LiveTV Tries to Solve the Onboard-Internet Business-Model Problem

I had the chance to visit with LiveTV last week, and the company is convinced it has a problem. Their onboard live television service is doing very well, and they're about to begin installing their first system on Continental's narrowbody fleet. But as the world talks more and more about onboard internet, LiveTV is having trouble figuring out how to make it work for them.

It's not that they can't physically make the product work. They actually have three levels of internet access already planned out. The first is already flying on a single JetBlue aircraft (with the rest of the fleet to follow next year). This allows people to check their email via a laptop, Blackberry, or other wireless-enabled device (eg iPhone) and do a couple other limited tasks like use Yahoo! IM. The second, which has not yet officially launched, is called Oasis and is designed to be a portal that has a ton of stored news and other content (refreshed while on the ground) with bandwidth being used to update time-sensitive information like sports scores, news headlines, etc in the air. (You can read more about this over on Runway Girl.) The third is standard broadband Internet.

The first two pieces are relatively easy for them, because they don't require much bandwidth, and bandwidth can be very expensive when you're up in the air. The third, full broadband access, can get expensive very easily. So how could they make it work? Well, LiveTV understands that within the US, no airline is going to absorb the costs of this system, so it's going to come down to two options. Either the passengers pay or advertisers pay. This shouldn't be a problem since it's a new service and people would be willing to pay for it, right? Not necessarily.

There clearly are people who will pay for it, but what LiveTV is having trouble figuring out is if they can get enough people to pay for it. They've seen very low usage of their email product on the test airplane, and that doesn't cost anything. Of course, it's a very limited service, and it's only on one plane, so you would expect usage to be much worse than fleetwide broadband. But still, would be it be enough?

If they used a ground-based system, there are higher fixed costs, so high usage would be very important for spreading the costs around. But if they used a satellite-based system, most of the costs are variable. The problem is that they think the costs might be too high to make the passenger actually take them up on it.

Clearly, other companies disagree. AirCell has already launched its ground-based network on a trial on American while Row44 is actively working on its satellite-based system which should be testing on several airlines soon. So how can they make it work and LiveTV can't? We don't know that they can . . . yet. Usage numbers haven't been released, as far as I can tell, but if they're good, I would think that American would be rushing to roll this out to the rest of their fleet asap as a way to make more money. Maybe we'll see that happen or maybe we won't, but American's next move will be telling.

But then again, rolling this out to the entire fleet is also not necessarily a wise decision. One big difference between television and internet is that you can watch TV while you're on the ground and throughout the entire flight whereas you can only use internet when you're above 10,000 feet. That means there's a lot less time for passengers to use internet onboard, and it makes you wonder why Delta is starting with the mostly short-haul MD-80 fleet for their internet product. By the time you pull out your computer above 10,000 ft, boot it up, and get to the point where you're ready to surf, you don't have that much time left on most flights. And even if you did, you probably don't have enough battery power and most airlines haven't installed power outlets yet.

The bottom line here is that broadband internet onboard aircraft is coming. People want it, the increasing use of powerful mobile devices makes it much more convenient, and it could provide a nice differentiator for first movers until everyone adopts it. But there are clearly issues that need to be resolved. Airlines need to install power outlets (or at the very least, USB ports to charge mobile devices) in order to allow people to take full advantage of onboard internet, and they'll have to get costs low enough so that it won't deter passengers from using the service. They also need to make sure they can support true broadband speeds once the system is installed throughout airline fleets. That may require next generation technology.

LiveTV sees all of these issues and thinks it's premature. AirCell and Row44 clearly think the time is now. If those companies are successful, it will make the barrier higher for LiveTV to penetrate the market. That being said, the actual equipment to be used onboard isn't a big deal like it is with seatback televisions. The switching costs are relatively low, but unless LiveTV can create a vastly superior product, it will be hard to get people to switch down the line.