Lack of leadership, exclusive content deals and impossible charging models stand in the way of broadcasters and carriers delivering the utopian promise of affordable interactive multimedia services to New Zealand homes.

In the not too distant future viewers will be able to customize and programme their own viewing experience mixing and matching content from set-top box hard drives, the internet, pay-per-view and on-demand movies, dramas, TV series and music clips plays as well as traditional broadcast services.

Internet-based compression technology, streaming systems and management software are rapidly reaching the point where video or films can be streamed via wireless or DSL to PCs, TV sets or hard disks for replay at your leisure.

Major carriers and some ISPs are upgrading their billing systems to cope with converged content (see TR March issue) and optimising their networks to deliver videos, movies and interactivity.

This is forcing carriers and broadcasters to review their traditional business models, their partnerships and their role in the converging world of digital communications, interactivity and infotainment.

With little in the way of leadership from the government bewildered broadcasters are trying to determine how to convert to digital with sufficient added value to take their audiences with them and still end up paying their way.

The transition to digital will cost the free- to-air channels 10s of millions of dollars not only in converting their networks and transmitters but also swapping users to new set top boxes. In 1999 an independent evaluation by the Institute of Economic Research suggested it would add at least $150 million to overall operating costs for free-to-air broadcasters over 10-years.

Shared digital strategy

The New Zealand Broadcasters Council which comprises TVNZ, TV3, Sky, Prime and the TAB has been working on a shared strategy for digital but despite a decade of deliberation they’re still at the early stages.

So far in New Zealand there is no such thing as video on demand. The closest we have is hotel and motel systems provided by Maginet and Movielink which screen a selection of movies soon after their big screen release. Sky TV delivers eight pay per view channels and TelstraClear provides four channels in Christchurch and Wellington of content soon after video store release.

While the broadcasters are sorting out their identity crisis telecommunications carriers and internet service providers are re-inventing themselves as entertainment and content providers.

One of the wild cards is Microsoft with its Windows Media Server and the multiplicity of alliances it has forged around the world with set-top box developers, cable and TV networks and content providers.

Locally it already delivers up a kind of video on demand through Xtra’s broadband channel where short movies, music video clips, rugby and news footage are available for those who can afford the luxury. There are two Windows Media Servers in the background delivering up content optimised for Media Player 9 over high speed DSL connections.

I viewed two short films over my JetStream 600 connection and clocked up 250Mb of usage. If I watched a couple more clips I’d be over my data cap and paying 20 cents per megabyte. A typical 4Gb movie could end up costing me several hundred dollars.

Jay Templeton, Microsoft’s product marketing manager Windows Client division,
has built up his own version of a Microsoft Media Centre PC in his home. It sits alongside the TV with 256Gb of hard drive and allows him to play DVDs and stored content, watch Xtra’s broadband clips and surf the internet through Windows Media 9 player.

Glimpse of the future

This entertainment hub is a glimpse of the future, integrating with his sound system through a Bluetooth connected wireless keyboard giving him full control over the viewing experience. The system is ready for video on demand if only someone was providing the service. The biggest impediment in making such a device available here is the formatting to watch local TV optimally and the lack of "true flat rate real broadband" to make on-line content economical.

Microsoft is in discussion with all the local carriers – including Sky, which is considering a step up to the next generation set top box for greater interactivity. Mr Templeton says most networks and carriers know the potential of the technology. In future iterations Windows Media 9 will have HDTV (high definition TV) capability and record content to your hard disk.

Telecom’s board recently had a sneak preview of Microsoft’s XP Media Edition, the Microsoft Media Centre PC, voice and video messaging and enhancements to Xbox to give it a taste of where the market is heading.

Telecom has paddled in the content pool before. Its First Media cable service delivered across fibre-coaxial cable in Auckland and Wellington eight years ago wasted $100 million before it was abandoned. Telecom had discovered DSL and claimed this was the medium over which it could deliver movies and TV. After initial trials this was downgraded to internet only aka Jetstream.

Enter the three month JetVideo trial to about 100 homes in Auckland, Wellington, Christchurch and Taranaki that ended about a year ago. Participants watched a range of movies and music videos provided by Intertainer Asia.

The service, delivered to PCs over full speed Jetstream connections was ‘to gauge user reaction’. "The main thing we learned was that people don’t want to watch TV on a PC they want it on a TV set. It also showed us that we do have the technology and the bandwidth to pump this down the DSL line at good enough quality," says general manager of product and content sourcing Ralph Brayham.

Video over DSL

While video over DSL will be ‘a massively interesting development’ he denies Telecom has a commercial launch planned in the next 12 months. He’s nonetheless enthusiastic about the next lurch forward. "The ability to plan your internet, TV and messaging experiences could see a profound change in the way people think about entertainment. It will further extend the Telecom brand another leap step into becoming a content and entertainment company," says Mr Brayham.

He says the cost of accessing content is a real issue for Telecom. "I’d like you to give me $20 a month to get some basic movies and $30-$40 to get an internet connection with variable pricing across the different types of services you want. I’d like to see billing not on the basis of how much traffic you use but how much value this is to you. "

Telecom is currently investing $360 million in optimising its network for new generation services and building what is calls a multi-access portal capable of delivering a suite of services across any of its networks including interactive television and video-on-demand.

Alcatel, as part of its ongoing contract with Telecom has deployed Axiom’s AXiOSS Suite of products which enable automatic order handling, activation and other capabilities to support voice over IP, video over DSL and video on demand. Juniper Networks has also partnered with Alcatel to implement broadband remote access servers across its DSL network enabling quality of service guarantees for gaming, video and data streams.

Juniper e-series servers are deployed across 52 per cent of broadband networks in Asia Pacific. "Our equipment enables you to take a stream, replicate it at the edge of the network for near video on demand or broadcast services for up to 30,000 subscribers," says Andy Miller Juniper’s director of marketing for Asia Pacific

He says the business models are becoming clearer and the cost of equipment much more affordable. For example Hong Kong’s NowTV goes direct to a set top box on the TV, Intel is has a new reference design for low cost IP set top boxes for TVs and DVD players are being turned into set-top boxes. "The writing is on the wall. Delivery of TV over broadband is more economical but there’s a need for new billing mechanisms which don’t charge by the Mb or on a time base for internet but on a per view basis for movies."

Brokering content deals

The other exciting shift he says is about content ownership. Anytime (formerly Intertainer) has cut deals with studios to get access to movies and resell them to service providers on a pay per use charging scheme. And while this model best suits local providers who can guarantee quality of service Juniper is in the process of brokering global deals with broadband providers to define business models, standards, content billing and service levels for global broadcast and on-demand services across what is being called the infranet.

Once the conduit works then content comes back into focus. To that end Telecom last year signed a 5-year exclusive deal with Sky TV. Through this it can bundle Sky to its existing customers with a single billing arrangement and have Sky’s existing content or repackage it for its own DSL programming when its ready.

Sky remains king of digital, and the major content provider, hosting TV1,TV2, TV3, TV4 and Prime on its satellite-based service. The only competing offering is from TelstraClear which has 38,000 customers and is in the midst of shifting its cable network in Wellington and Christchurch to digital in preparation for launching 25 new channels by mid-year. It is also locked into an exclusive content agreement with Sky. Sky views the partnership with Telecom and TelstraClear as simply another way to get its content to market.

It has contracted Advanced Digital Broadcast (ADB) to provide set-top boxes which will be connected by cable modem, and use a smart card to identify users to the back-end systems.

TelstraClear will have a 24 hour on-line programming guide and widescreen functionality initially but more interactivity including email, texting and ‘walled garden’ web access will be available once the business case is proven, says Rachel Prendergast, TelstraClear’s manager of TV services

The system is also being built with video-on-demand in mind. "We do see the internet as an option to get outside Wellington and Christchurch but we need local loop unbundling to do this. Wireless just doesn’t look like its’ up to handling video," says Ms Prendergast.

Meanwhile Sky is upgrading its internal technology to move up to the next level of service delivery and in the early stages of assessing a next generation set top boxes which would include a personal video recorder (PVR) and hard disk for storing downloaded movies.

This could also be the step toward providing video on demand which is impossible with the current system. Either a lot more transponder space is required or a hard disk based box to pre-record what the customer orders.

Which set top box

Sky has about seven brands of set top box in the market including Motorola and Zenith. Currently channels are highly compressed to fit them all in and interactivity is a bit clunky and limited to games, a programme guide, betting and the weather.

Sky will retain its OpenTV operating system. "We’re working on making our interactive system more accessible and in the long term we’ll look at advertising and e-commerce. We’re encouraging local developers to work in partnership to develop applications for the platform," says Sky ‘s head of technology Charles Ingley.

For the moment Sky’s precious transponder space is maxed out but more capacity will be available from 2005 when Optus swaps its existing satellite with a new generation bird.

Currently Sky has about 550,000 customers – the majority of which have moved across to its digital service which offers close to 90 services including 56 TV channels embracing movies, news, sport, free-to-air, music, games, gambling, a weather channel and pay-per-view. The eight pay-per-view movies - at $7 a shot - are served up from an nCube server at TelstraClear’s data centre in Wellington.

Meanwhile history has begun to repeat with Ihug offering 128kbit/sec Jetstart at a flat rate, paving the way for a more liberal approach to rich content over broadband. The impediment for expanding up the ‘bit stream’ is Telecom’s continued control over higher speed DSL and the billing that goes with it making it unprofitable for other ISPs. Ihug which in the past has plans for its own pay TV outlet and recently dumped its hotel video system won’t offer content again until it can get access to higher speed flat rate options.

Iconz research and development manager John Russell also believes Telecom’s pricing of DSL is the biggest show stopper for deployment of broadband services. "With an uncapped higher throughput service there’s a thousand things that will suddenly become available."

Iconz has been talking to a number of content providers with the idea of having time-shifted channels, specific movies and TV shows, live video, multicast events and video from static points like traffic feeds so people can look at the state of the motorway, says Mr Russell.

Rather than just speculating on possibilities Iconz is ‘well into it’, with partnerships being tied up, database technology under development for interactive searching and billing models being constructed.

Set-top boxes are also in the roadmap. " We see ourselves as a partner. Every effort will be made to keep this open so we can integrative with other people’s services. " A major announcement is expected later this year.

"We see ourselves as a channel partner for mainstream broadcasters. They should be pleased to work with us as we’ll provide a whole new delivery method and revenue stream for their content."

Iconz is also exploring digital rights management technology which is says is pivotal if the company wants to prove to content providers that they have some level of control.

Mr Russell says it’ll be pointless simply having a huge database of available content. "It will need layers of interactivity wrapped around that. People are going to want to look for specific shows, for example an episode of The Goodies where Tim Brook-Taylor did something specific. A menu might come up and after conducting a heuristic search you can confirm this is the episode and pay your money."

By-passing the system

However one system currently in low volume production from US-based TV2Me could throw the business plans of carriers and broadcasters into disarray, (http://spaceshift.org).

Currently there are video servers in Moscow, New York, London and Tokyo which enable television services to be delivered over DSL cable to anywhere in the world. All a subscriber needs is a set-top box and a card with the right permissions programmed in.

Northland-based publisher Bob Cooper , a minor shareholder and co-developer of the product, claims key people at TVNZ and at BCL were awestruck" when he demonstrated its capabilities.

As long as you have DSL at 384kbit/sec or better you can go to your URL and access your entire litany of TV programmes which can be delivered to wherever you are in the world.

The base station is simply a card that slots into your PC or laptop. "You can have full control over the set top box back at your home location and while Windows Media 9 produces great results, anyone wanting broadcast quality results can get this over a faster line."

One of the first users is rock musician Sting who subscribes to Rupert Murdoch’s BSkyB from his houseboat on the Thames Rover. When he is touring to any part of the world he simply plugs his Macintosh into a DSL line or plug his laptop into the SVHS input on a TV set and get broadcast quality.

Other users of the system include people within the United Nations who view their home country television stations in their offices in New York. "The first New Zealand user is an Auckland businessperson who prefers German TV. He’s purchased a server to be placed in Germany so he can watch up to 80 channels from his home country."

The servers which initially cost $US20,000 are now down to $US6,900. At the moment however the demand far outstrips the ability of the developer who isn’t in full production yet, only manufacturing 100 units at a time.

"If my friend in the US can provide you with SDHS quality video half way around the world or in the next block what is the added advantage in doing it digitally through a piece of coaxial cable? As the algorithms get smarter I don’t think there’ll be a business case in a year or two," says Mr Cooper.

Technology is marching onwards and the internet, and IP-based networks which have forced re-engineering across the voice and data market are now enabling a mature alternative for video. For the moment the barrier is Telecom’s pricing of higher speed DSL, an issue that can only be resolved through unbundling.

When that happens true convergence with broadcasters and ISPs partnering up for rich multimedia services to the home will finally become possible.

While broadcasters remain defiantly loyal to their traditional formats and over protective of their advertising clients the market they’ve had to themselves unchallenged since the 1960s is fast being eroded.

They must review their priorities - are they providers of content or builders of infrastructure? If they’re both can they share their content and the costs of getting to the mass market and still be competitive and passionate about creativity.

And if they don’t add significant value why would any subscriber move with them into the digital age where free-to-air will no longer be free and the same services or better are available on Sky or via the web?