The Pathway To Ultrabroadband Networks: Lessons From Consumer Behavior

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1 The Pathway To Ultrabroadband Networks: Lessons From Consumer Behavior John Carey Fordham Business Schools Draft This paper begins with the premise that a major use of ultrabroadband networks in the home will be to deliver video: hundreds of video channels along with thousands of video files (e.g., movies) streamed on-demand or downloaded and displayed on full-screen PC monitors, laptops, TVs and other devices. Much of this video content is likely to be in high definition, some may be interactive and it is a good bet that the videos will be used primarily for entertainment and news. Assuming that the technology works, businesses invest, producers make content available and consumers or advertisers are willing to pay for it - topics others in this series address - ultrabroadband networks will emerge. This paper addresses what we can learn from consumer behavior with the existing generation of new video technologies and broadband Web video to prepare for an ultrabroadband network environment. Video viewing is not a neutral event. It occurs in a context of the technologies used to access programs, the social spaces where it occurs, the values and interests of those who are watching and the forms of content that are available. One of the components in video viewing is technology. What is the role of technology, especially new media technologies, in the video viewing process? How does technology affect the behavior of viewers, where viewing occurs and the content that is created? In turn, how do the other components in the viewing context influence what new media technologies are developed and which succeed or fail? Further, can an understanding of consumer behavior and the context for using new media provide clues about a successful pathway to ultrabroadband networks? A useful starting point in the search for clues to ultrabroadband is to examine how people are using high-definition television, video-on-demand, Web video and mobile video. I have been studying consumer behavior with these media in several research projects. Drawing from this research, I can offer some suggestions about opportunities and challenges in the development of ultrabroadband video.

2 HDTV HDTVs were slow to penetrate U.S. households in the late 1990s and early 2000s as a result of disputes over standards, high early costs, and poor marketing. The years were a breakthrough period for HDTV, as prices dropped, sales increased sharply and consumers became aware of the product. Households that have HDTVs report that it restores the luster of television and makes it a central focus of whatever room it is in. This relates in part to the sharper images but also to the size of the sets. Most people buy HDTVs which are larger than their previous TVs. Observing them watch HDTV, they appear to do less multi-tasking (doing something else while watching TV) than when watching regular TV since HDTV grabs their attention so strongly. HDTV sets have also brought back "TV parties" where people invite friends to watch major sporting events or simply play high resolution content in the background at a dinner party, but this may be a short-term phenomenon as it was in the early days of black and white television. Most HDTV sets have very good sound capability and some households add highend home theatre systems to their HDTVs. However, in interviews, people indicate that the sound in HDTV productions varies from spectacular to terrible and, as in the case of programs with low production values, poor quality audio sounds worse on an HDTV system than a regular TV. The implication for ultrabroadband content producers is to pay attention to sound fidelity and not assume that the visual component of ultrabroadband transmission is all that matters. From a competitive point of view, a significant limitation of cable and satellite systems (and even the new generation of IPTV systems over telephone networks) is capacity. Even when compressed, HDTV signals require much more capacity than regular video channels. This is one reason why many cable systems are down-converting the digital HDTV signals of some over-the-air broadcast stations. Ultrabroadband networks will have greater capacity, which can be a competitive advantage. VOD Video on Demand (VOD) allows a TV viewer to access specific content at any time. The selected program or movie is transmitted to a TV set and a person has the same controls as with a DVD - stop, rewind, fast forward. Some VOD programming has a 2

3 usage charge, generally for a 24 hour rental; some is included in a monthly subscription package of programs; and some is free, with or without ads. VOD content includes movies, regular TV programs, special interest programs, classified advertising and games. Since it is stored on a server, there is no schedule and programs can be any length. Further, there is no theoretical limit to the amount of content stored. If the VOD provider creates enough storage capacity, there could be 5,000 movies or 10 seasons of a situation comedy. Ultrabroadband can have a competitive advantage vis a vis cable and satellite in delivering an unlimited menu of content. The challenge will be to license this content for distribution. Ultrabroadband network providers will have to decide if they want to provide the content themselves, like a cable system, or lease parts of the network to third party content providers. Observations of VOD viewing behavior reveal some challenges. One is the menus for VOD content. Some people say it is difficult to find programs when they have to navigate through multiple layers of menus. Others avoid menus completely and may not see what is available on VOD. Another obstacle is the delay in accessing a VOD menu or retrieving content, which varies among cable systems. Even though viewers may have to wait only a few seconds to see the menu of choices or for content to begin playing, some are tempted to move on to something else rather than wait - another lesson for the architects of ultrabroadband networks. VOD requires a user interface for viewers to access programs, just as a PC user requires a user interface, but what is an optimum design for a television user interface? It is much more challenging than appears at first, in part because we did not have menus for TV in the past and navigating through menus is perceived as work by some, who simply want easy access to entertainment. Another challenge is how narrow niche content can become. Over the past few decades, television programming has changed from content with mass appeal to a combination of mass and niche content. VOD in an ultrabroadband context offers the opportunity for content to become even narrower. However, what level of special interest content do people want and what level can be supported by a business model of production costs and revenues? 3

4 Web Television In order to understand how people are using video on the Web, it is important to know how faster access to the Web through broadband cable and DSL has changed Web usage in households. With broadband, many people are using the Web in ways similar to how they use television. This makes it easier for them to begin to make the transition to watching video on the Web and, eventually, on ultrabroadband networks. How is Web usage beginning to resemble TV usage? Typically, PCs with broadband connections are on whenever anyone is in the house, as is common with TV sets, and people use them for much longer periods than with dial-up PCs. In some cases, people sit in easy chairs at these PCs instead of office chairs, perhaps because they spend so much time with them. Also, many decorate the area on top of or next to the monitor with stuffed animals or family photographs, much as they decorated TVs in the 1960s and 1970s. Another change is that some people, especially children, use the Web as a group. For example, two or three children will sit together at the PC while using an entertainment site on the Web. In addition, wireless networks have made it easier to locate computers in any room of the household, not just a 'home office' as in the past. So, PCs are now in some rooms that were previously the domain of TVs, such as living rooms and bedrooms. Often, the TV and PC are used together. Further, broadband supports a range of entertainment, not just information or . PCs equipped with DVD drives are also used in many households as a "second TV set" to play DVD movies. As the PC is used more for entertainment, it is easier to make the leap to video over the Web and ultrabroadband networks. The amount of video watched over the Web increased dramatically between 2003 and What types of video content does a Web user encounter? A review of video content models on the Web reveals that there are at least six categories. The first may be called sampling or providing a short excerpt from a longer television program or film, often to encourage a Web user to watch the TV program on cable or purchase the film on a DVD. A second and related category involves providing a promotional trailer for a TV program or film. Typically, these are the same trailers that appear on television, in movie theatres or on DVDs. Third, traditional third party advertising appears on some Web 4

5 sites, i.e., a video commercial for a soft drink company that appears on a general entertainment Web site. A fourth category of content includes full length television programs and films. The latter category consists of short documentary or animation films and even full-length motion pictures. These are available as video streams or downloads. The fifth and sixth categories include new content models. These have been labeled two-channel TV and parallel broadcasting. Two-channel TV includes video content on the Web that complements regular TV programming. In this sense, the distribution of content for a program utilizes two channels, regular TV and the Web, for example, some scenes that were not in the programming that was broadcast are streamed on the Web. Two-channel TV fits within a large subset of user behavior that involves simultaneous use of the Web and TV. Most of this simultaneous activity consists of unrelated TV and Web usage, for example, a person watches a sports program on TV while surfing the Web for news content, but more recently the content is often related, for example, a person watches a sports program on TV and goes to a Web site that has statistics about a player in the game. Last, parallel broadcasting is the transmission of the same content on a cable or broadcast channel and on the Web, at the same time or in a similar time frame, for example video coverage of a major concert. Who is providing this content? There are at least four types of video streaming and downloading service providers: original producers of video for the Web; content aggregators who specialize in video streaming; video search engines and portals; and video distributors such as cable or broadcast networks that offer some video on their Web sites. The sources of content range from traditional television groups such as NBC or ESPN to underground video producers to individuals who create amateur programs such as video blogs. Video over the Web is possible in a dial-up environment. However, it is a better experience with broadband and better still with a faster PC, video servers near end users, advanced compression technology and other technological enhancements that have been introduced over time. Yet, with all this, Web video still does not provide the same experience as cable or satellite television when viewed on a large screen, a limitation that ultrabroadband can overcome. Ultrabroadband offers the promise of increasing the 5

6 resolution to regular TV quality on a full screen or even HDTV quality displayed on a large monitor. Mobile video A core value of a mobile video device for consumers is that it can be used whenever and wherever a person wants. It is part of a new media world that is not tied by wires to a wall as in the case of landline telephones, desktop PCs and televisions. By definition, a 'mobile' video device would seem most suitable for locations outside the home. In fact, there is a strong amount of usage within homes. Some of the uses are obvious, for example using a laptop or PSP for video in a home office or den. However, uses go beyond this. Some people in households with a wireless network move the laptop throughout the home - it is a portable Web TV set that can be used in any room. Video ipods and cell phones are also used commonly in household settings. With video cell phone use, it is important to note that many people keep their cell phone with them at all times, either attached to a belt, in a pocket or propped on a table wherever they are - and it was always on. So, it is available to watch video, including multi-tasking and watching cell phone video while watching regular TV or using other media. Further, many people have developed a habit of checking their cell phone regularly, in some cases to check for text messages, in other cases out of a nervous habit. This means that they are exposed to a source of video regularly simply because the cell phone is in their hand at the time. With the video ipod, there are a number of uses within the household. Some people use it as a TV set in a room with no TV; others use it to watch a second TV program while in a room where a regular television is on (for example, a husband watches a comedy on his video ipod while his wife watches a drama on regular TV both in the same room); and others use it in bed to help them fall asleep. Often, people watch a program on their video ipod in brief segments: the first ten minutes of a program over lunch; the next ten minutes later in the afternoon; and the last ten minutes in the evening. There are many synergies between mainstream TV and mobile video. In the studies I have conducted, mobile video users watched more TV than before they acquired the 6

7 device, catching favorite shows they would otherwise have missed and building loyalty to shows because they were available to watch anytime and anywhere. Further, they were driven to mobile video in many cases from regular TV promotions. Some devices even support the 'cult' interest in hit shows. One person with a video ipod reported that he heard about secret messages hidden in a cloud on one episode of Lost that could only be viewed in a still frame, which he could do on his ipod. Those who use a video ipod or cell phone are restricted, to some degree, to watching mainstream television or new shows produced by mainstream content producers. The carrier acts as a gatekeeper for programs and program sources. While there are some ways to get around this, it requires a technological sophistication that many do not have. This is less so for laptop video users (and those with desktop PCs) who can access content from anywhere on the Web. For ultrabroadband networks that feed content to portable devices, an important issue will be whether to create an open network that any content provider can use to transmit programming or to restrict access. Implications for Ultrabroadband Networks The new video technologies have led to several common changes in viewing behavior and consumers' experience of television. Overall, they have provided more control over video viewing, created more active viewers, reduced dependence on schedules, and increased the time people spend with video programming Changes in video technologies and viewer behavior have a number of implications for consumers, content producers and media organizations in an ultrabroadband environment. One important consequence is complexity. We used to take it for granted that a television set is easy to operate: turn it on, change channels, set the volume and sit back to watch. In the new digital environment, TVs are computers with multiple modes, inputs and outputs, and complex remote controls to operate a large number of functions. Some viewers, especially older people with little or no computer experience, have trouble operating these TVs and finding programs that may be a few steps down in a series of menus. In a future ultrabroadband environment, many TV consumers will have become familiar with user interfaces and navigation for video, much as Web users became familiar with user interfaces and navigation after a few years of use. It helped that 7

8 conventions were developed for Web user interfaces over time, and it will help if early ultrabroadband service providers spend the time to develop effective user interfaces. Web TV is the new kid on the block. A few years ago, it was dismissed by many media analysts who believed that Web technology could not handle video adequately and that people would not watch TV programs on computer monitors. However, some forms of Web TV have been widely accepted by households with broadband Web access and the technology will improve over the next few years, paving the way for ultrabroadband networks. A review of the user experience with TV over the Internet also reveals that certain types of video work much better in a streaming Web environment, e.g., short clips with little motion, but for many other types of video, existing broadband Web services are not there yet. Ultrabroadband could overcome this hurdle. One of the most important characteristics of the current media environment is not technological but social. It is the expectation that media and content should be available on demand just about anywhere. People, especially the younger generation, have pervasive access to a broad range of media and have developed expectations that they should be able to get what they want, when they want it and where they want it. There are two key building blocks for these expectations. One building block is the cell phone which people carry almost everywhere and keep on all the time (keeping cell phones on all the time was not pervasive several years ago). The other is broadband, which is always on whenever most people are at home. People also experience television in a wider range of sizes (from 60+ inch HDTV sets to 2 inch MP-3 player screens) and on a wider range of display devices, many of which are not TV sets (e.g., laptop computers and portable media players). So, for them, television is no longer a single medium. It includes many different media with a common element of video, just as books, magazines and newspapers are different media with a common element of print. The implication for ultrabroadband networks is that they should be designed to distribute content to many different devices. Regardless of the changes in technology, the core functions of television to relax, entertain, inform and escape from the pressures of the everyday world are not likely to change. There will be a temptation in developing ultrabroadband networks to seek out grandiose new services such as 3-D TV and holographic TV. These are technologically 8

9 possible. In fact, 3-D TV has been tried many times on broadcast stations and cable networks, with little interest by consumers. Simpler forms of content, which have worked in the past, may be more attractive to consumers, especially if the content is delivered with higher resolution, better sound and can be displayed on a broad range of devices in the household. At a conceptual level, will ultrabroadband provide simply a faster version of the broadband Web we now experience or a radically new service for consumers? This will depend in part on the architecture of the network, business models and content. From the perspective of consumer behavior, a key issue will be how people access and use content. If ultrabroadband is predominantly a service for the computer, it will likely be just a faster version of broadband. If the network feeds large screen, high definition TVs and multiple portable devices as well as computers, it could lead to a more radical change in how consumers experience video. 9

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