Market Insight

Microsoft and Telefonica ink worldwide IPTV and OTT technology deal

November 21, 2012

Tom Morrod Tom Morrod Research Director | Consumer, Displays, Media, Security & Telecoms

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International software provider Microsoft is to launch a new IPTV and over-the-top (OTT) platform for all operations of international telco Telefonica. The platform, a Telefonica-specified variant of Microsoft's Mediaroom IPTV platform, will be termed the Global Video Platform (GVP) and describes the technology and API framework for both future deployments and pre-existing agreements for Mediaroom by Telefonica subsidiaries in Brazil, Chile and Spain. The deployments, Vivo TV Fibra in Brazil and Movistar IPTV in Chile have launched recently using Mediaroom and represent the first deployments using the Telefonica-specified GVP. Other Telefonica properties are expected to roll-out GVP as upgrades to IPTV services and in order to support future IPTV and OTT launches.

Microsoft Mediaroom within the GVP platform will allow for development of a unified user experience and backend supporting both the IPTV service and multiscreen devices upon the IPTV or an OTT service. While Mediaroom includes other Microsoft video technologies such as Playready DRM, Smooth Streaming adaptive bitrate and the Silverlight presentation layer, Microsoft has stated that the development backend will support all major non-Microsoft devices. There is no specific information on any additional capabilities afforded to Microsoft devices or OS, such as Xbox 360 or Windows 8.

Microsoft Mediaroom represents one of the success stories of the fragmented IPTV technology market. Targeting tier one telcos has been a very successful for Microsoft allowing it to achieve large volumes and avoid much of the fragmentation in the market.  At the end of 2011, Mediaroom was deployed across 16.8m set top boxes and represented 21 per cent of the IPTV middleware market. AT&T is Mediaroom's largest deployment comprising 60 per cent of deployed STBs. Deutsch Telekom and its international subsidiaries are the next largest customer at 13 per cent. BT, Portugal Telecom and Swisscom each comprise five per cent of the installed base.

The deployment of Telefonica with Mediaroom as an international technical strategy is surely a huge coup for Microsoft. One of the world's largest telcos with operations mainly across Europe and Latin America now seems likely to migrate its existing IPTV deployments towards Microsoft, reminiscent of Microsoft's relationship with Deutsch Telekom. At 2011 levels, this would see Mediaroom deployed on an additional 1.1m STBs. Telefonica's non-Mediaroom IPTV operations utilise a proprietary delivery platform and, as such, this win for Microsoft with have no direct impact on other IPTV middleware and security providers' market shares beyond limiting their opportunities with Telefonica.

Microsoft is now running out of large, tier 1 telcos to target. France Telecom would represent the next similar target to Deutsch Telekom and Telefonica. It would give Microsoft another seven per cent of the IPTV market. However France Telecom is currently migrating to a largely in-house platform from technology subsidiary Viaccess-Orca, leaving a Mediaroom deal unlikely. Beyond Telefonica, Microsoft may need to adapt its strategy toward smaller players to achieve further growth.

From Telefonica's side, the decision to unify technical strategy around Mediaroom not only represents efficiencies of technology development, but indicates a stronger emphasis on user experience, capabilities and content strategy on a global basis.

Microsoft seems to be making an explicit move into OTT deployments and multiscreen technology here as well. Following the long wait for the launch of Windows 8 devices, a more active strategy towards device support and multiscreen deployments is being publicised. In this regard, Microsoft has a major advantage over their traditional competition in both the pay TV space and the consumer platforms space, spanning Kudelski (Nagra/Open TV) and Cisco (NDS) on one side through to Apple and Google on the other. By supplying devices (such as Xbox 360), OS' (Windows 8) and their own distribution platforms (Windows Store and Xbox Live) Microsoft positions itself to leverage multi-device purchases and use; but it also supports the B2B industry through Mediaroom and in that respect is agnostic to devices, OS' and distribution platform, allowing it to benefit in almost all circumstances. This allows Microsoft to take a significant lead in markets where internal synergies are possible, such as developing additional capabilities for Windows 8 for its Mediaroom deployment.

Whether and how Microsoft leverages these overlaps, whether they manifest in the GVP deployments with Telefonica, and indeed, whether Microsoft's wider device and OS positioning proves in the Mediaroom strategy and are attractive to operators are all open questions. While highly integrated technology ecosystems are desirable in principle, they are ultimately bound by the scale of devices installed in the market, and the interoperability of software across third party devices.  For any operator-provided or pure OTT multiscreen service, iOS compatibility is absolutely critical to driving service uptake and usage, a fact that is recognised by Microsoft in it's Mediaroom device support. While Mediaroom has not inherent disadvantage to developing to iOS, it is interesting to note that it is in a unique position to leverage potential advantages in developing to Windows 8, which shares the same techical elements of native Playready DRM, Silverlight and SmoothStreaming support. The question then is whether Mediaroom and Windows 8 together can enhance consumer experience beyond other device types.

Geography
Brazil Chile Spain USA
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