IPTV: It's an Ad, Ad World

LAS VEGAS -- NAB 2007 -- For all its promise of new features and new revenue streams, the first wave of IPTV is likely to be fueled on plain old advertising, according to panelists at the IPTV World conference on Wednesday.

A subset of the NAB show, IPTV World devoted a day to discussing content and business issues around IPTV, the primary conclusion being that it's still too early to know what users want and how much they'll pay. That point was driven home during a panel devoted to IPTV revenues.

"We kind of made this bet four years ago as we started building software for broadband TV," said David Jensen, a vice president with Tandberg Television . "We had VCs saying, 'Oh, it's not going to be ad supported. You're crazy.' Now it's kind of inverted."

A few things are clear in the early going, though. Thirty-second ads taken from traditional TV don't work, panelists said. And they agreed that users don't seem to mind properly targeted ads.

Advertisers "just have to get creative with the models," said Jennifer Kyriakakis, director of product solutions for Oracle Corp. (Nasdaq: ORCL) Opt-in advertisements, where users are asked to click to see a full ad, seem to be a practical alternative and will probably prevail at first, she said.

It's unclear whether IPTV will have viable revenue sources beyond ads, though.

"There aren't that many more new ways that we're going to make money. It's still subscription, on-demand, and ads," said Peter Lee, vice president of business development for the New Technology group at Walt Disney Co. (NYSE: DIS).

Using its ABC network television shows, Disney has been experimenting with different business models, putting shows available for purchase on iTunes while also offering them free, with ads, on ABC's own Website. So far, it's been encouraging. "What it showed is that the pie doesn't actually get smaller. It gets divvied up in different ways. It actually got bigger," Lee said.

Panel moderator Michelle Abraham, an analyst with In-Stat , presented results of a survey asking users whether they'd want IPTV features such as video chat or online gaming. Timeshifting, the ability to watch a program after its original air time, was the top answer -- but then again, timeshifting is one of the few features viewers already have and can understand.

"It's probably going to take a lot of time for consumers to even realize what they have or what's out there," Abraham said, noting that comments from respondents ranged "from 'I want it all now' to 'Why would I ever want it?'"

Given how many features in IPTV are undefined, why worry so much about it now? Because if the premise is true that IPTV is going to be a home run, then its adoption is likely to be sudden, and no one wants to be taken by surprise when the next big revenue-making feature sweeps the market.

"Some of these solutions consumers say they don't want now -- even two years from now, they will be commonplace. If we don't start working on them now, we won't be ready when they're knocking at our door," Lee said.

— Craig Matsumoto, West Coast Editor, Light Reading