Is SDV Fading?
Heavy Lifting Analyst Notes Alan Breznick, Cable/Video Practice Leader, Light Reading 6/30/2008
Is the bloom already off the rose for switched digital video (SDV)?
It certainly seems to be, given the latest pronouncements by Comcast Corp. (Nasdaq: CMCSA, CMCSK) and recent earnings reports from such digital video equipment vendors as Arris Group Inc. (Nasdaq: ARRS), BigBand Networks Inc. (Nasdaq: BBND), and Harmonic Inc. (Nasdaq: HLIT). In different ways, all four companies indicated that the cable industry's rush to embrace SDV as a bandwidth-saving technique has slowed considerably since the start of the year.
At last week's SCTE Cable-Tec Expo in Philadelphia, for instance, Comcast Cable president Steve Burke said the nation's largest MSO will lean more heavily on analog-channel reclamation than SDV to make room for more high-definition TV (HDTV) and video-on-demand (VOD) programming over the next two years. In the fall, Comcast plans to start deploying a small, low-cost, digital-to-analog converter box to move its expanded basic tier to digital and recapture 40 or more analog channels.
Some other major cable operators are still moving ahead with SDV. At last week's show, for example, Cisco Systems Inc. (Nasdaq: CSCO) announced that Rogers Communications Inc. (NYSE: RG; Toronto: RCI) has tapped its gear for the Canadian MSO's entry into SDV. Rogers will use Cisco's SDV servers, encryption systems, and edge QAMs for its Ontario cable systems.
But the industry's one-time SDV stampede has clearly slowed to more of a crawl. There seem to be several reasons why.
First, it's proven harder than expected to prepare the electronic programming guides in digital cable set-tops for SDV installations. Such software integration issues appear to be particularly problematic for Motorola Inc. (NYSE: MOT)'s digital set-tops, which just happen to be the type that Comcast favors.
Second, MSOs don't always use the same digital set-tops throughout a given cable system, but they can't deploy SDV in a market until all the set-tops are capable of using it. So if one type of set-top can't handle the technology, cable operators are stymied from rolling it out anywhere in that particular market.
Third, cable operators are realizing that they need to better monitor the quality of their video feeds as they offer more VOD and HD programming and install SDV. So they're slowing down SDV deployments to put in the monitoring gear.
Finally, some rival vendors hint darkly that SDV is not yet producing the huge bandwidth efficiencies that were initially promised. Instead of generating savings of 50 percent to 60 percent, they say, switched digital is eking out gains of just 15 percent to 20 percent – barely enough to justify the expense of all the new equipment and software.
Whatever the reasons for the slowdown, SDV is not going away. The technology's promise is too bright, and the need for bandwidth savings is too great, for MSOs to turn back. Plus, SDV offers targeted advertising opportunities that no other technology does.
It's just going to take a bit longer for the cable industry to get with the program. So what else is new?
— Alan Breznick, Senior Analyst, Heavy Reading