IPTV: The New Rich Kid On The World TV Box

A new technology is quickly creeping into our already multi-faceted TV universe, with the proven potential to revolutionize the way television is financed, delivered and consumed.

Indeed, this new technology, simply called IPTV, for Internet Protocol Television, could make satellite dishes, TV antennas, cable, VCRs and DVD players relics of the past and, at the same time, change satellite radio for audio and video mobile reception.

Nothing new here, the advent of IPTV was even announced in 1999 by VideoAge's editor Dom Serafini in his book published in Italy "Television via Internet: A New Frontier."

What is still astonishing, though, is, how, as Bob Jenkins' story on page xx can attest, industry executives still view IPTV as a PC-type of technology remotely associated with TV as we know it.

Instead, those of us who had a chance to experience IPTV viewing know that IPTV is a full-fledged TV delivery service comparable to digital cable, with all its VCR functions, PVR capabilities and VoD features. It is important to realize that

IPTV is the Internet-era equivalent of cable's 500-channel universe, only that IPTV will deliver many more channels, if only one at a time.

When a Company Becomes Synonymous with IPTV in Italy

FASTWEB is not the only broadband telecommunications operator in Italy offering IPTV service to its customers. Indeed, the market offers a few choices, but what makes it unique and "differentiates us from the competition," according to Susanna Vitelli, who heads up TV contents and TV rights acquisitions at FASTWEB, "is that customers can select exactly what they want, can pay for what they want and really tailor it to their own needs."

While FASTWEB is, first and foremost, a broadband provider, the company is fast becoming a major player on the Triple-Play scene, providing voice, Internet and video access to its customers.

When it was created in 1999 by Francesco Micheli and Silvio Scaglia, it was the world's first telecommunications player to use an all-fiber network and a full IP platform for voice, data and video delivery. Currently, TV only represents five percent of the company's revenue, but expectations are high for the future of the sector. "We are of a new generation," said Alessandro Petazzi, who is responsible for marketing FASTWEB's TV services, "we are targeting all kinds of customers (business and personal), and offering them all kinds services instead of just one or two."

The company has a unique customizing options and a-la-carte packages. This is how it works: for a 19 euro per month flat fee, users with a DSL or regular phone line can have access to FASWEB's basic Internet and phone services. For the basic fee, users are given 300 minutes per month, and they can decide whether they want to apply that time to the phone or Internet. Furthermore, for an extra eight euro per month, users can access the IPTV service through a decoder (or set-top box), which allows them to receive 18 free broadcast channels and 1,000 on-demand and premium channels, including music video clips and music programs. Viewers can fast-forward, rewind and stop while tuning into on-demand programs and movies.

Generally, the company follows the basic business model that the more you pay, the more premium channels you get. FASTWEB also offers a-la-carte packages for pay-TV - soccer, sport and cinema - and customers can customize their channels. Users who subscribe to IPTV have the added bonus of being able to access the Internet and e-mail via their TV screens. The Internet, phone and IPTV services all take place over a single connection - either Fiber-to-the-Home (for residential use) or Fiber-to-the-Office (for businesses) or a Digital Subscriber Line (DSL) connection.

FASTWEB uses its own DSL network that can only be accessed through subscription to its services. Customers, therefore, can only access services where this FASTWEB network is set up, and the DSL service won't work with another broadband operator, so the company doesn't have to worry about people taking the set-top boxes and using the technology elsewhere. The company has recently made a deal that allows users to keep their existing Telecom Italia phone line, but still use FASTWEB for their Internet and IPTV connections.

Last-mile FASTWEB access is provided either on an optical fiber connection (Fiber-to the-Home/Fiber-to the-Office solutions), available in Italy since 2001; or over unbundled DSL lines, available since 2003.

FASTWEB has now the advantage of being the largest IPTV provider in Italy, reaching one in four homes in Italy, and covering all metropolitan areas. The company has the largest customer base of any IPTV provider in Europe; France's FREE runs in second. In June 2005, total telecom services' Annual Revenue Per User (ARPU) was 900 euro, video ARPU was 69, down from 82 in March '05 and down further from '04. ." FASTWEB is currently experiencing a slowdown in the take-up of its video services, which is starting to impact its overall ARPU. The competitions' lower priced offerings for football series in Italy are reducing the demand for FASTWEB's IPTV service. The company is implementing targeted advertising programs and making extensions to its VoD services to increase the appeal of its video services. One recent example is the addition of the UEFA Champions European soccer league games, which are now available on demand via their ONtv bouquet. Viewers receive VoD access to a library of more than 5,000 programs supplied by the FASTWEB-owned ONtv and Italy's RaiClick channels. ONtv provides games, music, e-commerce, sitcoms and drama, among other things. RAI's RaiClick provides more than 3,500 titles, including news and movies.

According to second quarter reports, the company as a whole recorded a consolidated revenue of 421.9 million euro during the first half of 2005 (a 25 percent increase from the same time last year). Net financial debt was 181 million euros at the end of June, as opposed to 75.7 at the end of March, and 820.2 at the end of 2004. The total number of clients (598,200) was 180,700 higher than June 2004. 150,000 of the total FASTWEB users are IPTV subscribers. On average, they spend 30 euro per month: 20 euro to acquire programs from pay services, and 10 euro for VoD services. The breakdown between residential and business clients remained unchanged (respectively 85 percent and 15 percent).

The company's largest competitor in the telecommunications world is Telecom Italia, which currently has no IPTV service, though executives at FASTWEB said they expect the company to follow their lead and begin offering IPTV services by the end of 2005, or the beginning of 2006.

In terms of providing entertainment to its subscribers, FASTWEB uses two business methods: it acquires product from distributors and studios and offers it as VoD, and it redistributes international channels.

The company has content deals with many of the Hollywood majors, including 20th Century Fox, DreamWorks, Buena Vista and NBC Universal, and relies on them mostly for on-demand movies (though series can be bought as well). Animated movies often come from Europe rather than the studios, and Italy's top independent distributor, Medusa, distributes Italian and international movies to FASTWEB. Much of the Italian programming comes from Italian distributor Replay. Documentaries are often delivered courtesy of the BBC, Discovery or Mondo-TV. "We use a business model that is very similar to pay-TV in terms of windowing," said Vitelli. She explained that the company makes multi-year deals with content providers. "We define our economic criteria, guaranteeing a minimum number of subscribers during the first year," she said. Vitelli explained: "At first we were buying a lot of movies and product; now we know our audience a little better, so we are targeting them more specifically."

Another business in which FASTWEB is involved is the redistribution of international channels. The company acquires 18 terrestrial channels (including the U.K.'s BBC World and Italy's Mediaset-owned channels, Canale 5, Italia 1 and Rete 4) and also buys rights to redistribute international premium channels, including Disney Channel, CNN and Cartoon Network (all available a-la-carte). In terms of the business model for the redistribution of these premium channels, Vitelli explained that they work on a case-by-case basis. "Some channels are available to us for a flat fee, some work on a percentage of the revenue from subscribers, and some channels are offered to us for free in an effort to increase their visibility." One of the challenges for the company is not buying TV series or movies for premium channels that will be shown on free channels. Vitelli gave the example of The X-Files, which was available on VoD for pay through 20th Century Fox, but also on the free Mediaset channels. Vitelli explained that, though some IPTV service providers use outside content consultants to take care of selection of programs, negotiations with majors and technical consultations, FASTWEB takes care of these things internally.

The FASTWEB fiber network reaches 5.9 million homes in Italy, and is expected to hit the 30-million user mark by the end of 2006.

FASTWEB's Petazzi said that, although IPTV's success isn't unique to Italy, that country in particular was ready for increased services because viewers didn't have access to cable. Susanna Vitelli added that that many other countries are looking to follow in FASTWEB's footsteps: "Many people from Asia and all over the world, come to our headquarters in Milan to see what we do and try and do that too."