On the night of 27 April 2006 an altercation took place between a grumpy middle-aged man and a younger male on the top deck of a bus heading towards Yuen Long. A six-minute video captured by another passenger on his cell phone was uploaded to a website called YouTube, and became one of the site's most viewed items in May 2006. As well as giving audiences worldwide a glimpse of Hong Kong's high-stress environment and colourful vernacular, the "Bus Uncle" video - as it is now known - also bought YouTube to the attention of many in Hong Kong for the first time. And that was just the beginning.

Founded in February 2005, YouTube lets users freely upload, download, view and share video clips. It was named TIME magazine's "Invention of the Year" for 2006, and in October 2006 Google Inc. announced that it had reached a deal to acquire the company for US$1.65 billion in stock. This gives Google one of the fastest-growing and most popular sites on the World Wide Web, where 100 million clips are viewed daily with an additional 65,000 new videos uploaded every 24 hours.

The site has almost 20 million visitors each month according to Nielsen/NetRatings, of which 44 percent are female and 56 percent are male; and there's an increasingly wide age demographic. YouTube's pre-eminence in the online video market is staggering: according to the website Hitswise.com YouTube commands up to 64 percent of the UK online video market.

Emerging market

YouTube's dramatic growth has caused mainstream media companies to revise their attitudes toward having their content put online. YouTube's official policy prohibits submission of copyrighted material, but this has been difficult to implement effectively. In February 2006, US TV network NBC asked for the removal of some of its copyrighted content from YouTube, a request the site was happy to comply with. But then in June - just 4 months later - in what will almost certainly turn out to be a very significant change of direction, NBC announced a strategic partnership with YouTube. There is now an official NBC channel showcasing promotional clips of their new TV series. CBS followed suit in July, and then in August YouTube announced that within 18 months it hopes to offer every music video ever created - all of them free of charge. EMI, Sony BMG Music Entertainment, Universal Music Group and Warner Music Group are among the companies that have either agreed to this already, or are in talks to implement this plan.

The size of YouTube's audience also gives Google an opportunity to grow its online advertising revenues, but a significant part of its value is the additional strength it brings to Google's position in the nascent online video distribution market. Early in the year the company launched Google Video, which not only allows users to search and view freely available videos, but also enables mainstream media to publish their content - including movies, television shows, sports, and music videos - with the protection of Google's own Digital Rights Management (DRM) system.

Although the idea of using the Internet to distribute video content is not new, the roll-out of broadband Internet access and advances in codec (coder/decoder) technology to compress video down to a smaller size have made it much more viable. And while the video format used by YouTube is certainly not broadcast quality, there are professional codecs that deliver hi-fidelity results. This has not escaped the attention of the mainstream media industry, which increasingly sees its future carried via the Internet Protocol (IP).

The power of NOW

In this regard Hong Kong has come to global attention for reasons other than Bus Uncle. Walk into any living room in Hong Kong and there's a good chance of there being a NOW TV receiver hooked up to the television set. With more than 600,000 subscribers, NOW TV is so commonplace within Hong Kong that it has ceased to be noteworthy. Outside Hong Kong, however, NOW TV attracts a great deal of interest from the global telecommunications and media industries because it is the world's largest IP Television (IPTV) system. In fact, the majority of the global IPTV audience is currently in Hong Kong.

This is a singular achievement in both technical and business terms. While there are currently numerous IPTV pilot projects under way elsewhere in the world, NOW TV has been operating as a commercial service since 2003. NOW TV encapsulates the global trend for telecommunications companies to look for content-based revenues while media companies are seeking to embrace a new distribution model based on IP. At least part of the reason behind NOW's success is the robust, multi-layer security architecture which enables the company to boast a zero-piracy record. This has major content providers queuing up to offer more channels on its IPTV platform.

"Nobody in the media is underestimating the power of the Internet as a content distribution mechanism, but content providers are terrified of piracy," said Eric Masters, a TV industry veteran who is now Vice President of Sales, Asia/Pacific for Omneon Video Networks. "If you are able to tell programme makers that you've got a highly-secure IP-based system with over 600,000 subscribers, that's what they want to hear. And because NOW TV is attracting more and increasingly exclusive content, its customer base will continue to grow as well."

Masters argues that because IPTV uses standard networking protocols, it promises lower costs for operators and lower prices for users. Using set-top boxes with broadband Internet connections, video can be streamed to households more efficiently than traditional TV distribution technologies such as terrestrial broadcasting, satellite transmission and coaxial cable.

In a typical TV or satellite network, using broadcast video technology, all the content constantly flows downstream to each customer, and the customer uses the set-top box to switch to the content he or she wants to watch. The customer can select from as many choices as the cable or satellite company can stuff into the "pipe" flowing into the home. A switched IP network functions differently. Content remains in the network, and only the content the customer selects is sent into the customer's home. That frees up bandwidth, and the customer's choice is not limited by the size of the "pipe" into the home.

TV gets personal

IPTV service providers can also offer video-on-demand, enabling customers to browse an online movie catalogue, select the movie they want to watch and have it play out nearly instantaneously. A further twist to this is the concept of Network Personal Video Recording, where real-time broadcast television is captured in the network on a server allowing the end-user to access the recorded programs on the schedule of their choice, rather than being tied to the broadcast schedule.

Another attribute that will set IPTV apart in the long term is the ability to logically link video with other data to create an interactive two-way medium. So, for example, sports viewers may be able to look up a player's statistics while watching a game, or select an alternative camera angle during a big play.

The ability of IP to create logical linkages is also at the heart of the idea that TVs are not the only devices that will be used to access IP-based video content. Microsoft, which has invested over US$10 billion in TV platform technologies and services since the mid-1990s, talks about "big screen, medium screen, small screen" - in other words, being able to browse, pay for and play content on whatever device users want, whether it is an LCD TV, a PC or a mobile device.

Indeed, after many false starts industry analysts believe mobile TV is poised to take-off. According to Juniper Research, the global market for mobile sports content and services will grow from just over US$1 billion in 2006 to US$3.8 billion in 2011. It says key drivers will be the increasing availability of 3G services and support for high-quality video, the globalisation of sport personalities and improved flow of digital sports rights for mobile distribution.

Industry fault line

Optimism about the potential of streaming live sports video to mobile devices, however, underlines a fault line in the current IP-based television and video industry. On the one hand telecommunication service providers and established broadcasters are keen on the example of PCCW's NOW TV. On the other hand to an increasing extent the only things that people are really interested in watching live are sports and breaking news - given the choice they'd prefer watch other content as and when they feel like it, not according to a pre-determined schedule. That points to a more Google-like model of having a huge library of downloadable video content.

A recent survey of TV viewing habits of people in the United Kingdom, conducted for the BBC by British firm ICM and covering a survey group of 2,070, uncovered some interesting statistics. Some 43 percent of Britons who watch video from the internet or on a mobile device at least once a week said they watched less normal TV as a result, and three quarters of users said they now watched more than they did a year ago. Only 9 percent of the survey respondents said they watched online TV regularly, but 13 percent more said they watched occasionally, with another 10 percent saying they expect to start watching online TV in the coming year - which adds up to almost one third of the group.

At the moment, however, Google's official attitude is that television will remain the preferred medium for watching full programs. Speaking on the ABC TV's Inside Business, Google Australia/Southeast Asia managing director Richard Kimber said that the company has a very important role in distributing video content, but rather than sites such as Google and YouTube becoming de facto TV channels, he said users will still turn to their TV sets for full-length programs.

"The medium lends itself to short bursts of content, so rather than being a full TV channel it generally will be used for teasers," he said. "Typically, people are watching shorter clips and then they will still go to TV to watch the full show. We're seeing that in the US, with shows like The David Letterman Show using it as a way of promoting activity on the TV channel. So for us we don't see it as cannibalising the TV, but more as an adjunct to it," said Kimber.

Content providers are, of course, interested in maximising the return on the investment they have made in content creation. With a mature and established standard for DRM it would appear that consumers and content providers alike will embrace the online library model; while in IP, broadcasters like NOW TV could be adjusting their services to better meet consumers' anytime, anywhere demands.

At this stage, however, there in no DRM standard and the current generation of proprietary DRM systems are overly restrictive - for example, tying the playing of content to a particular device - which is not something consumers will tolerate for long.