There were two ideas occupying the minds of all the attendees of this week’s IP&TV World Forum, one very public, and the other they all thought was their own personal secret. The first is what to tell their boards about the move by Cisco to enter the market space, by paying $5 billion to take over the $1 billion revenue NDS, the Israeli/UK based conditional access company which has a special relationship with News Corp.
But it was the second thought that is perhaps the more significant, as the IPTV community once again ponders a future without an omnipresent leading force, as Microsoft Mediaroom virtually self-destructs. To most people this is a fact, but not an announced fact, and each player believes that he or she is the only person who is aware of it, but everything that was announced at the show, even the Cisco NDS deal, were focused on this truth.
Mediaroom came on the scene in blaze of glory and contract signings in 2004/5, and yet it did not deliver a single line of code to anyone which worked, much before 2007. The system was a promise, and with it, Microsoft soaked up all of the available tier 1 equipment revenue, denying many IPTV players much needed design wins. The market has, as a result of this, consolidated, with Motorola picking off at least 7 companies in the sector, including recently middleware player Dreampark, VoD server maker BitBand, DRM supplier SecureMedia, along with older deals for two encoder makers in Tut Systems and Modulus, another VoD server supplier in Broadbus, IPTV set top maker Kreatel. In fact Motorola has bought far more companies than this in the sector, but we’re not entirely sure that the product lines still exist.
Other IPTV players have been biding their time, changing direction slightly, and some have been acquired by a major operator parent, or are living off scant tier 2 deals. Survivors at the show included many who were in the new wave of IPTV conditional access back in 2004, such as Verimatrix, as well as middleware specialists like Orca, touting this week its final acceptance by its parent’s parent (it is now owned by Viaccess, which is turn is owned by France Telecom) of the middleware that it has been pushing since 2004.
We remember meeting then CEO, Haggai Barel at the 2005 IBC, and he had a very sour face, and he confided that Microsoft had ruined the market. We saw Barel wandering around the show this week too, but he, like many were enervated, as were numerous players, by the OTT slant that their products have now all adapted to. New player Comigo came out with an entire new OTT UI paradigm, and while the NDS stand had very few potential customers surrounding it, it had plenty of well-wishers and hangers on – curious visitors who merely wanted to know what Cisco had planned for it.
The answer is simple and it is down to the single elephant in the room, the idea that Mediaroom is failing and the fact that someone needs to take up its crown ‘ Cisco clearly believes that it is ready to do this. But more to the point, it is frightened that one of its rivals will do it if it does not act ‘ Ericsson, Alcatel or worse still Huawei.
So was there a big ‘closing down’ sign at the Microsoft stand? Of course not. But when one person lists the departure of major executives, such as Jim Baldwin, Wallace Colyer and sales leader John Walthall, to name but a few, gone either to the new mysterious Media division of Intel, that has yet to declare its strategy, or the new IPTV major, Ericsson, a company we have lampooned in the past for leading an IPTV standard without any IPTV integrations to its credit, then it all starts to add up.
One major story was the announcement by Ericsson and Verimatrix of the replacement of the Chunghwa system, replacing the original system, cobbled together early in the history of the IPTV movement, with contributions from Israel’s Optibase, Orca, Widevine, and Alcatel, with Acer set tops, all now entirely replaced and replenished with Ericsson network equipment, middleware, VoD servers and encoders and a brand new Verimatrix conditional access system.
It’s not the first Ericsson deal, but it is the first that sits in the same class as those deals that Mediaroom rolled out in the mid-noughties. It is unlikely to be the last and Cisco is concerned that with growing wireline influence in the Far East, Ericsson may begin to eat away at its own core revenues. Ericsson has almost as many acquisitions in its belt as Cisco, and taking the Nortel Switch assets, for example, is one that reaches into the core network areas usually associated with Cisco.
Mediaroom is now beset by an outpouring of senior staff, and we can add to the roster EVP, Andreas Mueller-Shubert, who had already left, and now the entire division reports to the Xbox division, instead of reporting alongside it. One Chief Marketing Officer at the show, in the form of Yann Courqueux, now resident at Netgem, put it very simply, ‘There is no more BtoB at Microsoft, it has decided that its entertainment strategy will now be BtoC.’
What he means by this is that Microsoft wants to reach out to consumers with an Xbox video service offering and grow its base of 10 million or so Live network subscribers directly, not through operators.
Corqueux himself is immersed in this new reality, struggling from over-reliance on the SFR IPTV system, and signing new customers like crazy, whether they are require set tops, middleware, cloud search or UI, in an attempt to regain momentum. That makes Netgem a very different company going forwards, but then again many set top makers are diversifying in the same way. Netgem was sitting comfortably prior to SFR going off and chasing the super set top vision ‘ a process which saw it going to multiple device sources to build its Evolution box, which offers a new service type to consumers ‘ it offers OTT hybrid, plays Apps, cloud search and recommendation and social TV ‘ and this is a strong trend being played out among the larger European pay TV operators.
Others at the show pointed out that the Mediaroom roadmap is largely delivered and has had no changes for two years, and others still talk about RFIs (requests for information) from the major Mediaroom players like Deutsche Telekom. One exec who wants to remain unnamed, went as far as saying that Mediaroom has no multiscreen strategy, and without that it means it has given up. It is of course hard for a Microsoft company to embrace iOS and Android tablets now, when they wish that the market would wait a year for Windows 8 tablets.
This leaves us with a peculiar problem for Microsoft. It must support existing customers for many years to come, and it may even try to get them to partner its new Xbox Live OTT entertainment services, although we suspect few of them will do so. Can it sell the division off? Probably not. Can it ever become profitable? Not without killing off all R&D and leaving the company with half the staff.
Mediaroom customers have clear need of guidance and given that 2004/5 is now 7 years away and that this magic number is often used as a reasonable period to write down telecommunications assets, the second generation of IP based entertainment is about to begin. Tier1 Telcos want to refresh their offering, and there is plenty of evidence of that with BT Vision already kicking out Mediaroom (see past issues) and outside of the Mediaroom world this week, Chunghwa and France Telecom launching services based on major new deals with new suppliers and a complete refresh of their lines.
OTT hybrid, smart TVs, apps and tablets are at the heart of all these strategy adjustments, and if a supplier such as Mediaroom, and also the Technicolor France Telecom incumbent, with its SmartVision offering, cannot tick all the new strategy boxes, then they will be swept aside, replaced or forced to take additions from new vendors to wrap around the existing service. The France Telecom owned Orca has now replaced the key SmartVision installation in France, and others are likely to fall, while Mediaroom has perhaps another 20 tier 1 players who now need to come up with a strategy ‘ including AT&T.
No-one is currently saying that Mediaroom services are not bringing in more customers at AT&T, just that no new features are being added and that it will eventually stall and that given that it will take about 4 years to bring new features to market, it had better move now. The entire Microsoft D-Server strategy for rapid channel change in multicasting, which allowed Mediaroom its dramatic entry into IPTV in 2004, is now a major stumbling block for the creation of adaptive streaming OTT services, and the fact that Microsoft would be forced to drive people towards the Apple iPad, instead of towards any of its own, yet to be launched, tablet devices and services, means that it has an intractable problem.
Why would anyone buy Mediaroom? It relies on set tops that run the Windows CE operating system, when set top momentum has been with Linux for years and is heading for Android. It relies on huge banks of HP and IBM servers for VoD and rapid channel change, when the world wants CDN delivered tiered VoD servers. The set top design uses up processing power driving channel change, not front ending a flexible, changing UI, with cloud services like search and recommendation.
It is companies like TiVo, which have been so popular at Virgin Media in the UK, which have shown how to add these services, while maintaining an existing infrastructure. And while TiVo might be the stand out success, the next name on a shopping list for major Telco equipment vendors, NDS is the new game in town in this area. Once totally focused on security, for the past two years NDS has espoused a vision of software layers both within the set top, and beyond it, in a conventional internet arrangement, which has led to its celebrated Snowflake UI and deals at companies like Liberty Global for the hybrid broadcast broadband Horizon set top and TV Everywhere service.
There are problems in this new strategy, in that it has yet to complete that project and bring it successfully to market, and in here lies a worry that it has never really done this before, while companies like TiVo have. At the IP&TV World Forum this week there were at least 7 companies on show that claimed they could do all of that, with existing products out of the box, but in a more flexible manner, with a better tried and tested SDK, and some more original ideas around social TV. But NDS does have the scale and it does have a major international organization and given that Cisco is really battling it out for some relevance in India and China, some way into telcos there that will see it take a fair share against its biggest rivals, it sees having a complete video strategy as something vital to its future.
If we wanted to get into China we would have bought a Chinese company, and if we had wanted it to make us more money, we would have brought a less project oriented business than NDS, with higher margins. But that’s not the reason Cisco wants it. NDS is the secret sauce that is supposed to bring IPTV deals to Cisco, which will ship the traditional routers and switches and content management components that it already has, behind such deals. And it is there that Cisco wants to make its profit.
And in the rest of the world, Mediaroom customers cannot throw out the Microsoft system, and they are reluctant to negotiate separate deals with point product vendors to fix their service offerings shortfall. If tier 1 players do that, it will get very messy. What they want is a single major player that will fix everything. And regardless of the condition of the Videoscape products at Cisco ‘ immature, incomplete and largely unused – this is the reason that it has acquired NDS, it thinks it can provide this single integration point for the tier one players in the West that it knows so well ‘ both to soak up Mediaroom sales, and to open new doors in the far East and to extend its existing customer services to those who have not yet taken the plunge into IPTV.
The fact that most of NDS customers are DTH not cable or IPTV, and the fact that its recent Snowflake wins are at cable companies, such as Liberty Global in the Netherlands for its Horizon box, should not disguise what’s happening here. NDS is supposed to provide the tools so that Cisco can come to the rescue of Telcos, not DTH or cable vendors, and replace the reliance on Microsoft with a reliance on the NDS-Cisco joint axis. Sure it will take cable customers if it can get them. Its old Scientific Atlanta set top business has equipment offerings for cable, and as we have said many times, down the track it could acquire Motorola Home, which has plenty of such services.
In product terms this whole integration with NDS is barely feasible, but it is feasible – just. NDS has a search and recommendation capability, provided by partners, which doesn’t quite work yet, but will soon. It has a fairly poorly developed UI service layer that needs more flexibility in its SDK and which is largely hard wired, but that can and will be fixed, and Cisco represents the back end of what goes on in the network and since OTT services do not use the access network in a specialized way (the way multicast routers were required and IP DSLAMS in first generation IPTV) the intelligence can slide further back into the network where VoD sessions and linear channels can be delivered as classic IP sessions.
Where is Alcatel in all this? We imagine running, with its tail between its legs to the router side of the market, trying to get operators to forgive it for forcing their investment so heavily in the outer regions of their broadband access networks, instead of in their generalized IP switching. Alcatel cannot pick up the OTT architecture market without explaining away its multicast leanings from the prior generation.
In fact Ericsson, who, as we have said, only began its foothold in IPTV through standards committees, the odd installation and the real time encoder business of Tandberg TV, is really well placed for this. Ericsson also paints a picture of seamless integration between OTT services to portable devices, and through cellular networks, as well as over fixed line architectures. When we spoke to Ericsson execs at the show they were ‘bigging up’ eMBMS and saying that cellular broadcasting will come into its own in the next LTE generation. Ericsson has a big investment in IP routing, and it has a reputation for managing networks for its clients and letting them pay for them as they begin to be successful. But then of course so does Huawei.
Speaking to Stefan Schneiders, Head of Mobile TV solutions, Nokia Siemens Networks, at the show, he confided that the company’s plans were now to chase the mobile broadband rainbow exclusively, and that video at NSN would get about as much investment as it is getting at Microsoft Mediaroom. So despite the fact that it has two major tier 1 networks in Belgacom and KPN as IPTV customers, from its Myrio purchase in 2005, it is virtually in the same boat as Mediaroom. If like Mediaroom it has no service roadmap for those customers, then they too are up for grabs in the OTT era.
So the entire old order in IPTV is being laid to waste and for the smaller players there are three potential outcomes ‘ that Cisco does a great job of absorbing NDS and integrating its products, and reaches in with a pre-planned Mediaroom replacement strategy, and just takes the OTT reins in this market the way Microsoft took the IPTV reins. A result like that could see some of them denied precious lifelines in the future. A second potential outcome is that Cisco does a half decent job, but can only address tier 1 players, and so simply replaces Mediaroom in terms of influence, working side by side with Microsoft to wrap an OTT layer around the existing service, and so leaves tier 2 to remain the staple diet of the remaining IPTV players.
But a third option is looming starkly in everyone’s imagination, that ‘once bitten, twice shy,’ tier 1 operators will reject approaches from another major new player, and Cisco spends 18 months or more integrating the NDS product line, leaving time for the smaller and agile IPTV and OTT eco’system players a chance to feed on the corpse of Mediaroom, teasing out all the meat before Cisco gets its act together. And it’s that opportunity that was lighting up all their eyes at IP&TV World Forum this week, and with good reason.