Strategic Moves Related to Broadband Diffusion on the French VoD and TV Market - Adoption, Usage, and Global Impact of Broadband Technologies - page 254

Neuf The “Potato Couch” Switching Cost

Neuf (Neuf Cegetel) is the second ADSL operator
with 3.2 million customers at the end of 2007.
Resulting from the merging of several ISPs, Neuf
Cegetel only launched its VoD service in December
2006. Its main offer, “Neuf VoD” mainly distrib-
utes the services from its partner Glowria. Neuf
also gives access to TF1 Vision and M6 Video.
Neuf represent an unknown factor on the VoD
and related services market. First, one of its major
indirect shareholders is also the major shareholder
of Canal+, Vivendi Universal. Neuf Cegetel has
been recently integrated in Vivendi Universal's
mobile telecommunications subsidiary, SFR. Until
now, no integrated strategy has emerged from
the different components of Vivendi Universal.
However, Orange's initiative in TV business is
considered as a frontal attack for Canal+, and may
induce significant strategic change.

Regulatory concerns have been traditionally fo-
cused on issues of access (i.e. unbundling) and
interconnection for current and new generation
networks. Under the “old” Internet access way
using a PC, content issues were not a concern, as
subscribers can access any content supplied on the
Internet. However, the “potato couch switching
cost” that we have outlined shed new light on con-
tent provision issues. To some extent, the problem
becomes similar to the “closed wall garden” effect
identified in the case of mobile Internet.
Service and business model evolution may
increase operator's hold on the VoD business.
Until recently, with the exception of Orange,
broadband Internet access providers were giv-
ing access to a variety of VoD service providers.
However, changes in business models for VoD
may well strongly affect the current situation. In
line with similar initiative for music provision,
operators are now launching SVoD services based
on subscription. For a monthly fee, subscribers
have unlimited access to a catalogue of movies and
TV series. It may be expected that this service will
be attractive for consumers. From a competitive
point of view, customers switch from a position
of occasional customer billed on a per use basis,
to fully owned subscribers who are more captive.
Until now, Orange only provides TV series on
SVoD, but Free already provides movies.
In the new Audiovisual Media Services Direc-
tive, which modernises the European framework
for content regulation, distinction is made between
linear services (i.e. TV service), and non-linear
services (i.e. VoD) 8 . Service and business model
evolution also tends to challenge these distinc-
tions, by inducing overlaps of service categories.
Firstly, SVoD services have adopted the pay-TV
subscription model, offering a choice of movies
and other programs for a monthly fee. Some VoD
initiative may also adopt a financing mode relying
on advertising. Secondly, TV channels adopt a
“on demand” feature with catch-up TV services.

CONCLUSION: COMPETITIVE AND
REGULATORY IMPLICATION

In Europe, until 2004, the VOD business model
was not viable for the pioneers for several rea-
sons: high initial capital cost per end-user, high
operating costs, difficulties to propose an attrac-
tive catalogue of video content, low revenue per
end-user. Now with the emergence of the IPTV
system, the situation is changing and one of the
more significant cases is the French market.
The IPTV system implemented by broadband
Internet access providers is challenging both the
supply of traditional services, such as broadcast
TV, but also the supply of on-line services such
as VoD. The diffusion of IPTV systems and the
resulting “potato couch” switching cost, combined
with the blurring of borders between services
and business models may challenge established
regulatory approaches.