There are simply too many ways to view video right now, said Murali Nemani, director of service provider video marketing for Cisco, at our NewTeeVee Live Conference in San Francisco today. Content providers are putting more content online and consumers, as a result, have more to choose from than ever, but that’s leading to fragmentation. As the market fragments it’s creating friction for consumers who have to figure out which device and which service they want to use to consume video. Business models are also changing as a result of the fragmentation. For example, what’s the value of a Simpson‘s episode? On broadcast television it’s still three times more valuable than it is on a service like Hulu. So content still has value, but figuring out how to capture that value is in flux.
Video also monopolizes bandwidth, said Nemani. Cisco expects that some 90 percent of all consumer IP traffic will be video by 2013 and 60 percent of that will be online video. And it predicts that online video and pay television will eventually come together. In order to address consumer fragmentation and create viable business models, said Nemain, they have to — otherwise we’re stuck in a world where we have to watch movies on our Roku box or certain content on Hulu or VoD from a cable provider.
We’re now moving to a third wave of video, to an era of IP video in which online and pay-TV converge, Nemani said. The first wave was the proprietary cable model, but it was a closed infrastructure. The second wave was IPTV, which was all IP — but still followed a fairly closed infrastructure like the original cable model. So the third wave is the convergence of online and pay TV in a model that is open and works on a variety of devices. We’ll need web-style, open, standards-based protocols, client architectures that work on a variety of devices — from TVs to phones — so people can use them to watch anything, anywhere. We’ll also need a way to play the video inside and outside of the ISP network.
But Nemani said that in order to support this, the business model needs to change. We need a two-sided model, he said. The classic model is service providers build services and deliver them to consumers for a subscription fee. Cisco thinks the future model is two-sided: Consumers will pay for access to the pipe and content creation companies will then offer revenue-sharing with the pipe owner because the ISP offers so much value and information about the end user.