Five years ago I wrote my master’s thesis on the effects television digitalization was supposed to have on online video services. At the time the main finding was that offering video services through broadband connections in itself was likely to lack considerable added-value due to growing capacity in the television networks. Now, five years after the fact it would be a good time to look at what has really happened and how advent of high-definition (HD) services will potentially change the market.
Since 2oo2 Finland has wethered the growing pains of analog switch-off and even cable networks will go all-digital by the end of this month (February 2008). The first IPTV services have been launched by incumbent telecommunications operators (e.g. Elisa, TeliaSonera, DNA, Welho), but have failed to gain large numbers of subscribers. Pay-tv operators, both in the terrestrial network (PlusTV, Canal Digital) and on cable (Welho, DNA, Elisa) have all enjoyed tremendous period of growth. The pay-tv growth has been driven by introduction of relatively inexpensive offerings (MTV3) and heated competition between rivals in the high-end (Viasat and Canal+).
Recently some international players (namely Apple, Hulu, Joost) have brought to market solutions based on open internet distribution. It will be interesting to see how local commercial broadcasters (Nelonen, MTV3) and pay-tv operators adapt to the situation. In addition to these new operators being able to offer much higher variety also the consumers have become accustomed to using video services on the web. User-generated video has been a huge success and the newcomers might be able to triumph also in the living room.
To start analyzing how the situation has potentially changed we need to understand the original results. Five years ago I claimed that in the precompetitive phase in the market service providers would need to co-operate to build momentum and acquire relevant skills. Another key conclusion was that in order to grow service operator’s bargaining power serious effort should be invested to building content producer driven distribution systems.
The driving force for the conclusions was the simple fact that digitalization of television transmission increases capacity of terrestrial television network. In my judgement time has proved me right. There hasn’t been exponential growth in simple substitute services and recent writers’ strike shows that there has been need to rearrange profit sharing. Today we are in a quite different situation and some players have managed to gain important experience they can leverage from building HD services.
To understand better what will happen next additional analysis is needed. The methodology selected for the original study, PARTS-analysis introduced in Adam Brandenburger’s ja Barry Nalebuff’s book Co-opetition, will serve us well for additional analysis also. In the following posts the five different aspects (Players, Added Values, Rules, Tactics, Scope) of the video services market will be analyzed.