The discussions are part of plans by BT to enter the pay-per-view TV market with the launch of a new BT-branded digital TV and internet service. BT
wants to sell an enhanced Freeview box that would not only give users the full range of free digital channels but also an extensive library of films,
dramas and other TV content on demand.
John Delaney, Principal Analyst at Ovum comments: Those who were observing the UK telecoms industry a decade ago will have a
strong sense of deja vu about all this. BT has tried to get into the TV & video business before, and it all came to nothing. We need to wonder, then,
why BT - and many other incumbent telcos around the globe - are mounting another assault on the market for TV and video distribution.
The answer, though complex, can be summed up in two words: 'triple play'. Cable companies have added first telephony and then broadband internet to
their core TV content, to offer consumers a compelling package. Moreover, many cable companies are migrating their telephony services to VoIP, and
they will be less inhibited than the telcos about using it to offer cheap bundles of minutes and flat-rate plans. Faced with this mounting competitive
threat, telcos need at least to be able to match the cable companies' offering: they need to move to triple play too.
Thus, the telcos' agenda with TV & video is different from the one they had ten years ago. Back then, the question was: 'can we afford to do this?' Now,
the question is: 'can we afford not to do this?' BT has rightly concluded that the answer is 'no'.
So although BT is unlikely to make much money out of it for a few years, we applaud BT's decision to use its brodband networks to offer customers TV
content. The business case looks particularly good in markets, such as the UK, where pay TV is already an established, revenue-generating business. (At
the end of 2003, BskyB had 7.2 million subscribers paying an annual average of £369 each.)
But we are less convinced about BT's intention to offer, in addition, video on demand (VoD) services. VoD is not needed to match the triple players'
packages: so unlike broadcast TV, there is no business case for offering VoD on customer-retention grounds. And the positive (ie, non-defensive) business
case is much harder to prove for VoD than it is for broadcast TV. Hopefully, BT's investments in the VoD elements of its package are commensurate with
the speculative, toe-dipping approach that we believe incumbents should be taking with VoD at present.
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