As four of the biggest pay-TV providers in North America make plans to merge into two, it's time for set-top makers to do the same.
At least so says ABI Research . In a new study released this week, ABI concludes that a consolidation of set-top vendors is needed to meet the evolving demands of such combinations as AT&T Inc. (NYSE: T)'s proposed $49 billion buyout of DirecTV Group Inc. (NYSE: DTV), not to mention Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s proposed $45 billion acquisition of Time Warner Cable Inc. (NYSE: TWC). (See AT&T to Acquire DirecTV for $48.5B and Comcast's TWC Coup: 3 Things to Know.)
In a research note, ABI argues that AT&T's plans to acquire DirecTV particularly highlight the need for set-top boxes that can serve more than one kind of video delivery network. Yet, for the most part, the world's five top STB vendors -- Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO), EchoStar Corp. LLC (Nasdaq: SATS), Pace Micro Technology , and Technicolor (Euronext Paris: TCH; NYSE: TCH) -- "are heavily weighted to one sector, or, in some cases, have robust proportions serving two or three sectors," the firm said.
ABI adds that these five vendors, accounting for about 37% of global STB revenues in a mature yet fragmented market, cannot keep meeting the demands of pay-TV providers as they seek to deploy their video services over multiple networks, including cable, IPTV, satellite, and, presumably, over-the-top. "We continue to believe that integration of historically separate cable and IPTV providers with satellite set-top OEMs would bear fruit in the increasingly hybrid set-top box world generated with acquisitions," like AT&T's proposed purchase of DirecTV, said Sam Rosen, practice director of ABI Research.
ABI predicts that the global set-top market will top out at around 265 million units sold next year before starting to decline. In 2012, the last year for which figures are available, STB makers sold 236 million boxes around the world.
Fresh off its acquisition of Motorola Home, Arris captured the lead in the STB market with $2.1 billion in set-top revenues last year, driven by sales of 18.5 million cable and IPTV boxes, according to ABI. Pace came in second in revenues, even though it dropped behind third-placed Technicolor in sale volume.
Rosen explained that Pace, despite a 10% drop in sales volume, booted its STB revenues slightly by "focusing primarily on the high-end gateway market." He also credited Pace's performance to its "focus on services."
— Alan Breznick, Cable/Video Practice Leader, Light Reading