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.

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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.

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

Cisco Shifts Focus on Cloud Video: Selling Its Traditional Video Products

Technicolor and Cisco have also signed a long-term patent cross licensing agreement and a strategic partnership to develop and deliver next-generation video and broadband technologies on IoT solutions and services

In November 2005, Scientific Atlanta, Inc., a Georgia-based developer and manufacturer of consumer video and data services products, was acquired by Cisco Systems for $6.9 billion cash deal. Cisco already had products that let service providers deliver data, voice and mobility. With this acquisition it added the video component, the missing element, in this bundle, which gave a unique integrated architecture to the market and helped Cisco sell products to carriers developing “quadruple-play” services, a technology that encompasses voice, video, Internet and wireless.

The plan was to integrate TV set-top boxes with Cisco’s other main consumer product, Linksys WiFi routers, thus evolving a new “connected device” that combined voice, video and data. What nobody could predict at that time was that this acquisition would not yield revenue, margin and share gains, which at then looked possible.

Gaining market share, expanding customer base

During the last 10 years, the Scientific Atlanta acquisition brought in cumulative nondiscounted revenue of $27B to Cisco; however. In the past few years the company has seen revenue declines and more importantly profitability shrink irreversibly. Additionally, one of the key issues that Cisco faced was where this consumer business fit within Cisco’s mostly service provider, enterprise and public sector customer base where the margins have been traditionally robust for Cisco. And with rumors swirling for a while around Cisco’s SP video future, the announcement was not a surprise to industry watchers.

Cisco exited the business by selling to Technicolor SA, a French media and entertainment technology group, which has led the market in delivering advanced video services. Technicolor SA will acquire the business for $600 M to $450 M in cash and $150 million in newly issued Technicolor shares. The agreement is expected to close by the end of calendar 2016. The acquisition will give Technicolor an estimated 15 percent share of the global CPE market, with 60 million devices shipped each year, an installed base of 290 million set-tops and 185 million gateway devices across 100 countries. Starting in the first full year after completion, Technicolor expects the acquisition will add at least 10 percent to its earnings per share as well as double annual revenues at Technicolor’s connected-home division. As part of the strategic agreement and after the transaction has closed, Hilton Romanski, senior vice-president and chief strategy officer of Cisco, will join Technicolor’s board of directors.

Moving forward Cisco will focus on key transitions that align with its overall cloud strategy: to provide customers with video, IP access, wireless, cloud and software services, security, and IoT technologies to innovate the next generation of connected home experiences.

Mending Achilles heel

The set-top box business has struggled because of consumers’ shift toward other devices to access video. Service providers have adopted new cloud technologies to offer programming. Although the business generated $27 billion of cumulative revenues for the company, it has been an Achilles for the company for a long time, losing sales to competitors such as Arris Group Inc. and Casa Systems Inc. In the third quarter of fiscal 2015, revenues from its service provider video segment declined 5 percent because of lower set-top box sales.

The much awaited announcement has provided a clearer path for Cisco and how it plans to address the video market to align with its overall cloud strategy for products and services. Cisco’s exit from this low-margin business is sure to cheer up the investor community, which will look to the company for greater cloud-based revenues and growth.

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           Megna Zutshi

     mzutshi@acgcc.com

         www.acgcc.com