broadcast video encoders: maturing market, drivers

Broadcast Video Encoders: Maturing Market, Drivers and Challenges

Vidya S Nath, Senior Industry AnalystDigital MediaJuly 23, 2009

vnath@frost.com

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Agenda

• Overview of Frost & Sullivan Encoders-Transcoders Market Coverage, 2009

• Introduction to the Broadcast & DTT Video Encoders Market

• Digital Deadlines Worldwide

• Industry Challenges

• Market Restraints

• Regional Trends

• Market Drivers: So where is the opportunity?

• Market Trends

• Technology Trends

• Competitive Landscape: Changes Expected

• Conclusions

• Questions

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Overview of Frost & Sullivan Encoders-Transcoders Market Coverage, 2009

Applications:

Real time streaming, multicasting, video-on-demand

Applications:

Distribution, Video-on-demand,

Applications:

Contribution, Distribution, DTT (digital terrestrial television),

Others (archiving, mastering, redundancy)

Customer Segments:

Enterprise: Corporate, Government, Hospitality, etc.

Internet: Web Portals, Broadcasters, Service Providers

etc.

Mobile: Telco Service Providers, Web Portals, Content Providers

Customer Segments:

Cable, Satellite, IPTV Service Providers

Customer Segments:Broadcasters, DTT Service

Providers

World Enterprise, Internet and Mobile Video Encoders-

Transcoders Market (to be published)

World Pay TV Video Encoders Market

(published)

World Broadcast & DTT Video Encoders Market

(published)

World Video Encoders-Transcoders Market

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Introduction to the Broadcast & DTT Video Encoders Market

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Digital Deadlines, Broadcast Standards and Compression Formats in Use (World), 2008

Canada – 2011;

ATSC;

MPEG-2 and

H.264United States;

2009;

ATSC; MPEG-2 and

H.264

Australia – 2013; DVB-T; MPEG-2 and H.264

Brazil – 2016; ISDB-T;

H.264/MPEG-4, AVC

Hong Kong – 2012;

DMB-T/H;

MPEG-2/H.264

Japan– 2011;

ISDB-T;

MPEG-2

Malaysia– 2015; DVB-T;

MPEG-4/H.264

Mexico – 2022; ATSC;

MPEG-2, H.264/MPEG-4

South Africa– 2011; DVB-T; H.264/MPEG-4

UK – 2012; DVB-T;

MPEG-2 and H.264

Italy– 2012; DVB-T;

MPEG-2 and

H.264

Czech Republic – 2010;

DVB-T; MPEG-2

Key:Country name; Digital

Deadline Year; Broadcast Standard;

Compression format in use

China– 2015;

DMB-T/H;

MPEG-2

Source: Frost & Sullivan

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Advertising Market Trends (World)

-15%

-10%

-5%

0%

5%

10%

2005 2006 2007 2008 2009 2010 2011 2012

Year

Gro

wth

Ra

te

Industry Challenges

• Economic Recession: advertising revenues decline- major cost restructuring

• Likely Postponement of Digital Deadlines

• Promising HD Demand; but challenged by the standard definition legacy

Source: Internet Sources such as Adage.com, PWC; Frost & Sullivan

Media Companies Growth Rate (Quarterly)

-10%

-5%

0%

5%

10%

15%

Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09

Source: Internet Sources & Annual Reports of companies such as Disney and News Corp.

Ad revenue for Network TV from top 100 leading advertisers, (U.S.,) 2008

$26.71 Bn

Source: Adage.com

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Market Restraints

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

2008 2009 2010 2011 2012 2013 2014 2015

Year

Gro

wth

Ra

teBroadcast Video Encoders Growth Rate (2008-2015)

External Restraint•Global Economic Slowdown

Further intensifiesother existing

restraints

Legacy equipment and long sales cycles

Interoperability issues

Reduction in product prices

Reduced Demand

Source: Frost & Sullivan

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Regional Trends

Total Broadcast Video Encoders Market: Region-wise Revenues

(World), 2008-2015

-

20.0

40.0

60.0

80.0

100.0

120.0

2008 2009 2010 2011 2012 2013 2014 2015

Year

$ M

illi

on

Americas EMEA APAC

• Americas to decline at a CAGR of 20% till 2011

• EMEA to decline at nearly 13% till 2011

• APAC demand will weather the storm- still single digit CAGR over forecast period

Source: Frost & Sullivan

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Market Drivers: So where is the opportunity?

MPEG-2, 58.3%

AVC/H.264, 41.7%

HD, 48.8%

SD, 51.2%

Source: Frost & SullivanSource: Frost & Sullivan

• Demand for products- especially in the newsgathering/ contribution category-for high resolution

• Even emerging (typically price-sensitive) countries transitioning to HD workflows

• New products supporting H.264 AVC/ JPEG2000 etc. in demand

• High demand for software-intensive solutions-that are highly scalable, easily upgradeable; cheaper, and can sit on top of server systems

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2006-2009:

�Comtech acquires Radyne

�Thomson divests its stake in Grass Valley

�Harmonic acquires Rhozet, EntoneTechnologies and recently, Scopus

�Tandberg Television acquired by Ericsson

�Motorola acquires Tut Systems and Modulus Video

�Scientific Atlanta acquired by Cisco Systems

Market Trends

• Market Consolidation: acquisitions and mergers

• Inorganic growth efforts: new product lines, new regions

Threats:

•Highly competitive market

•Not a lucrative segment: low volumes

•Alternative media: complex and fragmented customer demands; demand for cheap solutions- high risk of failure

Opportunities:

•Overall fall in pricing for hardware- calls for innovation

•Potential to create turnkey efficient and robust software-based systems

•Alternative media markets

Weakness:

•Tremendous price pressure, low margins

•Saturation in demand from premium regional markets

Strengths:

•Aggressive demand in Asia

•Demand for high resolution, advanced formats

•Broadcasters diversifying: investing in alternate media

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Technology Trends

• Ultra HD Technology from NHK Broadcasting

UltraHD format is four times as high and four times as wide as HD. It is a prototype for a new

digital video format, proposed as replacement for existing high definition television (HDTV). The

current High-Definition Television (HDTV) uses 1,080 lines of resolution, where as UltraHD uses

7,680 x 4,320 pixels in a widescreen aspect ratio of 16x9, making for a total of approximately 33

million pixels. UltraHD is so named because it provides a video resolution containing 16 times

as many pixels as current HD.

• AVS- Format in China

Audio Video Coding Standard or AVS is an independent coding-decoding standard, which

officially became the national standard of China in 2005. AVC is 2-3 times more efficient as

compared to the traditional MPEG-2 standard. The performance of AVS and AVC is similar.

However, AVC's licensing mode is complex and fees expensive, where as AVS's licensing

mode is as simple as that of MPEG-2 and fees competitive.

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Competitive Landscape: Changes Expected

More than 20 vendors in this market globally

Usual Suspects (Global Presence):

•Tandberg Television (Ericsson)•Cisco Scientific Atlanta•Motorola•Harmonic•Grass Valley•Envivio•Harris•Comtech TV (earlier Radyne)

Examples of Emerging Vendors

NTT, Fujitsu

Streambox

Digital Rapids,

Telestream,

Viewcast

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Conclusions

• Broadcast market maturing in North America and Western Europe

• Immediate growth expected in Asia

• Vendors need to innovate: demand for lower cost, highly efficient and scalable software solutions

• For survival, if not robust growth: “expand your horizons,” alternative market segments

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