By Meghali Sharma, Research Associate, Digital Media
Digitization of television and an increasing uptake of Pay-TV services worldwide have created immense opportunities for the encoders market. Encoding solutions are used by Pay-TV service providers to convert broadcast feeds into appropriate formats for distribution to consumer homes. These solutions are typically used to either convert an analog signal to a digital format or, ‘upconvert’ or ‘downconvert’ from one digital format into another.
For instance, with digitization in full swing, broadcasters worldwide are increasingly adopting advanced formats for high-definition (HD) compression and higher bit savings. In such a scenario if the broadcaster distributes a HD AVC stream to the multi-service provider (MSO) headend, the MSO might require converting the stream to MPEG-2 SD format if its subscribers have MPEG-2 SD set-top boxes.
Further, video compression equipment in the Pay-TV markets are also used for archiving or creating master files, redundancy and repurposing.
Cable vs Satellite vs IPTV
Most service operators, be it cable, satellite or Internet Protocol Television (IPTV) are competing against each other to provide enhanced services such as HD channels, pay-per-view and video-on-demand (VOD) content requiring them to spend significantly on bit efficient compression technologies. Moreover, upgrades from MPEG-2 based encoding infrastructure to advanced compression formats to gain better edge on providing high quality videos, are expected to create further opportunities for the encoding market.
Cable has historically been the dominant form of Pay-TV services in many countries. While many cable operators still provide analog services, some are digitizing their infrastructure, to launch more HD channels and VOD content to stay competitive. Many are transitioning towards advanced compression networks.
Satellite or direct-to-home (DTH) operators remain unchallenged when it comes to distributing large numbers of standard and HD channels. Many have taken advantage of this to cash in on their premium subscribers. Some have begun to offer a variety of VOD offerings, by teaming up with the telcos in some countries, while others have started to provide their own VOD services. Although currently it lacks instant interactivity as available on other platforms; but with technological changes and better compression products, this is expected to be overcome in the near future.
IPTV not only provides the traditional broadcast television, but also various other applications such as VOD, games, and interactive advertisements. Some telcos also provide subscribers the ability to record their content on devices such as personal video recorder (PVR) set-top boxes.
Lower pay-TV subscription rates, current economic crisis, investment delays, capital expenditure (CAPEX) freezes and, price cuts restrain the immediate growth of this market. However, the Pay-TV video encoders market is expected to overcome this challenging scenario and regain growth from 2010 onwards aided by increasing digital trends, rising demand of HD and continued penetration of Pay-TV services in regions such as Africa, Asia Pacific, Europe and Latin America. These factors are expected to contribute towards the encoding revenues over the next 3-5 years.
Challenges that Lie Ahead
Slowdown in the global economy and lower subscription rates of pay-TV services have hit the CAPEX of most pay TV service providers , thereby forcing them to either reduce or delay their immediate investments in digital equipment globally. Americas contributed approximately 40 percent revenues to the total market in 2008; however, robust adoption of encoders between 2006 and 2008 to digitize distribution networks in the United States, especially by cable operators has saturated the demand for compression equipment from the most dominant revenue generating region for this market.
With the economic downturn, governments in various countries might postpone the deadlines, thereby delaying investments in digital equipment over the next 12 months. Service providers who were expected to make large scale replacements of MPEG-2 legacy equipment and invest in advanced compression formats such as AVC have further delayed their plans.
The pay-TV video encoders market is expected to notice a decline of approximately 2.5 percent in 2009, but gradually gain ground quickly from 2010 onwards.
The growing gradual shift to HD poses several demands on service providers. While HD emerges as a strong shield from competition, it technologically would be effective if deployed through advanced compression technologies such as AVC. Existing MPEG-2 systems and high infrastructure costs will deter smaller regional operators from immediately adopting these solutions. Moreover, many service operators have large scale deployment of MPEG-2 based set-top boxes in consumer households. Therefore it would be difficult to quickly transition to advanced compression formats, as it would require replacement of these set-top boxes.
Further, due to intense competition, high volume demand, and the global digital deadlines, vendors have cut their prices drastically to gain market penetration. This in a way has encouraged customers in price-sensitive regions to purchase encoding solutions; however, on the other hand it has affected the overall revenues growth of the total market. Frost & Sullivan expects the prices for world pay-TV video encoders market to fall at over 20 percent again in 2010, driven by uptake of lower priced encoders especially in the Chinese continent.
Changing Role of Encoding Appliances
Different application segments in the pay-TV market have different challenges while selecting encoding solutions. While for cable and satellite operators, encoding solutions should have high level of interoperability and should work well without affecting their legacy equipment; on the other hand for IPTV providers, factors related to the scalability of their networks, infrastructure and end-user applications are of utmost importance.
Traditionally service providers have focused on encoders that can enable higher compression capabilities and higher bit efficiency; however, an increasing number of them are now shifting towards products with multi-format capabilities and additional features such as ad insertion, multiplexing, networking functionalities, all built into one.
Customers are increasing displaying a demand for software solutions that are scalable and price-effective. Some market vendors are getting closer to enable efficiency in compression for real time applications. Software solutions also help customers with easy upgradeability to adopt changing bit rate needs and codec formats. A large number of IPTV vendors are using these solutions for their on-demand needs.
Less than ten vendors in the market today have efficient software products for the Pay TV service provider needs, but Frost & Sullivan expects many such solutions to emerge in the market, which are not only cost-efficient but will also provide efficient encoding capabilities.
Conclusion
2009 and 2010 will be a critical phase determining the growth of the world Pay-TV video encoders market. The pay-TV market in terms of global number of subscribers is expected to continue to grow, however lower investments or delays in spending on digital equipment is expected to negatively impact the encoders market. But, the market is likely to pick up the threads of growth from late 2010 onwards aided by demand for product replacements, upgrades, migration to advanced compression formats, digitization of cable in European and Asian countries, continued adoption of satellite and IPTV services worldwide and also introduction of low cost, efficient software encoding solutions.
While a lion’s share of the market is comprised of large broadcast media equipment companies that have been selling traditionally into this market such as Cisco, TANDBERG Television, Harmonic, Motorola, Grass Valley and Harris Corporation, the market is expected to have more small, medium and large vendors that can provide solutions as per the customer demands in various regions.
Note: This article is based on Frost & Sullivan’s 2009 research World Pay TV Video Encoders Market, which is part of the digital media subscription. The other research reports on this market include World Broadcast & DTT Video Encoders Market and World Enterprise, Broadband and Mobile Video Transcoders Market.
