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Connected Homes March 2012 Viewpoints

Technology Analyst: Kyle M. Whitman

Pay-TV Streaming

Why is this topic significant?

Implications of Commercialization in the Technology Map describes several potential outcomes for home-network-environment development trends, including outcomes in which PCs, televisions, and service providers come to play dominant roles in home-network environments. Pay-TV providers have increasingly been adding internet-protocol-based video streaming to their offerings to allow their customers to watch their pay-TV content on PCs, smartphones, and tablets connected to a home network.

In the past five years, services that allow individuals to stream television shows and movies using broadband internet-protocol (IP) connections have experienced very significant growth in terms of viewership, catalog offerings, and number and type of devices other than PCs that can stream. But despite such growth, no stand-alone streaming service offers the full range of content that is available to pay-TV subscribers, frustrating individuals who desire to "cut the cord" (replace pay-TV subscriptions with purely IP-delivered offerings). In the United States, where IP streaming-video services have the broadest reach and biggest catalogs, only some 5% of households have both a broadband connection suitable for streaming IP television and no pay-TV service (relying instead on a mix of IP streaming and free over-the-air broadcast for TV content), according to a recent Nielsen survey. The same survey revealed that the number of such broadband-plus-broadcast households grew nearly 23% during 2011 (that is, from 4% to 5% of US households). But pay-TV subscriptions also grew during 2011. Thus, most of the growth in broadband-plus-broadcast households likely came from the broadcast-only segment's acquiring broadband connections, rather than from cord cutting.

Meanwhile, pay-TV providers in the United States, Canada, and Europe have been deploying increasingly sophisticated branded IP-streaming services, innovating to maintain their relevance in the face of a transition from scheduled programming to watch-when-you-want lifestyles. In recent years, streaming via pay-TV services consisted of a front-end for dedicated stand-alone streaming services that do not require a typical pay-TV subscription. For example, pay-TV services bundled their channel lineup with streaming videos from Hulu and aggregations of streaming content that individual television networks provide on their own sites. People who have no pay-TV subscription can enjoy the same content, so such bundling was not a differentiator for pay-TV services. But now, pay-TV services commonly stream proprietary catalogs of TV and movie content.

Most pay-TV networks that offer streaming allow subscribers to access a library of on-demand content, the extent of which varies from one provider to the next. Typically, subscribers are able to access content libraries on both PCs and mobile devices, including smartphones and tablets, provided the device has a supported application or browser. Subscribers can access content from any location within a specified region (usually throughout the country in which the subscription address is located) over any broadband connection.

Live Streaming

In the past two years, some pay-TV companies have started offering subscribers the ability to stream selected live-TV channels over IP connections. Companies typically limit the number, kind, and location of devices that subscribers can use to view live-TV streams. In many cases, subscribers can view live-TV streams over only the broadband connection at their pay-TV subscription address. Some providers will stream live TV to only customers who also subscribe to the provider's broadband-data service, but others are more inclusive. For example, US pay-TV provider Cox requires potential users of its Cox TV Connect application (which streams live TV to a customer's iPad) to subscribe to both a Cox pay-TV service and a Cox broadband service. In contrast, Time Warner, another US pay-TV service, will still stream live TV to a subscriber even if that subscriber uses a competitor's broadband service (although the subscriber is still limited to streaming from the subscriber's home only, where a set-top box controls access to programs delivered both to TV sets and internet-protocol devices). Device limitations are also commonplace. Some services currently will stream to select Apple devices only. For example, UK pay-TV provider Sky TV will stream video to iPhones and iPads only. Other providers limit streaming to iPads only. French pay-TV provider Canal+ allows PC users to view live-TV streams and on-demand content but does not appear to have applications that work on mobile devices. And Verizon, which operates a fiber-optic pay-TV and broadband service in parts of the United States, allows subscribers to stream live TV to their Xbox 360 consoles.

Currently, Verizon appears to be the only pay-TV provider that allows subscribers to stream live TV to a TV-connected device such as Xbox 360. But Comcast, the largest cable-TV operator in the United States, also announced plans to allow its Xfinity cable subscribers to stream IP TV content to their Xbox 360 consoles, although the company had not done so as of March 2012. A number of individual television networks do offer relatively device-agnostic streaming to pay-TV subscribers; for example, Time Warner–owned HBO offers HBO Go, which can stream HBO content to mobile, PC, and a wide array of TV-connected devices and smart TVs, provided the individual subscribes to HBO via a local pay-TV provider.

Linking Streaming to Pay TV

Linking streaming-video service to pay-TV subscription appears to be emerging as a preferred business practice among pay-TV channels—and pay-TV service providers, many of which also own (or are owned by) large film/TV industries that own the rights to distribute and reproduce popular programs and movies. Ever since IP video-streaming services first began emerging, channels like CNN and HBO have found themselves in an almost untenable position. A channel can capture additional revenue through licensing some or all of its catalog to one or more streaming services, or the channel can simply opt to forgo that additional revenue stream (which, in some analysts' view, induces potential streaming viewers to turn to digital piracy in order to view the content they want in the way that they want). But pay-TV channels typically earn most (if not all) of their revenues through the carriage fees that they charge to pay-TV providers. To the extent that channels sign licensing deals with streaming services, they reduce the amount of leverage that they have with pay-TV services when the time comes to negotiate a new carriage agreement. Pay-TV services can argue that they should have to pay less money to carry a given show if their subscribers can view the same show over a streaming service for a monthly fee that is typically far less than a pay-TV subscription. Through linking streaming-IP video access to a corresponding pay-TV subscription, channels preserve their negotiating leverage with pay-TV providers. If anything, channels gain additional leverage because they are providing greater value for pay-TV providers in the form of streaming licenses, especially if those licenses are deliberately not going to be available to competing streaming-only online services.

By moving into IP video streaming themselves, pay-TV services also hope to be able to provide additional value for their customers and deter those customers from becoming cord cutters. Certainly, pay-TV streaming services can be attractive benefits for current customers (who also tend to be the heaviest users of IP-streaming services, according to Nielsen). Pay-TV services' current focus on providing streaming for secondary screens in the home is somewhat limiting, in that it ignores efficiency gains and customer convenience that can come from elimination of dedicated set-top boxes (STBs) in favor of a wholesale switch to streaming IP video delivery.

One interesting recent development in pay-TV streaming hints at a possible future path toward eliminating the STB—or at least replacing it with somewhat of a "thin-client" alternative. Comcast has recently begun offering a new pay-TV streaming service, Xfinity AnyPlay, in select test markets. AnyPlay appears to be the first pay-TV streaming service that offers subscribers access to the entire range of TV channels to which they subscribe—albeit on only a single iPad device connected to their home network. For a $10 setup fee, AnyPlay subscribers receive a user-installable device that resembles a cable modem. The device, Motorola's Televation, is essentially a stripped-down cable-TV tuner that converts a tuned cable channel into a MPEG-4 video stream in a proprietary digital format that prevents casual users from decrypting and recording the stream. A user plugs the device into a cable connection and then plugs the device into a port on the user's Wi-Fi router. The device then shows up as a special server on the user's home network. Users stream video from the device to one iPad at a time via the Xfinity iPad app (which, as is common with pay-TV providers, also offers users an interactive program guide and a convenient means of flagging shows for recording on a home digital-video recorder). The MPEG-over-Wi-Fi approach that the Televation device uses to deliver secure video over a home network is remarkable in its simplicity, given the great lengths to which many companies and consortia have gone to establish means of moving secure video content around a home. Perhaps in the future, successor devices to the Televation and similar devices from other STB manufacturers can provide pay-TV subscribers with simple, convenient, and seamless ways to deliver content to their myriad streaming-capable devices in the home. A marriage of pay-TV and IP video streaming may end up bringing new levels of utility—and novel capabilities—to the many hundreds of millions of smart TVs that will be installed in homes in the coming years.