Video continues to be the major driver of bandwidth demand on fixed and mobile networks. According to a report by Sandvine, it consumed 62% of peak time fixed Internet bandwidth and 43.5% of mobile bandwidth in North America. In other regions, viewership is lower but is still significant and growing.
H.265/high-efficiency video coding (HEVC) capabilities are just starting to enter the market. We anticipate that adoption will be faster in mobile because of the rapid turnover of devices and the capacity limits of the RAN. In wireline, it will take longer to see mass adoption, as operators balance the efficiency and service gains against the costs of replacing significant amounts of CPE as well as the encoding infrastructure. The other argument for HEVC is the ability to offer new, ultra-high definition (UHD or 4K) service. We believe the jury is still out regarding consumer interest in UHD because of the extra cost of the sets, lack of available programming and perceived improvement in viewing experience.
TV everywhere or multiscreen viewing is now accepted by the SPs as table stakes in providing video. The issue that SPs are starting to address is not so much supporting tablets and connected TVs but identifying what content is available and improving the users’ experiences in search and discovery.
Competition from over-the-top (OTT) players Netflix, Hulu and YouTube continue to post impressive traffic gains. Netflix continues its quest to acquire original and premium content. It is adding premium children’s programming, acquired rights to “Arrested Development” and just inked a deal with DreamWorks Animation for approximately 300 hours of new television episodes. This deal will be closely watched by both OTT incumbent pay TV operators and other OTT providers such as Amazon, Hulu and YouTube. Although the incumbents have not yet felt a significant impact of OTT in cord cutting or cord shaving, this new deal will likely turn up the heat.
ACG has been consistently saying that OTT is a disruptive technology/business model and that it would eventually resolve the issues that slowed adoption early in the life cycle (low quality of experience and lack of compelling content). It appears that 2013 is going to be the year that OTT comes into its own.
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