An Award-Winning Platform for Extraordinary TV Service Delivery

Microsoft® Mediaroom™ is an award-winning software solution that powers the cloud for network operators and service providers so they can deliver great entertainment experiences across all the screens in their subscribers’ lives. The software is licensed directly to you, the service provider, enabling you to deliver innovative new TV services to your consumers. This positions you to take advantage of the growing digital TV services market and turn consumer demand for personal, connected, and social entertainment experiences into revenue and competitive differentiation.

More than four million consumers around the world now use Microsoft Mediaroom-powered services to access TV, through many of the world’s leading telecom providers. Microsoft Mediaroom customers are constantly bringing new and exciting TV services to market which are differentiated by applications and features that are unique in the market. It’s this differentiation which has made Microsoft Mediaroom the most widely deployed IPTV software in the world, according to Screen Digest (see Table 1).

Digital TV is a market that is continuing to grow rapidly, as Chart 1 shows. Based on the average of five industry analyst predictions, an overall IPTV (connected TV) household penetration of almost 60 million is forecast by the end of 2011. This is still only a small fraction of the total addressable market for connected TV.

The Microsoft Mediaroom Vision

The TV landscape is changing rapidly and dramatically. Over the next decade, consumers will be enjoying entertainment in totally new ways:

Time-shifted TV will become the standard, rather than the exception. Portable devices and the internet will become key to TV viewing. Consumers will demand entertainment that is available on the PC and mobile devices, as well as

on the TV, and that moving between devices is easy and seamless. High-quality entertainment services will be available over many types of networks, not just

managed networks. Content and advertising will be packaged to take advantage of these shifts.

Meeting Consumer Demands

Our TV experience is now very different to traditional viewing, with online and even mobile channels becoming more mainstream. According to the Accenture Television in Transition report, 30% of adults in eight countries surveyed watch TV content every week on a PC or a mobile device. Similarly, Nielsen reports that video consumption increased across all three video screens in the US in the last quarter of 2008.

Just as content traditionally seen on the living room TV is moving to online devices, content usually viewed on PCs or mobile devices is migrating to the TV. Online videos can now be accessed through set-top boxes, and TVs are increasingly equipped with internet capability.

Consumers are also making it clear that they want to free themselves from traditional TV schedules. Accenture’s report showed that 40-50% of respondents were interested in on demand services, catch up and time-shifting features. Nielsen also revealed that at the end of 2008 the number of people watching time-shifted TV jumped 37% year on year. Although linear TV is not on the endangered species list, consumers are getting used to the freedom and flexibility of non-linear viewing.

Delivering the New Wave of TV Services

By deploying a consumer TV service based on Microsoft Mediaroom, you position yourself at the forefront of the next generation of TV services. Behind you stands Microsoft, with the business, marketing and technical expertise to help you realize that vision.

At Microsoft, we are committed to making it possible for you to deliver entertainment to consumers on their terms – with the content they demand, on whenever device they want to use, wherever they want to experience it. We can help you deliver an experience that is singularly compelling for subscribers, yet that is also manageable, expandable, and cost-effective for you.

On Demand: Engaging Consumers Inside and Outside the Home

True on demand services offer a differentiated three screen entertainment experience uniquely powered by Microsoft® Mediaroom™. On-demand content, in standard or high definition, gives consumers TV on their terms—whenever they want it. Moreover, on demand services powered by Microsoft Mediaroom provide an engaging experience for viewers with intuitive search and discovery capabilities, as well as compelling packaging and promotions. This drives higher levels of consumer engagement and satisfaction, which lead to lower churn and higher average revenue per user (ARPU).

The value of the Microsoft Mediaroom on demand capability is evident in the top line revenue it generates for service providers. Screen Digest recently compared the on demand revenues of the top five Microsoft Mediaroom customers with the incumbent pay TV competitors in their markets. The study found that the average revenue per user (ARPU) generated from Microsoft Mediaroom-based on demand services averaged three times greater than that of the incumbent competitor in that market.

Microsoft Mediaroom takes the on demand experience to new levels by enabling connected experiences inside and outside the home:

Microsoft Mediaroom delivers a beautiful and engaging on demand storefront designed to make browsing and discovery simple and fun. Visually appealing and incredibly responsive, this storefront enables consumers to find entertainment they love in a number of ways – by title, by actor, director or genre.

Consumers may personalize their on demand experience by selecting and saving content they are interested in enjoying later. This customized store is available on the TV, PC and any browser

on any broadband network. Consumers may start watching on demand content on their home TV and finish it on the road on their computer.

Service providers can maximize revenue and engagement with unique offers and promotions and by customizing the structure of their on demand store to meet the needs of their market.

Service providers have the flexibility to showcase their own on demand content, as well as content from third party providers.

The flexibility enabled by the Microsoft Mediaroom on demand store enables service providers to deliver the right content and the right store structure for their markets.

Deliver the Right Content

In the on demand world, content is quite literally king. The choice offered by an on demand store is one of the significant differences between your service and one offered by a satellite provider (particularly a ‘near’ on-demand offering), and a cable operator (which offers content, but content that is very hard to navigate, explore and discover).

There are some strategic ways you can differentiate your offerings, but it is vital to understand your market to achieve this. In every market there are consumers who feel that many mainstream programs under-represent their needs. They are interested in content that meets their personal and regional interests, whether that’s Scottish Rugby Union matches or Bollywood films. The key here is to understand what these groups want, the potential volumes they represent if their needs are met, and how to market differentiated content to them.

Microsoft Mediaroom offers expansive advertising capabilities, delivered through the Microsoft Mediaroom Advertising Platform, and this can help you attract viewers and deferring the costs of content. See the Microso ft Mediaroom Advertising Platform Brief for more information.

Categorizing content

It is important to position content in the right categories and sub-genres. This makes it easier for consumers to find what they want. Typical—and, to viewers, familiar—content categories (which can be accessed either by pay-as-you-go or on a subscription basis depending on your agreements with the content providers) are outlined below:

MoviesThese can be old or new films, and can be sub-classified by genre (such as comedy, thrillers, and so on). Typically they are sold as individual assets, but agreements with particular studios might allow packaging films on a subscription basis with rotational access to changing content. Both can be successful routes to market and usually offer considerable uptake. However, a regular and predictable income from subscriptions works in your favor, making your overall revenue more predictable and enabling more accurate forecasts.TVIn some countries, and especially the UK, TV is the most popular subscription service. On-demand TV enables your subscribers to catch up on the latest TV programs on their terms—at the time that suits them, not necessarily when the program is broadcast live. This offering is very popular in the UK,

demonstrating that TV is so immensely popular that people are willing to pay to catch up on previously broadcast content, whether that is recent or much older programming.KidsMost service providers categorize and market children’s content to consumers in their markets. Marketing programs can be targeted during holidays, summer vacations, or Saturday mornings to enhance consumers’ engagement levels and the value they perceive from their TV services.MusicThis is a ‘passion genre.’ Many people have their favorite bands and kinds of music, but almost everyone enjoys listening to it. This type of content enables you to give all sorts of insight into different types of music. This could be standard music videos, interviews, live shows, or special content that’s only available on your service (such as video diaries).ForeignForeign or independent films can be a major differentiator. The content here is difficult to classify, as the range is so huge. However, marketing to specific ethnic communities or film lovers in any country can be the key to achieving a significant consumer base. AdultThis genre frequently generates the highest ARPU of any content type. Since this service should be protected from those who shouldn’t see it, Microsoft Mediaroom has robust parental controls; enabling consumers to password protect any content, and set rules about accessing it.AmbientUsed by fewer service providers, but often offering the highest ROI, ambient content enables consumers to use their TV as a backdrop to general conversation with quiet music and calming images (such as fish swimming and sunsets). This can generate small amounts of revenue.Discoverability

With an often vast amount of content available on demand, it is vital to make it easy for your customers to find what they want. In the UK, for example, more than 6,000 hours of on-demand content is available at any time—involving nearly 10,000 individual assets.

Microsoft Mediaroom makes content discovery simple and intuitive, with categorizations and sub-categorizations and an easy-to-use search function. Search enables subscribers to find content based on a wide range of criteria, such as program name or the names of prominent actors or directors. As long as you have the right metadata in place, Microsoft Mediaroom makes it easy for subscribers to find content efficiently and purchase it quickly.

Best Practices

There are many different aspects to an on-demand offering. Some of the elements you should consider in advance include:

Studying your market for key differentiators Using market research data to justify your selection of content Researching your current customers, where appropriate:

o What do they want?o Where do they expect to find it?o What are their online interests (you can establish this from their current behaviors)?

Comparing the cost of content against your customers’ propensity to purchase, and your researched market sizing

Considering ways to communicate access to content types and discovery Thinking about your content costs compared to competitors, bundling (if permitted), and

subscription versus on demand content

If you consider these points and have the research to back up your conclusions, Microsoft Mediaroom can provide you with the foundation you need to deliver a distinctive on demand offering, one that subscribers will find compelling and that shareholders will find profitable.

Mediaroom Anytime Brief

Your Shows, Anytime

How often have you forgotten to set the digital video recorder (DVR) to record your favorite show? How often have you tuned in to find that the show you wanted to watch is halfway through, or stumbled on a show and wished you had caught it from the beginning?

If you deliver a TV service powered by Microsoft Mediaroom, these kinds of subscriber frustrations will soon be a thing of the past. With Microsoft Mediaroom Anytime features, you can enable your subscribers to rewind or restart currently airing program from any point, regardless of whether they have set up their DVRs to record the show and regardless or whether the TV was switched off or tuned to another channel. You can even enable your subscribers to scroll backwards in the Guide to discover or watch previously-aired programs through your on demand library.

Breaking the Real-Time Barrier

Mediaroom Anytime, a groundbreaking feature set of Microsoft Mediaroom, truly enables viewers to watch TV on their own time. In addition to existing Microsoft Mediaroom features, such as on demand, DVR Anywhere, and Remote Digital Video Recording, the new Mediaroom Anytime features take time-shifted TV to the next level. With the new Mediaroom Anytime feature set, you now have the ability to offer your customers the following benefits:

Restart Anytime offers the ability for viewers to rewind or restart the currently airing program from any point, regardless of whether the DVR is recording, or the TV was switched off or tuned to another channel.

Live Anytime allows viewers to scroll backward in the Interactive Program Guide to watch recently aired programs. Programs that have already aired also can be made accessible through the service provider’s video on demand library.

Download Anytime extends Microsoft Mediaroom-powered services to more consumers by enabling viewers to download on-demand programming to their set-top boxes so they can watch them anytime regardless of bandwidth constraints. For example, viewers could watch high-definition programs on low-bandwidth

networks.

Moreover, you, as the Microsoft Mediaroom service provider, have the ability to choose which features you offer to which subscribers. You can offer all the Microsoft Mediaroom Anytime features or just selected ones. Your subscribers and their needs can help you determine the right mix of features to deploy.

TV on Your Terms

Content Delivery Designed to Delight Your SubscribersMicrosoft® Mediaroom™ is an award-winning software solution powers the cloud for network operators and service providers so they can deliver great entertainment experiences across all the screens in their subscribers’ lives. The software is licensed directly to you, the service provider, enabling you to deliver innovative new TV services to your consumers. This positions you to take advantage of the growing digital TV services market and turn consumer demand for personal, connected, and social entertainment experiences into revenue and competitive differentiation.Microsoft Mediaroom makes it easy to meet your subscribers’ demands for TV on their terms. Whether they want to sit and watch TV from the couch, on their PC in the office, or from a Windows phone when away from home—Microsoft Mediaroom provides a single service delivery platform that can enable you to deliver the experiences they want.

Figure 1: Use the cloud to deliver content when and where subscribers want it.Microsoft Mediaroom is built to address consumer’s demand for their entertainment services—from more places, on more screens, within more business models. Service providers can take advantage of intelligence in the cloud to deliver connected and

consistent experiences across a range of networks and devices. Microsoft technologies such as Silverlight, PlayReady, and IIS Smooth Streaming fuel a secure, visually compelling and consistent experience, so consumers can enjoy their favorite entertainment inside and outside their home, on their TV, PC and browser and mobile device.The bottom line? Service providers using Microsoft Mediaroom can offer the best in TV services anywhere, anytime—which is precisely what subscribers worldwide are seeking.

DVR Anywhere Brief

Introduction

The days when households organized their schedules around the airtimes of their favorite TV programs are a distant memory in many parts of the world. Today, many people organize their TV viewing around work and social events and record their favorite shows so they can watch them in their own time.

Consumers have generally achieved this by programming a device such as a digital video recorder (DVR) to record a scheduled show. When the recording succeeded, the user was free to watch the recorded show whenever they wanted, though typically they could only view it on the TV to which the recording device was attached.

A recent study by Nielsen Media found that 56 percent of 18-34 year olds use new technologies such as DVRs, the Internet, on demand services, and MP3 players to follow their favorite series. These numbers show the significant demand for personalized TV services, where the subscriber can consume TV programming when they choose rather than at the time of broadcast.

At the same time, this personalized TV approach has a number of risks that can compromise the quality of the consumer’s experience:

Users relying on DVRs may forget to program them, causing them to miss one or more episodes of a show they wanted to watch.

Viewers can watch only what they have recorded on their DVRs – so if on Tuesday morning at the office they hear about a great show that debuted on Monday night, they cannot turn to their DVR to watch the show.

Consumers relying on the Internet are at the mercy of technologies over which they have no control. Consumers might be able to watch a missed episode on the broadcaster’s Web site, but they may only be able to enjoy a high-quality presentation on their computer monitors and in a relatively small window rather than on their 42-inch high-definition TV

Consumers relying on an on demand service must wait until the show is made available, which may not be a high priority for the presenter offering that asset.

Other issues can also compromise viewing enjoyment. If another family member is watching

a show on the TV to which the DVR is attached, no one else can watch a different recorded show, even if other TVs in the house remain unused. If the DVR is only capable of recording one show at once, problems arise when two people want to record different programs at the same time.

Microsoft Mediaroom fulfills subscriber demands

Service providers delivering TV services through Microsoft Mediaroom, however, are in a unique position to help overcome these issues and deliver a viewing a very different TV experience—one that is predictable, with high availability, and of the same high quality that subscribers would have enjoyed at the show’s scheduled air time.

Although the platform offers powerful, user-friendly features for recording content on a local DVR, and you could also offer subscribers set-top boxes with built-in DVRs, Microsoft Mediaroom goes even further to meet subscriber demands with add-on services that deliver true easy-to-use and personalized TV services.

The Microsoft Media DVR Anywhere feature enables subscribers to use any connected TV or PC in the house to enjoy programming recorded on a Microsoft Mediaroom set-top box DVR. The DVR could be in the living room, but family members can enjoy the programming from the living room, the family room—wherever they happen to be. And different viewers can watch different recorded content from different locations simultaneously.

Microsoft Media DVR Anywhere offers all the traditional recording functionality that consumers have come to expect, like recording individual shows or entire series, and pausing live TV. But now, because a Microsoft Mediaroom set-top box DVR can be set up to record as many as four programs at the same time, your subscribers no longer have to make the choice between recording one program or another or negotiate who watches which recorded shows on the TV attached to the set-top box. Each member of the household can watch their own recordings whenever and wherever they want to. It’s personalization delivered at a whole new level.

Lifestyle benefits

This feature offers exciting lifestyle benefits to your subscribers. For example, a family can watch live or recorded shows together in the family room, or each person can watch previously recorded programs from other TVs in the home. The children can now enjoy their cartoons in a room away from the adults. The husband can watch his favorite cooking shows on the TV set in the kitchen while his wife spends Sunday evening in the family room, catching up on the football game she missed that afternoon.

Subscribers can even start watching a recorded show on one TV, press the pause button, go to another TV in a different room, tune to the WHDVR channel, and continue watching the same program from where they left off.

Increased ARPU

Depending on your market, Microsoft Media DVR Anywhere can either be a charged-for feature or a free value-add as part of a suite of services, helping you to gain additional revenue or retain customers. As a great differentiator against the competition, it is a fantastic way to acquire customers as a feature to communicate in your marketing.

Microsoft Media DVR Anywhere features

Microsoft Media DVR Anywhere offers some exciting features that make it truly customer-centric. As well as recorded programs, it’s possible to pause an on demand program in the middle, move to another room, open the program, and click resume to carry on viewing from the same point. This uses a feature called global bookmark, which notes where you stopped viewing the program. It’s ideal for many family situations, such as parents being interrupted by children and having to change locations.

Microsoft Mediaroom also makes sure that users see the entire program and don’t miss the crucial beginning or ending. Since broadcast schedules can sometimes be inaccurate, all recordings start one minute prior to the program airing, and finish two minutes after the scheduled time.

The DVR itself has been enhanced to group programs under a main heading, making discovery much easier. Instead of having to scroll through a list of individual recordings, your customers can view groups of recordings by series, and then select the one they want to watch from a sub-screen. Finally, if a family has four TVs in different rooms, and everyone still wants to watch the same recorded program at the same time, they can. That promotes family harmony and stops arguments over the remote control.

Meeting customer needs

Today’s consumers want more than standard TV – they demand personalization and control, and the ability to cut through the clutter and get to the content that is meaningful to them. At the same time, they also want to enjoy that content at the time that best suits their busy lives. With services such as on demand and Microsoft Mediaroom DVR Anywhere, Microsoft Mediaroom enables you to meet these demands—quickly, with high quality, and cost-effectively.

On Demand Brief

On Demand: Engaging Consumers Inside and Outside the HomeTrue on demand services offer a differentiated three screen entertainment experience uniquely powered by Microsoft® Mediaroom™. On-demand content, in standard or high definition, gives consumers TV on their terms—whenever they want it. Moreover, on demand services powered by Microsoft Mediaroom provide an engaging experience for viewers with intuitive search and discovery capabilities, as well as compelling packaging and promotions. This drives higher levels of consumer engagement and satisfaction, which lead to lower churn and higher average revenue per user (ARPU).

The value of the Microsoft Mediaroom on demand capability is evident in the top line revenue it generates for service providers. Screen Digest recently compared the on demand revenues of the top five Microsoft Mediaroom customers with the incumbent pay TV competitors in their markets. The study found that the average revenue per user (ARPU) generated from Microsoft Mediaroom-based on demand services averaged three times greater than that of the incumbent competitor in that market.Microsoft Mediaroom takes the on demand experience to new levels by enabling connected experiences inside and outside the home:

Microsoft Mediaroom delivers a beautiful and engaging on demand storefront designed to make browsing and discovery simple and fun. Visually appealing and incredibly responsive, this storefront enables consumers to find entertainment they love in a number of ways – by title, by actor, director or genre.

Consumers may personalize their on demand experience by selecting and saving content they are interested in enjoying later. This customized store is available on the TV, PC and any browser on any broadband network. Consumers may start watching on demand content on their home TV and finish it on the road on their computer.

Service providers can maximize revenue and engagement with unique offers and promotions and by customizing the structure of their on demand store to meet the needs of their market.

Service providers have the flexibility to showcase their own on demand content, as well as content from third party providers.

The flexibility enabled by the Microsoft Mediaroom on demand store enables service providers to deliver the right content and the right store structure for their markets.Deliver the Right ContentIn the on demand world, content is quite literally king. The choice offered by an on demand store is one of the significant differences between your service and one offered by a satellite provider (particularly a ‘near’ on-demand offering), and a cable operator (which offers content, but content that is very hard to navigate, explore and discover).There are some strategic ways you can differentiate your offerings, but it is vital to understand your market to achieve this. In every market there are consumers who feel that many mainstream programs under-represent their needs. They are interested in content that meets their personal and regional interests, whether that’s Scottish Rugby Union matches or Bollywood films. The key here is to understand what these groups want, the potential volumes they represent if their needs are met, and how to market differentiated content to them.Microsoft Mediaroom offers expansive advertising capabilities, delivered through the Microsoft Mediaroom Advertising Platform, and this can help you attract viewers and deferring the costs of content. See the Microsoft Mediaroom Advertising Platform Brief for more information.Categorizing contentIt is important to position content in the right categories and sub-genres. This makes it easier for consumers to find what they want. Typical—and, to viewers, familiar—content categories (which can be accessed either by pay-as-you-go or on a subscription basis depending on your agreements with the content providers) are outlined below:

MoviesThese can be old or new films, and can be sub-classified by genre (such as comedy, thrillers, and so on). Typically they are sold as individual assets, but agreements with particular studios might allow packaging films on a subscription basis with rotational access to changing content. Both can be successful routes to market and usually offer considerable uptake. However, a regular and predictable income from subscriptions works in your favor, making your overall revenue more predictable and enabling more accurate forecasts.TVIn some countries, and especially the UK, TV is the most popular subscription service. On-demand TV enables your subscribers to catch up on the latest TV programs on their terms—at the time that suits them, not necessarily when the program is broadcast live. This offering is very popular in the UK, demonstrating that TV is so immensely popular that people are willing to pay to catch up on previously broadcast content, whether that is recent or much older programming.KidsMost service providers categorize and market children’s content to consumers in their markets. Marketing programs can be targeted during holidays, summer vacations, or Saturday mornings to enhance consumers’ engagement levels and the value they perceive from their TV services.MusicThis is a ‘passion genre.’ Many people have their favorite bands and kinds of music, but almost everyone enjoys listening to it. This type of content enables you to give all sorts of insight into different types of music. This could be standard music videos, interviews, live shows, or special content that’s only available on your service (such as video diaries).ForeignForeign or independent films can be a major differentiator. The content here is difficult to classify, as the range is so huge. However, marketing to specific ethnic communities or film lovers in any country can be the key to achieving a significant consumer base.AdultThis genre frequently generates the highest ARPU of any content type. Since this service should be protected from those who shouldn’t see it, Microsoft Mediaroom has robust parental controls; enabling consumers to password protect any content, and set rules about accessing it.AmbientUsed by fewer service providers, but often offering the highest ROI, ambient content enables consumers to use their TV as a backdrop to general conversation with quiet music and calming images (such as fish swimming and sunsets). This can generate small amounts of revenue.DiscoverabilityWith an often vast amount of content available on demand, it is vital to make it easy for your customers to find what they want. In the UK, for example, more than 6,000 hours of on-demand content is available at any time—involving nearly 10,000 individual assets.Microsoft Mediaroom makes content discovery simple and intuitive, with categorizations and sub-categorizations and an easy-to-use search function. Search enables subscribers to find content based on a wide range of criteria, such as program name or the names of prominent actors or directors. As long as you have the right metadata in place, Microsoft Mediaroom makes it easy for subscribers to find content efficiently and purchase it quickly.

Best PracticesThere are many different aspects to an on-demand offering. Some of the elements you should consider in advance include:

Studying your market for key differentiators Using market research data to justify your selection of content Researching your current customers, where appropriate:

o What do they want?o Where do they expect to find it?o What are their online interests (you can establish this from their current

behaviors)? Comparing the cost of content against your customers’ propensity to purchase, and

your researched market sizing Considering ways to communicate access to content types and discovery Thinking about your content costs compared to competitors, bundling (if

permitted), and subscription versus on demand content

If you consider these points and have the research to back up your conclusions, Microsoft Mediaroom can provide you with the foundation you need to deliver a distinctive on demand offering, one that subscribers will find compelling and that shareholders will find profitable.

Dynamic advertising insertion could open the way for enhanced VoD content availability

Leading UK cable company Virgin Media has commercially launched dynamic advertising insertion on its cable TV service, allowing adverts to be placed before and after on-demand videos.

Virgin’s move, which has been mirrored by the strategies of cable companies in the US, comes as its cable service faces new competition from internet-enabled set-top boxes and technological innovations from UK pay TV market leader BSkyB, which is planning to launch an IP-VoD service to its satellite boxes later this year.

This is the first case of a commercial rollout of dynamic on-demand advertising insertion on a major pay-TV network. US providers including Cox, Verizon, Time Warner and Comcast are all working on similar technologies; however these are still in trial phases.

The launch of ad-funded video-on-demand (VoD) will remove much of the cost barrier faced by Virgin in acquiring content for its VoD library. Screen Digest expects a signifi cant expansion of Virgin’s VoD library as a consequence of the ad-insertion technology, with positive implications in terms of customer addition and retention.

Canvas, the broadcaster-led internet-enabled digital terrestrial (DTT) set-top box, is scheduled for a 2010 launch. Canvas is likely to prove a threat to Virgin’s basic access TV business, featuring Freeview channels and ad-funded free VoD content, but Virgin’s ad-funding system will help to neutralize Canvas’s selling points.

Virgin’s move highlights the importance of ad-funded VoD content for pay-TV providers. In the US, Comcast’s ‘Project Infi nity’ target of 100,000 VoD videos is likely to be achieved only if Comcast successfully creates a new revenue stream from advertising.

Summary

Following extended trials in 100,000 households in 2009, UK cable operator Virgin Media has commercially launched advertising-funded video-on-demand (VoD).

The system being used by Virgin is associative advertising, with the commercial pricing based on the demographic spread of viewers watching a video—much the same way in which broadcast TV advertising is sold. Virgin trialed placing hair care advertising prior to videos of Britain’s Next Top Model. The current deployed service does not yet tailor advertisements to specifi c demographics or individuals (with different viewers of the same show receiving different adverts), based on past viewing preferences and other collected or derived information; however, Virgin has stated that this capability has been built into the system, and Screen Digest expects that demographic targeting will occur once the rollout to the majority of Virgin’s network has occurred, and advertisers have adjusted to the new system.

Until now, adverts had to be hard-coded into content. This meant the content owner or channel would place an advert within the VoD video prior to sending to Virgin Media for distribution. Consequently, ad-inventory management was a crude, manual process.

Using the new method, pre-roll and post-roll advertising spots are placed around the relatively small number of programs available (currently roughly 30 series) as and when consumers elect to watch one of these programs, rather than being pre-encoded into the video. This ensures that advertising inventory refresh can be independent to VoD asset refresh. Although the range of content is currently limited, the number of ad-associated programs is expected to increase with advertiser interest, and when other channels (at fi rst ads were only being run on Virgin’s own channels) and brands become involved in the system. Advertisers which have been involved in the process so far include Cadbury’s, Kellogg’s, Microsoft and L’Oreal.

The ad-insertion technology was introduced over a small portion of Virgin Media’s network last month (December) covering 300,000 digital TV households. Virgin is planning to roll out the advertising service across its entire 3.7m strong digital customer base this year.

Direct revenue from ad-funded VoD will be minimal to begin with, at an estimated £3m for full year 2010. The true value for the cable company will be in the ability to attract additional content to the platform by paying out higher carriage fees, offering content owners a cut of advertising revenues, or allowing them to place their own adverts on content on Virgin’s service. Traditionally, pay-TV operators have had to weigh the costs of acquiring content to distribute free on their VoD services against non-direct revenue benefi ts such as churn reduction. Advertising will enable Virgin to free itself to some extent from these constraints and build an expanded and more competitive VoD library—an important consideration, given the impending launch of project Canvas, IPTV rival BT Vision’s constantly-growing catalog and satellite provider BSkyB’s imminent over-the-top VoD launch.

Virgin’s VoD library has been a cornerstone of the cable company’s business and the company’s key selling point over BSkyB, with a number of high-profi le marketing campaigns highlighting the on-demand content available on the platform. Viewership is relatively high for a European cable VoD platform, with customers watching on average 17 VoD videos each month. Content is primarily catch-up UK series from the BBC and main commercial broadcasters, and library content from US networks. With the addition of advertising, Virgin will be aiming to improve the quantity of library content from UK commercial broadcasters, as well as attracting more recent catch-up content from other key channels.

Canvas, a project to specify an internet-enabled digital terrestrial set-top, backed by broadcasters BBC, ITV, Channel 4 and telco BT, is due for launch in the second half of 2010 and will have a range of channels and content comparable to Virgin’s basic TV package for no monthly fee. As a consequence, Virgin effectively stands to lose the competitive advantage it has gained from its early introduction of VoD. Although the ‘M’ customers threatened by the move are low value TV customers, all are telephony customers and most take Virgin’s broadband services, ensuring that they are still valuable assets to the cable company.

VoD is More About Customer Retention Than Revenues

Since its launch in 2005, UK cable operator Virgin Media’s video-on-demand (VoD) library has become the cornerstone of its TV strategy, highlighted in its advertising campaigns and a key component of churn-reduction tactics. Video-on-demand is available to all of its 3.7m digital TV customers.

The VoD library, managed by On-Demand Group a UK-based unit of SeaChange International, is split into:

FilmFlex, its transactional movie service, run by Disney and Sony. This features roughly 500-600 movies at any given point.

TV Choice, a TV series library available on a standalone basis for a monthly fee of £7, or bundled with Virgin’s top tier ‘XL’ linear TV package.

Catch-up TV, a free VoD library comprising mainly content from the main UK broadcasters in a seven day window post-transmission.

The company also has a range of other categories including a music video library, Bollywood fi lms, and Universal’s subscription VoD Picturebox service.

Consumption of VoD across its catalog base has been rising for Virgin Media since the 2005 launch of the service. The majority of digital TV customers use it regularly, and monthly views per subscriber have increased steadily, with 2009 average usage expected to have reached over 17 views per digital customer per month. Total consumption is anticipated to have reached 0.76bn videos for full-year 2009 and if the current viewing trend is maintained, Virgin Media will be achieving viewership of over 1bn videos per year by 2011.

VoD usage is dominated by free catch-up viewing and viewing of archive material. PPV fi lms, while providing the bulk of the direct revenue, constitute less than 5% of total on-demand views. Music videos are another important viewing component (in terms of numbers of views, if not time spent viewing), and made up roughly 30% of on-demand views in 2008.

On-demand has had a range of benefi ts for Virgin Media. While PPV content generates consumer revenues of roughly £90m annually, the availability of catch-up content is a key component in Virgin’s customer retention and acquisition strategy, and one of the few competitive advantages Virgin maintains over UK pay TV market leader BSkyB.

Virgin began commercial tests of an ad-serving system for the VoD service last year, with technical trials having been ongoing for some time. Many of the major cable and IPTV services in Europe and North America have been considering the use of

ad-funded VoD systems since they rolled out VoD, with a number of the major North American fi rms, such as Comcast, Cox, Time Warner and Verizon having already begun trials.

Content owners are already able to embed hard-coded advertising in the video which they send to the pay-TV operator. However, few do this, as it is only really suitable for higher value videos, as managing advertising inventory requires a complete video refresh—a labor-intensive process, and not suitable for large lowinterest catalogs which may generate just a handful of views per video. In some cases, commercials delivered in the live broadcast stream are recorded and redistributed when the content is delivered as part of a catch-up service, but this is very rarely captured by the offi cial ratings systems, and consequently largely unmonetized. Comcast in the US has integrated its catch-up cable VoD service with Nielsen’s C3 post-transmission measurement system but is the only provider to offer this form of functionality.

Consequently, for the majority of cases, lower value TV content, which most consumers won’t often watch (for even a modest fee) has stayed off most VoD menus.

Unlike hard-coded mechanisms, dynamic VoD ad insertion allows adverts to be delivered to the pay-TV provider independently to the content, as they are managed and stored separately. The adverts are streamed to the viewer after they opt to view a specifi c content piece, with the system switching to showing the requested content after the adverts have been delivered. The advantage of the system is that, for the viewer, the experience is similar to that of the hard-coded system—several adverts, followed by the content. However, for the content owner, it means that they have to deliver the video just once, with the only refresh required that of the advertisement videos themselves and of the management data (i.e. which and how many views should the advertisement be associated with).

Ad Insertion Needs to Be Rolled Out To Whole Network

Virgin’s is the fi rst commercial launch of a dynamic advertising-insertion system on a major pay-TV network. Currently, due to the fact that the system requires backend upgrades to cope with ad-insertion, the service is available to just 8% of Virgin’s digital customer base—300,000 digital cable homes. The upgrade enabling adfunded VoD across the network is expected to be completed relatively rapidly, with complete coverage anticipated for 2010. Furthermore, Virgin has only the Virgin Media Television business on board (along with sales-house IDS) for the venture at present, with selected content from channels Living, Bravo and Virgin 1 now showing typically two 30-second pre-rolls and one post-roll. Given that the system has only just emerged from trials, this is not unexpected.

The AdPulse system installed on Virgin’s network is the same system that the main US providers are trialing. System characteristics such as coping with mid-rolls and targeted advertising will likely be the minimum feature set required from a cable VoD advertising system, particularly given the ambitious aims of the US cable networks. Ventures such as Project Canoe, which is intended to provide a base for a targeted linear ad-insertion, will also work best if they tie in with an on-demand system which has such capabilities.

CPM rates are not being revealed by Virgin. Channel 4 was achieving rates in the order of £16-20 for a 30s spot for placing contextual VoD adverts before some of its on-demand content on Virgin’s service at the end of 2008. If similar rates are being achieved by Virgin Media for the contextual adverts being inserted by the new system, then each video view, with two pre-rolls combined with a post-roll (viewed at a lower rate, with viewers switching off before it commences), will consequently generate revenues in the order of £0.04-£0.05. CPMs are substantially above those of broadcast (which average around £8). Given the limited numbers of adverts Virgin is showing (and, given Channel 4 experiments on Virgin,

high brand recall), higher CPMs may be maintainable; however, this may depend to some extent on consumer propensity to fast-forward through adverts, which is currently possible. If fast-forwarding becomes an issue, Virgin could simply disable the option during ad breaks.

Given the likely range of revenues per video, if by 2013, Virgin can put in place agreements to insert advertisements on the majority of its catch-up and TV Choice videos, including those belonging to non-Virgin Media Television channels, the company could generate revenues of the order of £10m-£20m annually (although this would then be split between content owner, platform and ad sales house). Addition of music videos carrying a single pre-roll could boost revenues by a further £2-5m for the same period. With the deployed AdPulse system also allowing for midroll advert insertions, there is a further possibility for higher ad-loads, potentially increasing per-stream revenues substantially further.

Although revenues are small compared to Virgin’s subscription TV revenues (estimated to be over £1bn for 2009), the value for Virgin Media of ad-funded VoD of course extends beyond the direct revenue benefi ts. One of the issues with pay-TV service providers obtaining signifi cant video libraries comprising low value TV series and shows has been that of lack of return. Historically, the two ways for a content owner to generate revenue from pay-TV VoD has been via a share of transactional fees, where the consumer pays for each view, or via carriage-type agreements, where the pay-TV operator pays the content owner in bulk for a video library and attempts to recoup the investment through higher subscription fees, reduced churn or higher net additions.

VoD Competition From Satellite and Open Internet Is Increasing

Due to the issues associated with hard-coding advertising into videos, lower-value ‘long-tail’ type content has been of lesser interest to pay-TV providers, as providing it on a transactional basis would generate minimal amounts in revenue, while the value in improving consumer acquisition or retention would be unlikely to justify a carriage-type deal.

This has been one of the reasons why more content is available via online video services than on pay TV VoD. Even in the US, where cable operators may have 15,000 videos available each month and their high ARPUs allow them to spend more on VoD license fees, much content is still retained by owners to place on their proprietary online VoD services, where it can be monetized more easily. Portals such as Hulu have a range of TV series which may not be available on a cable network. In some cases, even key content is retained exclusively or near-exclusively online, as it helps to drive traffi c to the internet portals and generate further revenue.

The content which Virgin Media is likely to aim to obtain will consist of catch-up TV from commercial pay-TV channels and library content from the main commercial broadcasters. Such content would typically fall below the threshold for direct acquisition for non-direct revenue/cost benefi ts, but would be ideal for ad-funding using the new ad-insertion mechanism.

This additional content is likely to become increasingly important over the next few years, particularly following the expected Project Canvas launch in late 2010 and Sky’s IP-VoD launch, anticipated for summer 2010. Canvas set-top boxes will provide Freeview linear channel access combined with access to on-demand internet content from a range of broadcasters and channels. Given the present existence of advertising-funded content online, it is likely that Canvas will feature substantial libraries of ad-funded VoD.

With the content offer likely to be analogous to Virgin’s basic ‘M’ package, with the bonus of not forcing consumers into renting a telephone line, it is clearly in Virgin’s interests to increase the attractiveness of its basic service in order to ensure that Canvas does not have a detrimental effect on its subscriber base. For Virgin to avoid being obliged to spend signifi cant sums of money keeping pace with Canvas VoD content, a system allowing content owners another way to make some return on their assets, in this case through advertising, is essential.

BSkyB, by contrast, will be narrowing the technological gap between it and Virgin, with the availability of a push/pull IP-VoD service. BSkyB customers with a Sky+ digital video recorder box (currently 62% of its subscriber base), will be able to download content to view on an on-demand basis, with the system working in much the same way as the services run by US satellite providers DirecTV and Dish Network. While the feature will not function in the same guaranteed, instant stream way as Virgin’s VoD service, it will begin to eat into Virgin’s USP, making the addition of more on-demand content all the more critical for the cable provider.

Microsoft Mediaroom Advertising Platform and Advertising Program

The Mediaroom Advertising Platform and Program is a growing product offering that service

providers can utilize to:

1. Increase ARPU by offering advertising directly2. Utilizing advertising tools to proactively manage promotional features that attract

consumers to content and other services a provider offers – for example promoting special offers for mobile service, and

3. Reselling or utilizing the advanced advertising features of Mediaroom Advertising to attract or reduce the price of great content. For example, selling the advanced targeting capabilities or offering consumers the option to reduce the price of content in exchange for viewing advertisements.

Advertising business practices vary from country to country. As a service provider, you will want to align your practices with those of your country and your rights to advertise that are typically dictated by your content agreements. To assist you in doing so, and to maximize your revenue from advertising, the following highlights of the evolving Platform and Program are provided. Additionally, we have provided insights that may help you in building a business plan and contact information.

Overview

The Advertising Platform has several modules which can be used separately or together to deploy targeted, measurable and interactive advertising all from one comprehensive platform. Because its features have been built with software, it requires minimal Capex to deploy.

The Advertising Platform supports the insertion of advertising into the Mediaroom environment and the reporting about the consumer’s engagement with the advertising. It can support classic or highly targeted ad decisions in addition to interactive features.

Advertising Platform Features

Dynamic Video on Demand: A standards based solution that supports the insertion of pre-roll, post-roll, and – coming soon with advertising on Mediaroom 2.0 – mid-roll ads around VoD content. The ads can be targeted based on a variety of parameters including geography, household characteristics, and content genre.

Interactive TV: Utilizing Mediaroom Presentation Framework and optionally, triggers, overlays, polling, contests, microsites, and linkage to VoD content. This is a prime candidate for resale to broadcasters or other content providers.

Linear advertising: Currently Mediaroom operators can support linear advertising outside of the Mediaroom environment – that is a linear advertisement can be inserted in content stream (this is not part of the Mediaroom Advertising Platform).

We are currently developing the capability to insert advertising at the Set Top Box. This feature will give operators the ability to target ads to meet nearly any possible advertiser request. Operators can segment households by geography – large or small, by genre, by service type, and any combination thereof. This feature is

handled through software, so very little additional hardware is required on the server side, and it runs on the standard set top boxes with DVRs (only one required per home).

Census measurement of user actual consumer interaction and reporting back underlies all of the features of the Platform. The Advertising Platform supports the ability to report back with a campaign view; i.e., the results of an advertiser’s different advertising units shown together. As an example, in a report for a VoD advertisement with a triggered overlay linking to a microsite, the advertiser could see how many consumers saw the advertisement and how many clicked on the trigger.

* Provided by 3rd partiesTable 1: The TV Services Presented

Please refer to your Mediaroom sales representative for information on what features are available on your deployed system.

Advertising Program

The Basics

To deploy advertising on the Platform, operators will need to enable a number of advertising functions to sell and manage the advertising. To assist you in this, Mediaroom is developing the Advertising Program.

Inventory

The first consideration in developing an advertising program is determining the rights you as an operator have to deploy advertising around the content you have running on your service. As part of your content negotiations you may or may not have secured rights to insert advertising. For example, operators in the US typically have rights to insert advertising in cable channels, while in Europe this is not the case; though European operators still have rights to develop ad channels, ads in the search channel and often advertising around VoD assets. Whether you have or have not insertion rights, the features that Mediaroom Advertising Platform offers can also be resold to content providers as an extended revenue source or as a negotiating tool. In addition, our capabilities around applications support operators in offering specific fee based or sponsorship services. These rights represent the inventory of available advertising that you can sell, and advertising you can enhance.

In managing your advertising environment you may want to consider several dimensions illustrated in the diagram below:

Advertising sales

This is probably the most geographically specific area of advertising, as advertising sales practices vary widely. There are several options to consider. Among these are:

Build a sales team to sell TV ad inventory, either by itself of in conjunction with web portal and/or mobile advertising.

If you have a directory/yellow pages sales team, TV can provide an interesting add-on to print or online publications; and of course your sales force is likely number one in their market in terms of knowing their advertisers.

Another alternative is to contract with a third party to sell your advertising. Options could include a broadcaster or advertising “rep” or reseller firm.

In addition to the sales team, you will need to identify the sales interface that will manage

the ad campaigns your sales force contracts with. The sales interface supports you in managing advertising campaigns by creating the instruction set of data for that instructs Mediaroom Advertising Platform to insert advertising at the appropriate point in the viewer experience.

In addition, the sales interface or Ad Decision Service (ADS) provides operators with the interface to report back to advertisers or content providers on the performance of the advertising deployed. Mediaroom is working to pre-integrate with advertising sales solutions partners. Your Mediaroom sales or solutions partner can assist you with identifying partners who cover your geographic area.

One further consideration will be your advertising ingestion and advertising content management capability which sits outside of Mediaroom. This is your capability to ingest advertising into the Mediaroom environment and manage the assets.

Your Mediaroom sales representative can assist you in identifying partners offering services in your region.

Building your Business Plan

Have you decided to embrace the advertising tools to help your business? Assembled here are some insights that may assist you in developing your business plan.

Screen Digest presents a useful case study in utilizing advertising to support Video On Demand. Mediaroom’s Dynamic VOD capabilities give service providers the opportunity to provide the dynamic insertion called out here.

MAGNA – Global Forecasting and Analysis provides ongoing updates on the advertising marketplace including country by country data on advertising market size.

The Interactive Advertising Bureau has released its first whitepaper on interactive television. The advertising features in Mediaroom Presentation Framework, together with an Ad Decision Service support most of the features described in the report.

The Society of Cable Television Engineers’ standards can be found on their website SCTE.org. Mediaroom’s Advertising Platform features around Video On Demand is built to comply with SCTE 130.

Virtualization Brief

Introduction

Microsoft Mediaroom is an end-to-end software platform that provides convenience and

compelling benefits to service providers and ecosystem partners. It offers a complete, fully-integrated, fully-architected solution that service providers can use as the foundation for a profitable and highly-competitive consumer-oriented TV service.

Mediaroom with Virtualization

A traditional baseline deployment of Microsoft Mediaroom can support hundreds of thousands of set-top boxes (and their equivalents) but requires no fewer than 63 physical servers to deploy. This involves substantial CAPEX on the part of the service provider. In contrast, Microsoft Mediaroom with Virtualization offers service providers a low cost method of getting started with Microsoft Mediaroom. Microsoft Mediaroom with Virtualization is designed for the delivery of consumer-oriented subscription TV services to as many as 30,000 devices, yet because it relies on Microsoft Windows Server 2008 with Hyper-V it requires fewer than 10 physical servers.

This diminutive size does not mean diminutive service: All the features available in a traditional (i.e., non-virtualized) deployment of Microsoft Mediaroom are available in Microsoft Mediaroom with Virtualization, including:

Video on demand DVR Anywhere for viewing and managing recorded shows in any room Mediaroom Anytime for viewing of previously aired programs or restarting currently

airing shows without any preplanning or prior digital video recording High-definition video for live and on-demand content Multiview Instant channel zapping TV applications that support rich interactivity and seamless blending of Web content

and services with broadcast TV

The proven Microsoft Mediaroom reference architecture continues to be used and roles (machine types) are distributed in the same manner as in a non-virtualized deployment. The difference is simply that the core servers supporting the services are virtual servers—and multiple virtual servers are running on each physical server in the Microsoft Mediaroom with Virtualization deployment. Note that the media servers themselves—the A-servers, D-servers, V-servers, Timeshift and Live2VOD recording servers are hosted on physical rather than virtual servers. This enables a service provider to add as many media servers as the service warrants in a given deployment location.

Figure 1: The Architecture of Microsoft Mediaroom with Virtualization.An Innovative Vision

Microsoft is the first IPTV platform vendor to offer an IPTV platform in a virtualized environment. For service providers, this manner of deploying Microsoft Mediaroom opens a range of new opportunities. Smaller and non-traditional service providers will find it easier to build out a compelling TV service because of the lower CAPEX required to deploy the service.

Service providers already using Microsoft Mediaroom to deliver TV services to subscribers can use Microsoft Mediaroom with Virtualization to expand services cost-effectively in new geographies. A service provider can quickly bring it existing TV services to a new market by initiating the service using Microsoft Mediaroom with Virtualization. As the service uptake increases and the subscriber device count climbs towards 30,000 units, a service provider can migrate the service group to a non-virtualized deployment of Microsoft Mediaroom and continue to expand the service to support hundreds of thousands of users. The servers that had been used to support the Microsoft Mediaroom with Virtualization deployment can be repurposed in a new region and the service provider’s TV service can be quickly and cost-effectively expanded still further.

With Microsoft Mediaroom with Virtualization, Microsoft makes it easy for any service provider to build out a compelling consumer-oriented TV service without a steep CAPEX investment up front. It provides all the power and all the benefits of a traditional Microsoft Mediaroom deployment, but in a very small, very powerful package.

CAPEX, TCO, and TV Services:

Yesterday, Today, and Tomorrow

IntroductionArticulating the capital expense (CAPEX) for a TV delivery platform is complex for both vendors and service providers. Quantifying CAPEX, normally, starts off as a simple exercise and can quickly escalate in complexity. Based on the Microsoft experience of deploying commercial TV to over 3 million homes via 20+ service providers, we will identify some key concepts that must be kept in mind when quantifying the CAPEX for a TV delivery platform. We will then propose a framework that an operator can use to merge TV platform software costs into their existing models for quantifying overall CAPEX. Finally, we will show the impact that some key operational business metrics have relative to the initial CAPEX.We start with an outline of the key items that contribute to the CAPEX that a service provider must incur to deploy television services to a consumer. Most relevant to the business of delivering TV to consumers are the one-time, upfront startup costs required to enable a consumer to receive commercial TV services. Under the classic definition of capital expense, it may seem out of place to include as CAPEX some costs such as installation services. However, taking a service provider’s perspective, the most relevant cost metrics to the cash flow is the total cost required to enable TV. And cash flow at the initial stages of deployment represents the outlay of cash required, which must be balanced by the return on investment. Specifically, we will call out the software cost elements and then discuss the impact these have on the overall CAPEX.Finally, how well a service provider achieves these business goals, relative to their TV business depends on several factors. While one of the key factors is the technology used for the building blocks supporting TV service delivery and the CAPEX incurred, these do not have a linear relationship with business success. Commercial success is determined by a consumer appreciating and using the service. Measuring this is really about hard metrics such as the average revenue per user (ARPU) generated by the TV services. In cases where ARPU is less important, the measure is the churn and/or retention rates of consumers accessing the service. In a world of limited personnel and capital resources, it is challenging to find the right balance between expending resources on building the technology platform and driving the business toward consumer success. In this paper, we will focus on choices that a service provider can make with respect to the technology building blocks, and we will examine the impact of these choices on the resources required to drive consumer success.Viewing Hardware and Software CAPEX CostsWhen all costs associated with deploying commercial TV services to a consumer are captured, two facts become evident:

The largest portion of costs is related to the home consumer device and connectivity.

The software costs and the hardware costs associated to run the software do show up, but they are not the dominant costs, as is popularly believed.

An analysis (Figure 1) of existing TV service delivery environments reveals that hardware and software costs for a platform-based solution amount to approximately 8 percent of a service provider’s total costs—approximately the same as the cost of the access network and less than half the cost of customer relationship management (CRM) and provisioning services. The cost of set-top boxes to support a service provider’s customers is more than twice the cost of the hardware and software that drives content to those set-top boxes, and the costs

associated with installing the TV service at the subscribers’ premises are the highest costs of all.

Figure 1: Costs to enable TV services to a consumerWhat is relevant here is that the costs that scale linearly with the number of consumers deployed or by the number of devices deployed have a much greater impact on the overall business metrics for the commercial deployment of TV. These are also the areas that can pay the biggest dividends for CAPEX reduction. When considering the choice of the home device, it does pay to ensure that the home device is good for at least four to seven years (the typical depreciation period for home devices). Furthermore, the services that consumers use will change and progress through the life of the TV service, and therefore the ability to support high definition audio and video, DRM, unified home storage of media, and software upgradeability are all important attributes.The software to run the TV platform can have a substantial impact on the ability to roll out TV services and manage the TV business. It is important to examine and establish a framework for what is required to launch and operate a commercial TV service. We will focus on this topic in the next section.What Constitutes a Complete TV Service Delivery Platform?Building a TV platform requires, at a minimum, the six core system components shown in Figure 2 below.

Figure 2: Microsoft Mediaroom provides a complete, fully-architected service delivery platform.Microsoft calls the first approach the incremental approach and the second, the platform approach. Clearly there will be cost differences between the two approaches. The service provider taking the incremental approach can start with a smaller investment up front and invest in additional components over time to create the complete service delivery environment. The service provider taking the platform approach starts with a larger investment up front because it is starting with a complete solution, one that already has all the required service delivery components.The more significant question regarding costs, however, is how do they compare when constructing a complete service delivery environment? In the platform approach, the question is easy to answer because the platform is complete from the start. In the incremental approach, the question is more difficult to answer. The service provider must make additional choices about which components to use to round out the complete service delivery environment, and the costs for different components can vary widely. Moreover, the cost of integrating all these components can be hard to predict, as can the costs associated with testing the newly built service delivery environment and validating that it will perform as required. Such integration, testing, and validation costs are included in the costs attached to the platform approach, for the work itself has already been done.One key differentiator between the two approaches is the cost of what is often referred to as the “hidden software.” “Hidden software” refers to the cost of core components such as databases, application servers, and directory servers that are absolutely required but often hidden under layers of the application software. For instance, asset management is relatively well understood, with many different flavors of asset management available. However, any commercial-grade system is going to require databases and application servers that will be utilized by one or more modules of the subsystem. These costs are typically, “hidden” and are often accounted for separately. While it may help vendors of both a platform approach and an incremental approach to show lower visible costs of the TV

platform, they do show up in the overall business analysis and should be factored in right from the start. They are, after all, an investment that a service provider makes to ensure service delivery to a consumer. Other costs associated with delivering a TV service—the cost of set-top boxes, installation, customer relationship management (CRM), and service provisioning, to name a few examples—can significantly exceed the hardware and software costs associated with building a complete solution using either approach.The real differences between the incremental and platform approaches become significant when we consider total cost of ownership (TCO) over time. As consumer uptake increases and a service provider needs to expand the service delivery infrastructure, the incremental approach becomes more costly to own and operate than the platform approach. The different vendors supporting the components in an incrementally built service-delivery system license their product independently of other vendors, and in certain areas this licensing model acts as a tax on a service provider’s success. As individual subscribers demand more high-definition (HD) content, for example, a service provider will need to add more hardware to keep up with demand. But in the incremental approach, the vendors supplying the HD content delivery hardware charge both premium prices for their hardware and licensing fees based on content delivery. The more HD content a subscriber watches, the more the service provider pays in fees. In contrast, for the platform approach, a service provider can add relatively inexpensive hardware to support increased demand for services without incurring additional content licensing fees. This approach helps the service provider retain more of the revenues it brings in and reduces TCO over time.Another less obvious factor is the cost and expediency involved for rolling out a new service or application. With the incremental approach, the complexity does increase, because of the necessity of synchronizing activities between a set of technology building blocks created by different companies. Each block also evolves at its own pace, and thus, making changes often requires revalidating and re-qualifying the system thoroughly every time changes are made. In contrast, for the platform approach the qualification and testing of changes and their associated costs are borne by the platform provider, not the service provider.Taking an incremental approach instead of a platform approach to building out a TV service infrastructure offers no significant cost of ownership advantage when all the hardware and software components required to create a truly complete service are added into the cost equation. Finally, where the cost differences do become apparent is over the long term, where the platform approach ultimately costs less than the incremental approach.Total Cost of Ownership Over Time: The Difference of True SignificanceThe real differences between the incremental and platform approaches become significant when one considers TCO over time. Differences in startup costs may not be major, particularly in light of the total cost of managing and maintaining a TV service, but as consumer uptake increases and the service provider needs to expand the service delivery infrastructure, the incremental approach becomes more costly to own and operate than the platform approach. That has a direct impact on long-term revenues for the service provider.Comparing the Cost of Service ExpansionAs VOD and HD uptake increase among subscribers, TV service delivery solutions based on either approach will require additional hardware to support demand. In solutions that are based on the incremental approach, however, the additional hardware is typically proprietary and can be far more expensive than the industry standard hardware that supports a complete platform approach. Moreover, because the service provider would be acquiring additional hardware in small quantities to support an expanding TV service, there

are no opportunities for volume discounts when this new proprietary hardware is required.Not so in the platform approach. The platform approach typically relies on industry standard hardware. Compared to proprietary hardware products associated with the incremental approach, the hardware required to support the platform approach is relatively inexpensive. Moreover, many service providers already have volume licensing agreements in place with vendors such as HP, Dell, and Sun Microsystems because they purchase large quantities of hardware for use throughout their organizations. This can reduce the hardware costs even more, enabling a service provider taking the platform approach to expand its service for thousands of dollars less than a service provider using hardware supported with the incremental approach. Using industry standard hardware also enables a service provider to take advantage of existing skill sets within the organization and to use hardware with which its support personnel are already thoroughly familiar.Comparing the Cost of Supporting Increased Subscriber DemandEven more significant than the cost of proprietary hardware for the service provider taking the incremental approach is the fact that service-delivery component providers supporting the incremental approach license their products so that the service provider’s fees are based on how much content they deliver to customers. As individual subscribers watch more HD or VOD content—and they will, particularly if the service provider succeeds in offering a service that attracts and retains subscribers—the per-subscriber cost to deliver those services increases. In the long term, these escalating fees based on content delivery act as a tax on a service provider’s success, one that effectively erodes long-term profits and increases TCO.The platform approach avoids this tax. Because licensing is linked to the number of subscribers, not to the content they watch, the license fees do not increase as subscribers watch more HD or VOD content. A service provider can add more HD or VOD servers to the service delivery environment, can encourage subscribers to enjoy as much of this programming as possible, and can watch the additional revenues derived from those services turn directly into profits (minus the nominal cost for the additional hardware purchased at volume discount prices).Comparing the Cost of Maintenance Over TimeFinally, consider the long-term costs associated with working with a service delivery infrastructure supported by multiple vendors. The cost of incorporating third party OME and DRM solutions in a service delivery environment based on the incremental approach does not end with the initial rollout of the TV service. Every upgrade to the TV service that affects the topology of the solution or the content delivery, VOD, or home media sharing services will require the revalidation of the OME and DRM components. These subsequent efforts will continue to add considerably to the ongoing costs of operating the platform.In the platform approach, OME and DRM testing and validation are performed by the platform provider before any upgrades are made available, at no additional expense to the service provider.The cost of changing service profiles must also be taken into consideration. In the incremental approach, the service profile must be defined up front, and the definition of that can drive many of the subsequent decisions about how the service delivery environment is configured. When a service provider evolves, though, and discovers a need to change that service profile, the cost of change can be significant. Microsoft research calculates that the cost of changing the service profile in the incremental approach can reach as high as $13 per subscriber. In the platform approach, in contrast, because all

components are designed to support a variety of service profiles, the cost of changing a given service profile amounts to less than $1 per subscriber.Over time, these lower costs for expansion hardware, the absence of content-based licensing and component revalidation fees, and the low cost of evolving service profiles together mean lower TCO for the service provider taking the platform approach. Over the same time, given the increasing demand and the same need to expand the service delivery infrastructure, the service provider taking the incremental approach will spend significantly more money than a service provider taking the platform approach to meet customer and business needs.Microsoft MediaroomMicrosoft® Mediaroom™ is a TV service delivery solution built around a platform approach. It offers service providers a complete TV service delivery environment that enables them to focus on their TV business. In addition to the six core components described earlier, Microsoft Mediaroom also includes all the operations and management extension (OME) components required to support and maintain a highly reliable, highly available service delivery infrastructure.

1Support for these subsystems can be provided through Microsoft Mediaroom. However, many service providers already have corporate IT systems in place to support these requirements, so these components are not included as default Microsoft Mediaroom components.The Microsoft Mediaroom platform has been deployed to over 3 million homes via 20+ service providers worldwide. The number of homes receiving TV services delivered via the

Microsoft Mediaroom platform is growing at the rate of three families a minute, 24 hours a day, 7 days a week. Certainly, the service providers who have chosen to deploy on the Microsoft Mediaroom platform deserve a large portion of the credit for the success, but it is the Microsoft Mediaroom platform approach that has enabled these service providers to focus on their customers–the consumers.The platform approach used by Microsoft Mediaroom has been successfully. Equally significant are other approaches that Microsoft Mediaroom has taken which have significantly contributed towards CAPEX reductions and simultaneously sustaining TV service growth.Delivering a Lower TCO Over TimeAn analysis of existing Microsoft Mediaroom installations reveals that the startup hardware and software costs for a Microsoft Mediaroom-based service delivery environment amount to approximately 8 percent of a typical service provider’s overall service delivery costs (including customer premises equipment installation costs, the cost of set-top boxes, CRM and provisioning costs, network costs, and so on). The total hardware and software startup costs of configurations based on an incremental approach can come close to this same figure.

Figure 3: Server count reductions on the Microsoft Mediaroom platform since 2006Microsoft Mediaroom relies on industry standard hardware from a range of hardware suppliers. Most service providers already have a relationship with hardware providers. This makes it easy to acquire any new hardware that an expansion of the Microsoft Mediaroom service requires. As can be seen in Figure 3 (above), the number of servers required to deploy Microsoft Mediaroom has been almost linearly reduced. This reduction, along with the cost deprecation caused by the economies of scale enabled by the use of standard hardware products, has resulted in a substantial payoff for Microsoft Mediaroom customers.Is it as simple as using industry standard hardware? This is a valid question. Within Microsoft Mediaroom, in addition to making straight-forward hardware improvements, we have been on a consistent path toward increasing the cost/scalability of the software services delivered to consumers. Figure 4 below) shows how we have increased both the number of services (content) supported by the Microsoft Mediaroom platform and the capacity of the platform. When combined with the server count reductions, these translate favorably for service providers who want to ensure increased consumer usage, typically seen through increased use of HD or VOD content or TV applications. A service provider can even encourage customers to connect multiple set-top boxes within a single house, effectively doubling or

tripling consumer satisfaction, yet pay no additional CAPEX penalty.

Figure 4: Capacity and throughput increases on Microsoft Mediaroom since 2006Balancing CAPEX and GrowthTaking a service provider-centric view, there are further choices that must be examined. Two factors that are difficult to determine are the rate of subscriber growth and the size of deployments. With that in mind, Microsoft Mediaroom has introduced Mediaroom with Hyper-V (Mediaroom HV). Microsoft has created Hyper-V, a next-generation, hypervisor-based technology that provides a reliable virtualization platform and integrated management for enabling customers to virtualize their infrastructure and reduce costs. As shown in Figure 5, Hyper-V enables maximum use of hardware resources to run services by running multiple virtual-machine implementations on top of one hardware platform.

Figure 5: Multiple virtual server cores on one physical hardware platformMicrosoft Mediaroom with Hyper-V is the first instance of a software platform using virtualization that is aimed at cost optimizing the delivery of TV services to consumers.With Mediaroom HV, service providers can now launch commercial TV services using just over nine servers. The exact count will vary based on TV services such as VOD that a service provider may choose to deploy. With this offering, service providers can pace the deployment and purchase of hardware infrastructure to match their subscriber growth. As the number of subscribers grows and service usage increases, hardware can be “de virtualized” by the insertion of the required servers. What service providers achieve is a balance of cash flow. Start small, and grow. Most importantly, there is a consistent set of services available from the start through the ramp up. The Microsoft Mediaroom TV service features are available to consumers through all phases of growth; there is no compromise on how attractive TV services are to consumers.Other TV Business Success MetricsWhile most of this paper focuses on TCO and CAPEX, it is worthwhile to briefly examine the consumer perception of TV services. After all, the ultimate success of a TV service is driven by the commercial success of the offering. This is often measured by service providers as the

impact that the service has had on increasing ARPU or the take rate (defined as the number of consumers opting to take up the service).In a six-month study, Microsoft-commissioned researchers interviewed more than 200 pay TV customers around the world and asked them to compare their experiences of two locally available pay TV services. One of these services was a locally available Microsoft Mediaroom-based service; the other was a competing local TV service. All the study participants subscribed to a pay TV service, and all participants identified themselves as moderately to very satisfied with the TV service to which they subscribed.

Figure 6: Preference for Microsoft MediaroomThat satisfaction notwithstanding, 80 percent of study participants (see Figure 6) identified the local Microsoft Mediaroom-based service as the one they would prefer after experiencing and comparing both services. What prompted participants to make this choice was not picture or sound quality—which were judged to be equal to the competing service among a majority of participants—but the ease with which they could interact with the service to find and manipulate the content they wanted to watch.Moreover, when asked how much they would be willing to pay for this more satisfying experience, study participants indicated that they would be willing to pay between 20 and 30 percent more than they were currently paying (see Figure 7).

Figure 7: ARPU increment driven by Microsoft MediaroomThe study also found that the experience of Microsoft Mediaroom was compelling enough to make even satisfied subscribers think about switching to the Microsoft Mediaroom-based service. Among the 80 percent of study participants that named Microsoft Mediaroom as the superior service, only 18 percent of those came in to the study saying that they were considering switching services. Yet after experiencing both the Microsoft Mediaroom-based service and the local competing service, the percentage of participants who expressed an inclination to switch to Microsoft Mediaroom climbed to 34 percent.SummaryA broadband service provider striving to build a commercially successful subscription TV service using IPTV technologies has choices to make where these technologies are concerned. Not only will these choices affect near-term service delivery, consumer uptake, and service growth, but they will also affect long-term profits and shareholder returns.The true cost of deploying a complete service delivery platform must include all the components required to actually deliver the services. While this cost is easy to arrive at in the platform approach, it is more challenging in the incremental approach. The elements of a TV platform described earlier and illustrated in Figure 2 on page 7 are representative of what is required to deliver commercial TV services and can be used to frame all the software and hardware costs that would contribute to the CAPEX.With the Microsoft Mediaroom platform, we have seen consistent and documented trends in:

Reductions in server count. Improvements in capacity and throughput. Balance between CAPEX spending and service growth.

But just as important is the consistent and documented pattern that Microsoft Mediaroom customers have observed in the growth of business success metrics such as ARPU, preference, and take rate.

Reducing Cost and Time to Market

Realizing Real Business Value

Microsoft Mediaroom is an end-to-end software platform that provides a best in class TV experience to subscribers and compelling operational benefits to service providers and ecosystem partners. It offers a complete, fully-integrated, fully-architected solution that service providers can use as the foundation for a profitable and highly-competitive consumer-oriented TV service.

As a fully-architected service delivery platform, the systems supporting the various service delivery components have already been sized and tested, which eliminates any guess work as to what a service provider needs. Moreover, Microsoft Mediaroom includes a set of deployment and test tools for building and configuring the solution, which reduces time to market and enables significant deployment cost savings.

Compelling Operational Advantages

From an operations management perspective, the approach that Microsoft has taken in Microsoft Mediaroom offers several compelling benefits. Many pieces of hardware and software are involved in the creation of an IPTV service delivery infrastructure. Because Microsoft has already identified these components and recommended specific configurations that have been sized, tested, and validated, a service provider can successfully build out a viable infrastructure quickly. In addition, Microsoft includes a suite of core operations management tools and a library of scripts that facilitate automation, so the operations management team can build and configure many systems very quickly and efficiently. Using the guidelines, the scripts, and tools, a single operator can install the proper component software and configure a complete deployment in just a few days.

Figure 1: Microsoft Mediaroom provides a complete, fully-architected service delivery platform.Start Small and Grow Cost-Effectively

For service providers with smaller footprints or who want to test an initial service, Microsoft Mediaroom with Virtualization offers a low cost method of getting started with Microsoft Mediaroom. Microsoft Mediaroom with Virtualization is designed for the delivery of consumer-oriented subscription TV services to as many as 30,000 devices, yet because it relies on Microsoft Windows Server 2008 with Hyper-V it requires fewer than 10 physical servers. It provides a highly cost-effective way to bring a compelling consumer-oriented TV service on line quickly.

For more information on Microsoft Mediaroom with Virtualization, read the Microsoft Mediaroom with Virtualization brief.

Reducing Day-To-Day Operational Costs

The fact that the Microsoft solution relies on industry-standard hardware and software solutions—whether in a virtual or non-virtual deployment—creates real value for a service provider by leveraging expertise readily available throughout the industry. Because the underlying services based on Microsoft Windows Server rely on common conventions and a familiar interface and because the operations management tools can take advantage of a common manager infrastructure and user interface, it is easier for a service provider to hire operations personnel that can support many aspects of the IPTV service. This is better than having to hire individuals whose expertise covers only one component or one piece of

software.

Summary

As a complete, fully-integrated, fully-architected solution that service providers can use as the foundation for a profitable and highly-competitive consumer-oriented TV service, Microsoft Mediaroom makes it possible for a service provider to build out a compelling TV service quickly and cost-effectively. Moreover, because of its use of advanced automation, industry standard hardware and familiar software tools, Microsoft Mediaroom extends those cost-efficiencies into the realm of day-to-day operations and upkeep.