Justifying the investment and Developing the business case for migration to digital

An digital pay TV services generate sufficient revenues to support the very costly project of installing a fully interactive multimedia broad band infrastructure? Broadly conceived, then the question is a particularly difficult one because what it really asks is; How to make a business case for a short term (five or ten year)?

Investment in a technological development, the commercial consequences of which will likely take a much longer time to be come clear then the time frame in which contemporary investors are accustomed to think much invest less. Since they are intimately connected, before responding to the narrow question, it might be useful to address the broader is sue.

Justifying major investment in any new technological system, especially the technological system, especially the scale of investment required for the creation of a unexpected developments, not with standing, business cases and plans which are largely works of self-serving fiction to justify investment in an unproved technology in which the comprehensive new system or network is inevitably an act of almost religious faith. It requires unshakable belief in a particular vision of the future but technology has always This been a dubious enterprise as any critical appreciation of history in general and the history of technology in particular illustrates ; the future is not only inherently developer has unverifiable and irrational faith of the potential uses for any technology , how ever much improved form the first crude and primitive working models are at first apparent. is particularly the case with the question of broad band interactivity and the assumption that pay TV will help to finance the installation of the costly network required 

There is an abundance of historical examples of technological innovations, the commercial development of which were neither accurately seemed promising let me cite just a few.

Western Union, the large, dominant telegraph company turned down the opportunity to buy bell’s 1876 Telephone patent cheaply, their long term strategic planers offered to stay out of what they thought would not be a novelty, if bell agreed to stay out of the profitable business of telegraphy. Even bell himself thought of this invention as merely an extension of the telegraph. His patent was titled “ improvements to telegraphy”

In 1949 the founder of IBM asserted that the firm should stay out of the computer business because world demand would obviously be satisfied by 10 to 15 machines. It saw them as large, complex mathematical computation devices and could not conceive of them, as personal world perceive of them as personal world processors, spreadsheet manipulators or networked E-mail terminals.

Today we are probably as arrogantly confident that we know the future of digital technology as, if not more so then where the inventors, corporate strategic analysts and early investors in these innovative technologies. We will probably in retrospect seem just as oblivious to the real trajectory of digital and broad band infrastructure development as in their time with regard to earlier technologies, they where Possibly the most relevant historical example for our purpose today is development of Edison’s lighting system. When Edison attempted to com marginalize his light build in 1878, there already existed at least two competing home –lighting systems in European and American cities-electric arc lighting used mostly in large commercial venues and the gas lighting system a very capital intensive, functional and profitable system. When Edison established first commercial electric lighting system in 1882 in New York – the model that was imposed on him both by regulation and practicality was that of the gas lighting system edition was forced to keep both the technology and the economics of gas lighting in mind as he designed and assembled the components of this competing system. His solution for the electric lighting system in many ways where forced to mimic the logistics of the gas distribution system and appeared both more costly and very

It is easy to confuse technological change with socio-economic change; consumer habits tend to resist change when conditioned and determined by older technologies. Conditioned habits are slow to change. But, they can be changed when facilitated by new technologies, but the transition takes time and consumer education capital 

intensive most commentators, analysts and investors at the time thought that Edison was either a fool or a fraud and stayed away in droves. To Edison’s contemporaries, including not surprisingly, those who had a vested interest in the gas lighting system. I think the analogy to today’s situation in telecommunication, particularly with regard to digital technology and broadband interactivity is obvious.

In view of these cautionary examples there are two points we might profit from considering:

1. Digital technology is not just about TV broadcasting, it is about compression for efficient bandwidth utilization for telephony, inter-activity, data transmission reproduction without loss of fidelity, manipulation of images, coding, signal encryption and numerous other possible application. Many of which are as yet undefined or even thought of. 

2. It is easy to confuse technological change with socioeconomic change consumer habits tend to resist change when conditioned and determined by older technologies. Conditioned habits are slow to change but they can be changed when facilitated by new technologies, but the transition takes time and consumer education takes time and consumer education takes time and consumer education. This was one of the mistakes of all those who where unable to see or all those who where unable to see or predict the uses to whish the technologies in the uses to which the technologies in the previous examples where finally and very profitably put. They where confused and blinded to the potential commercial applications of these invention because of the weight and presence of existing usages of the contemporary technologies of their day; the world wide installed system of telegraphy the already installed capital intensive and operationally compels gas lighting system and the mass produced

Large vacuum tube radio. Could it be that we may be similarly blinded and confused by recent and contemporary technologies and how they are currently used? 

Does the weight of these older, existing technologies prohibit us from seeing with any clarity the potential commercial development of digital technology? OR, could we be committing the rapid adoption of a technology and the installation of a very costly broadband infrastructure in an unrealistically short time frame because we are convinced of the power and inevitably of these new technologies? Could it be that our confident plans based on assumption about and a vision of how we think digital broadband technology will develop, may be flawed? Might we be particularly wrong about how it can be initially finned by pay TV? 

These two points may help us to identify at least a couple of potential sources of confusion to which we may be prone when we consider the possible applications of digital technology to television, especially the revenues possibilities and potential of digital TV transmission. 

a. The yet to be proven assumption about the inevitability of “convergence” i.e. The use of digital technology for inter-activity, including telephony and all of the other potential multimedia commercial application – versus- digital technology’s application specifically to television and 

b. The very strong contemporary but fundamentally artificial, erroneous and distracting distinction the TV industry between “Broadcasting” and “narrow casting” (in the since of cable & satellite TV)

c. Digital technology will not go away its adoption inevitable. The increase of adoption inevitable. The increase of capacity utilization which it allows alone would make it so. The economics of band with utilization allowed by compression when added to the facility of data and image manipulation, fidelity, strong and flexibility make it infinitely superior to analog technology. However, precisely because it is so economics, efficient and versatile with so many possible application, many seem to want to undertake all of these multiple applications at one; particularly broad band inter-activity. This leads to the facile assertion of the inevitable of convergence in as optimistically short time frame. The real issue may be, what fundamentally does Interactivity have to do with television and who does it do for and to television?

It is far better to get quickly into one way TV than slowly into the two-way interactive, multimedia kind. Even Hong Kong Telecom’s William Lo now admits that, while VOD is expected to be the main initial source of revenue, “VOD alone won’t sustain the business case”.

In a very real sense, in the short term, Pay TV may be the least important part of all that is happening in telecommunications. Pay television is seen by many as merely the firs profitable pipeline into the home-Trojan Horse for other services. Pa TV in this vision is designed to create and not incidentally finance or c least justify and subsidize the building of the broad band infrastructure which will then be in place to deliver the new convergent multimedia service and information economy. This may b putting too great a burden and too high an expectation on television, one that it is unlikely in the short tern able to support. More to the point, television doesn’1 need it. Let me explain.

Today we have two kind of networks in place the2 way narrow band (telephone) network and largely 1-way broad bam networks.

The narrow band networks require the kind of low-end 2-way, interactive (telephony) communications pipeline, which is already in place. It can support around, graphics and some video but it requires a lot of smart: at the consumer end-a PC which does all the work and manages all the interaction. Narrow band services, while slow, are optimized for use over to day’s existing phone lines and communication systems.

Existing broadband networks are two kinds; the majority in the world are 1-way into the home. A minority also have a narrow band return loop to the broadcaster via the telephone lines. These latter networks can provide pay TV and in the near future, particularly in Hong Kong, a few very basic interactive TV services like home shopping, and pay-per-view movies. Used clearly, they can even offer VOD (Video-On-Demand). These deliver fully dynamic media but not with the degree of user control or depth of information of the slower, narrow band services. They require only a one-way pipeline, high bandwidth delivered into the home without a broadband return loop-but they do not require much smarts at the consumer end not as far as equipment is concerned. All you need is a mostly passive viewer with a TV and a more or less inexpensive converter box.

The widespread expectation among interactive broad-band system proponents is that interactive Pay TV and VOD will effectively subsidize if not fully finance the installation of the necessary bandwidth to initially provide a broad-band return loop and eventually completely replace the existing narrow band networks. This expectation is, needless to say, somewhat disturbing to telephone companies with such networks. So disturbing that some are getting into the business themselves to prevent the threat of being put out of business. This network replacement assumption is being used to give comfort and encouragement to the bankers and financiers and corporations who are expected to put up the money needed to make the needed infrastructure investment and presumably allow the world to walk painlessly into the 21st century future with a fully interactive broad band highway in place. This is the dream of broadband infrastructure strategic planners and investors. They fervently want to believe that TV will provide the short-term revenue flows sufficient to finance their information highway dreams. This is the essence of their business plans for financing the installation of the very costly broadband infrastructure in a short enough term for investors to be interested.

They may be very disappointed. Particularly in the medium term. While the installation of 2-way broadband interactive networks may be eventually as inevitable as electric lighting, it is probably unlikely to happen quickly and it is even less likely that the initial revenues from Interactive or even Pay TV will be sufficient to finance it. It is more likely that for the immediate future the delivery pipeline will remain predominantly 1-way broad band while the interactive return loop pipeline, even for VOD, Home shopping and betting on horse-races will continue to be through the existing narrow band pipeline. All of the recent test cases and consumer research seem to indicate that it is far better to get quickly into one way TV than slowly into the two-way interactive, multimedia kind. Even Hong Kong Telecom’s William Lo now admits that, while VOD is expected to be the main initial source of revenue, “VOD alone won’t sustain the business case”. For now, interactive TV seems likely only where a company has other reasons to build a fibre-optic network.

So, if this is the case, the issue becomes; If a 2-way broad-band infrastructure will not be soon available, how best to use the existing 1-way broadband delivery pipeline for pay TV ? That translates to; what to show on the TV services delivered via the non-interactive (or only partially interactive) broad band delivery pipelines. This is where the issue of migration to digital becomes relevant. And, where I have been cautious and somewhat negative concerning the short and medium term prospects or full 2-way broad band Inter-activity, you will find me very bullish indeed on the matter of TV’s migration to digital to make more effective use of the bandwidth on the existing broad delivery pipelines which digital technology makes possible. 

By-Kevin-John H.McIntyre, Ph.D.

Source: http://cablequest.org/articles/regulations/item/1396-justifying-the-investment-and-developing-the-business-case-for-migration-to-digital.htmlSource: http://cablequest.org/articles/regulations/item/1396-justifying-the-investment-and-developing-the-business-case-for-migration-to-digital.html