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As pay-TV operators continue to seek a competitive advantage over their OTT rivals, the battle for the home TV screen in the Internet era rumbles on.

At the IBC trade show in Amsterdam a few days ago, IPTV News spoke to UK-headquartered pay-TV tech firm NDS, which counts over 85 of the world's leading pay-TV operators as customers of its VideoGuard conditional access software, to discuss the evolution of the set-top box and how the pay-TV industry can meet the challenge posed by over-the-top services and connected TV devices.

NDS recently launched its VideoGuard Connect DRM for multi-platform pay-TV services, designed to integrate with existing pay-TV broadcast platforms and enable a broad range of linear, on-demand and home networking services on a variety of connected devices. BSkyB was announced as a launch customer of VideoGuard Connect, using it to secure its new Sky Go service on iOS devices, including the iPad and iPhone.

Jonathan Beavon, director of segment marketing at NDS, remains ebullient that pay-TV operators will manage to draw connected TVs into their walled garden offerings, using them as a thin-client receiver of encrypted content, and in many cases will add the best over-the-top services into their platforms as well: "I think we will see pay-TV services being made available on consumer electronics devices, including connected TVs. Another way of viewing it is that it's not really pay-TV versus over-the-top services: OTT services have quite successfully killed off video rental stores, as there is a good business in on-demand content for a different window, yet although usage patterns are changing, the largest part of viewing is still easily linear TV: the on-demand stuff eats into the revenues of the DVD industry, but not really into the pay-TV operators."

The network old boys

Bottom line: consumers will keep paying a premium for live TV services, and it is here that operators can really leverage the advantages they have assiduously built up during the pre-Internet decades, according to Eran Rom, CEO of Jungo, which provides enabling software for home gateways and was acquired by NDS in 2007: "The ones who are best positioned to gain the most traction in the business are the service providers, because they have some advantages which other players don't: they have a direct relationship with the end-users, they have a local presence where the end-users are, and they provide or lease or sell the home gateway and the set-top box which they manage or control. So this unique situation gives them an advantage over players such as Google TV or Netflix or Sony PlayStation."

For Mr. Beavon, the TV industry's core revenues will change little: "The situation will change over time, but sport will still be watched live, and news will still be watched live, and people will still like to be fed channels at prime time," he said. "Although it is not the view of some of the over-the-top players, I think that they will remain purely complementary. And also, pay-TV operators are beginning to incorporate OTT services within their offerings, so you can get Sky Go on the iPad for example. I think that Netflix made the comment very early on that they were going to "kill television", but their approach has become much softer recently."

Vanquishing the OTT threat by empowering the consumer

The popularity of over-the-top services and connected TV devices is undeniable - Netflix in the US continues to hoover up the so-called "cord-nevers", who refuse to spend northwards of US$ 50 per month on a pay-TV service (and hoover seems to be the right word - earlier this year Netflix overtook Comcast as the largest subscription TV provider in the United States, announcing at the IP&TV World Forum in London last March that it had reached 22.8mn subscribers in the US alone).

However, most pay-TV operators in advanced markets are now thinking in terms of unified multiscreen experiences: by empowering a customer to access the content they have paid for on any screen they choose, at the time and location of their choosing, and by bringing connected TVs into that vision, they can extract additional Average Revenue Per User (ARPU) and customer satisfaction whilst meeting meeting the newly-emergent threat of smart TV head-on.

This does however raise a lot of questions - does the set-top box then become a powerful home gateway which pushes content via IP to lots of client devices distributed around the home? How do you realise that vision as fluently and as cost-effectively as possible? As we have seen from the smartphone world, consumers will instinctively tend towards operating systems that are as user-friendly as possible, as Eran comments: "The end-users will vote, and they will select what they want and what is easier for them, and what gives them more flexibility, and what is open and gives them more options to download applications and services."

"You have to accept that you are going to be working in a multi-OS environment"

There is however the danger that the industry occasionally gets too hung up on the "one standard or approach to rule them all" philosophy, according to Mr. Beavon: "I think everyone is obsessing on there being one answer to how the set-top box will evolve and to the consumer electronics experience. I think what will happen is that you will still see dedicated, integrated devices - what you might call "thick-client" devices, a vertically-integrated set-top box - and some people will continue with that model. But they will find themselves also having to support thin-clients in the consumer electronics world, so for me it is about embracing consumer electronics and asking, "How do you solve the problem of a consistent user interface across all consumer electronics devices?"

"The key is to use an SDK [Software Development Kit] that is appropriate to the device to make an EPG, and to design your backend systems to push video metadata and DRM into those boxes, so that they can be thick- or thin-clients, they can be horizontal or vertical," he added. "As a technology company or an operator, you have to accept that you are going to be working in a multi-OS environment, with multiple SDKs - you have to accept that as a reality if you want to support connected TVs or tablets, games consoles and so on.

"If the consumer electronics guys give good SDKs for supporting video, EPG or application functions, you can do a pretty good implementation of something that understands the metadata, the DRM, and that gives you a good application environment. The future of set-top boxes won't be thick or thin-client, there will be some people who want to retain the vertically-integrated set-top box, and there will be other people who want to support all connected devices, and most will want some mixture of the two. Other people obsess about there being a single standard for connected TV, whether that is Flash, or HbbTV, or Java. I think it's a mistake to try to use the same standard on every device, to force the same technology into devices that aren't really suitable for it - for example, to force a Flash implementation on to an iPad is going to be impossible."

"The studios really don't care about the delivery methods as long as they make more money"

Given the deep relationships forged by NDS with some of the biggest pay-TV operators in the world (including BSkyB, whose majority stakeholder News Corporation also holds a 49% share in NDS), the content protection specialist clearly has a privileged vantage point on how the content owners view the emergence of multiscreen TV and OTT devices and services. For his part, Mr. Beavon is confident that people are watching the same content as they always did, they are just choosing when they want to watch it and how, and that content owners now recognise the new revenue opportunities presented by multiscreen TV and OTT video services.

"You have seen with companies such as Netflix that their prices have gone up as they didn't realise how successful they would be - it was a very good value service, and possibly as a result of that, there have recently been quite large increases in subscription charges," said Mr. Beavon. "The studios really don't care about the delivery methods as long as they make more money - they have seen enough experimentation and they are beginning to cotton on to what the models might be and where they can extract the money […] The cable companies have also looked at the networks that were putting their content on Hulu on an advertising-funded basis, and said "Why are we paying for your channel when you have given it a thirty-day window on Hulu - we want it for free, or you have to take it off Hulu".

The NDS executive was equally certain that pay-TV operators will manage to negotiate TV Everywhere scenarios into their content contracts going forwards, saying: "I think that contracts will be renegotiated to take into account iPads and PCs and on-demand content, and also to take into account content consumption both inside the home and outside the home. There is a demand for these features, and that demand will grow."

"If ifs and buts were candy and nuts, wouldn't it be a Merry Christmas?"

To look at the debate from another angle, Dr. Eric Schmidt, chairman of Google, recently told the Edinburgh International Television Festival: "The Internet is fundamental to the future of television for one simple reason: because it's what people want". He went on to advocate the Internet as a platform for things that television on its own cannot support, such as greater personalisation, pertinence and user participation.

There are certainly a lot ifs and buts before the technology, business models and user experiences of pay-TV and connected TV find their groove with each other, and Google itself suffered a problematic entry into the market earlier this year with Google TV. Yet as the American football player and commentator Don Meredith once said, "If ifs and buts were candy and nuts, wouldn't it be a Merry Christmas?"

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