Monthly Archives: January 2009

Can Netflix’s US Online Success Be Replicated in Europe?

Much has been written in recent days about the rosy financials released by Netflix earlier this week. While most digital consumer companies are reporting collapsing profits or flattening revenues, Netflix certainly stands out from the crowd.

Several commentators have pointed to the recession as a direct cause for Netflix’s current success. But I agree with Netflix CEO Reed Hastings: “There’s no way for us to tell”. There is a lot of speculation at the moment in general about the recession’s positive impact on spending on home entertainment, such as pay TV, DVDs and digital music. I’ve heard this argument during previous recessions and I’ve never seen convincing data that proves it one way or the other. It’s tempting to point towards one set of data in isolation – the Netflix story is a good example – and draw this conclusion, but there is really no evidence of cause and effect. Netflix’s growth is just as likely, in fact more likely in my view, to be a result of customers simply adding their service to what they already get, or switching from alternative sources. It is not clear at all that the overall market for home entertainment is benefiting from a direct switch away from out-of-home spending.

Netflix’s story is strong evidence that premium online video is taking off in a big way, and the company confirms that it has underestimated the positive impact of having its technology integrated in connected TV devices such as flat panel TVs, Blu-ray players and Xbox 360s (a trend we noted as a key theme at CES). Even though the installed base of these devices is relatively low, they are already driving new customers towards the Netflix service, not least because the partners receive payments from Netflix whenever that happens.

It would be dangerous to assume that Netflix’s success can be replicated easily in European markets. Even in the US, connected TV content is in its infancy and Netflix is investing significant sums in building online content libraries. In Europe this process would inevitably be much more expensive on a per-user basis because of the fragmentation of the European content market. Rights would need to be negotiated on a country-by-country basis, and within a single country the costs per user relative to the US would inevitably be much higher.

Europe’s Netflix equivalents, such as Lovefilm in Germany and the UK, are currently nowhere near the same scale. Lovefilm is estimated to have revenues in the region of $60m compared to Netflix’s $1.36bn, and Netflix is clear that this scale is a key factor in allowing it to invest in new distribution technologies.

In case Netflix does eventually look at the European market, these considerations should be made alongside the fact that European interest in home video has never been anywhere near the levels of the US. On a per-head basis spending on VHS and DVD rentals, as well as purchases, have historically been much lower. One way or another the Americans just love movies more than Europeans.


Client Reading: Digital Media Survey: An analysis of US Online Premium Video Users

BMCO Forum attacks EC plans to impose 14% duty on imported mobile TV handsets

The BMCO Forum, the industry group representing mobile broadcasting players, has lashed out at what it claims are European Commission plans to impose a 14% tax on high-end mobile TV enabled mobile phones upon entry to the EU, saying that it “poses a risk for the development of Mobile TV into a mass-market service.”

In a statement released today, the Forum says: “Of the many factors involved in the success of broadcast mobile TV services, handset availability is arguably the most critical. A wide range of attractive, feature rich handsets at a variety of price points is crucial to the rapid uptake of mobile TV services by consumers. The Broadcast Mobile Convergence Forum believes that the introduction of a 14% customs duty upon entry to the EU on high-end mobile TV enabled phones as well as on components, produced outside the EU and used to manufacture mobile TV enabled phones in the EU will seriously threaten the development of mobile TV into a mass market service.”

The Forum points out that the EC had previously said it regarded mobile TV as being “at the forefront of high-value, innovative services, with indications of a potential market value between € 7 billion and € 20 billion by 2011.” The EC has also recently published a communication on the the legal framework for mobile TV networks and services by identifying best practice for authorisation.

Franklin Selgert, chairman of the BMCO Forum’s board, said his members were “surprised” by the EC’s “non-harmonised approach” regarding the development of mobile TV, “fostering it on the one hand and setting barriers to its adoption on the other.”

Selgert called on the EC and EU member states not to set any additional customs duties on mobile TV enabled components and devices.

SES Astra’s Astra2Connect service to use satellite to bridge UK’s broadband gaps

The potential universe for broadband access via satellite in the UK could be as high as 800,000 households, according to Mike Locke, the man in charge of VSAT, Internet & Special Projects at satellite equipment distributor Eurosat.

Speaking yesterday at a UK launch event for satellite operator SES Astra’s Astra2Connect two-way broadband satellite product, Locke said that while BT estimated there were 100,000 UK homes which would never get ADSL, with Ofcom reckoning a higher figure of 200,000, private research calculated there was a much higher figure of around 800,000 homes with a poor broadband connection. “The true figure [for the potential market] is somewhere in between,” said Locke.

Mike Chandler, managing director of Astra UK, was at pains to point out that the Astra2Connect service, for which Eurosat is the UK distributor, was intended to be complementary to terrestrial broadband, not in competition with it. It was neither as cheap nor as fast, Chandler conceded: what the product sought to do was “to bridge the gap for people unable to get broadband.”

The Astra2Connect proposition is tiered by speed, with 4 service-levels available between 256KBit/s and 2MBit/s downstream, ranging from £19.99/m to £74.99/m. Upstream speeds to the satellite (Astra 1E/3A at 23.5oE) range from 64KBit/s to 128KBit/s. The kit, including the dish, special LNB and satellite modem, is priced at £299.99, with a current install offer of £100. Given the proximity of Astra1E/3A to the UK-focussed Astra2 series at 28.2oE, the dish is also able to receive BSkyB or Freesat satellite channels.

The service is already available in Europe, and currently has close to 50,000 customers, said Chandler, with the most popular tier being the 1MBit/s one.

The service was demonstrated live at the event, and successfully coped with embedded video streamed from Internet websites. The opportunity to test how the BBC i-Player might perform was not available, though, due to the fact that the range of IP addresses assigned to the service are currently Luxembourgeois ones, which are automatically barred from access by the BBC.

Locke maintained that the true performance speed in the packages matched the advertised one very closely, and produced a graph demonstrating an average download speed of around 800/900KBit/s for a four-day test of the 1MBit/s service. This compared very favourably with similar tests carried out on terrestrial broadband packages, he said.

The Lyngsat website shows the Astra2Connect service occupying three transponders at 23.5oE, potentially offering a throughput of 40MBit/s each, according to Chandler. A fair use policy for the service was deployed to ensure that actual speeds matched advertised ones as closely as possible.

As for future developments, a VoIP service is in the pipeline, but there are no intentions to use the service to deliver IPTV. Both Chandler and Locke suggested it would make little commercial sense to do so given the ability of the installation to offer hundreds of satellite TV channels alongside a broadband service.

The Astra approach contrasts with rival satellite operator Eutelsat’s claims that it will be able to use its forthcoming Ka-Band capacity to offer IPTV as a possible service.

Connected TV is sceptical about such claims given a true IPTV service’s requirement to devote around 1.5MBit/s to each active customer, which would very rapidly use up available transponder capacity and would be very expensive to deliver.

However, using satellite as a fill-in broadband service for those forced otherwise to rely on dial-up Internet access seems a reasonably attractive option given the sort of prices Astra is charging. Previously, the customer premises equipment required for satellite broadband was in the £600-700 range.

The service could face problems if it becomes very popular, however, since if using the same number of transponders, Astra would gradually need to tighten its fair use policy. This could be solved by bringing additional transponders onstream, but the question then becomes to what extent do you allow service levels to deteriorate before adding the additional capacity.

Digital TV set-top market to defy down-turn, will grow at 10% this year – IMS Research

A new report from Texas-based IMS Research has concluded that the digital set-top box market is one of the few segments that is defying the economic downturn, and predicts that volumes are expected to grow substantially through 2009 and 2010.

IMS argues that because TV is a cheap form of quality entertainment, it is one of the last costs to be cut by western households, while adoption in developing countries is continuing at unprecedented rates.

Accordingly, set-top box shipments in 2009 will see almost 10% growth over the previous year, the company predicts. Stephen Froehlich, an analyst in the company’s consumer electronics research group, comments that “Television remains one of the most economic forms of entertainment available and is traditionally one of the last expenses to be cut in tough times, making set-top boxes one of the few growth areas to be found in consumer electronics at the moment.”

The relative buoyancy of the set-top box market is also down to the fact that digital TV services are becoming available in new territories, says IMS. “Digital TV services, including HD, are also providing consumers the option of staying home to watch movies and sporting events, rather than paying for tickets and concessions at the theatre or sports field.” The company is forecasting that worldwide digital TV households will still see 20% growth over 2008.

However, there is a downside, the company says: annual set-top revenues are already near their peak, which it is forecasting to be $19 billion in 2011 – while prices of most types of set-top box are expected to decline by more than 10% each year.

“While there are some very real opportunities out there for suppliers to this market, they are getting harder and harder to find,” says Froehlich.

Connected TV to support Informa’s Digital Switchover Strategies February event in London

Connected TV – already an official media partner of Informa’s Digital Switchover Strategies event, which takes place on 25-26th February in London – will now also be chairing the morning session on Day Two, which is devoted to Digital Dividend issues. If you are a client of Farncombe Technology, which hosts this blog, you can secure a 20% discount on the admission price (contact us here).

The UK TV regulator will be kicking off the session with a keynote speech, which comes at a critical time in the switchover process: it is rumoured Ofcom might be poised to abandon its UHF spectrum auction plans, gifting frequencies instead to companies prepared to commit to offering high-speed broadband. The session will end with a panel debate on Digital Dividend issues featuring regulators from Ireland, France and the Netherlands.

Digital Switchover Strategies is the only conference dedicated to digital switchover and the digital dividend and is now in its fifth year. It will address questions about how best to ensure a smooth switchover process, as well as exploring how broadcasters, operators, technology vendors and regulators are preparing for the all-digital world.

The line-up of global switchover expert speakers includes:

  • Jonathan Collegio, Vice President, Digital Television Transition, National Association of Broadcasters
  • Matthew Conway, Director of Operations, Spectrum Policy Group, Ofcom
  • Pearse O’Donohue, Head of Unit for Spectrum Policy in DG Information Society & Media, European Commission
  • Daniel Sauvet-Goichon, Chairman, Digitag
  • Graham Plumb, Head of Distribution Technology, BBC Operations Group
  • Enzo Savarese, Committee for Infrastructure and Networks, AGCOM (Italy)
  • Tomoyuki Okamura, Senior Director, Technology Research & Development Department Digital Technology Planning Office, Fuji Television Network
  • Els Hendrix, Head of European Affairs, ProSiebenSat.1
  • Dan Brooke, MD, Discovery UK

Connected TV will, of course, carry full reports from the event.