Daiwa EuroTelcoblog No. 72: Tuesday 7th September, 2004 - I want my P2PTV

One of the themes we've been pursuing recently, both here and in the Daiwa Global Telecom Monthly, is that as broadband access speeds towards mass market penetration (i.e., commoditization) in many developed countries, the owners of the broadband pipes will increasingly feel an irresistable tug towards active content provision, if only as a customer retention tool. To date, we've seen concrete examples in Europe with France Telecom's MaLigne and Telefonica's Imagenio, KPN has announced a somewhat curious three pronged strategy (cable, DSL and digital terrestrial), and we fully expect that by year-end 2004 or early 2005 every incumbent in the European space will have at least announced its strategies in this area.

Our friend over at the fascinating Telepocalypse (http://www.telepocalypse.net/) recently made a strong case that "...voice and data telcos that try to get into video distribution are likely to get rapidly incinerated," which goes somewhat further than our own assessment of the situation, but is nevertheless a scenario we should consider. As we covered previously in our piece on Torrentocracy (http://eurotelcoblog.blogspot.com/2004/07/daiwa-eurotelcoblog-no_16.html), the very nature of content distribution is changing in some pretty fundamental ways, with, as one participant at the recent On-Demand TV seminar put it, "content moving about from PVR to PVR in some pretty alarming ways." Today's Creative Business supplement in the Financial Times, which carries a couple of stinging pieces on the renewal of the BBC's 10-year charter, seems to underline the point, arguing that changes in technology and consumer behavior make visibility in the broadcasting sector considerably shorter than 10 years:

"For half a century, broadcasting has been built on the existence of passive
viewers who largely had to take what they were given, which could too often mean watching the least worst option. And funding mechanisms, both the license fee and advertising, have significiant virtues but they both suffer a crippling
drawback - individuals cannot signal their particular preferences. With the
arrival of multichannel TV, this feature has been declining steadily in the past
decade, and will continue to decline in the coming one. The technology will
allow the emergence of a world in which most people can watch what they really
want to watch, and to pay for it directly, not through a poll tax such as the
license fee or through compulsory subscriptions to cable and satellite channels
they don't want."

Video is not the only arena where visibility is poor. Despite the much-heralded success of legal music download services such as iTunes, the revived Napster, and Loudeye, and the anticipation/trepidation which surrounds Microsoft's own plans in the area, audio content (which telcos also view as a potential revenue stream) still appears far from being in the clear. Our August edition of the Global Telecom Monthly discusses some of the alternative means being developed for content capture, such as The Bug DAB receiver from UK start-up Pure Digital (http://www.pure-digital.com/Products/Product.asp?Product=VL-60715), which contains an SD card for recording, and also the AudioXtract software from Jambalaya (http://www.audioxtract.com/?a=33883), which has so exercised the RIAA that it has begun to focus FCC attention on the issue of captured audio streams from internet radio and digital radio broadcasting (http://www.lessig.org/blog/archives/DAB%20letter.pdf), citing the UK experience in passing. Jambalaya's own September newsletter contains a letter from a user who underlines the appeal of the product:

"Anyway, thanks for a great product that I can use at school without the campus
Gestapo knocking on my door about Kazaa."

The past couple of weeks have introduced yet more variables into the equation:

• We were intrigued to learn of a development called the SlingBox from California start-up SlingMedia (http://www.slingmedia.com/), which allows users to view/listen to content streamed from their home cable/satellite/TiVo/stereo device via the web to other devices at remote locations. We are attempting to learn more from the company, but our initial understanding is that the SlingBox adaptor is connected to the desired device at home and can be accessed web-mail style and manipulated from another internet-enabled device anywhere in the world. This certainly poses some interesting and uncomfortable issues for the content and distribution worlds, as now both place and time become less relevant in the consumption of media.
• We were also interested to see the arrival of ATZIO (http://www.atzio.com/), which seems to be attempting to take the concept behind Torrentocracy (a P2P PVR) and make it palatable to rights holders by adding digital rights management to the mix. P2P then becomes the distribution partner, not the enemy, or so the marketing pitch probably goes. This is clearly something we expect to see more of, as we have previously seen with the Morpheus/Heart deal (http://eurotelcoblog.blogspot.com/2004/07/daiwa-eurotelcoblog-no_20.html) in the music sphere, though whether giving the file sharers a cut of the action will be part of future video deals is impossible to judge.
• More intriguingly, Newsweek yesterday reported that TiVo and Netflix are about to unveil a joint venture to allow direct downloads of video content from the web. We think this was pretty much an inevitable development, but given TiVo's other initiative (TiVoToGo, in which users are permitted to move content to other devices), there are again questions which arise longer term over how to control content flow, and perhaps build business models involving P2P distribution architectures.
• Lastly, and this is pure speculation on our part, we wonder about the 2GB (roughly the equivalent of three feature-length films) file transfer capability included with Skype 1.0. What we initially regarded as quizzical in a "voice application" appears distinctly different when viewed in the light of attempts to harness the P2P phenomenon in legal content distribution. We assume that the content owners did not share our initial short-sightedness. With over 20m downloads, 10m registered users, c.550k concurrent users on average, and - crucially - a growing number of SkypeOut users with live accounts linked to credit cards, should the entertainment industry not be exploring how to get sanctioned, protected content into the Skype pipeline?
  

As fits our long-term fundamental scenario for the sector, the telcos are largely absent from all of these developments, save for providing the pipe which enables it all to happen. Defining their position in the content sphere in a meaningful way beyond the access layer looks to be getting more challenging by the hour.