A round-up of Asia’s top hotel development destinations in 2013

At the recent World Hotels and Resort Development Conference in Bangkok, almost every panelist during the conference session was asked various iterations of the same question: if you had just one destination where you could build a hotel in Asia, which would it be?

Myanmar - huge potential,
big challenges

The answers were just as eclectic as the region itself, but there were a number of destinations that got more than one vote. Not surprisingly, this included Myanmar, a country that pretty much dominated the first day of this event. Delegates seemed to be in agreement that the opportunities that sprung up with the government’s sudden opening will outstrip the challenges. And challenges there are aplenty. Starting with the huge infrastructure inadequacies, the expansion of tourism also requires an upgrade in standards of service and leaves the hospitality industry facing a large need for quality staff that will likely outstrip availability. And while the Asian Development Bank is preparing a tourism master plan for Myanmar, there are no quick fixes and these issues are likely to hamper the country’s development into a major tourism destination for some years to come.

Looking elsewhere across the region, there were some predictables as well as some surprises when it came to nominating dream destinations.

Singapore, the champion of ADR in Asia, is of course the one market everyone would love to go into but the high entry barriers remain a deterrent for all but the deepest pockets. That said, with the container terminal being moved away from its current location and thus freeing up valuable land, we will definitely see another phase of high level development in the near to medium future. And as the government continues to set the pace in the region in terms building up Singapore as a tourist destination, I think we can see very solid ADR and revPAR numbers even with significant new supply in the market.

Other destinations the delegates at the conference pointed out as moving ahead in Asia included the Philippines, which was cited more than once as a substantially underserved market. With the simultaneous opening of The Raffles and Fairmont hotels in Manila in early December and many more projects in the pipeline, including casino hotels, this view is obviously shared by others.

Palwan - the new Bali?

But what about outside downtown Manila? One speaker pointed to Palawan, an island in the south west as a potential “new Bali”. Previously known mostly for viscous tourist kidnappings, the island now claims to be relatively safe, boasts UNESCO Heritage Sites, world class scuba diving, beaches and an ecologically diverse environment – certainly a perfect mix for creating an attractive tourist destination. But while its airport has been classified as international and is being fast tracked to becoming one of the primary gateways to the Philippines by the government, it remains to be seen whether an ambitious project like this will take off. It has been tried before in Cebu, and while that particular island doesn’t have Palawan’s natural pedigree, it shows that putting in an international airport and clustering some soulless resorts around it doesn’t make for a great destination. 

Phu Quoc - great beaches,
but still hard to get to

Opinions were very much divided about Vietnam, where on one hand development has recently been stifled due to high interest rates, but at the same time is seen as still having a lot of areas that could become premier destinations for their pristine environment – Phu Quoc, Vietnam’s largest island off the western coast got a particular mention here. But, just as in Myanmar, Vietnam is still plagued by substandard infrastructure, and unless the government commits seriously to improving this, I tend to agree that Vietnam remains a rather difficult country for the tourism industry. 

Markedly absent from the list of dream destinations for hoteliers was China. Not even “China’s Hawaii”, Hainan Island, which has long been tapped to become a leading international tourism resort destination, got a mention. While hotels continue to pour into this island on the Chinese South Coast, including a 337-room Shangri-La Hotel which opened in Haikou in early December, there seems to be some doubt that the island will be able to live up to its hype in the near future.

Phuket - still plenty of room to grow

When it came to beach resorts, delegates saved their enthusiasm for Bali and Phuket as still being the prime development markets in this category, despite a huge number of new properties being developed or already on the market. These two destinations are still viewed as the only world class beach resort destinations in Asia and with the predicted influx of Chinese middleclass travelers in the coming years, it seems there is still plenty of growth to be had – cop that Palawan!

Last not least, Sri Lanka got a fair share of positive sentiment from the delegates for its tourism friendly combination of beaches, history and all-round physical beauty as the "The Pearl of the Indian Ocean". This is of course another country that was only recently hauled back from the tourism wilderness after ending 30 years of civil war in 2009. However, unlike Myanmar, Sri Lanka nurtured a burgeoning tourism industry throughout the conflict in the far south of the island, far away from the civil war zones in the north, making the re-building of the tourism industry a lot easier.

Why IPTV should play a much bigger role in a hotel’s Marketing Mix

I have written before that the value of an IPTV system in a hotel today should not solely be viewed from a ROI perspective. The real value of in-room systems lies in the capability to provide differentiation through turning a TV into a hotel brand ambassador that will help with building a loyal customer base.

I want to elaborate on that here as there are many more not (yet) so obvious areas where a hotel can employ their IPTV system to facilitate highly personalised services and cross-sell / up-sell opportunities.

This is a long way away from the old days where in-room entertainment was little more than VOD plus some hotel info. The customisation capabilities of good IPTV systems today, and the insights they can provide, should make them an invaluable part of a hotel’s mix of marketing tools.

Let’s not forget that a hotel room delivers a captive environment second only to being on an aircraft. While digital signage can only engage people for just a minute or two, if that, a well designed, technically superior IPTV system can engage guests for hours and provide a temporary escape – which is something guest are not adverse to in a hotel room, just as they aren’t on an aircraft. Unless you are staying in the honeymoon suite that is. Lean back rather than forward is the name of the game here, so hotels should satisfy guests’ susceptibility to indulge in the most personalised way possible.

Being IP based, naturally, an IPTV system has a wealth of data available at the back end that gives a hotel invaluable behavioural data to mine and use. Working hand in hand with a rich and intuitive user interface, the backend can provide very granular information on guest behaviour.

Showing which TV channels are most watched or radio stations are most listened to, and at what time of the day, is data that can be used to populate a loyalty profile that automatically makes the preferred channels top of the list when the guest stays the next time. 

In-room dining consumption data can be used to promote additional items a guest may like and offers another avenue to provide highly personalised complimentary items to foster loyalty.

Data from hotel services usage that is captured through workflow management software can give the hotel an idea whether a guest wants extra bottles of water in a room, rather have a limousine transfer to the airport than take a taxi and which selection from the pillow menu is preferred.

The list goes on: from movie genre preferences and gift shopping records that can be used for future promotions, to bookings of spa treatments and dining reservation records: if it is a service that is on the IPTV system, it is possible to mine the data at the backend.

Speaking of which: an intelligent backend management system is a must for any IPTV system in order for a hotel to manage it properly and get the most value out of it. It should be a web-based system with intuitive navigation and user access management facilities to allow different staff within a hotel to manage different parts of the system in a timely manner.

The backend system should also have the capability to translate extracted data into useable information in order to facilitate cross-referencing with other guest data that is captured at all customer touch points, such as hotels’ e-marketing tools.

This is where it really gets interesting - together, these data sets have the ability to not only provide a richly personalised guest experience on all levels, it also increases marketing productivity and effectiveness and adds to revPAR. And last not least, it will greatly enhance overall brand consistency and value. It’s a great opportunity for hotels to utilise customer data to gain insights to guest behaviour and preferences without invading their privacy.

Who would have thought there is still so much value in the old IR remote control?

Luxury and the Chinese Traveler

I have been straying a little from the technology side of things lately, and this blog, too, won’t mention technology. But I want to riff a little longer on the relationship between China and the hospitality business which is at an interesting inflection point.

The other week I wrote about international hotel chains’ efforts to create China-centric brands that are designed around, and explicitly target, Chinese travelers. There are, however, also a number of home grown brands that are trying to muscle their way into the native luxury market. The Tangla Hotel Tianjin, for one, is the first mainland Chinese hotel to be given the (ironically) American Academy of Hospitality Sciences' International Six Star Diamond Award. Steven Song, chairman and president of the hotel’s owner HNA, believes the award shows that China is able to develop top hotel brands which can compete with foreign names such as Hilton and Starwood.

The Tangla Hotel Tianjin

While it is certainly commendable, it remains to be seen whether Tangla will be the new Hilton: after all, building an internationally recognisable brand takes years, a lot of marketing dollars and above all, consistency of excellence. However, it is also worthwhile looking at the bigger picture, particularly where the luxury market is headed. Does China need a home grown luxury brand?

The first impulse answer would be: why not? Why leave the field of luxury travel, particularly in their own country, to big North American companies?

China, of course, has a lot of catching up to do. After being under an austere brand of Communist rule for the best part of the 20th Century, the switch to a firmly capitalist ideology has seen China's (just like Russia’s) population experience a dramatic shift from poor to middle class (and beyond) in just a few decades. The result is a socio-economic catch up, pursued by the middle class in particular with understandable vigor. Their long deprived craving for conspicuous consumption has manifested itself in equal shares in mushrooming luxury boutiques and a burgeoning counterfeiting culture. So with Chinese appetite for western luxury goods rampant, wouldn’t it be natural to add western luxury hotel brands to that list? The answer is yes, of course. A recent study by Digital Luxury Group puts Sheraton, Hilton and Shangri-La on top of a list of the most-searched luxury hotel brands by Chinese travelers from January to March 2012; rounding out the top 10 where InterContinental, Westin, Four Seasons, The Peninsula (a Hong Kong-founded brand), Kempinski, Nikko and Ritz Carlton. With not a Chinese brand in sight, it suggests that home-grown luxury brands are facing an uphill battle to gain traction and be able to claim an equal standing with their long established overseas peers. 

Image courtesy of MO Luxury

The Boston Consulting Group provides an interesting twist to this with a recent study on the state of the global luxury market. The study found that while the sentiment is shifting from owning luxury to experiencing it, Russian and Chinese tourists are still much more inclined towards product luxury than some of the more mature markets, which have retreated to a ‘lux-redux’ since the financial crisis took hold. Hotels are, of course, the ultimate luxury experience, but signs are that Chinese travelers may switch from buying to experiencing luxury sooner rather than later.

In line with the stalling property and construction market, which has been fueled and underpinned by the Chinese economy for decades, falling corporate profits and foreign direct investment and even official GDP numbers (see a great article on this here) have dampened the Chinese appetite for luxury goods. In fact, many foreign brands in China are already feeling the pinch of overexposure.

Will these trends jolt Chinese into a more experientially focused ‘lux-redux’ mode as it has affluent people elsewhere in the world? Common sense would suggest so, at least if there is no upswing in the short to medium term.

This may be soothing news for hotels actually: a study on Consumer Buying Behaviour in the Recession suggests that as a consequence of a recession people tend to be partial to treating themselves. However, the same study also found that one of the main consequences of a recession is that consumers from all countries and all social classes are unafraid to change their traditional brand preferences.

This should be music to the ears for the Tangla Hotel and other home grown brands in this space as it may present an opportunity for them to truly break into the luxury market at home.

Australia’s tourism industry: between a rock and a hard place

The Department of Resources, Energy and Tourism, Tourism Australia and the Australian Trade Commission recently teamed up and published a Tourism Investment Guide to promote Australia as an attractive tourism investment destination in an attempt to reverse investment activity in that sector, that can be described as sluggish at best. Burdened by strict labour laws that award workers double or even triple pay for overtime, as well as an exceptionally strong currency, the country now finds itself in the unusual situation where despite high occupancy and record profitability, hotel investment is flat. While not all is doom and gloom, and there are a number of projects on the horizon, there are some worrying developments that may stunt Australia’s tourism investment efforts before they even take off.

Image courtesy terradaily.com

Is Australia ready for Asia?

Given that Asia is the fastest growing tourism market in the world, Australia sees demand from that region playing a key role in achieving their projected tourism growth targets. And, not surprisingly, China stands on top of the table.  

Australia’s Tourism Forecasting Committee (TFC) expects that between now and 2020, international visitor arrivals will grow by 3.2 per cent per annum, with China at the forefront of delivering tourists to the Lucky Country. While this year travelers from China to Australia are expected to exceed 600,000, estimates see this number swelling to one million by 2020, bringing a A$9 billion windfall to the country.

The aforementioned Tourism Investment Guide firmly positions the country within Asia by referring to the ‘Asian century’ that is upon us. But is the country’s tourism sector ready for the influx of Asian travelers?

A number of speakers at the recent ANZPHIC hospitality conference in Sydney mentioned that the quality of travel experience in Australia still leaves a lot to be desired for travelers spoiled by their Asian experiences. And this not only counts for rural areas, but even the major cities like Sydney, Melbourne and Brisbane where experiences don’t quite match other major cities throughout the region.

Then there’s of course the worrying shortfall of accommodation, which, based on the predicted influx of Chinese travelers, sees the country in need of a whopping 40,000 plus rooms by 2020.

So high labour costs and strong currency notwithstanding, why aren’t global hotel investment firms knocking down the doors to get a slice of the Australian tourism action? Perhaps it is because there are two developments on the horizon that are making people increasingly nervous: the dramatically slowing Chinese economy and the slowing mining investment boom.

Australia’s Mining Boom – not all good news

Just recently, Accor put out a statement claiming that investing in new hotels in Australia's mining capital Perth was risky business despite high occupancy rates and government incentives. In the hotel chain’s view, hotel developers are not convinced the mining industry will guarantee sustained room demand. 

This is echoing the concerns about the impact of what is generally known as Australia’s two-speed economy, which refers to the boom in mining on one side and a gloomy outlook and heavy job cuts in most other industries. With predictions that the mining boom will fade in the next two to three years, the scenario of a two-speed economy stuttering to a halt are becoming uncomfortably real indeed.

The China Bubble – about to burst?

With dark clouds on the mining horizon, the efforts by the Australian government to boost tourism, particularly from China, should be commended, although you may argue that this initiative comes a little late in the game.

But will China deliver on the high expectations? The recent trickle of uneasy news about the state of the Chinese economy has certainly brought up warning lights. China’s manufacturing activity is at a nine-month low and contracting further, despite government intervention.  What’s more, a recent piece by the Financial Times outlined the worrying trends in China that are pointing to the “mother of all credit bubbles” created by the property boom. What goes up, must come down and when the bubble bursts it will have a huge domino effect that is likely to engulf the whole country.

How deeply this will impact China’s emerging middle class, which Australia targets as its new core inbound travel market, is anyone’s guess. China is a big country and even with a slowed down economy will have plenty of people moving into the middle class ranks and fulfilling their appetite for travel. So for my money, even if the numbers don’t stack up quite as rosily as predicted by the government, China remains a fairly solid target for inbound tourism, particularly to offset a potentially disastrous slowing in the mining industry.

But however big the influx of travelers may turn out to be, Australia can’t be complacent when it comes to delivering a sophisticated travel experience. Australia lacks quite dramatically the quality of lodging and service levels found elsewhere in Asia and has to be a lot more accommodating to win over the Chinese middle class traveler. Natural beauty is just not enough of a draw card, particularly not when there are many countries within easier reach to China than Australia.

Having said that though, Australia has a distinct advantage compared to the US, which is only a marginally longer flight distance from China.  While the Chinese call the US Měiguó or “the beautiful country”, given that the ‘Asian Century’ is upon us they may be more drawn to “ao da li ya”, the phonetic name of Australia in Chinese, which means “harbour, big, advantage, Asia”.  

Do we need hotel brands for ethnic travelers?

“East is East and West is West, and never the twain shall meet,” Rudyard Kipling wrote more than a hundred and twenty years ago and it seems that, despite all globalization efforts, he may be right. At least if you look at the recent moves by international hotel groups such as Intercontinental to introduce China-centric hotel brands.

IHG's Hualuxe... designed to offer a traditional experience
to Chinese travelers

At the recent ANZPHIC conference in Sydney this point was hotly discussed and it seems to me that both sides have a point. On the pro side, the arguments include that Chinese travelers crave cultural familiarity in everything from food to design and service. Given that China is expected to overtake Japan by 2013 as Asia's largest travel market and is set to become the world’s largest business travel market, after the US, by 2015, it seems a wise move to tap into this coming wave of travelers with a brand tailored exactly to their needs. And these needs, apparently, include anything from daily tai chi sessions, complimentary head and shoulder massages, a 24-hour congee menu, to specifically grand entrances and tea rooms rather than boozy sports bars. 

But does this craving for familiarity really warrant a completely different brand? KP Ho, Executive Chairman of Banyan Tree Holdings begged to differ during an interview session at ANZPHIC. He warned of the compartmentalisation of travel if hotels are specifically targeted at certain nationalities and I think he may have a valid point. The craving for familiarity is certainly not a Chinese monopoly but something that is woven deeply into our social fabric, no matter what nationality you are. And so the question is: do we really want to have hotel brands that only cater for Chinese, only for Russians, only for Germans, etc?

But this is of course a numbers game, and at least for now, China is the country with the most of everything: people, growth and travelers. This poses a natural attraction for anyone keen to grow their business and as a growing travel segment the temptation is to pander to them and them alone.

If we talk about ethnic segments with economies of scale however, what about religious groups? A new study shows that Muslim tourists globally represent a major niche market worth US$126.1 billion in 2011 which is set to grow to US$192 billion by 2020. The travel industry is already responding to this trend by providing Halal foods, prayer rooms and spas adapted to religious requirements. But would it also be worth considering building hotels that are built to strict Muslim standards? Incidentally, China has a sizeable Muslim population of around 20 million, or 1.5% of the total population, which just highlights how complex the whole issue of exclusively catering for individual groups’ demands can get.

But there are already examples out there where providing a familiar experience is handled in a very subtle way. Accor has been a champion of taking the French way of life to the world for a long time. Whether you check into a Pullman Hotel in Bangkok or a Sofitel in New York, you will be greeted with a warm “Bonjour” and can enjoy a croissant for breakfast that would do any boulanger back in Paris proud. That’s why Accor hotels tend to attract a lot of travelers from France, which in turn validates the whole French experience, but without alienating non-French guests.

But let’s get back to Banyan Tree’s KP Ho: his response to his peers’ push to open China-centric brands was that cultural preferences are much better served through electronic means such as CRM and PMS, and I have to say that I wholeheartedly agree.

The personalisation tools offered through intelligently integrating with the hotel’s PMS system which holds the vital customer data offer many more opportunities to provide an atmosphere that is not only tailored to collective ethnic preferences, but to a guest’s individual tastes, without sacrificing or alienating others’.

The way the China-centric brands tailor their hotels to make them more familiar to the Chinese traveler seems to me not very dramatic: grand entrance ways, the above mentioned tai chi and wooden floors instead of carpet, as one panelist at the Sydney conference mentioned doesn’t sound particularly Chinese to me. Plus, decent congee has been on the menu in all better hotels in the region for years.  

But a capable PMS and CRM system that is intelligently linked to in-room facilities can achieve a much more familiar atmosphere. Being greeted on the in-room TV in your preferred language upon entering the room, saving TV channel preferences in the system to have your personalised line-up ready whenever you check-in, or even tailoring the in-room dining menu to reflect your favourite choices are all means by which a hotel can make their guests feel more welcome and at home.

Just make sure you get it right: there’s nothing more annoying than being greeted in the wrong language or by the wrong name, something that happens to me depressingly often. Being addressed as “Mr” Anke Gill, instead of “Ms” smacks of laziness (I guess you’ll have a 50% chance of getting it right). But being addressed as “Gill” instead of “Anke” by the in-room entertainment system is pretty irritating when Google can give you a hint in less than 30 seconds. I guess the lesson here is that the technology is only as good as the people operating it and their respective understanding of target demographics.

Integration Capability is the Winning ‘Gene’ in Technology Evolution

We were recently involved in a pitch to a hotel for an in-room entertainment system that went from straight forward to utterly confusing within two rounds of presentations and demonstrations by all invited vendor parties which ended up paralysing the hotel’s decision making process. What happened? The short answer is: technology chaos.

The problem hoteliers are facing is how to make sense of a today’s Information Systems which are increasingly a chaotic mix of applications, interfaces and operating systems with their respective advantages and disadvantages and are by no means compatible. So which one to go for? Which one is flexible enough to serve hotels’ increasingly complex and continuously changing operating environments?

The answer is surprisingly easy to find with a little research around current mainstream technologies.  But in order to do that, let’s define what mainstream is first: in short, it’s integration capability that results in mass adoption. Similar to Darwin’s evolutionary theory, a technology’s trajectory is largely determined by how much it is able to adapt to changing circumstances, or in other words, its capability to integrate with new and improved technology variations as they appear.

Pushed to the sidelines: Betamax

Of course, technology is not some organism and moves in much faster and more haphazard ways as everyone who remembers the Beta vs VHS technology battle can attest. It can be wholly unpredictable at the cutting edge – think the phenomenal and utterly unpredicted success of the iPad – and entirely predictable at the tail end of consumer adoption (anyone doubted the success of iPad 2 and 3?).

Which brings us back to how we should determine what is and isn’t mainstream technology. There are two parts here that need to work in sync: the front end, or user interface, and the backend, or operating system. And looking at adoption levels of both gives a pretty good insight into what ‘mainstream’ constitutes at this point in time.

At the user interface, the performance of tasks is commonly managed by application software. While application software has always been the link between the operating system and the user (think accounting software, office suites, graphics software etc), it’s mobile Apps that really changed everything. And when Apple opened its platform for app developers and then the AppStore to help iPhone users turn their phone into a mini computer full of apps, that’s when the platform truly became mainstream. Now, as Apple says so aptly on their website, there’s an app for everything. Apple’s application store sells the most apps (not a shocker), carrying over 225,000, with more than 4 billion apps downloaded from Apple alone (the second largest app market – Google’s – doesn’t release comparable figures).

So here it is then: the more open for integration the platform, the more app developers it will attract, which in turn will draw more people to buy the mobile device running that particular platform. The future winners of the technology evolution are likely to be decided by just this openness of integration.  That’s what’s called mainstream.

Looking at the current canon of technologies that are dominating the enterprise and consumer landscapes, Android and Apple, or iOS, appear to be winning the race to becoming the dominant system operating technology standard, specifically for mobile devices, which are increasingly dominating all walks of life.

All of this also matters to hotels of course. Technology as a whole is increasingly pivotal for hotels on all levels, from interior room design to revenue management, so betting on the wrong technology horse may result in some nasty injuries later.

As an example, let’s look at some technologies that are commonly going head to head in in-room technology systems these days: STB-based systems, and those based on thin client-integrated technologies such as XBMC.

If you apply the mainstream test to both, it’s pretty clear that STB is as bona fide mainstream as you can get. XBMC, on the other hand, is a niche product that is used by a handful of customers, has very limited integration compatibility and is consequently very likely to have a finite development path. The latest STBs today are typically based on an HTML5 front end client. XBMC on the other hand is based on their own proprietary thin client, which provides an optimised front end performance but at the considerable price of integration and customisation flexibility. And as STB performance improves, even the front end performance advantage of a thin client will vanish. 

Say hello and wave goodbye: HTML5 has regaled Flash to history

The fact that Adobe sacrificed Flash for HTML5 is an early indicator that HTML5 will prevail and push most others (including XBMC) that have a boutique ecosystem to support its ongoing evolution to the sidelines.

While the current chaos of technology advancements makes it considerably harder than just a few years ago to predict what the next breakthrough consumer device, entertainment delivery platform or social obsession will be, it is clear that for the foreseeable future the delivery mode will be Apps, based on open technologies and accepted by the mass market. So hotels should ensure they decide on a platform that meets these attributes.

South Korea’s Hotel Boom - a Boon for In-Room Entertainment?

South Korea seems to be on everyone’s lips these days. There’s a monumental ‘Korean Wave’ sweeping us towards its shores, fueled by the ongoing popularity of South Korean entertainment and culture, specifically in the form of K-Pop and television drama.

The Seoul Metropolitan Government has reported that there are only 29,000 hotel rooms in the country to accommodate the estimated 10.8 million visitors to flock to the country this year – a shortfall of nearly 15,000 rooms. Keen to get a slice of the action, local and international hotel chains are making a beeline to invest in the country in what the Korean Herald in a recent article described as a ‘Gold Digger’ mentality. 

Add to that the fact that South Korea will do the final switch from analogue to digital television at the end of this year and you have an industry at an inflection point. On the one hand there’s the massive influx of new hotel properties to alleviate the room shortfall and on the other there are the existing hotels that are faced with new competition and also have to address how to adapt to the post-analogue world come 4.00am on 31 December (unless they have already adapted to the ATSC digital standard of course). 

  

So no wonder plenty of suppliers -- including in-room entertainment specialists such as my company -- are eagerly putting plans in place to participate. The problem is that, unlike ‘mature’ hospitality markets in the region such as Hong Kong and Singapore, there seems to be a very different perception among South Korean hoteliers of the value of things such as in-room entertainment systems. The prevailing view is that in-room entertainment systems should be either provided free of charge to the hotel or provided through financing by the vendor. This stems largely from the market being ‘spoiled’ by legacy providers who more often than not threw in in-room entertainment for free because they subsidised it through HSIA revenues.

In the age of analogue entertainment and internet being a chargeable item in hotels this made perfect sense. However, with the onset of the age of HD, smart devices and ubiquity of internet access that is expected to be provided for free, the game for what guests expect by way of in-room entertainment has shifted quite dramatically.

Talking to our local partners during my recent trip to Seoul, most middle management in hotels seem understand the intrinsic value of sophisticated in-room entertainment systems; it’s the top management that, apparently, still needs to be convinced. This is not surprising: while the middle management is usually more heavily exposed to guest complaints about substandard entertainment options, the top management holds the purse strings and finds it harder to justify an investment whose returns are seemingly less tangible.

Next-gen in-room entertainment offers branding and revPar opps

But here is the crux: the next generation in-room entertainment systems are not only about superior picture quality, but offer a much wider opportunity for hotels to benefit from both tangible and intangible returns. As I have written about in another blog, in-room systems today offer hotels great opportunities on many levels, from creating  positive brand relationships and long lasting loyalty through hotel-specific features, to streamlining backroom operations through TV-based housekeeping, to increasing revPAR through interactive promotion of hotel services and eCommerce features. 

So new hotel or old, the current ‘gold digging’ environment combined with the upcoming switchover from analogue to digital presents a great opportunity for South Korean hoteliers to propel their properties to the forefront of guest room sophistication and reap the benefits with increased brand value as well as a boost to the bottom line.

Really, there is no free lunch. Not even for OTT in Hotels

The recent HTNG Awards for “Most Innovative Hospitality Technology” went to Philips MediaSuite Hotel TV, which says it offers hotel guests online apps like YouTube, Twitter, Facebook, Catch-up TV, local and international news, weather, games and more. In their marketing blurb, TP Vision, who owns Philips’ hotel business in EMEA, claims that with their system “there is no longer a need for a set-top box or heavy head-end investments, reducing the total cost of ownership for a hotel.” 

If only. Of course, eliminating the set top box and head-end equipment is a very attractive proposition for hotels. But, as I said in a previous blog, the scenario of removing a set-top box or head-end is simply not realistic, and won’t be for some time to come. 

To illustrate just how far away Philips and similar OTT-based solutions are from providing a viable option for in-room entertainment for hotels, you only need to do some simple maths around bandwidth requirements for the various services offered on an OTT-based hotel solution.

Sure, social media apps don’t take up a lot of bandwidth, and even VoD is manageable with a streaming bitrate of 2 Mbit/s for SD, and 8Mbit/s for HD. Assuming that the maximum viewing concurrency doesn’t exceed 10% on average, this will require a 250 rooms hotel to have a 50Mbit/s – 200Mbit/s pipe to meet this type of viewing behaviour.   

But TV is where the bandwidth issue becomes more perilous.  If a similar traffic model is applied to a cloud-based TV channel delivery service to a hotel room, the bandwidth requirement would be at least 3 to 4 times higher than for VoD.  So hotels are looking at 150Mbit/s – 800Mbit/s they have to provide to ensure reliable delivery of broadcast quality TV channels to their guests – a big challenge to any hotel in developed countries as it comes typically at a big cost.

According to industry analysts, video currently consumes 29% of network bandwidth, which is predicted to increase to 40% within the next year. However, the same analysts say that the operators they surveyed so far have only set 10% of their network capacity aside for video technologies. But even where investment in FTTH and other infrastructure technologies eases the issue of bandwidth availability, the cost to actually provide the service reliably and offer hotel guests the QoS they expect, will remain prohibitively expensive for a long time to come. And this of course negates the supposed savings suggested by doing away with the traditional walled garden equipment.

And let’s not forget the increasing wariness of network owners about the demands the influx of these bandwidth hungry OTT services have on their infrastructure. South Korea’s KT has been very vocal in chastising big technology companies for free-riding on their networks and has warned of a “big data blackout” if OTT players don't agree to help pay for the rapid growth in data traffic that they are contributing to. 

There is a reason why network operators are nervous about this. A network provider typically pays a price per m/bit far in excess of the charges it passes on to its end customers, hotels included. This is because the retail market is not prepared to pay the same price per m/bit, particularly in Asia, where upstream costs can be as high as US$18 per m/bit. So in order to hedge against this imbalance, network providers use something called over-contention. It’s a bit like the common practice of airlines selling more seats than they have available to minimise empty seats. For the most part it works, but occasionally, for whatever reason, some passengers have their travel plans thrown into chaos. Translated to the hotel business, this means that in-room entertainment QoS cannot be guaranteed, which is probably not the type of experience you want to expose your guests to.   

So unless the day comes when hotels are willing to pay for the bandwidth required or the cost for a 1,000Mbit/s pipe goes down to today’s cost of a 10Mbit/s pipe, OTT in a hotel environment remains only really a best-effort delivery of long-tail content.  

In the light of these issues it is puzzling to me why HTNG would give this technology its stamp of approval as its most innovative technology. What is and isn’t innovative may be debatable, but in my mind, a technology that is endorsed by an industry body should be a viable solution, not a piece of wishful thinking that for the foreseeable future remains out of reach for most hotels. 

A Tale of Two Hotels – An example for why one size does not fit all (and never will)

Once upon a time there were two five star hotels in two major cities within the Asia Pacific region. They both had around 500 rooms and operated under well established brands within their respective markets. Both revamped and upgraded their in-room entertainment systems along similar parameters, albeit with some small but significant differences.

Hotel A wanted a system heavily reliant on video on demand content that featured an extensive selection of Hollywood blockbuster movies as well as Asian and Western adult, on top of some standard interactive hospitality features, such as weather and world time.

Hotel B also wanted to have Hollywood and Adult content, but was more interested in using technology in an innovative way to offer services such as interactive in-room dining and second screen applications that can be accessed through a tablet.

A few months after both hotels introduced their new systems, a look at how the two compare gives some surprising insights. 

Let’s take VOD hit rates first. Hotel A scores average monthly VOD hit rates of around 5% and healthy revenues in the 5-digit US$ range, almost suggesting the heyday of VOD hit rates in hotels are back again. The hit rates for Hotel B on the other hand, are limping along at a low 1.2%, much more in line with the picture of declining VOD revenues hotels have been reporting over the past few years.

So what’s the difference between Hotel A and Hotel B? Hotel A was aware that it was particularly popular with regional business travelers and consequently ensured that the entertainment portfolio was well stocked to meet this demographic’s preferences. They also adopted a flat-rate content business model that allows them to price their VOD library at a premium and thus make the most of the demand for this service.

Hotel B, on the other hand, is located within a prime shopping district and is frequented primarily by shoppers, honeymooners and families – not the demographic that would necessarily watch movies in the hotel room (and certainly not adult ones) when there are plenty of things to explore around the hotel. 

The key here is that Hotel B recognised this not be a disadvantage– quite the opposite. Being aware of the fact that VOD would not be a prime contributor to the bottom line, Hotel B decided to offer Hollywood VOD free to guests, creating instant, albeit more intangible value. I wrote in previous emails how Free to Guest (FTG) VOD is an inexpensive option for hotels to gain brand differentiation that can be more valuable than the (inevitably) declining revenues generated by offering it as a chargeable item (not to mention the administrative effort attached to managing the usual revenue share business model). 

And Hotel B did more. It focused on other interactive features that would not only enhance the experiences of their specific guest profiles but also add to the bottom line. Using the Second Screen, where guests can stream all hotel-specific features, including TV and VOD, on their iPad within the hotel for the duration of their stay prove to be a big hit. So did the interactive in-room dining menu that enables guests to order room service straight from their TV screen, which increased the overall in-room dining revenues significantly.

The moral of the story is of course that one shoe doesn’t fit all. If you feel ham-strung by declining VOD revenues because your demographic simply doesn’t want to watch anymore, offer it for free and get some brand mileage out of it. But if your guests are heavy users of VOD, maximise this revenue opportunity by stocking up your portfolio with appropriate selections and revise your business model. 

There is no doubting that content consumption as a whole is in a state of flux. However, as I said before, it will be some time until a business model emerges that connects the technology, delivery mechanism and content available today in a meaningful way that is also applicable at an enterprise level. Until then, hotels shouldn’t shy away from using the available features and services to differentiate themselves and add to the bottom line.

As long as the approach is not of the one-size-fits-all variety, that is.

Is it the end of the Set Top Box as we know it?

Google managed to send the industry abuzz with chatter about the TV Set Top Box being ‘on its deathbed’ after it emerged the search company would axe the STB business it will inherit from acquiring Motorola for $12.5 billion. While Google’s prime motivation is likely to be that its Android OS is not compatible with current STB chipsets and technologies, the company most certainly can also see that the market for STBs in their current format is in decline.

The question where the STB is heading is an interesting topic that seems to pop up more and more frequently not only when discussing consumer equipment, but also regularly features high on the agenda of hotel IT managers, who may question the necessity of STBs to deliver in-room entertainment in the age of content anywhere and on any device.

It’s a fair question, particularly for someone who needs to make decisions about entertainment equipment that has to last a 5-year lifecycle. 

While there is no denying that the advent of connected devices is starting to seriously challenge the dominance of STBs, to put them on the ‘deathbed’ is in my opinion a little premature. The fact is that their inherent mobility and backward compatibility are yet to give STBs legitimacy and relevance for some time to come. 

Connected TVs are often seen as a prime challenger of the STB. All models more or less provide services including full web browsing, Wi-Fi connectivity, high-resolution graphics, Android apps and even console-quality gaming experiences. But the reality is that connected TVs also still rely on the good old STB – except that it’s inside the TV, rather than attached to it. So from a cost perspective, connected TVs will not necessarily make things cheaper: you either have to pay for an external STB with a casing, or an internal STB without it. The cost of these internal STBs can certainly be driven down to a certain extend due to TV manufacturers’ economies of scale. But they have to be paid for nonetheless.

And what about the content? In the long run it is imaginable that a majority of TV viewers will receive their content from the cloud, i.e. through OTT. But this requires the precondition that all household TVs are connected TVs and run compatible versions of Content Apps for Android, or iOS (if Apple ever comes out with their TV set).  The day may come, but the changeover period will be rather drawn out. It’s similar to the mobile world, where despite the smartphone craze there are still considerable numbers of users preferring to use a mobile just for voice calling and SMS rather than watching video.

A complicating factor for the hospitality industry is that it’s a secondary market for TV panel vendors who primarily target the mass consumer market and their needs and wants. Given that different TV models with different features raise backward compatibility constraints, the STB (or another piece of hardware) is still necessary to provide TV manageability for hotels for some time to come. 

Having said that though, a more interesting trend that we are seeing right now is that the tablet eco-system is starting to invade the STB eco-system.  As tablet chipsets get ever more powerful, and certainly more powerful than STBs, the stage is almost set for tablet technologies to challenge current STB technologies. That’s the philosophy behind AppleTV, whose “STB” is essentially an iPad without touch screen, but with a network port and HDMI interface.  

While you can be forgiven for dreaming about a future where Ethernet renders any hardware obsolete, it realistically will not happen for some years to come. It’s a paradigm shift that will take time to establish itself. 

So the reality is that for the foreseeable future there will be a piece of hardware that is involved in the delivery of content, whether we’ll call it an STB or not. But it currently it looks like that there’s a fair chance that the next generation STB will be a stripped down tablet.