2016: Over the Top for Video Services

2015 was the year that premium OTT video delivery graduated from peripheral to core business. Market leaders released products such as Sling TV from Dish, which delivered without the aid of a set-top box. Verizon added Go90, and; Comcast added Stream TV Smart devices got smarter and more impressive. Apple TV got a well-deserved update; Fire TV became even better; and Roku was embedded in consumer TVs. With these developments we turn to the question of momentum. Is this the start of unprecedented TV experience?

Let’s look at what I predict will happen in 2016:

Broadband Is the “New Black”

Broadband home service is a strong alternative to video and a bright spot for pay TV providers and can create tremendous opportunity for another revenue stream by offering cable-plus broadband services. Broadband home growth driven by OTT gains is helping to offset the higher programming costs and the decline in video revenue caused by cord-cutting. Large and even small operators may likely go back to basics, making broadband more of their future focus. To weather the rapidly transforming nature of traditional media consumption, cable companies appear to be beating the no-pay TV trend by focusing more on Internet services and creating a robust broadband ecosystem to emphasize more of data delivery instead of video while broadening broadband pricing as the demand grows.

Super-Sized and Connected TV Will See Growth

Smart and connected TV video-streaming devices are continuing to lure audiences back into the living room, and with the rise in OTT and streaming, the industry is looking ahead to a new and more immersive reality. Viewers on the go are watching more video on their pocket gadgets, but the average minutes per phone device per month is far less than the average for connected TV devices. Companies will be working for an improved search and discovery functionality for a better user experience and utilizing cloud to make it easier for operators. Ten percent of Americans stream video to a connected TV every day, and we expect streaming media homes will likely overtake pay TV homes in 2016.

Premium Content: a Visual Delight

To improve consumers’ experiences we will see operators increase bitrates range his year. Until now, nothing much has happened at the very top of the pyramid; streams of 5 Mbps or more aren’t growing very rapidly, although we are seeing a shift towards the 2–5 Mbps range. The lower end will continue to be there because video continues to be watched on smaller screens connected to cellular networks, but the same range would be unacceptable on a big screen TV. 

Premium Content Will Have Reliable Delivery

One of the challenges for any business operating on the Internet is management. Moving data of any kind, especially video, from the point of origin to the point of consumption is an intricate and tricky business. Some services try to go at it alone; others contract with content delivery networks (CDNs) to get the job done, which results in a markedly superior viewing experience. 2016 will be the year that premium streaming video providers phase out legacy in-house delivery networks and commit to CDNs. 

Conclusion or the Start of 2016

OTT is rapidly gaining acceptance and is a fait accompli by broadcasters and pay TV operators. If 2015 was the year that OTT stepped into the spotlight, 2016 will be the year of its maturation. Much of what is being forecasted for 2016 are trends that started to develop in 2015. Skinny bundle offerings, which were new last year, will be judged for the service they provide rather than their uniqueness. And as audiences are not driven by appointment viewing and won’t accept subpar viewing experiences anymore, they will be drawn to providers that can provide quality content. Companies will remain strategically focused on the best possible combination of factors where audiences, data, content and technology meet to deliver a good or even exceptional viewing experience.

Contact sales@acgcc.com for more information about our video services.

Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

Innovation Drives Evolution: Video Industry No Exception

Analog over the air, on-demand and OTT experience are pushing vendors to evolve video technology and develop more sophisticated and viable business models

The first successfully demonstrated simple electronic television designed by Philo Taylor Farnsworth in 1927 transmitted a simple line. Philo T. Farnsworth, Vladimir Zworykin, C. Harles Jenkins and John Baird all made important contribution to this invention and contributed to what finally became television as we know it now, and which has helped spawn the huge video industry.

Back in time: TV history

In 1950 only nine percent of U.S. households owned a TV, but by 1960 87 percent owned one! Today, according to Nielsen, the number of TV households in the United States from 2010 to 2011 was estimated at 115.9 million and the average house has at least two televisions per household. 

In the 1950s the delivery method for content was over the air or terrestrial television in which the signal was transmitted by radio waves to the TV receiver from a television station, and received with an antenna. Viewers received significant benefit from this deliver method as content was easily accessible for the public. Using the antennas on the television, viewers would literally pull the signal out of the air. However, because the content was delivered over the air, there were distance limitations. An antenna could only transmit a signal so far, and if one was not within that range, one could not get the signal. Another limitation was that there was no way to institute a pay for access model. As the signals were being transmitted freely over the air, anyone with a reception antenna could view the signal. 

Next step in the evolution was the advent of cable television which delivered the video content to individual homes using coaxial cable. Large antennas were erected and coaxial cable ran from the antenna to individual homes. In coaxial cable transport, quality does not significantly deteriorate over distance, this delivery method also offered the ability for broadcasters and cable companies to create a subscription based model.

Then came satellite television, which delivered the video content to individual homes using signals relayed from communication satellites. The signals were received by  satellite dish which was then fed from the reception dish to inside the home through a coaxial cable. A satellite receiver, either a set-top box or a built-in TV tuner then decoded the program for viewing on a television set.

In 1984 digital video was invented and like OTA used radio frequencies to deliver video through the air. This technology allowed providers to compress video channels so that they take up less frequency space and offered two-way communication capabilities.

The most recent development is IPTV (live television, time-shifted television and VOD) which uses Internet Protocol for the delivery of video. This involves using hardware or software to encode the video and audio signals into an acceptable IP format that is then streamed in one direction or in a two-way scenario to provide users with interactive television. This development offers two advantages: Interactive ability where viewers can determine exactly what content they want to view and when and convenience. With wireless Internet and streaming capabilities, viewers can watch video content from their TV, laptops, tablets, and even their phones.

In IPTV, the subscribers have set-top boxes or other customer-premises equipment that talks directly over company-owned or dedicated leased lines with central-office servers. Packets never travel over the public Internet, so the television provider can guarantee enough local bandwidth for each customer's needs.

Shifting tide

Access on any device anywhere has prompted a shift from watching shows on TV to watching content on multiple devices. Additionally, high subscription costs, poor service, and the dismissive behavior from call centers are increasing the migration away from traditional cable services. Over-the-top content—film and TV services delivered directly over the internet to connected devices—has become a key part of the evolution of Video. Many consumers are opting to become “cord cutters” or are “cord nevers,” a generation raised on social media and Netflix that are used to any content, any time, on any device.

So how did OTT service become so enticing?

• Convenience: Anytime anywhere consumption

• Control: To choose what ,when and how to watch 

• Content: Availability of large existing content libraries

Where do we go from here?

The industry is on the cusp of the next major evolutionary phase in visual entertainment People are switching from traditional cable companies to watching videos online on their mobile phones, or through streaming services such as Netflix, Hulu, etc. Cord-cutting has grown by 44 percent in the past four years, with 7.6 million households using high-speed Internet for streaming or downloading videos instead of traditional cable or satellite television. The OTT market, already showing huge consumer uptake is expected to increase fourfold by 2019.

By leveraging OTT technologies and new business models, vendors and service providers are creating happier consumers, more profitable advertising, and a more efficient system overall. 

For more information about ACG’s video services, contact info@acgcc.com.


Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

1Mainstream Acquisition Will Drive Cisco’s Infinite Video Roadmap

Cisco Systems has announced its intent to buy OTT cloud streaming service provider 1Mainstream to deliver improved cloud-based and live-streaming services

The San Jose-based startup 1Mainstream was formed in 2012 to eliminate obstacles for content providers to create compelling, ala carte, HD channels and applications. It operates on an OTT platform that uses sophisticated templating technology to enable companies to launch OTT services across multiple platforms. Although far from being a household name, 1 Mainstream has partnerships with top companies, including Apple TV, Samsung, Roku, Amazon Fire TV, and Chromecast, to provide seamless integration of their products to a customer base that includes Sky News, NOW TV, Acacia TV, etc.

Cisco has a strong portfolio with videos for PCs, tablets and smartphones but the company was unable to serve both the service provider customers and OTT players that wanted to get to the big primary screen and get there fast. With the acquisition of 1 Mainstream, Cisco will now have the startup’s platform. 1Mainstream’s technology complements Cisco’s new Infinite suite of cloud-powered video entertainment solutions, which are designed to help customers deliver TV services to multiple screens utilizing one cloud on any access network within and beyond the home. 1Mainstream's platform will allow service providers, broadcasters and media companies to configure and roll out the entire channel and content library available to their customers anywhere and on any device.

Acquisition of 1Mainstream is a good move for Cisco as IPTV supporting OTT video content viewing has significantly disrupted the pay TV industry and has become a primary channel for content consumption. The acquisition is expected to be complete in the second quarter of Cisco’s current fiscal year and once the acquisition is complete, 1Mainstream will join the Service Provider Video Software and Solutions Cloud Engineering Group under the leadership of Conrad Clemson, senior vice president and general manager. Rajeev Raman, CEO of 1Mainstream, will become director of cloud engineering at Cisco.

For more information about ACG’s video services, contact info@acgcc.com.


Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

2013: The Year of Over the Top

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. 

For more information about ACG Research's Video Infrastructure service, contact sales@acgresearch.net.

David Dines
ddines@acgresearch.net
www.acgresearch.net

MWC 2013: New Venue, New Industry Spirit from Barcelona

Mobile World Congress 2013 has given the industry a boost of revitalization, focused on creating change and driving technology innovation to improve how we connect.

Mobile World Congress 2013 wrapped up last week in Barcelona at a new venue, the magnificent Fira Grand Via, with record attendance. Although this attendance created too much traffic and congestion, it did not dissuade industry delegates from collaborating and demonstrating a new industry spirit focused on innovation and human advancement in the area of mobile technologies.

Even without notable industry leaders such as Apple, Google, Microsoft, and Facebook, which declined to participate so that they could maximize their own events for major announcements, LG, Huawei, and ZTE took main stage with audiences and industry press. Samsung clearly established position with sizable show investment in the areas of mobile devices and consumer focused messaging, though it also decided to strategically shift its flagship “Galaxy S4” launch to New York in two weeks.

MWC 2013 showcased new themes; most notably it spotlighted Software Defined Networking (SDN) by vendors. In the mobile IP infrastructure segment, Juniper focused on the release of a virtualized platform for SGSN/MME functions. ACG expects other vendors to update road maps and further make announcements in 2013 in this area.

Machine to Machine (M2M) was another major theme with presentations and discussions on standards-based industry adoption. M2M industry has been fragmented, but mobile SPs see significant opportunity in developing services and ecosystems. ACG expects M2M data traffic to consume 20 percent of global mobile data demand in five years.

Small Cells segment saw a plethora of announcements: silicon leaders such as Broadcom and Texas Instrument released new product families to support multigeneration technologies such as 3G and LTE within a single System on a Chip (SoC). 

Mobile SPs also announced initiatives, such as cloud-based services to support third-party (HTML5 compliant) platforms from Jolla, Mozilla (Firefox OS), and Ubuntu (Linux).

Although much of the discussion was focused on the OTT industry segment and how to work together, ACG believes mobile SP business models will need to further evolve to adopt the range of innovation offered by companies such as Viber.

MWC 2013 did not disappoint. Attendees walked with innovative ideas and information, which will, no doubt, will be the foundation for creating more change and driving technology innovation in 2013.

For more information about ACG Research's mobility syndicated and consulting services, contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Transition Defines Service Provider Video Infrastructure Market

In addition to facing the macroeconomic uncertainty that is challenging nearly all IT markets, the SPVI market is undergoing significant transitions on three major fronts:

Converged IP infrastructure: Cable operators’ desire to move to a converged IP infrastructure has been in the works for several years. This is understandable, given the complexity of the legacy systems and the mission-critical nature of the infrastructure. The development of the CCAP architecture addressed this need, and CCAP based products are being trialed now. We expect commercial deployments to start in late 2013. Interestingly, this transition is being driven and managed by the service providers with the cooperation of the traditional networking vendors.

TVE is part evolution and part revolution. It is evolutionary in that we have had the ability to stream video content to computing devices for over a decade. It is revolutionary in that tablets, mobile devices and LTE wireless are providing consumers much greater choice and control over content, location and time. This transition is in full progress and is being driven by a different set of players than has been customary: consumer electronics manufacturers, content owners and the standards bodies that influence protocols and technologies such as MPEG dash and HTML5. This is unfamiliar territory because the SPs or the traditional vendors are not in control of the device and have less influence over the design, implementation or utilization.

The OTT revolution is also fully underway, but the impact is not totally felt as yet. This revolution is not about technology but business models and revenue participation. The balance of power has shifted more to consumers. SPs must find business models, pricing, packaging and bundles that appeal to consumers and that they can provide in a profitable manner. While content owners have significant leverage in the OTT model, they are also dependent on consumers’ tastes and requirements.

These transitions are dramatically changing the roles and relationships of the technology suppliers, service providers, content owners and consumers and are creating significant challenges for all the parties. In addition to these macro transitions, pay TV operators are facing increased demand for higher speeds and more competitors (fiber, DTT, satellite and cable), and need to upgrade existing networks to stay competitive.  

These market conditions present a difficult landscape for SPs and their suppliers, as it dictates not just a technology transition but a re-evaluation of core business models as well.  These are definitely interesting times for the pay TV market.

For more information about ACG Research's Video services, click here or contact sales@acgresearch.net.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Macroeconomic Conditions and Technology Transitions Affecting SP Video Market

The SP Video market declined 3.3% sequentially and 4.9% Y-Y.  A loss of pay TV subscribers in North America, Europe debt crisis, and a slow-down in China were big contributors to the decreases.  Product and technology transitions also played a role: slow-down in DTA rollouts; transition from SD to HD and from DOCSIS 2.0 to 3.0; and increasing demand for multi-screen capabilities.

OTT video and TV everywhere continues to grow.  OTT is now 58% of peak fixed access bandwidth utilization in North America and is expected to triple over the next five years. In mobile, data OTT is a bigger factor; currently it makes up 54% of total peak traffic and is expected to quadruple in 5 years according to Sandvine. 

The pay TV market continues to evolve. In North America, the overall pay TV market declined approximately 300k subs, with cable losing 600k and Telcos adding 300k.  Global IPTV subscribers continue to grow, based on strength in China, India and other emerging countries.  Consequently, cable STB revenues declined 10% Q-Q and over 10% Y-Y, while IPTV STBs increased 2.9%/7.5% (Q-Q/Y-Y).

CMTS market was up 2% sequentially but down 2% Y-Y. Most vendors are shipping their next generation of higher density equipment in volume.

Despite the down quarter, SP Video infrastructure spending should pick up in 2H 2012. Many SPs have spent less than half of their 2011 CapEx budget in 1H 2012, and they are projecting flat CapEx spend from 2011 to 2012.

For more information about ACG Research's video services, click here.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Innovator’s Dilemma and Grief Counseling: The Common Denominator

Many entrenched incumbent players’ reactions to significant change in their markets bear a marked similarity to the five stages of grief pioneered by Elizabeth Kubler Ross.

I was researching and writing about the changes that OTT video and TVE everywhere are having on the video industry, particularly cable companies, and I noticed a pattern in how many entrenched incumbent players react to significant change in their markets and exhibit the five stages of grief pioneered by Elizabeth Kubler Ross. Applying this approach to companies and markets is imperfect, but the paradigm is instructive and intriguing. Also, not every company and industry react the same, but many companies that face the innovators’ dilemma of protect the cash cow business while trying to ride the innovation that threatens the old technology or business model. Definitely a conundrum!

Denial

First, incumbents deny that the new technology/business model will actually work, that it is an improvement over the existing technology or that customers will understand it or buy it. When Netflix streaming first started, the cable industry and many insiders downplayed it because the quality of experience was poor (many delays, freezes, and pixilation) and the selection was limited.  What they missed was the ease of search/discovery and a pricing model that was appealing to customers.

Try to Block/Smother the Innovation (Anger)

Once the innovation gets a few design wins or successful trials, incumbents will start to make moves to block. Again, some ISPs resorted to throttling Netflix to deal with the congestion on their network, and some would have liked to block it altogether but would have had a riot on their hands as well as run into net neutrality issues.   Recently, most ISPs have instituted caps and tier pricing as a way to try to capture some of the money they are losing on streaming services.

Bargaining

If you can’t stop the innovation, try to partner with a startup or offer a homegrown attempt at a new technology. These rarely work because the entrenched power and cultural inertia behind “business as usual” is typically much greater than proponents’ push for new and unproven technology. This is understandable: the risk is much less; the markets and customers are a known quantity; and the business model is proven. Some MSOs were rumored to have an interest in partnering with Netflix (Apple is also purportedly interested in deals with cable operators for STBs), but so far, these have been rumors or the efforts have gone nowhere. The failure of these talks is likely due to the inability to reach a satisfactory revenue share and account control agreement.

Depression

This stage is the realization that the new technology is going to become a dominant force, but senior management has not devised a cogent strategy for coping with or capitalizing on the change. They are still trying to understand business models, technology transitions, market needs, market segmentation and messaging.

Acceptance

And finally management comes to the realization that in order to survive, the innovation needs to be accepted and incorporated in the main offerings.

Based on casual observation, I would put most pay TV operators are in the depression stage regarding OTT and TVE. They are still figuring out business models and technology architectures. A few companies are in the acceptance stage and are proceeding with thoughtful approaches.

Obviously, this is a bit tongue in cheek, and not all innovations become true disruptors and not all companies or industries react this way. Understandably, companies need to determine the likelihood of a technology becoming a true disrupting force before committing major resources. It is a difficult process, and being late to the party or betting on the wrong horse are significant missteps that can become a long-term strategic liability for the company. 

For more information about ACG Research's video services, click here.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Nielsen Report Cross Platform Report Q4 2011: What You Need To Know

Nielsen recently released its Cross Platform Report for Q4 2011. It has some excellent data on US households. David Dines distills the key points for executives who are concerned with service provider video infrastructure, STBs and other developments such as over the top and multiscreen video/TV everywhere.

Internet viewing of video is increasing but not as much as you think, only 4% y-y. Mobile video viewing, on the other hand, grew 36%. This is particularly important for mobile operators that are already talking about data congestion on their networks.

US TV households continue to shift away from cable, which were down over 1% sequentially and nearly 5% year over year. Telco TV grew 15% and satellite was almost flat for the year. This is likely to be indicative of the rest of the world because most of the new competition is from build-outs by Telcos, specifically, FTTH in developing economies such as China. 

	Q4 10	Q3 11	Q4 11	Q-Q Change	Y-Y Change
Broadcast Only	11,147	11,050	11,043	-0.1%	-0.9%
Wired Cable	63,393	61,192	60,473	-1.2%	-4.6%
Telco	7,339	8,284	8,452	2.0%	15.2%
Satellite	34,273	34,653	34,553	-0.3%	0.8%
Total TV HHs	116,152	115,179	114,521	-0.6%	-1.4%

Source: Nielsen

Additional data from Nielsen also points to increasing cord cutting behavior. The number of households that use broadcast TV (no pay TV) with a broadband Internet connection rose 14% y-y to 5.1M; cable only (no broadband) declined nearly 13% y-y to 22.4M households. Cable and broadband customers held nearly steady, growing 1% y-y but down 2% sequentially. 

Cable/Satellite	Q4 10	Q3 11	Q4 11	Q-Q Change	Y-Y Change
Broadcast Only and Broadband	4,491	5,104	5,122	0.35%	14.1%
Broadcast Only and No Internet/Narrowband	6,130	5,869	5,911	0.72%	-3.6%
Cable and Broadband	78,525	80,824	79,238	-1.96%	0.9%
Cable and No Internet/Narrowband	25,610	22,329	22,381	0.23%	-12.6%
All	114,756	114,126	112,652	-1.29%	-1.8%

Source: Nielsen

Overall, these two indicators (the continued loss of cable subs and the increasing number of people with no cable but with broadband) are reinforcing our assertion (from two years ago) that OTT was a real potential threat to pay TV services. Even without the same quality, the price and convenience make OTT a credible substitution, especially among the Millennial group, tech savvy or cost-sensitive households.  Now that many of the quality problems have been solved with adaptive streaming and the immense popularity of tablets, SPs need to pay attention to consumers' behaviors. They need to be looking toward innovative services and bundling because “me too” types of services will not likely keep consumers’ interests for very long.

For more information about ACG Research's Video Infrastructure service, click here or contact sales@acgresearch.net.

David Dines

ddines@acgresearch.net

www.acgresearch.net

Service Providers and OTT Video: The Holy Grail?

The pay TV and Internet service provider market has been a whirlwind of change in that last two years. The confluence of two developments: the growing popularity of over the top (OTT) videos from companies such as Netflix, Hulu, and YouTube and TV everywhere (TVE), which is the ability to stream video on multiple devices, including the iPad and Internet-ready TVs, Blu-ray players and game consoles.

These market dynamics have created fundamental changes in industry structure. Established players and new entrants are working to develop new business models and find answers to their questions on how to respond to the threats and opportunities of next-generation video in an environment of rapid technological change and uncertainty.

Fortunately, for service providers, Azuki has taken a fresh approach to this problem by delivering services that enable service providers (SP) to offer OTT/TVE services with minimal change in existing infrastructure and back-end systems and doing so with compelling business cases.

To download the white paper, click here.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Netflix Changing Its Pricing Bundles

What does it mean for the OTT market?

Netflix just changed its pricing bundle from $9.99 a month for one at a time DVD and streaming to $15.99. DVD only and streaming only services are still available for $7.99 each.

It is interesting to see the reaction in the technology press; some have opined that it is a sign that Netflix is facing major challenges. Until now, it has been making money based on a free ride from the telcos and favorable deals with the content owners. Given such a big increase in the price, they will stop growing so rapidly.

Another point of view is that Netflix basically goofed on pricing and priced too low. When compared to other options for watching movies, even with the price increase, Netflix, still beats the bricks and mortar video store and the premium channels or pay-per-view options from the cable company.

So despite some outcry from customers about the price increase, I do not see this as a sign of major structural challenge or that it will slow growth significantly. In the final analysis, $8 a month is still a bargain, especially when compared to other choices consumers have.

David Dines
ddines@acgresearch.net
www.acgresearch.net