In this article, we will help you understand the key issues of launching IPTV service on the Internet provider’s network.
In order to launch an additional interactive television service based on IPTV technology on his network, the operator needs to make a decision about three things.
All questions are important, but the central issue on this list is the choice of platform. The platform is what IPTV is built on, two main things: the Middleware system and the CAS / DRM content protection system. If the operator made a mistake initially choosing a platform, then simply changing the IPTV platform will not be so easy. In many cases, it leads to serious overhead, since replacing the platform may entail replacing the entire subscribers’ equipment park. Due to that reason you should not choose the native platform from equipment manufacturers.
For instance, the operator found a manufacturer of set-top boxes with a very attractive price, and as a “gift” (in fact, the price has already been taken into account in the cost of the equipment) he also receives a platform from the manufacturer. It seems amazing! Who doesn’t like gifts? But gifts like that are made for a reason: to tie the operator to a manufacturer, “to anchor”. Most likely, this platform will not work with other devices or the conditions for supporting third-party equipment will be expensive, prompting the operator to buy equipment from the manufacturer.
Hence the rule: the platform should work with different equipment from different manufacturers, and the more of them, the better.
The choice of platform is also the choice of a line of subscriber devices available to subscribers. The more subscriber devices the platform supports, the better; at the same time, multi-screen solutions that work on different screens, using set-top boxes, smart TVs and smartphones, are a strong competitive advantage. This determines the availability of the IPTV service, which will be explained more detailed below.
The quality of the platform as a key element of the entire solution will shape the competitiveness of the provider in the new for him television services market.
But which platforms are more efficient?
There are two ways to figure this out: the first is to consider all the available solutions on the market. But it is long and difficult. We will go the second way, where we will propose a technique with which anyone can independently evaluate any solution.
The trick is that in order to compare a particular platform, we need to pay attention not only to the platform, but also to the operator, or rather, his key indicators. Four main indicators: ARPU, LT, the number of subscribers and, of course, costs. The quality of the platform must necessarily be reflected in these indicators.
These four components can be combined into one familiar to many people formula: the profit formula. Thus, the quality of the IPTV platform can be reduced to one assessment, which, you shall agree, is much more convenient than trying to evaluate many characteristics — functionality, design, scalability, fault tolerance, ease of maintenance, etc., which also cannot be directly compared to each other. What’s more important: enhanced EPG support or platform scalability? If you ask an expert, he will undoubtedly give you his own evaluation, ask another expert — you will get another evaluation. The problem is that all these estimations are subjective, but the competitiveness of the platform is an objective indicator that can be calculated by the formula, and it certainly cannot depend on the opinion of the expert. Therefore, let’s calculate rather than listen to the opinions of experts.
ARPU — average ARPU,
LT — the average subscriber lifetime,
A — the number of subscribers who have connected to the television service,
Cost – costs (expenses)
LT is the most interesting parameter, it takes into account the outflow and connection speed of subscribers. How – is shown in the example below
Figure 1 shows the case when the operator connected two subscribers in the first month (yellow box), in the second month — another one, but at the same time one subscriber left (red box — outflow), in the third month another one was connected, and again one gone. Outflow is 50% of the subscriber base per month. A nightmare, but suitable for example. LT in this case is the total number of sales: 6 divided by the number of connected subscribers for the entire time (4), it turns out 1.5 months.
Figure 2 shows the case when the outflow is zero. The service is good, no one disconnects. LT in this case is 2.25 months.
Figure 3 shows the case when the outflow, as in the first case, is equal to 50%, but at the same time the connection speed of the subscribers is higher, on the first day four subscribers were connected. LT in this case is 1.75.
Now we can proceed to the evaluation of decisions using our formula and the knowledge accumulated over the years.
The methodology is as follows: we will take the components of the formula on the right and write out what characteristics of the IPTV platform affect it and with what force. At the same time, keep in mind the following picture.
The most useful platform is to maximize the ARPU and expand the yellow area. There are two directions of attack:
- raise the upper border of the yellow region, it is responsible for the penetration of the service (it is also the primary sale of the TV service), here you can achieve the maximum effect,
- slow down the growth of the lower border as much as possible so that customers do not leave. This is nothing else but a fight against outflow.
Now to the point.
The first component of the formula is the average ARPU. Of course, both content and pricing affect it, but we are interested in what characteristics of the platform can affect it.
Firstly, it is the system’s functional, which is responsible for access to different content, because if you can’t show the content, then you can’t make money on it. First of all, it is the functional responsible for access to TV channels, a library of films, as well as access to surveillance cameras. The signal from surveillance cameras is also content, in some cases very popular, and therefore well monetized. The function of access to the archive of television shows, as well as to delayed viewing, can also be attributed here.
Secondly, it is the functional that is responsible for displaying ads, because you can earn money from a subscriber both by selling content to him or by showing him an advertisement.
Thirdly, it is the functional of resale. This function includes the ability to sell content from the screen, including a recommendation mechanism in order to show the client what else he can buy.
The average ARPU is the higher, the better the operator is able to sell. Unfortunately, no system can completely take on this task. The solution acquired by the operator is a tool; it can be both effective and not. However, an operator with a less efficient tool but with a well-functioning sales mechanism can achieve more than an operator with a more efficient tool.
Sales depend on marketing and an established sales system in the first place, secondly on content, and on the platform — only in the third place!!!!
The second component is the average subscriber lifetime. As we know, it is the bigger as the higher the speed of attracting primary sales subscribers is, and the lower the outflow is. Let’s start with the second parameter.
Frequent accidents and poor image quality – these are the reasons that primarily prompt the subscriber to change the service provider. But all of these relates more to the quality of the network than to the platform. We are interested in what can cause the subscriber to leave the platform, or rather, on the contrary, not to leave, but to stay? Looking a little ahead, we can say that it is this indicator that is affected the most by certain characteristics of the platform. So – drum roll – what are those “anchors” that can hold a subscriber?
First of all, as our experience based on working with more than 300 operators has shown,
it is an interactive functional, namely: pause and archive of TV shows, also known as Timeshift and Catch up. It is worth noting that some operators do not implement this functional due to the fact that they do not find possibility to monetize it while the costs of its implementation are significant.
If we count the number of subscribers who have left to another provider that furnishes this service, and the costs of compensation of such an outflow, which will be equal to the costs of attracting the same number of subscribers, it turns out that the costs of attracting new subscribers significantly exceed the retention costs that will be equal to the cost of launching such an interactive functional.
Our observations (more than 300 operators) showed that the outflow of operators with interactive functional is much lower than outflow of operators without such functional.
In addition, there is the possibility of monetizing such a service, it only needs to be done in a right way. If the subscriber is not ready to directly pay for the pause and archive function, then you can create a special package with a higher price which will consider the costs of this functional.
The main point is that subscribers who have tried the pause and archive will no longer return to operators who have only a linear view. Thus, sooner or later, all subscribers will try interactive options, and operators with linear viewing will not be able to entice anyone, they are doomed to extinction which is a matter of time.
Another “anchor” functional is the ability to view images from CCTV cameras. Those can be cameras installed in the courtyard or on the staircase of the subscriber. In this situation subscriber’s retention is happening due to the camera and archive which are usually rigidly tied to the provider’s decision.
The third “anchor” is an access to various cinemas.
If the operator is doing well, then the outflow should not exceed 2-3%.
In addition to the outflow LT is also affected by the speed of attracting subscribers, it is also the speed of primary sales which, in turn, depends on the availability of the service, and the availability of the service is determined by the line of supported equipment, that was a bit mentioned earlier. It also includes the availability of the application in the smart TV, Android and iOS markets. The subscriber can find your application in the market and connect without waiting for the sales department, but usually these are insignificant indicators compared to the results of a good sales department.
The third component is the number of subscribers. The number of subscribers is the number of initial sales. A wide range of equipment and the availability of applications in the markets. The fact that this characteristic of the platform immediately affects two components of the formula suggests that it is extremely important for increasing the competitiveness of the entire IPTV solution!
But once again, we note that the number of sales is not affected by the platform in the first place, but by how the operator’s sales are built. A good result is when the number of IPTV subscribers is above 50% of the main base of Internet subscribers after a year of sales. Our experience shows that not all operators achieve this result. In cases like that, the operator should pay attention not only to the platform itself, when choosing a solution, but also to the vendor’s company, whether it provides services aimed at increasing sales of the operator’s services and work with outflow. Absence of such service is at least strange: is it a lack of experience, a misunderstanding of the problem, immaturity? In fact, any platform manufacturer directly depends on the success (growth, stability) of partner operators.
What is left overboard? What characteristics of the platform can be often found in advertising, but they almost do not affect the outflow, inflow and ARPU? And these are the so-called specialties, which include individual design, various advanced EPG descriptions, voice control or smartphone control. The user can live without all of those, but we can assure that all these functions require development time, and, therefore, costs, which affect the cost of the solution, it will be discussed later.
A well-educated marketer may object and notice that all these costs pay off, and in fact, and everything of those can affect customer loyalty, especially if the polls show that the customer likes it. In pursuit of this loyalty, you can do something easier: just give the subscriber money, and all polls will show that the client is satisfied. Only it will be no longer business, but charity. The mistake of many lies in the fact that the correct check of customer loyalty is not in questionnaires, but in measuring outflow, namely outflow is the measure of loyalty. And if the outflow does not correlate with the presence or absence of one or another functional, then this indicates that this functional is not critical in terms of manifesting customer loyalty. The real purpose of this fishing is to sell your solution to the operator.
And now — attention!
There are solutions which have an interactive functional, and content, and specialties, of course. But at the same time those decisions do not reduce the outflow, but vice versa.
We are talking about OTT providers.
An inexperienced operator thinks that by launching an OTT provider, a partner, on his network, he solves the issue of providing his subscribers with an additional interactive television service without any costs. However, he launches a third-party organization on his network himself and begins to promote its services to his subscribers. A ulterior contradiction is hidden in this approach: on the one hand, partners share profits; and on the other hand, both are providers on the same base.
At first, the operator attracts customers to the OTT provider, and OTT provider shares profit with the operator, everything is fine. But over time the contradictions escalate, specifically, competition for the subscriber’s money. In this situation deductions towards the operator may be reduced to zero, but this is not the worst. The worst point is that the client can completely abandon the basic service of the operator and change to another. A subscriber can use television from an OTT provider on any other network. Therefore, it is not an “anchor” service, but the exact opposite.
Many operators have a maximum outflow of precisely those subscribers who used the television of the attracted OTT provider. And there are many explanations for this phenomenon, but they all are smashed by the opinions of people who have had successful experience in such interactions: they say that it is a conspiracy theology and paranoia of the author, who often read a fairy tale about hare’s hut in his childhood. That’s right, we will not argue. If someone is willing to risk their business, why not? In the end, a successful entrepreneur differs from an unsuccessful one at the point that he once calculated risks better.
Costs consist of platform, content, and marketing costs.
Platform costs. Everything is understandable here – the lower the cost, the more competitive the solution is. But do not forget to calculate the cost of maintenance and, most importantly, development. In the modern technical world in order to stay put you must run, and to get somewhere you must run twice as fast. Everything is changing very quickly, and it needs to be corresponded: new subscriber devices, new smart TVs are appearing – all these needs to be supported and applications need to be placed on the markets, as it was previously said that it affects the availability of the solution for subscribers.
You can find open source solutions on the market, but if you calculate the costs of their maintenance, and most importantly, development, you will have to maintain a whole development department, those costs are much higher than the cost of ready-made solutions on the market. To verify this, just visit our site and see our price list. The price of a solution in a competitive market is determined by the costs of the developer company.
In 2011 we were the first in the world to offer a solution that provides Middleware and CAS / DRM content protection to operators as a cloud service (PaaS), which not only changed the form of operator costs: CAPEX transferred to OPEX, but allowed to significantly reduce them. Now it is the standard, since cloud architecture minimizes the costs related to scalability, quick launch, provides the opportunity to give a test of a fully working system. But not only the use of cloud architecture allows you to minimize prices — remember the specialties mentioned above, this is also the reason for high prices. We deliberately do not do things that cannot bring profit to the operator. The lower the price of the solution, the more technological it is.
The content costs are the costs of royalties, as well as the costs of delivering content (in some cases — a fee for a technical signal, also — the cost of the headend). With many subscribers, it is more profitable to take the content directly from the copyright holder.
The best option is to use the aggregator service at the start. At the same time, the aggregator can provide a platform, the main thing is that it should not be his native development. The reasoning is the same as with the native platforms of equipment manufacturers, because when the operator becomes able to independently purchase content, he will need his own platform. Thus, switching from an aggregator platform to your own is a cost that can be avoided.
Marketing costs, costs that are often forgotten to calculate, are mainly sales costs. The cost of attracting subscribers is an investment by the operator. Even if an OTT provider comes and says that, “no investment is needed, take it and start the service”, this is cunning.
There are investments. And those are investments to attract subscribers. These costs do not depend on the choice of solution but depend on the place. It is from 500 to 3000 roubles per subscriber depending on the region of the Russian Federation.
So, we went over all the components and checked which platform parameters affect what. The platform that will give maximum profit for an operator will be the most competitive.
The main thing is to not forget to improve not only a technical solution, but also your marketing.