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* TV content aggregation is not a business for network operators, who will do better to form partnerships with satellite and cable operators to sell TV over broadband

* Gross margins on TV can be as low as 20% but operators need TV services to compete with triple-play competitors

* Fixed broadband (BB) operators providing TV reduce the net present value (NPV) of their business model over the first five years, according to Analysys calculations for this report

* Gambling games are the most profitable entertainment option for network operators



CAMBRIDGE, UK, September 22, 2004 ­ Western European broadband operators hoping to increase their profitability with TV services will be disappointed, according to a new report from Analysys, the global advisers on telecoms, IT and media (www.analysys.com).


“Broadband service providers have to decide whether TV is worth the risk involved in investing heavily to reach the scale necessary to make a profit. It may be better to form a partnership with an existing aggregator from a satellite or cable platform, or to create an open media platform to attract a number of third-party content providers,” said Margaret Hopkins, the report’s author.


The new report, The Business Case for Broadband Entertainment, examines two business cases for rolling out DSL using unbundled local loops. In the first, the broadband network operator offers only broadband internet access and the investment has an NPV of EUR317 million over five years from launch. In the second case, the broadband operator offers a TV-over-BB service alongside the internet access, incurring additional network investment costs as well as payments to content owners, and the investment has an NPV of EUR284 million over the five years from launch. (Chart available to journalists on request).


“The second strategy probably leaves an operator in a stronger long-term position if it works,” added Hopkins, “but it brings smaller profits and is a bigger risk in the short term because it requires five times the investment. The big potential difficulty with this approach is that the operator is trying to give equal weight to two businesses with fundamentally different dynamics, those of network operator and content aggregator. It is not certain that they will remain aligned.”


The business case for broadband entertainment is based on slim margins, Analysys Research has found. Studios expect at least 50% of the revenue from pay per view movies, while Sky demands about 80% of the revenue for its premium sports and movie channels. In the online music business, margins are even slimmer ­ for example, iTunes’ music pricing has set a benchmark close to cost. Gambling is the only profitable business model for mass-market online games.


“TV is an established market, and scale is important ­ the existing satellite and cable operators have had to consolidate to make the business work ­ so it is hard for a new entrant to break in,” said Hopkins. “But for many telcos it is essential to target the entertainment market to secure their competitive position vis-à-vis new triple-play challengers.”


Written by Margaret Hopkins, the new report assesses the business case for offering entertainment services over broadband networks. It looks particularly at the issues involved in securing access to compelling TV content and differentiating a new offering from existing pay-TV services.


The report is available to purchase online at http://research.analysys.com/store, priced at GBP1700 (approximately EUR2500). For more information, telephone Analysys on +44 (0) 1223 460600 or email research@analysys.com.


About broadband value-added services

In this report, broadband is taken to mean any service offering with bandwidth greater than 128kbit/s and an always-on connection. The extension of broadband into the home creates opportunities for players to sell new communications services: voice over IP, video telephony and cordless phones with both fixed and mobile connections. It brings new ways of supplying entertainment in the form of games and video, but also opens up areas such as provision of firewalls, virus protection and parental controls, as well as home security services based on webcams, remote management of home appliances and online payment services.


About Analysys (www.analysys.com)

Analysys provides strategy and management consultancy, information services and start-up support throughout the telecommunications, IT and media sector. Its grasp of market dynamics, coupled with creativity, rigour and renowned objectivity, enables Analysys to consistently exceed the high levels of quality and innovation that its clients expect. The company has over 130 staff in offices in Cambridge, London, Glasgow, Madrid, Milan, Paris, San Francisco and Washington DC, and works with associates in Auckland, Melbourne and Vancouver.


Recent reports include:

* Delivering high-speed mobile Internet/intranet services: the role for 3G and public WLAN (August 2004)
* The Business Case for Broadband Entertainment (July 2004)
* 3G Launch Strategies: critical decisions on services and technology (June 2004)
* Western European Fixed Telecoms Markets: forecasts 2004-2009 (June 2004)
* Spectrum Trading and Liberalisation: new threats and opportunities for telecoms business models (June 2004)
* The Road to Fixed—Mobile Substitution Starts with 3G (April 2004)
* Western European Mobile Forecasts and Analysis 2004­2009 (March 2004)
* VoIP in the US Market: services, business models and regulation (March 2004)
* Strategic Options for Fixed and Mobile Operators in Central and Eastern Europe: scenarios and forecasts (February 2004)
* Vodafone live! versus i-mode ­ lessons and prospects for the rise of global wireless services (February 2004)
* Delivering the Broadband Home. New fixed and mobile services and devices: forecasts 2003-2008 (January 2004)
* Scenarios for the Evolution of the Wireless Industry (December 2003)
* The Future of Personal Videotelephony (November 2003)
* Operator Strategies and Key Performance Indicator Benchmarks (December 2003)
* The Role and Impact of Emerging Wireless Technologies (October 2003)
* Mobile Content and Entertainment Forecasts and Analysis (September 2003)
* Emerging Charging Architectures for New Mobile Services: understanding and evaluating the available technical solutions (August 2003)
* Extending the Broadband Opportunity: new technologies in xDSL (August 2003)
* Mobile Data Solutions for Businesses: maximising take-up and revenue (July 2003)


Media contact (for author photography, executive summaries and interviews)


Louise Nunn
Analysys
Tel: +44 (0)1223 460600
Email: louise.nunn@analysys.com

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