Hollywood on the line

A broadband link could soon be delivering phone, internet and entertainment services straight to your home - including movies on demand. Danny Bradbury prepares to dial up

If you were thinking of buying a Sky+ or other personal video recorder (PVR), don't fork out the cash just yet; your phone company might be able to do it for you. The growth of broadband access is fostering a new technology that can offer you video on demand (VoD), telephone services and internet access - all over your phone line.

If you were thinking of buying a Sky+ or other personal video recorder (PVR), don't fork out the cash just yet; your phone company might be able to do it for you. The growth of broadband access is fostering a new technology that can offer you video on demand (VoD), telephone services and internet access - all over your phone line.

This follows internet telephony, which lets people make phone calls for free, or cheaply, over the net. TVIP (TV over internet protocol) is enabling companies to transmit television into the home over a broadband connection. Because the service offers two-way communication between your set-top box and the TV company, it is easier to offer new services to viewers. It also opens up the market to new players who want to offer interactive TV services without laying costly cable loops.

One of those players has tried video on demand before, and failed. This time, the London-based company Video Networks, which switched on its HomeChoice service again in May, hopes to get it right. Formed in 1992, the firm trialled VoD technology in Hull and later in London, eventually launching its first-generation service in 2000 at the height of the dot.com boom.

But the original HomeChoice ran over BT's network, which at the time couldn't support the company's broadcast services - they need a line capable of taking at least two megabits per second. The business was also crippled by expensive deals to provide content such as films. The firm stopped taking subscribers after four months.

It now has backing from Chris Larson (one of Microsoft's early employees). It is using back-end technology developed by the BBC, running over its own fibre-optic network. With "local loop unbundling" - by which rival companies can offer phone and internet services directly - becoming easier, the final barrier to third-party broadband TV delivery has been removed. Companies such as Video Networks can buy broadband connections more cheaply and easily, giving them direct access to the home and enabling them to put in the faster-speed links necessary for TVIP.

Customers can access HomeChoice's archive of films and television shows on demand using its bespoke VoD channels, and can also treat broadcast channels as if they were recorded, using the company's Replay service. Roger Lynch, its new chief executive, explains: "You can access programmes that were broadcast in the past seven days, and watch and control them as if you're using a DVD."

Other goodies include the forthcoming ability to buy music online, and "drill down" services - these allow customers to access detailed descriptions of things that capture their interest, such as travel offers and electronic products. Children can access a "video wall" of different characters via the company's Scamp channel. Clicking on Bugs Bunny provides access to any of his cartoons. "If they want, they can turn the channel into their own Bugs Bunny channel," Lynch says.

Video Networks is only available to 1.25 million homes in parts of London at the moment, but it hopes to be available to more homes in the city next year. There are continental precedents, with companies such as FastWeb in Italy (with 150,000 subscribers), and MaLigneTV in France. Overall, at the end of 2003 there were about 235,000 people across Europe getting films and TV over their phone lines, according to In-Stat, a research company.

Not everyone is convinced about the UK's potential for broadband TV. "There's less scope here than in other countries," says Margaret Hopkins, a telecoms analyst at the research group Analysys. "There is a big penetration of satellite in the UK because [Rupert] Murdoch went hell for leather [to get Sky subscribers]." Sky is in 40 per cent of UK homes, she says.

Ian Fogg, lead analyst at the market research firm Jupiter Research, adds that Sky will become more aggressive. "Sky is planning a further marketing campaign, similar to its launch, to drive adoption and penetration. It wants 10 million direct home-satellite households by 2010," he says.

But these concerns aren't stopping Hull-based Kingston Communications. The company, which has served as the local incumbent since it was founded more than 100 years ago, launched its TVIP service in 1999, says the broadband marketing manager Andrew Fawcett. Kingston's 5,000 TVIP customers (a quarter of its relatively tiny broadband customer base) get video on demand and e-commerce through the TV ("t-commerce", as he calls it), and broadcast TV, telephony and internet access, all over a five megabit per second broadband line. The VoD service includes on-demand movies, thanks to a deal with Blockbuster.

Not doing TVIP wasn't an option, Fawcett says. "Broadband services will become a commodity, so we knew that we needed a content offering to maintain our added value. We need to bundle as many services as possible."

While TVIP could allow telecoms companies to move away from competing only by offering broadband at the lowest cost, the market conditions are far from equal. Kingston and Video Networks have to compete with Sky - and that's dangerous. Apart from offering an interactive TV service of sorts via a phone connection from its set-top box, Sky also offers the Sky+ PVR, which has functions uncomfortably close to those the TVIP players want to use.

Sky's success is self-propagating because its financial muscle brings exclusive premium-content deals, which boost revenue per user. That leaves Kingston and Video Networks forced to negotiate content rights with Sky. Fawcett won't talk figures, but Hopkins believes movie studios usually demand 50 per cent of broadband revenue in licensing, while Sky wants 80 per cent. No wonder Fawcett says TVIP margins are "razor thin".

The cable companies, too, are aware of the advantages of broadband TVIP. NTL, whose network passes eight million UK homes, will begin serving more homes via local loop unbundling next month. It aims to boost its catchment by two million homes.

NTL insiders have expressed interest in providing TV signals via broadband, because it's a quicker, cheaper way to acquire new TV customers. Moreover, most of NTL's cable infrastructure allows for two-way access anyway, making cable-based VoD possible. It starts testing that early next year. It won't discuss the details of the service, but even a rudimentary offering will make Video Networks' service less attractive.

One advantage TVIP companies could have is in personalised advertising. Unlike standard broadband connections, the TVIP signal is provided specifically for each home; it isn't shared. That personalisation (of the start time of a film, say) leaves a gap for advertisers, who worry about PVR users skipping adverts altogether.

Patrick Christian, the founder of Packet Vision, will be launching the new company's personalised advertising equipment for TVIP operators next year. "It interacts with a database and collects information, such as which advertisements have to be inserted, when, and for what demographic group," he says. Companies using the equipment can find out which channels people are watching and whether an advertisement was seen or not. Other possible uses include content customisation, such as the insertion of localised news items. "That could go down to postcode or even street level."

TVIP may be a cottage industry, but it promises services that are difficult for other operators to deliver efficiently at present. By letting new competitors into the market and enabling cable companies to extend their reach, it promises to get interactive TV to more people - and to make that interaction more useful when it does arrive.