Simon Trudelle :: Senior Product Marketing Manager, NAGRA
IoT or the Internet of Things is heralded as the “next big thing” in the technology world. Should pay-TV operators be paying attention? The truth is, the convergence of these two network-based service plans – IoT and the Connected Home – has started to happen from multiple angles for a few years now. And for pay-TV consumers, there is a real value in having access to IoT applications across a broad range of devices in and outside the home, through a packaged service provider offering that seamlessly blends media with communications and advanced lifestyle services.
1. The IoT business opportunity
On the commercial side, adding new services to a broadband subscription has been a page in the telecom operator’s playbook for years. And with cable offering more IP access services or satellite operators deploying Over-the-Top (OTT) services, it is the whole broadband market that is looking for an “n-th play” to grow ARPU and improve customer retention.
On the technical angle, as IoT is based on IP and cloud technologies, and connected entertainment is accelerating in the same direction, most of the core underlying infrastructure is now common to all types and classes of smart home and connected entertainment services.
In terms of field operations, efficient customer care centres and installation/support crews can also be leveraged to offer more advanced “n-th play” services.
But such convergence and complementarity also comes with significant volatility in terms of converting the IoT marketing concept into concrete revenue streams and positive margins for service providers. As is the case for media entertainment today, and OTT is a good example, owning the network or the set-top box connected to the main TV set is not a guarantee that consumers will buy new types of services, and actually buy them from their incumbent broadband or TV provider. Several factors are at stake in the consumer decision-making process, as the decision proves to be more complex than just “signing up for pay-TV.” Yet smart consumer product marketing by service providers and CE competitors will lead to interesting market developments.
2. Is pay-TV poised for an IoT future?
In the foreseeable future, current trends show that existing services such as home security, home safety, home automation, energy management or e-health (and innovative ones that will be added overtime), will get growing traction with consumers as the market matures and we reach mass-market penetration. Industry research consensus shows that such advanced services could bring extra monthly ARPU in the range of 10 to 35 euros, for a penetration of 5 to 30 percent of the subscriber base in advanced markets. This is a significant opportunity for service providers – potentially tens of millions of euros in additional revenues in the future for a 1M subscriber operator - despite the regional volatility factors built into these estimates.
While ARPU from these services may only add up to a fraction of the media and network access services revenues that incumbent operators currently enjoy in the short term, there is definite potential for new revenues and accelerated growth at some point in the next 18 to 24 months.
CE vendors already see a big opportunity to extend their reach into the connected home through these new services and grow their device revenues. Their outstanding skills at creating superior devices and distributing them on a worldwide basis give them huge economies of scale. They can educate consumers, make the technology affordable for the masses or go after lucrative high-margin segments of the market. Yet, for some advanced IoT services - the ones that actually generate sustainable recurring revenues like home security or energy management – their installation and usage remain deeply integrated into the home environment and usually require an installer to come on site. This extra level of integration and service often requires regional partnerships with specialized firms and local subcontractors that will handle the “last-mile” dimension of the service.
This is obviously an area where broadband service providers are traditionally very well positioned. If this card is well played, this can form a natural extension to the on-going media gateway deployments and which can be increasingly positioned as a monetization anchor in the connected home.
As a counter approach, this could prompt CE vendors to become more like telco and cableco service providers and change their business models, or stay in a segment of the IoT market that has lower end-to-end service expectations and less built-in recurrence.
3. Integrating IoT into a Connected Home product strategy
For pay-TV service providers, extending their offering with IoT and smart home services will undoubtedly require new skills, first and foremost to find out which vendors are the right partners to choose to be successful in this new evolving environment while leveraging existing customer premise technology.
Most high-value added IoT services feature a hub device in the home to support low-energy protocols used by various devices and consolidate data before interfacing to a cloud-based application platform. Such a hub can be a standalone device or be integrated into a home media gateway for instance.
Seamlessly integrating services that are accessible “at a click of the remote control” gives service providers an edge, as such integration actually brings extra convenience that consumers tend to appreciate and value. This usually implies that the set-top box software platform is both Linux-based and HTML5-enabled, allowing the mash-up of API and services to be done very efficiently at the set-top box app level and on other device platforms, with the proper level of security - this is typically what NAGRA can deliver with its OpenTV 5 Connectware product for set-top boxes.
Service providers can also benefit from the ever-increasing TV screen real estate, which has strong potential for giving consumers an efficient and intuitive “dashboard” view of their IoT services. 4K TV sets, for example, are perfect environments for displaying both entertainment and IoT services, from monitoring room temperature to the outside security camera and the baby in the upstairs room – all while not missing a second of viewing a favourite TV show in the living room.
So the opportunity is there. With proper product planning and careful consideration of all factors that come into play with integrating IoT into the Connected Home, pay-TV services providers can leverage them to the benefit of the consumer.
4. Implementing a successful IoT strategy
For pay-TV service providers, the actual revenue opportunity and strategy deployed to gain new subscribers can vary widely and depends on factors such as the overall market context, the regulatory environment, the typology of homes and apartments or broadband access speeds.
Bringing electricity, telephony, TV or Internet access to the masses certainly proved to be challenging in the past. Positioning specific IoT offerings for a fast evolving consumer market requires similar advanced marketing skills and investments.
So in this context, how can service providers implement a winning IoT strategy?
At NAGRA, our advice to service providers looking at IoT opportunities is two-fold:
• First: make sure to invest upfront in market intelligence and consumer research to build the business case, identifying correlated value-added services that can be successfully marketed
• Second: define a solution architecture that is secure, scalable, robust, modular and open to third-party specialist vendors, allowing for a dynamic ecosystem of vendors to contribute to the end-to-end solution
We feel that such a focused approach could lead to solid business partnerships with existing home services players that are now getting absorbed into the IoT space, or even the acquisition of complementary firms by service providers to accelerate their go-to-market strategies.
On the product side, having worked in close relationship with service providers over the years to secure the monetization of digital media, we can only emphasize that a similar approach is required in designing products and services that will be resilient to system failures and piracy attacks while providing a superior user experience across multiple devices over the lifecycle of the products. Investing in cloud-based solutions and products is also a key move as IoT services all have a core cloud and data component.
Finally, service providers should be careful not to be distracted by gadget applications that may not have a sustainable business model over time, leading to some form of churn or loss of customer brand value, and thus actually carry hidden costs.
5. The service provider advantage
While technology standards are sufficiently open to let consumers assemble their own product ecosystems, a well-integrated set of products and services, supported, maintained and tested over time and addressing specific regional needs has already found a positive echo with many consumers in several North American and European markets. So there is a definite card to play for service providers that can leverage their media technology expertise as the IoT market matures and security and reliability requirements increase.
Yet entertainment and telco service providers should be aware that the likes of Apple or Google are also adapting their business models to be service providers of their own, differentiating themselves on innovation, scale and consumer reach. Competing with them will require the support of independent and innovative technology vendors, as it has been the case in the TV and media delivery market over the past decade.
As the core company of multi-faceted technology group, NAGRA has expertise in the areas of cloud systems and device security (including cyber-security), hub device software, multi-device management, TV and multiscreen user interfaces. This allows us to be the partner of choice for service providers looking at the opportunity of taking the Connected Home to its next level of functionality with innovative IoT features, in effect delivering multi-play, converged Smart Home services.