The killer application for broadband Internet access between now and 2006 will not be the distribution of professionally produced content such as today's television programs and movies. While broadcast distribution of programming using one-way channels such as cable and satellite is highly efficient at carrying multichannel video, the broadband Internet by comparison is inferior for the distribution of feature-length video programming and is unlikely to challenge the existing distribution networks until much later in this decade. Eventually, the separate distribution networks for television and data will converge to form a common backbone based on the Internet protocol.
The major impact of broadband over the next three years will be the addition of video to existing applications - including conferencing, messaging, and gaming - and the development of new applications that rely on user- and community-provided video content. The European market for paid content and applications such as video messaging, video-enhanced gaming, and home security could exceed 3.1 billion by 2007. E-commerce sites - especially those selling services such as travel and dating - also will add video content that provides customers with additional information to improve their online experiences.
The broadband Internet creates a modest near-term opportunity for content providers: providing video-based premium content that augments or repackages their existing media assets. Some consumers already have shown their willingness to pay for on-demand access to news, weather, and sports programming. Content providers will derive revenue from subscriptions, pay-per-use, advertising, and merchandising. In addition, the interactive context of the broadband Internet is facilitating a certain amount of content repurposing, such as enabling consumers to create a personal collection of songs played during a television show. We expect for the European market that 23% of Internet users will buy content and services online in 2007. Content aggregators that have existing billing relationships with consumers - including, AOL, MSN, RealNetworks, T-Online, and Yahoo! - will be the main distribution channels for such content.
By the second half of the decade, the broadband Internet will be recognised as a fundamentally new mechanism for engaging audiences because of its unique characteristics - specifically, the greater interactivity made possible by its high speed and low latency. Content and applications that will generate revenue based on those characteristics are yet to be developed, but content owners should make investments now in both the reconceptualisation of the design of their content with an eye toward taking advantage of the expected improved interactivity and the testing of those new concepts with audiences.
To successfully compete with cable, digital broadcast, and satellite television as a means of delivering video programming, the broadband Internet will have to deliver content those other systems are incapable of carrying - for example, video that provides the viewer with a non-linear, multipath, multiple-points-of-view program in which a 30-minute television episode can be enjoyed for hours as an interactive experience. Other key requirements are the development of payment models, billing mechanisms, and content protection systems that meet consumers' needs and expectations while preventing piracy of intellectual property.
During the next few years, broadband penetration in Europe is unlikely to achieve the level reached by such countries as Canada and the Republic of Korea (South Korea), in which deployment has been more aggressively supported and subsidised by government. Market research services predict European broadband adoption could reach 30% of households by 2008, up from 8% at the end of 2002, with significant differences between the European countries. Higher broadband penetration in Canada and South Korea has been fuelled by lower prices-access fees that amount to 20-30 Euro per month - and by government policies and investments promoting broadband. Our analysis suggests that access charges in Europe must drop from current levels to as little as 30 Euro per month - for entry-level access - that Forrester has identified as the tipping point for mass broadband Internet adoption. This tipping point has already been undercut up to 50% in countries like Germany. Subscribers who initially purchase entry-level access are more likely to upgrade to higher-speed service when compelling content and applications at attractive price points become available.
Broadband penetration in Europe will be different from US and Korea. For example, Korea, with 80% broadband penetration, has a single telecom infrastructure, homogenous language and culture, dense population with ignificant government support. By contrast, America, with 25% broadband penetration, is also a single country, but with a complicated infrastructure, strong competition and limited government support. Europe will see rapid growth clustered in metropolitan areas, with fragmented and dispersed coverage on a Pan-European basis. Broadband infrastructure and brands will therefore need to be aligned to local circumstance - with the exception of communities of interest e.g. sport and music that transcend political and cultural boundaries. Government will play a more important role than in the US. For example, to meet its European mandate, the UK government has set an aggressive target or increasing broadband availability by 28% in three years.
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