IPTV, games drive online entertainment boom

Online entertainment worldwide is expected to increase threefold in five years, driven primarily by internet television offered by telecommunications companies, a market researcher has predicted.

Revenue from video, including IPTV (Internet Protocol TV) and video-on-demand, music downloads, games, gambling and adult entertainment were expected to increase to US$36 billion in 2009 from US$12.3 billion last year, telecom analyst firm RHK said.

This year, online entertainment was expected to reach US$15.8 billion.

IPTV was expected to be the biggest driver behind the 24 percent annual growth in online entertainment, RHK analyst Josette Bonte said.

"It's very embryonic right now but it's growing at a compound annual growth rate above 100 percent," Bonte said.

The second biggest driver would be online games that involved multiple players.

Music, on the other hand, was not expected to contribute a lot of new revenue, primarily because prices for music subscriptions were expected to drop, she said.

IPTV in the US has only been available through local telephone companies in small cities and towns for years. About 24 of those companies offered IPTV today, such as SureWest Communications in California and AllWest Communications in Utah.

But major telecommunications companies, such as Verizon Communications, SBC Communications and BellSouth, had announced plans to roll out IPTV services in major US metropolitan areas to combat competition from cable companies offering internet telephone services.

"[Telephone companies] have no choice but to go into video services," Bonte said. "Their core services are being eaten up by cable operators."

IPTV was more widely used in Europe and Japan than in the US. It distributes television programming, movies and other services over a broadband connection fed into a special set-top box.

Telephone and cable companies wanted to attract customers by offering telephone, video and high speed data services as a package. Companies could also offer wireless services.

Providers were expected to differentiate themselves more on unique content and services. "There will be a price war, but I don't think it will be dire," Bonte said.

"Someone has to pay for the programming and the price of programming is going up."

In three to five years, online entertainment was expected to cut into traditional entertainment worldwide.

For example, video over the internet was expected to slow down growth in DVD sales.

Internet-delivered video-on-demand was tipped to reach US$7.9 billion in 2009 from US$200 million in 2004, according to RHK.

DVD sales were projected to increase to US$22 billion in 2009 from US$15 billion in 2004.

Different methods of distributing entertainment, from TV to public cinema, were expected to survive as people tended to spend money on more than one medium.

"There's always a slight displacement but fundamentally there's a point of equilibrium achieved where all the various distribution mediums survive," Bonte said.