IPTV chugs along

A year into major IPTV deployments around the world, progress on new features is slow, although a new version of Microsoft's IPTV software takes at least a small step toward tapping the technology's considerable potential.

On Monday, the first day of telecommunications trade show NXTComm in Chicago, Microsoft will announce the third generation of its IPTV software, now called Microsoft MediaRoom. The software, which is used by telephone companies to deliver TV over an IP infrastructure, will include several new features that will help operators create new interactive experiences for users in the future, but it's light on features that consumers will see right away.

IPTV is just getting off the ground. Over the past year, Microsoft, one of the world's leading suppliers of IPTV technology, has begun deploying its software and middleware in 10 markets, including to AT&T in the United States and Deutsche Telekom in Germany.

From the beginning, people have said that IPTV will change the way people watch TV. They'll be able to interact with television shows, choose multiple camera angles while watching sporting events, search and view movies and TV programs from an almost limitless library of digital content, share pictures and home videos, access more high-definition content, get local traffic updates at the click of a button, and even shop from their TVs.

But cutting-edge features have been slow to emerge. For example, even a year into its launch cycle AT&T's U-Verse service still looks a lot like what cable providers already offer.

"We are just getting to the point where IPTV is more than just an experiment," said Vince Vittore, a senior analyst with Yankee Group Research. "Microsoft and operators are still getting their hands around the technology. So it's going to take time."

Verizon Communications, which doesn't compete directly with AT&T in any markets, has taken a hybrid approach that combines some traditional video delivery technology with IP. Verizon has been aggressively building a new all-fiber network called Fios, which is way ahead of AT&T both in terms of subscribers and features offered.

One major reason that AT&T has lagged is because it is using brand-new technology developed to deliver service purely over an IP infrastructure. And new technologies tend to have bugs. Earlier this year, AT&T executives cited glitches with software as at least part of the reason the company had to scale back its IPTV deployments at the end of 2006. AT&T had predicted that it would deploy the service in 15 to 20 markets, but at the end of the year it reduced the total to 11.

The deployment race
AT&T never explicitly explained the software issues, but some industry experts suspected that the company was having difficulty getting the software to support larger numbers of subscribers.

"The software works very well in the lab," Vittore said. "But the question has always been, can it scale to tens of thousands or millions of customers? And if so, how many servers will you need to make that kind of deployment possible? Then you have to consider whether that's feasible from a cost perspective."

So far, none of the IPTV deployments in the world have reached that scale yet. PCCW in Hong Kong, which has built its own IPTV network using homegrown technology, had about 833,000 subscribers at the end of March, according to market research firm iLocus. France Telecom had about 768,000 and Free Telecom, also in France, had roughly 680,000, according to the firm.

But for Microsoft, which began releasing its software commercially only a little over a year ago, subscriber numbers are much lower. AT&T said that as of mid-June it had more than 40,000 subscribers. Since the beginning of the year, the company has ramped up the pace of its deployments and now offers service in 21 cities. Earlier AT&T had said it hopes to reach 8 million homes by the end of 2007.

Microsoft said that any issues that AT&T experienced at the end of last year have been resolved. But it's clear that just getting the service to work has been AT&T and Microsoft's primary objective over the past year. The result has been that the features consumers see today are not much different from what's available from cable operators. The current version of Microsoft's software that AT&T uses supports features such as digital-video recording, video-on-demand, and high-definition television--all services that cable operators and satellite providers also offer.

AT&T claims it has differentiated its service by enhancing these features and giving subscribers more. For example, while most cable operators support DVR recording for only two shows at once, AT&T allows up to four programs to be recorded. AT&T also claims to offer more high-definition programming--as many as 25 channels of HD in most markets. That said, AT&T's service is limited in the number of HD programs that can be recorded by the DVR at once.

AT&T has also touted its quick channel-changing feature as a big differentiator. And it allows for remote programming of the DVR through its AT&T Yahoo portal, so a subscriber can use any Internet-connected device, including a cell phone, to record or delete shows remotely.

Microsoft: Patience will be rewarded
Microsoft's director of marketing for MediaRoom, Ed Graczyk, said it's unfair to expect these services to leapfrog cable right out of the gate. He said the industry is evolving rapidly when compared with other developments in the TV world.

"Four years ago, the IPTV market barely existed," he said. "And we've already got nine operators that are deployed today and thousands of subscribers using the services. It took about 10 years for video-on-demand to be (available) in any meaningful way. And it's still not widely available in most of Europe."

Still, Microsoft and the operators using the software appear to be taking a measured approach to the features they add to the software and how they deploy it. The bulk of Microsoft's latest software upgrade will provide tools for operators to create more interactive program guides, storefronts and gaming platforms.

Microsoft has created a kind of browser optimized for the TV environment that will allow programmers to develop Web-enabled applications for the TV. And it's added a more advanced picture-in-picture functionality that can be used to allow subscribers to view clips of movies before ordering them from video-on-demand, for example.

While it's possible that carriers will be able to use this software to develop some cool and interesting applications, most of the functionality won't be seen by consumers for at least a couple of years.

The only major feature upgrade that consumers will see today with the new version of the software is the personal media sharing capability. IPTV subscribers will now be able to access all their non-DRM-protected digital music and personal digital photos from any PC in the home and listen to the music on their home entertainment centers or view the photos on their big-screen TVs.

Verizon has been offering a similar capability on its Fios TV service for nearly a year. But Microsoft's Graczyk said that Microsoft's version is much easier to use. The new feature will automatically appear as a menu item on any updated set-top box. And it will be able to access content from any Windows XP or Vista computer.

By contrast, Graczyk said, Verizon's solution requires subscribers to manually configure their PCs and download software to access the feature.

One feature that Microsoft's software still doesn't allow is multiroom or whole-home DVR. This capability allows people to use one DVR to record and watch shows through a regular set-top box in any room in the house. Again, Verizon has been offering this capability for almost a year. Satellite TV provider EchoStar Communications, through its Dish network, also offers the feature. (AT&T also resells the Dish service, which means AT&T Homezone customers can get multiroom DVR, but its U-verse customers can't.) And Time Warner Cable, the second-largest cable operator in the U.S., is offering it in certain markets.

Graczyk said features such as multiroom DVR are on Microsoft's IPTV road map and will soon make it into the software.

"It all boils down to prioritization," he said. "We can only do so much in any given software release. More updates will be coming, but we don't want to overwhelm users."

So what will be coming in the next 12 to 18 months? In addition to multiroom DVR functionality, Graczyk said a lot of enhancements will be made to improve search and navigation of the program guide. Microsoft is also planning to integrate IPTV with its Xbox game console to allow people to watch TV and chat using instant messaging over the Xbox Live system.

The new browser-like capabilities available in the latest software release will also allow Microsoft to build other features such as personal video portals that could allow people to customize their experience like they do on their PC or mobile phone. Subscribers could get personalized traffic information or be able to share recommendations over the network and integrate buddy lists from their PCs.

Mobility will also likely be added to the mix. Right now, AT&T allows subscribers to program their DVRs remotely using a Web-enabled cell phone, but eventually people will also be able to watch live TV on their phones.

AT&T said it is still testing the waters on many of these new features and applications.

"I think Microsoft and AT&T feel like all this stuff will happen in due time," said Michelle Abraham, principal analyst with In-Stat. "Every provider that rolls out a TV service has to start with the basics. Over the next year, we'll see a lot more things get added as they get their feet wet."