The Middle East is shaping as one of the world's leading markets for IPTV service delivery.
With IPTV infrastructure spending predicted to top US$26 billion worldwide in 2009, marketers are lining up to tap the new commercial opportunities the platform provides, particularly in the form of targeted advertising campaigns, writes John Reister.
A recent report by research company Infonetics concluded that the Europe, Middle East and Africa (EMEA) region accounted for 48 percent of worldwide IPTV service revenues in 2007.
In the Middle East, growth is being largely fuelled by consumer demand for multiplatform media access and the increased availability of enabling technology infrastructure to support operators' plans.
Sustaining this growth long-term however will be no easy task. One of the key issues confronting service providers is how to effectively differentiate their service offering from those of their competitors.
Satellite television providers dominate the market in the Middle East, while fledgling IPTV operators also face a commercial threat from the internet, which has emerged as a lucrative platform for the delivery of digital content.
As more and more traditional television programming becomes available online, consumers are already confusing ‘Internet TV' with ‘IPTV'.
Internet TV or Broadband TV generally refers to the delivery of video content over broadband connections via the internet, while IPTV more often refers to the delivery of a multichannel television service over a IP multicast network, typically provided by a telecommunications carrier.
The danger is that this increasingly competitive environment could serve to drive television service fees down, regardless of the development of new content and enhanced services.
In order to ensure a profitable deployment, IPTV service providers may be forced to put their own spin on the traditional broadcast business model.
The ability to develop customised, or addressable, advertising services is one of the greatest benefits offered by IPTV as a content delivery platform. In other words, IPTV networks offer the ability to deliver customised content to individual recipients.
When referring to IPTV, the IP endpoint is the television set or the set-top-box attached to it, which allows programming or television commercials (TVCs) to be tailored for and delivered to specific television receivers.
This capability could prove key to enabling IPTV service providers to generate additional, incremental revenue streams as they seek to expand their subscription base.
Addressable advertising's potential as an incremental revenue stream reflects overall changes in the media and marketing industries. Today, consumers are serviced by an unprecedented number of media platforms, which creates issues for marketers in a fractured advertising market.
While online advertising revenues have increased rapidly in recent years, television ad revenues - while significantly greater overall - have remained relatively flat in terms of growth.
One of traditional television advertising's chief drawbacks is that it is inherently difficult to target the precise audience that will be most interested. A recent survey by industry analyst Continental Research concluded that relevance is fundamental to creating brand recognition in the marketplace and driving consumers to action.
Today's television viewers are rapidly losing patience with irrelevant and misguided advertising. Digital video recorders (DVRs), which are becoming increasingly commonplace in Western households, allow viewers to skip ads they are not interested in.
As a result, advertisers are looking for ways to improve the efficiency and effectiveness of their advertising campaigns, and many are willing to pay significant premiums to reach their target audience with more engaging and relevant ad messages.
In this context, targeted advertising delivered via the internet maintains a major advantage over its televised competition.
IPTV's targeting capabilities could help television broadcasters retain their share of total advertising market revenues.
With sophisticated video processing capabilities at the network edge, IPTV providers could deliver tailored campaigns to individual service subscribers.
They could also target large or small groups or even individual television sets, with many hundreds or even thousands of TVCs transmitted simultaneously during the same scheduled programming break.
Advertisers could provide operators with rules and methods to deliver more specific information to various geographic areas or demographic groupings at different granularity: from national, regional or local to an individual set-top box (STB) or specific household.
This strategy can be based on largely anonymous demographic information or user behaviour, such as channel change history or user ‘opt-in' type offerings.
Increased personalisation can improve revenue generated on a per-ad basis for operators and content providers alike. Needless to say, addressable advertising should only be implemented in strict accordance with privacy regulations.
For addressable ad technology to work effectively in IPTV networks, content providers have to deliver available time slots for advertising.
This involves segmenting bandwidth within content streams to enable video delivery operators to insert ads, using splicing techniques to target specific regions.
This practice, prevalent in the US and beginning to spread to other regions, could prove highly lucrative for content delivery providers.
Operators might conservatively expect to generate $5 - $6 a month of incremental revenue per user for regionally or demographically-targeted ad placement.
IPTV operators can also provide feedback to clients regarding their TVC's market penetration, based on data detailing the number of viewers in a specific location or demographic who viewed the campaign.
Historically, content providers have extracted a premium for content that includes specific marketing opportunities for the service delivery provider. The delivery provider keeps all the ad revenue but must have an advertising sales force to sell the opportunities.
When referring to this new wholesale ad delivery regime, the content provider allows the IPTV delivery operator to carry out the ad insertion process. However, the content provider maintains ultimate control when it comes to selecting certain ads for specific target markets.
In return, the operator provides data to the content provider regarding the number of households that actually viewed the ad. As a result, the content provider's 'product' is now much more refined, enabling it to attract the attention of a greater number of advertisers and halt defection to the Internet.
Addressable advertising services are feasible today and the approach offers benefits to operators, content providers and consumers alike.
A greater number of viewers would be willing to view TVCs for products and services that are relevant and tailored to their specific areas of interest. For content providers, the extra revenue generated could fuel new content creation.
Addressable advertising not only offers IPTV service operators the potential to extract greater yield per ad, but also the ability to sell a specific slot to multiple advertisers, thereby optimising revenues by delivering multiple TVCs to specific regions or demographics.
Such a strategy would also enable IPTV service operators to fetch much higher average revenue per user (ARPU) from the targeted IPTV ad revenue.
Just as IPTV proves a potential boon to service providers, the stakes for technology providers are equally high. Infonetics predicts service providers worldwide will spend $26 billion on IPTV infrastructure by the end of 2009.
Given that the Middle East ranks as one of the world's leading IPTV markets, a significant percentage of this revenue will no doubt be generated in this region.
Addressability could prove a key counterbalance to IPTV's intensive capital requirements. If the advertising industry's interest in the technology is any indication, service providers that develop their networks from the outset with scalable targeting capabilities in mind will likely recoup the costs of network investments faster.
The advertising industry has been eagerly awaiting the development of a truly targeted TVC capability for more than a decade. If IPTV technology can deliver on its promise, their wait should soon be over.
John Reister is the chief IPTV architect for US-based broadcast technology specialist, BigBand Networks. This is his first contribution to Digital Broadcast.
The pay-TV market in Western Europe is generally considered mature, but the increasing deployment of IPTV services will see the market enjoy a modest rate of growth in the number of households subscribing to pay TV services, according to new research published by UK-based Analysys Mason.
The company forecasts the number of households in the region subscribing to pay TV services to increase at a CAGR (compound annual growth rate) of 3.2 percent from 90.6 million in 2007 to 109.2 million by the end of 2013.
IPTV's share of this market will rise from six percent in 2007 to 15 percent by 2013. However, the platform will account for just eight percent of pay TV subscription spend in Western Europe in 2013.
"The adoption of IPTV services will be driven by a combination of factors, including the proliferation of multi-play strategies; latent broadband growth; improving brand recognition and the general transition to digital TV services as analogue services recede in Western Europe," explains Analysys Mason's Richard Hadley.
However, the growing popularity of IPTV services will contribute to a slowdown in pay-TV spend as these predominantly lower-value TV packages are increasingly bundled with telecoms services."
Other findings of the company's research include:
• Spend on pay TV subscriptions, including expenditure on PPV/VoD services, will grow at a CAGR of 4.5 percent from $33 billion in 2007 to $43 billion by 2013;
• Cable TV will remain the most popular pay TV platform, accounting for 48 percent of Western European subs services by 2013.
• Direct-to-home (DTH) services will account for 29 percent of Western European pay TV subscriptions and 54 percent of pay TV spend in 2013, compared to 28 percent and 52 percent, respectively, in 2007.