Satellite players positioned to cash in on TV

Starting a pay-TV service is harder than it looks, from the cost of building a headend to acquiring the programming. Enter satellite players that have hit upon a strategy for cashing in on the race to IPTV and mobile TV: bundled, preformatted content delivery and management

Satellite industry players and observers have been saying for some time now that growing interest among telcos and cellular operators in IPTV and mobile TV, respectively, is as much an opportunity for the satellite business as it is a threat, depending on which part of the business you're in. For DTH service providers, the idea of telcos getting into the pay-TV business is undoubtedly one more headache they don't need. For satellite players that deliver the video, broadband telcos are new video delivery customers waiting to happen.

The catch to the latter, however, is that there's more to starting a TV service than downlinking a bunch of video channels to a headend. It's an expensive, time-consuming and complicated endeavor even if you know how the broadcast business operates - which the majority of telecoms operators don't, although they're learning, and fast.

Indeed, IPTV and mobile video broadcast technologies like DMB, DVB-H and MediaFLO are in full hype mode, and while mobile TV is still a year or two away from serious commercial reality outside of South Korea and Japan, IPTV is live and growing. IDC expects worldwide IPTV subscribers to more than double this year, reaching over 6.5 million subscribers.

But even as telcos, cellcos and other service providers make plans for getting into the pay-TV business via IPTV and mobile TV technologies like DVB-H, DMB and MediaFLO, satellite players looking for ways to cash in on the trend have found that most of their potential new customers may have the local-loop bandwidth to run video, but they don't have the know-how or, in many cases, the resources to set up a proper headend.

Which is why several satellite companies are now promoting bundled MPEG-4 video delivery services designed to take the pain out of starting a video service.

Outsourcing the headend

Intelsat is the latest to jump in with the April launch of its Ampiage service, a 'super headend' content delivery and management service aimed at both greenfield players looking to launch pay-TV services and existing cable operators looking for fast, easy upgrades to IP-based MPEG-4 video feeds. SES Americom has had a similar offering called IP Prime on the market since late 2005.

The basic premise of services like IP Prime and Ampiage is to bundle content and technology into a turnkey package that allows service providers to set up TV services quickly and cost-efficiently.

'Every telco could spend $15 million building its own headend, or it could buy from us and save on its capex costs,' says Brad Seibert, Intelsat's director of business development.

Ampiage is also being pitched to cable operators as a cost-effective way to upgrade their networks from MPEG-2 to MPEG-4.

'Cable companies can't swap MPEG-2 out for MPEG-4 overnight - it's just too radical a jump,' Seibert says. 'So we offer MPEG-2 as a bridge strategy to get them to MPEG-4 when they're ready.'

Seibert says that Ampiage, which is offered via resellers, differs from traditional video delivery by taking over video processing functions usually left to the customer.

'Usually we're just lighting up a transponder for a customer and they do what they want with it,' he says. 'They do all the processing and decide whether it's analog or digital. With Ampiage, we aggregate content, we do the encoding to MPEG-2 and MPEG-4, encapsulation to an IP format and encryption.'

Bryan McGuirk, SES Americom's president of media solutions, gives a similar pitch for IP Prime, which is touted as a centralized, satellite-based video distribution solution that enables telcos to bundle and distribute hundreds of standard and HD television programming channels over IP 'all the way to the set-top box, including middleware and conditional access.'

'We've done a lot of the hard work for customers,' he told Telecom Asia. 'We do the content aggregation, we do the MPEG-4 formatting, and we've done all the engineering to take new technology like MPEG-4 and integrate that with the middleware and conditional access. That's a major undertaking.'

Coming to America

Meanwhile, PanAmSat (due to merge with Intelsat in Q3 this year) is taking a slightly more specialized approach to this with its Vis-a-TV service, which aggregates MPEG-2/MPEG-4 non-English language programming on its platform, allowing start-ups to target specific non-English-speaking demographics in the US more cost-effectively, says Bruce Haynes, PanAmSat's senior VP of corporate development strategy.

'The penetration of foreigners in the US is front-page status right now and it's controversial, but they're here - 43 million to 44 million people in the US are non-English speakers, but the number of foreign-language channels is very small,' says Haynes. 'There's a multitude of channels that don't go into the US, and cable operators are reluctant to take the risk because they're not sure where the audience for such programming is or how to reach them.'

In that sense, the Vis-a-TV service has a dual-purpose business model - provide aggregated, formatted content to MSOs and IPTV operators, and expose overseas programming customers to new markets.

'We have our own sales organization set up, and we understand how the business works and how to manages sales,' Haynes says. 'Those remain cost barriers to programmers.'

Selling the channel operators

On the service provider side, content aggregation is itself a key feature of services like Vis-a-TV, IP Prime and Ampiage, as it saves pay-TV hopefuls the trouble of negotiating separate licenses with each channel operator.

'We have the relationships with those guys already, and we've done the heavy lifting in convincing them to put their programming on this platform,' says Haynes.

That 'heavy lifting' includes negotiating the rights in advance to deliver video in different formats like IPTV or mobile TV - which usually require separate negotiations. (See sidebar, 'Content licensing the hard way', p. xx)

'Our ability to sell it through is limited by what the content owners allow us to do, so when we sign content owners on for this, we try to get as many rights as possible,' Haynes says.

Intelsat's Seibert agrees that it hasn't been easy to get the content providers on board.

'When you have 'IP' in a paragraph, they get nervous because they think 'IP' means the Internet,' he says. 'It took awhile to get them comfortable that they wouldn't lose control of their content.'

Seibert says that about 90% of the channel operators it has approached to sign on with Ampiage are now onboard, while the other 10% still need more assurances on certain issues before they'll sign on, such as running separate feeds on each coast of the US, the ability to grow channels or, in the case of sports programming, managing blackouts in cities where major sporting events are being held.

Haynes of PanAmSat says that some content owners also get skittish about reformatting. 'Some of them are very protective about the look and feel of their content, so we only reformat content when we have permission from the owner.'

McGuirk of SES Americom says his company also had to work hard to assure that content owners were happy with the platform. 'We've made sure the content providers are onboard every step of the way, doing trials with them to get acceptance of the technologies we've chosen.'

Tech challenges

Putting together a turnkey, end-to-end IPTV package is not without its technological challenges either, admits Seibert.

'Doing this end-to-end is challenging, because it's an environment where a lot of people have preconceived notions on what's the right middleware or right conditional access to use,' he says. 'On some systems you need Nagravision or NDS because that's what the big guys use. So you have to make sure everyone on the platform works together.'

Another challenge, Seibert notes, is the availability - or lack thereof - of MPEG-4 set-top boxes. 'There's not that many of them and the price points are ugly.'

HDTV can be another challenge - not in terms of the technology, Seibert stresses, but economics and strategy.

'I had a meeting with one operator that said they wanted to start on day 1 with 30 HD channels, and they didn't like it when I pointed out that there aren't that many HD channels to put on their system,' he says.

Factors like these illustrate that offering turnkey video services is as much a forward-looking strategy for satellite operators as a move to satisfy an immediate need. Many telcos are still assessing the terrestrial technologies they'll need for IPTV, and mobile TV is even further into the future for most markets.

Consequently, global satellite players are focusing their efforts on the US market, which is populated with numerous small, regional or local CLECs and cable companies looking for a competitive edge, before taking their services international tentatively some time next year (although SES Americom is expected to make an announcement concerning an international launch of IP Prime this month).

Seibert says Intelsat is expecting initial demand from Tier 2 and Tier 3 players in the US that don't have the deep resources or technology labs to develop their own headends, while SES Americom's McGuirk sees the hospitality sector as a potential customer base, as well as cable overbuilds.

Interestingly, PanAmSat's Haynes says that the most likely early adopters of Vis-a-TV will be the cable operators, if only because the two leading RBOCs planning IPTV offerings - AT&T and Verizon - aren't likely to launch services any time soon.

'AT&T won't launch IPTV until the end of this year, and even then it will be limited,' Haynes says. 'Verizon, meanwhile, is doing an overbuild of its cable network, and it won't be IP-based except for the VOD service. They're waiting to see what AT&T does.'

Content licensing the hard way

Telcos seeking triple-play services and channel operators looking for new platforms to distribute their video content may be on the same page compared to several years ago, but that hasn't made acquiring content any easier for IPTV service providers.

Ask Michael Fagan, PCCW deputy general counsel, who describes the effort PCCW had to put in to license the 100+ channels of programming it offers on its NOW Broadband TV service as 'very time consuming'.

'We had three of four teams working in parallel at any given time to get deals done,' he says. 'Some go rather quickly, but some take months.'

Licensing contracts are complex beasts that cover a range of issues, from security, platform type and quality to revenue sharing, release windows, exclusivity rights and even compliance with local broadcasting regulations.

'Channels, programs, games, interactive features and HDTV vs SD all require different sets of provisions,' Fagan explains. 'These even differ by genre - so licensing sports, movies, news or adult content have their own specific requirements.'

Even an issue like security can be a sticking point in a contract, he adds, which means telcos must be able to document in detail how their security mechanisms work to satisfy content owners.

'One negotiation led to a contract where 13 pages alone were just for the security documentation,' he says.

If all of that sounds overly complicated, that's because it is, though not without good reason, says Yew Ming Lau, VP of business development for Turner International Asia Pacific.

'In a way it needs to be complicated because channel operators don't necessarily have the rights at the back-end,' he says.

Another issue for content providers, Lau notes, is that they are actively seeking new opportunities with IPTV and even mobile TV that add value rather than deliver the same old content experience.

'The object for us is not just to take all of our content and just stick it on a new platform, but to use it to create something new, adding things like interactivity and casual games and on-demand programming,' said Lau. 'Otherwise, it's just a me-too service.'

Doug Miller, Asia-Pac executive VP and MD for Walt Disney International, agrees. 'It's not about linear programming - that's a given. Putting 'Desperate Housewives' on iTunes is a nice story for Wall Street, but the home run is really to work with these new platforms and design new products and new ways to add value and interactivity and create a different experience for the user,' he says.

Even so, warns Fagan of PCCW, going forward with new cutting-edge technologies, TV platforms and value-added content will mean contract renegotiations for each change - and depending on the content provider, it won't always be simple.

'Content providers are keen on getting their content onto new platforms and drive new revenue, but that doesn't mean you can get away with open-ended statements,' Fagan says. 'You'll have to readjust the contract every time you want to add something new, and not all of them will agree. Some will flat out refuse.'