard delivery

– DOCSIS 3.0: No commercial services. Trials at UPC (NL), Telenet

(B), Virgin Media (UK) and Cablecom (CH)

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Need to drive up ARPU and justify heavy infrastructure investmentsTelcos Losing wireline voice to MSOs with wireless substitutionBroadband becoming commodityCable, MSOs, broadcasters and others offering triple play servicesFTTx rollouts gathering speed (France, Nordics)Advertisers looking for more detailed audience dataNeed to make services „sticky‟ – see BT

European Business Case Drivers: Competitive Pressures

Video Traffic is the Key Growth Factor – BUT:

Infrastructure investments cannot be justified by IPTV alone.

SPs need to evolve Video Related Services:

VoD, P2P video, video conferencing, Games and Apps sharing, Video

security services.


Service Provider Drivers and Trends

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Telco Priorities Add a revenue stream to flat-rate DSL

Staunch revenue losses to cable

Differentiate from discount ISPs

Stop revenue loss to content providers

Move up the value chain

Preparing for multi-screen delivery

Cable Operator Priorities Triple play services

Stay ahead in HD quality delivery

Enhance in home service delivery

Current Broadband Speeds / Prices vary wildly: Cheapest prices $5.80 in

Sweden, $33.38 in Czech

Republic (Source: OECD)

EU and Non-EU Europe Region


DTT and license financed „Free TV‟ shakes up

EU marketsFibre rollouts / xDSL evolution makes it easier to deliver IPTVConsumers conditioned by what‟s available in

their marketHuge appetite for catch-up TV, time shiftingVOD offerings from broadcasters enable new consumer behaviorsGames console penetration used to distribute content

European Consumer Drivers and Trends

Regulatory Issues:

- Infrastructure access and investment sharing

- Role of publicly-funded broadcasters


IPTV Case Example: Illiad FreeBox Service Delivery

Power line Connections for HDTV connections in-house

A fiber-connected Freebox home

Source: Free www.free.fr

Technical: Unbundled ADSL2+

FTTH in 80 cities

IPTV/MPEG-4

Financial: Capex: €70/€400

apartment/house

CPE Cost: €300

APRU / sub: not disclosed

Subscribers: Q1 07: 2,1 mill

Q1 08: 3,1 mill (400K FTTH

households passed)

Base subscription €29.99 per

month for both ADSL and

FTTH


Free to view in the UKViewers can stream to browser, iPhone, Virgin Media STB or Wii75 million streams / downloads since Christmas 2007UK #3 ISP, Tiscali, complains about bandwidth costPlusNet: iPlayer traffic accounts for 6.3% of total downloads

Catch-up TV VOD case study – BBC iPlayer

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IPTV Best Practice Revenue Models

Consumers pay for content, picture quality and ease of use Size (# of subscribers) critical for best content deals

Large flat screens ready for HD

Triple- & Quad SP are attractive, but bad customer experience can

hurt across all bundled services

There is zero customer loyalty – just varying degrees of vendor lock-in to delay churn to better, cheaper SP‟s

DTTs will set the bar

We are a long way from IPTV profitability If carriers want to avoid being bit carriers they have to stop thinking

like bit carriers

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Global IPTV and IP Video Technology Drivers and Trends

Standards and Acceptance: GPON/VDSL2

and DOCSIS 3.0 standards and silicon

advances = fixed wireline BW per sub boosts to

further drive video and other BW-intensive apps

Regulation and Competition: Intermodal

competition realized among operators; Content

regulation still lagging

Back-office and Organizational Evolution: All-digital/IP upgrades, FMC architectures,

SDP/IMS and metadata management

enhancements = operator org. shifts

Applications and Services: Mobile TV, PC

TV, and OTT video fuel overall video demand

including Adobe Flash proliferation


Questions and Answers


Recent Current Analysis Reports on IPTV

Our customers have been reading:

Netflix‟s Streaming Video Service Crosses Over to the TV via the New Roku Set-top Box Product Intelligence Report | Digital Home - U.S. [May 2008] Netflix’s new

broadband device can stream movies on a television for only $99 for the equipment with

no extra service fees. But there is no HD content and overall Netflix’s online selection is

skimpy compared to its vast DVD library.

The State of the UK IPTV Market Advisory Report | Consumer Broadband Services Europe [May 2008] The market for IPTV in the UK is driven by varying technical and

market conditions. Existing broadcasters are keen to bring their own products to market,

and existing broadband provisioning is currently not suited to mass IPTV adoption.

IPTV World Forum 2008 Round-up: A Wealth of Emerging Trends Worthy of Metadata Management Advisory Report | Digital Media Infrastructure [March

2008] The IPTV World Forum 2008 show indicated IPTV is now beyond the bleeding

edge of technical implementation and first generation service deployment, but some

cutting edge challenges and innovations are around the corner in 2008.

26

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PowerPoint Presentation

Documents

current iptv

overall iptv

iptv video explosion

iptv numbers

global iptv

iptv explosion

european iptv market

us iptv market