Video Is the Internet
Yes, it was one of those conferences that are now virtually defunct – complete with fine dining, exotic drinks, Reed Hundt, and executives from Qwest. The crash had already started, but there was still enough foam left in the cappuccino mug to get frenetic hedge fund managers, analysts, and telecom executives pontificating on how the industry would come roaring back and they were going to make their next few millions.
Like most early post-bubble conferences, most of what was discussed at the time was irrelevant – or just completely wrong. (A Qwest executive explained at lunch how Qwest was just fine.) But the idea was to identify the next growth opportunities. Well, at least one person got it right. At an end-of-the-day session at this conference, Ethernet entrepreneur and Polaris Venture partner Bob Metcalfe was speaking. It was a casual affair, in a well-appointed conference room off a sun-splashed California courtyard. They were serving margaritas, and there were many takers.
Metcalfe, himself sipping a margarita, stood in front of a simple white posterboard and gave a very distinct talk (no PowerPoint, just some simple drawings on a white paper). It could pretty much be summed up like this: “The future of the Internet is video.”
Yes, it seems simple. But at the time, 2002, it was quite a leap.
I think that the evidence is now mounting to prove Metcalfe was right: The future of the Internet is video. But let me suggest turning the phrase around: “The future of video is the Internet.”
What do I mean by that? Fundamentally, video content formation and distribution is migrating slowly but surely toward the Internet model. In the future, the distribution of video will be facilitated and managed by an IP-based architecture and will often take place, quite simply, on the Internet (or private, IP-based networks). An entirely new video content creation and distribution system is evolving based on IP.
The Internet’s impact on video, in short, is just getting started. This is not to say that all traditional cable and broadcast networks will fail to make the transition. But they will either adapt to an IP-based model – otherwise known as IPTV – or die a slow death. The same is likely for telecom carriers, cable providers, and equipment makers.
The fundamental mistake comes when folks combine “video” and “network” but fail to build in the open IP part. Some very large players –- including many cable companies and some incumbent telcos, most notably Verizon –- are building video networks based on overlay models that aren’t based on IP. In particular, I find it fascinating that for its FTTP rollout, Verizon has favored an RF video overlay network rather than pure, packet-based IP (see Who Makes What: Telco Video).
Hints have been dropped that the RF model, or the "copy cable" model, may also have reverberations on the regulation front. A Verizon spokesman points out that the company is pursuing video networks on two fronts – both the RF broadcast approach and an IP-based approach. Also, as demonstrated by yesterday's announcement with Motorola, it's clear the service provider is hedging its bets on which technology to use for FTTP (see Moto Gets a Piece of Verizon FTTP). It will be interesting to see whether it shifts strategy in the coming months. Just this week, at the National Association of Broadcasters (NAB) conference in Las Vegas, Verizon CEO Ivan Seidenberg said that broadcast franchising regulation is the key to success in video (see Verizon Attacks Video's 'Biggest Barrier').
Verizon rival SBC, on the other hand, sees an RF overlay model as more of a risk to regulation, and it has declared its own IPTV systems exempt from cable TV franchising regulations (see Verizon Sets TV Precedent and Your New Cable Company)
The key to next-generation video will not come in manipulating the existing broadcast models, it will come in developing new, lightly regulated, packet-based video networks – and merging them with the Internet. In the Internet world in general, the regulatory burden is far less onerous. The FCC, so far, appears to be having a lighter touch on IP-based networks; let’s hope it takes the same approach with IP video.
I’m not the only one watching this. Kermit Ross, principal at Millenium Marketing, noticed the same thing about the Seidenberg speech. “I think there’s something going on with Verizon backing off of FTTP,” says Ross. “I think that Seidenberg is setting up some excuses to slow it down.”
But here’s a better question: How is Verizon – or any other telecom carrier, for that matter – going to beat the cable companies with an offering that does little more than mimic the broadcast cable model? The answer is, it won’t.
I don’t think this is lost on the industry. Even John Abel, vice president of the United States Telecom Association (USTA), sees a clear need for a new, IP-based video model for incumbent telecom providers. And I don’t think it’s a coincidence that the USTA has hired the former vice president of marketing for the NAB. In fact, in speaking, Abel seems skeptical of the video capabilities of his own constituency (the USTA lobbies primarily for incumbent telecom operators). In a speech at Light Reading’s recent Telecom Investment Conference, Abel was particularly glum on the prospects for RBOCs getting the video thing right (see LR's TIC: Get Me Video).
What next-generation video providers need is a new video system, not a copy of the existing digital cable system. They need flexible, packet-based video to provide both cached content and video on demand, viewer choice, and access to IP-based content providers that are springing up all over the Internet. For the purposes of argument, let’s call this video+Internet, or video+.
What's so different about video+? First of all, it needs to ignore the linear programming model, in which broadcasters decide what you want to watch, and when.
With video+, you select whatever you want to watch and watch it when you want it. It would have the intelligence to store, download, or play thousands of programs, rather than being pumped via "channels." How to do this? Using the appropriate storage and software intelligence, you could have access to an intelligent PVR device – a sort of Tivo on steroids – that is fully integrated with the network and controls everything you watch.
Morgenthaler venture capitalist Drew Lanza has pointed out that you may not even need large amounts of bandwidth for good video quality, as it could be cached and stored faster than real-time when you are not using it. This is driven by the price of storage declining more quickly than the price of network bandwidth (see Fiber's Sticky Wicket). This makes a lot of sense.
What else do the service providers need? They need new content and applications. Video+ needs to offer more than what the cable companies have. Think of all the specialized vertical content that cable networks made possible. MTV. ESPN. CourtTV (well, there’s something for everybody). Now take to the Internet, and multiply it by the thousands. Imagine accessing Internet video databases that can be ordered and cached on your PVR – or transferred to a sort of video iPod, or ViPod (surely Apple is working on this?). When video is married to the Internet, that’s what you’ll get. The Scuba Diving Channel becomes a possibility. Or, better yet, Light Reading TV, which is launching on this site next month.
The possibilities with Internet-based video+ are endless, and in some respects, already available. You can now get around the entire broadcast industry to watch most Major League Baseball games over the Internet, via MLB.com. As another example, there is access to new independent and foreign content on the Internet. At our lunch table at our Telecom Investment Conference, a gentleman from Holland was watching a Dutch news program on his tablet PC, over a WLAN connection. Everybody at the table was awed by this. It’s the future.
Sadly, such visions are short in coming from most of the incumbent telecom providers – or even MSOs. Given financial constraints and their cultural roots, this isn’t surprising. They're plumbers, not content guys. Moving to an entirely new video model contains substantial risk, and it will cost a lot of money. But you have to ask this question: Will the telcos really compete with cable companies by simply offering the same thing?
I don’t think so. I think there’s a whole new video game to win, and it requires new thinking. The winners will likely make a lot of money, but they won't do it by copying the cable system.
So far, it doesn’t look as if the answer is coming from either the telecom incumbents or the MSOs. It’s going to take a new push, with an integrated video delivery system that is married to the Internet, to succeed.
— R. Scott Raynovich, US Editor+, Light Reading