The Future of PC/TV Convergence: Opportunities and challenges in online video

Convergence is ongoing across the communications and entertainment markets. Video content is now accessible via numerous channels, beyond traditional services such as terrestrial, cable and satellite and towards online and mobile platforms. As a result, the online and broadcast markets are colliding, with video services making the move to the PC environment and web-based services becoming a core element of the TV viewing experience. There are an ever-expanding number of channels available for content to be distributed over and an ever-increasing range of technologies to aid the transmission.

Online video delivery is emerging as a true competitive threat to existing content service providers, offering the potential to extend reach to new consumer groups. Broadcasters and content owners are delivering services direct to consumers, regaining some of the control they had lost to other players across the value chain, while pay-TV providers and video rental firms are adding online video to their service mix to boost their appeal. On the flipside, consumer electronics manufacturers and pay-TV operators are adding web-based elements to their products and services. Increasing integration of web browsers into home devices, the emergence of TV widgets, and further deployment of enhanced interactive services aim to add greater value to offerings, and could act to divert consumer attention away from the PC for some basic tasks.

Scope of this report

Overview of the market trends, technological evolution and changing business models that have driven PC/TV convergence.

Market projections to 2012 for key communications and entertainment services including consumer broadband and mobile broadband.

Identification of the key challenges facing the key participants targeting PC/TV-related opportunities, including actionable insight into how to best approach this rapidly evolving opportunity.

Examination of the evolving competitive environment and the ways in which various protagonists are targeting PC/TV convergence opportunities.

In-depth analysis of the strategies being employed by a number of leading content providers and device manufacturers with regards to their involvement in the online video and/or connected device markets.

Insight into the future trends that will impact on the development with regards to PC/TV convergence, including identification of best-practice and emerging opportunities.

Reasons to purchase this report

-Gain a comprehensive understanding of how market trends are prompting convergence of PC- and TV-based services, and the impact such developments will have on traditional business models and strategies.
-Understand how the competitive environment is changing, and how content owners, broadcasters and device manufacturers will seek to gain a share of the spoils in the PC/TV convergence arena.
-Compare how different content providers and device vendors are positioning and developing their services and products in order to differentiate from the competition, gain market share and drive revenue growth beyond their core/traditional offerings.
-Appreciate the challenges faced by companies targeting PC/TV convergence opportunities, and understand why radically new market strategies will be required to make a significant impact.
-Identify future trends that will impact on the potential of PC/TV convergence, and gain insight into how to best approach this rapidly evolving opportunity.

Key market issues examined

In many countries, broadband is the fastest growing consumer technology of all time and is developing into a utility that already has almost ubiquitous coverage in advanced markets. The rise of broadband networks and consumer connections is a key driver for online video services, enabling consumers to connect to a broader range of rich media content and applications without the delays that were evident with narrowband dial-up services.

Increased internet usage is also having a profound effect on traditional TV viewing in almost all country markets. Up to a third of consumers in major developed markets are watching less TV as a result of their increased internet use; a significant proportion, and a trend which is challenging existing business models, especially those that rely on advertising as a primary revenue source. Many broadcasters are seeking new opportunities by pushing content via online channels to exploit the huge growth of online advertising.

Content owners are still not providing full support for new distribution channels. Movie studios have watched on as the music industry has been ravaged by piracy, and understandably want to restrict the impact it has on their businesses in whatever ways they can. As a result, content owners will continue to be both selective and cautious when seeking online distribution partners, and will demand that DRM is applied to high-value content such as new-release movies for the foreseeable future at least.

Portable PC-based video boosted by netbooks and mobile broadband. Until relatively recently, PCs were bulky devices tethered to fixed-line connections for internet connectivity. But the situation has changed considerably over the past year, with ultra-portable netbooks hitting retail shelves and mobile broadband starting to emerge as a mainstream proposition. Expect to see mobile broadband functionality to increasingly be integrated into netbooks over the next year, enabling streamed online services to be accessed on the move and opening up new audiences for content providers and device manufacturers alike.

Direct TV connection is essential if online video is to become mainstream. The vast majority of online video content is currently watched via a PC. But while PC-based services will remain attractive, offering the ability to watch content directly on a TV set is crucial if online video services are to appeal to the mainstream. Delivering this functionality is now a key focus of both device manufacturers and content providers.

Key findings from this report

Online video delivery is emerging as a true competitive threat to existing content service providers, offering the potential to extend reach to new consumer groups.
Exploiting opportunities across the connected home environment is seen by many PC and CE device manufacturers as a key way to boost average selling points. With online video now becoming available via a wider range of providers, the previous inertia in the CE market with regards to delivering connected devices is slowly being overcome.
To maximize likely returns, content owners will need to fully support their online partners; a half-hearted approach, where only low-value or archive content is made available, could dilute service potential.
Connected TVs are likely to become the norm within the next five years. By this time, it may not be economically viable for manufacturers to offers sets without connectivity.

Key questions answered by this report

What are the major trends shaping and driving PC/TV convergence?
Why are broadcasters and rival content providers investing so heavily in the deployment of online video services?
Which factors are likely to inhibit the pace of PC/TV convergence market development and why?
How are different market protagonists targeting the opportunities afforded by PC/TV convergence?
To what extent will emerging online services threaten the current status quo across the video distribution market?
What are the forecast market growth rates to 2012 across underlying technologies including residential broadband services and mobile broadband?
How will the market for converged video services evolve, and which future trends will impact on developments over the course of the next 2-3 years?

Companies mentioned in the report

Amazon
Apple
BBC iPlayer
Comcast
Google / YouTube
HP
Microsoft / Xbox 360
NBC/Fox Hulu
Netflix
Sony / PlayStation 3

Report Highlights

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Table of Contents
The Future of PC/TV Convergence
Executive summary 10
Market context 10
PC-based video services hit the mainstream 11
Delivering internet-based services to the TV 12
Content provider and device manufacturer profiles 13
The future of PC/TV convergence 14
Chapter 1 Introduction 18
Introduction 18
Who is this report for? 18
Definitions 19
Convergence 19
Digital pay-TV (DTV) 19
Digital terrestrial TV (DTT) 19
Internet Protocol TV (IPTV) 19
Internet TV 19
Mobile broadband 20
Mobile internet 20
Mobile TV 20
Video on demand (VOD) 20
WiMAX 20
Chapter 2 Market context 22
Summary 22
Introduction 23
PC/TV convergence market trends 24
Broadband changes the rules of the game 25
Higher speeds bring new content-related opportunities 28
Consumers exploit broadband potential 29
Changing the face of media consumption 31
Broadband challenges remain 31
Entertainment market in flux 32
TV market in transition 33
Changing content consumption patterns 34
Traditional media hit 36
Traditional advertising market under pressure 41
Physical media is not (yet) dead 45
Significant obstacles exist for online video distribution 47
Move to high definition places greater demand on connectivity 47
Piracy concerns restrict progress 49
DRM restricts consumer uptake 51
Content rights issues restrict geographic expansion 52
Business model uncertainty reigns 53
Content owners are still not providing full support for new distribution channels 53
Chapter 3 PC-based video services hit the mainstream 56
Summary 56
Introduction 57
Online video delivery reaches the mass market 57
Online video is no longer synonymous with low quality content 58
Online video is a disruptive force in the video delivery arena 61
IPTV may lose its competitive advantages 63
Broadcasters take a more direct approach 65
Broadcasters and content producers make strong investment to new channels 65
BBC iPlayer provides numerous learning points 67
One-stop online shops for broadcasters’ content emerge 68
Consumer uptake on the rise 69
The demographic divide 72
Maximizing online potential 75
TV on the move 78
Mobile TV starts to gain some momentum 78
Not yet a mainstream proposition 79
Alternative portable solutions are gaining more traction 82
Significant challenges remain for mobile TV deployment 84
Portable PC-based video boosted by netbooks and mobile broadband 85
Netbook market growth will boost demand for portable video 85
Mobile broadband offers new possibilities 87
Chapter 4 Delivering internet-based services to the TV 92
Summary 92
Introduction 93
Digital entertainment devices get connected 93
The death of the ‘living room PC’ concept? 94
No one-size-fits-all home content hub exists 95
In-home content sharing takes center stage 95
Direct TV connection is essential if online video is to become mainstream 96
Media extender market makes slow progress 98
Consumer electronics devices get in on the act 100
Major TV manufacturers launch Ethernet-connected models 101
Widget-based services emerge 101
Yahoo and Intel drive a widget-based approach 103
Does consumer demand for connected TVs exist? 104
Does delivering internet services to the TV make sense? 105
Internet connectivity takes DVR-based services to the next level 107
Satellite pay-TV operators look to gain a foothold in the VOD market 108
Online video: complement or substitute? 110
Games console manufacturers push online video services 112
Sony and Microsoft battle for the living room 114
Sony playing catch-up 116
Consoles already well regarded as multimedia hubs 116
Consoles add to the video disruption 117
Connecting the PC and TV environments is a difficult task 119
Chapter 5 Content provider and device manufacturer profiles 122
Summary 122
Introduction 123
Amazon 124
Apple 126
BBC iPlayer 129
Comcast 133
Google / YouTube 135
HP 138
Microsoft Xbox 360 141
NBC/Fox Hulu 143
Netflix 145
Sony 148
Chapter 6 The future of PC/TV convergence 152
Summary 152
Introduction 153
The future of PC/TV convergence 153
Online video will be a mainstream alternative to traditional distribution 153
Content owners must fully embrace new distribution channels 155
DRM will remain a stumbling block 156
Business model uncertainty will continue 157
Internet-connected, networked consumer electronics devices will become the norm 159
Leveraging content across multiple distribution platforms will be essential 161
Broadband providers must be fairly recompensed for their role in content delivery 163
Chapter 7 Index 166


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Table 2.1: Global consumer broadband subscribers (000s), by platform, 2007-2012 26
Table 2.2: Global consumer broadband subscribers (000s), by region, 2007-2012 28
Table 2.3: Proportion of UK internet subscribers participating in multimedia usage by type (% users) 30
Table 2.4: Time spent using communications services (minutes per person per day, UK), 2002 and 2007 36
Table 2.5: TV viewing habits in comparison to internet usage (respondents), France, Germany, Italy, UK, US and Japan 37
Table 2.6: Uptake of communications services, by age (proportion of UK households) 39
Table 2.7: Time spent watching movies/TV programmes (% of viewers watching at least one hour per week, UK) 40
Table 2.8: Proportion of advertising spend attributable to TV and internet, by country (% proportion), 2007 43
Table 2.9: The importance of internet advertising (% of advertising spend), by country, 2006-7 45
Table 3.10: UK online video usage (% users accessing content), 2008 59
Table 3.11: Types of online content most valued by different age groups (% users), UK, 2007 60
Table 3.12: % of online population streaming online video, December 2008 70
Table 3.13: US consumer TV and video viewing patterns (% users), 2008-09 71
Table 3.14: Average time spent watching online video (hours per week, US) 73
Table 3.15: Proportion of households using the internet for multimedia applications (by age, UK) 74
Table 3.16: Proportion of adult internet users using mobile phones to watch video content (% users) 81
Table 3.17: Portable device usage for multimedia (% users by frequency), UK, 2008 83
Table 3.18: Notebook mobile broadband users (000s, global), 2008-2014 88
Table 4.19: Users watching TV and surfing the internet concurrently (% user by frequency), 2008 106
Table 4.20: Global console hardware shipments (000s), 2005-2008 113
Figure 2.1: Global consumer broadband subscribers, by platform, 2007-2012 26
Figure 2.2: Global consumer broadband subscribers (000s), by region, 2007-2012 27
Figure 2.3: Broadband uptake boosts multimedia usage (% users by activity), UK 30
Figure 2.4: Use of traditional communications services on the decline in the UK (minutes per person per day), 2002 and 2007 35
Figure 2.5: Increasing internet usage hits TV viewing 37
Figure 2.6: Uptake of new media platforms lower among older consumers 38
Figure 2.7: New video distribution platforms are gaining traction 40
Figure 2.8: Proportion of advertising spend attributable to TV and internet, by country (% proportion), 2007 43
Figure 2.9: The importance of internet advertising (% of advertising spend), by country, 2006-7 44
Figure 3.10: Short-form content still rules in the online world (% users accessing content by type and country) 58
Figure 3.11: User-generated content is highly valued by younger consumers 60
Figure 3.12: Proportion of broadcasters’ IT budget being invested in new distribution channels 66
Figure 3.13: Proportion of online population streaming online video, December 2008 70
Figure 3.14: Online video reaches 80% of US consumers 71
Figure 3.15: US online video viewing declines with age 72
Figure 3.16: Online video usage declines with age 74
Figure 3.17: Factors that would encourage greater use of online video services 75
Figure 3.18: Mobile multimedia usage remains relatively low 81
Figure 3.19: Portable video usage remains relatively low 83
Figure 3.20: The rise of mobile broadband 88
Figure 4.21: Watching TV and surfing the web concurrently is commonplace 106
Figure 4.22: Worldwide console shipments, 2005-2007 113
Figure 4.23: Consumers show some interest in console-based multimedia applications 117
Figure 5.24: The rise of legitimate online TV services in the UK 131
Figure 5.25: Content provider and device manufacturer summary 150
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