Television over telco

I remember attending the launch of JetVideo at the temporary America’s Cup village in Auckland in 2002.

Back then, it was an attempt to get customers to watch movies on their laptops to boost uptake of ADSL services. It failed, in no small part because ADSL1 wasn’t really up to the job but also because back then it was all too hard to explain. Why would you want to watch a movie on your computer? It just didn’t make sense to a lot of people and the project was quietly shelved.

But of course it did make sense - it was just a bit early for some to really fully grasp.

The internet is the perfect delivery mechanism for high-definition video content because it means the costly business of delivering the content is nullified. No need to ship tapes around the planet, no need to delay the launch of a movie and lose all that lovely marketing build-up, no need to deal with intermediaries at all – just go straight to the consumer and let them wear the cost of carriage.

That’s what makes Telecom’s other announcement on Friday so interesting. Changing the name is fine because Telecom was always supposed to be a temporary moniker anyway. I think it's a good move because I still get calls about “Telecom” when the caller means “Yellow” or “Chorus” and because it draws a line under the bad old days of walking backwards slowly, to borrow a phrase, and means the company can now get on with the future.

And the future for the retail telco market is in making sure customers use your service, typically delivered over someone else’s network.

The move does bring a few matters to the fore, not least net neutrality; the issue of access to content and of course money.

First things first, net neutrality.

In the US this battle is just starting to really get serious, with Netflix signing a deal with Comcast to make sure Netflix customers get access to the service.

Some accuse Comcast of stand-over bully-boy tactics, especially when it became apparent that Netflix customers were being throttled one way or another in the past few weeks.

Others say the deal that’s been struck is simply a peering arrangement between a large content provider and its carrier so there’s no problem, nothing to see.

But it’s more than that. Comcast was supposed to be able to make money from its customers – end users, like you and me – and yet here it is demanding payments from the other end of the spectrum as well. Content producers, it seems, will be asked to fork out for delivery of their product to consumers. The telcos will get two bites of the cherry.

So what does that mean in the Telecom ShowmeTV context?

The first question is, will Telecom use television to create a walled garden and to differentiate its ISP offerings from the other players in the market?

The answer appears to be a resounding no. Telecom says it will make its TV content available to other ISPs. That is, it won’t be buying content exclusively for Telecom customers.

That’s quite interesting and not something the old Telecom would have considered.

There’s an aggregator role in the content world that is up for grabs. Sky TV wants it, TVNZ could do it but it could also fall to a newcomer like Netflix or Quickflix, although both have issues. Telecom and Vodafone are two obvious candidates to add to the list and it would appear both are interested to some degree or other.

I’ll be very  pleased if Telecom resists the urge to use ShowmeTV as a way to shore up its ISP customer base because this is an entirely different market for the company, and takes it in a new direction.

Vodafone already offers TV over its telco networks, of course but it’s chosen to cement its relationship with Sky TV and so simply resells Sky’s line-up.

Telecom is talking about a whole new approach, buying “subscriber video on demand” (SVOD) rights and offering a New Zealand equivalent of Netflix.

Currently only Quickflix is doing that legally in New Zealand and is struggling with a back catalogue and limited access to new content. That’s changing, and the company is starting to make headway in the market but it’s taking a long time.

One of the reasons for that lag is access to content, and this is something Telecom will face as well. Although Sky TV tells me it doesn’t have any SVOD exclusivity, it does appear to have contracts with ISPs that prohibit them from making money out of non-Sky content. That is, if you want to offer Sky content you have to take the entire Sky TV package and you can’t add on anything of your own.

The Commerce Commission concluded there was a case to answer, but declined to press charges because of the costs involved. Clearly this is a piece of legislation that will need looking at if that’s the case because it’s not working terribly well.

Which brings up larger question about regulation – internationally telecommunications and broadcasting are starting to be merged together under one regulator. New Zealand is quite unusual in that it doesn’t have any form of broadcasting regulation to speak of. Should we go down that track?

I’d rather see the Commerce Act tidied up to begin with but Telecom’s foray into television will result in a discussion about such things if nothing else.

Which brings us to the root of all evil, money. Telecom is putting up $20m for its content buy-up, which is a large chunk of change but pales into insignificance next to Sky TV’s hundreds of millions of dollars spent each year. Will Telecom be able to compete?

In the UK, BT has also gone down this track with spectacular results. BT has bought the rights to Champions League football and made all 350 matches available to subscribers. In doing so, it has attracted a million new customers, making it a tremendously powerful play.

But the rights cost BT nearly £1bn, so those new customers “cost” the company £1000 each. That’s a heck of a lot of cash to pay for a customer, and as Simon Moutter pointed out at a Commerce Commission conference late last year, BT can afford to do that because it’s a vertically integrated player. Telecom/Spark is not, and would take years to repay that sort of customer acquisition cost.

That’s probably why telcos like Comcast, which face a future where they can’t make money from toll calls, TXT messaging or indeed anything but data bundles, are looking to content producers as a new source of revenue. Sadly, the content producers face exactly the same crunch as the internet does to the content market what it’s also doing to the telco market – that is, cutting out the middle man.

What do you make of Telecom’s move? Will we see more of this kind of deal in the future, and where do you get your television from today?

Paul Brislen is CEO of the Tuanz, the Telecommunications Users Association of New Zealand.