Broadband Is the Critical Piece to the Video Puzzle
Pay TV providers around the world find themselves in a challenging position. Their competition has increased even as the rapid growth of new subscribers has stalled in some key markets. In order to differentiate their services to even have a chance of securing new subscribers, pay TV providers are expected to offer multiscreen, cloud DVR, and other services as basic features. Finally, and perhaps most importantly, pay TV providers face growing consumer sentiment that pay TV subscriptions, when compared to alternatives, just don’t provide enough value.
One of the primary reasons subscribers don’t believe pay TV services have intrinsic value is because, from the content to the CPE to customer service, every single pay TV service looks the same. In most markets, channel lineups are the same, the capabilities of the set-top boxes are the same, even multiscreen service offerings have quickly become commodities. Customers consider pay TV services a dime a dozen, making it easy for them to switch providers with minimal impact to their lives. Increasing churn rates among pay TV subscribers attest to this phenomenon.
Pay TV providers have been responding by rolling out more advanced set-top boxes with integrated IP connectivity, hard drives for local DVR capabilities, integrated WiFi and transcoding for multiscreen delivery, MoCA (Multimedia over Coax) and HomePlug for connections to client devices, and advanced processors to speed up program guide and UI performance. According to some operators, such as Comcast and Liberty Global, these advanced boxes have helped differentiate their service and reduce customer churn.
Beyond new customer premise equipment, pay TV providers have been increasing their multiscreen services, delivering video content to TVs, tablets, smartphones, and game consoles in order to match the omnipresence of services such as Netflix, Amazon Video, Hulu, and others. In fact, multiscreen services have become nearly ubiquitous in many markets—to the point where pay TV operators are expected to provide them as a basic feature of their service package.
Finally, pay TV providers are moving forward aggressively with 4K UHD content and services, as yet another way to differentiate their services from their traditional linear and OTT competitors. As such, 4K UHD content and channels continue to grow at a rapid rate. The improved screen resolution is viewed by content owners, pay TV operators and OTT providers as critical to providing consumers with a more immersive and compelling viewing experience.
Global demand for UHD content and services has already pushed the number of linear networks delivering UHD to 50 at the end of 2015, according to SNL Kagan’s 2016 report, Ultra high definition content & services: Asia remains on top. The total number of linear UHD channels is expected to jump to 237 by 2020. These figures do not include VOD or OTT systems, which have already seen a significant increase in the number of available UHD titles.
The combination of 4K UHD content and multiscreen services is expected to be a significant driver of bandwidth consumption for years to come, which means that investments in broadband infrastructure to support these and more traditional data services must continue to increase. In fact, we are already seeing cable and telco operators increasing their capex on broadband access equipment by as much as 10% or more on an annual basis in order to support the necessary upgrades to support 100Mbps-1Gbps offerings. Certainly from a marketing perspective, the ability to advertise faster downstream rates than your competitors is imperative. And subscribers are always happy to receive complimentary speed upgrades.
But the network and service upgrades are minimum requirements to deliver on the promise of 4K UHD and true multiscreen services. Available bandwidth is a major concern for service providers as 4K streams require a minimum of 15-20Mbps of sustained throughput to each device. Though broadband providers have been increasing their downstream speeds, available sustained rates are still below what is required to stream a single 4K stream, let alone multiple streams simultaneously. This is why we continue to see accelerated technology and upgrade cycles in the area of broadband access. From DOCSIS 3.0 to DOCSIS 3.1, from 2.5G GPON to NG-PON2, and from vectored VDSL to G.fast, new access technologies that provide significant bandwidth upgrades are being developed, standardized, and productized at a rate never before seen. The reason is because service providers know the future of their business depends on their ability to provide the fastest speeds, the most content, and the highest-resolution content in the markets they serve.
Cable operators are a clear example of this trend of shifting more CapEx to their access infrastructure to continue to alleviate the bandwidth pressure they are facing from increasing multiscreen video consumption. From our recent report on DOCSIS infrastructure, we project global cable MSOs to ramp their spending on centralized and distributed CCAP platforms from $1.52 billion in 2015 to nearly $2.65 billion in 2020 as DOCSIS spending will incorporate the traditional headend and hub sites along with optical nodes in the form of distributed access architectures.
Because of the heavy competition they face from telcos and other ISPs rolling out G.fast and FTTH, cable operators have to distribute access network elements closer to their subscribers to make their networks more efficient and to reduce the number of subscribers supported in an individual service group so that each subscriber can access more bandwidth.
Telcos are obviously in the same boat, shifting their access network technologies from central office-based ADSL and ADSL2+ to more node-based VDSL2, G.fast and, of course, FTTH. For the most part, telcos only started delivering volume video services within the last 5-7 years, whereas cable operators have been doing so for decades. Thus, ensuring sustained bandwidth to support 4K UHD multiscreen services is even more critical for telcos still ramping up their pay TV subscriber bases.
Owning the Broadband Connection a Major Advantage for Video
Regardless the investments required to prepare for distribution network for true multiscreen UHD content, service providers are fortunate to be the infrastructure owners, especially in an age where higher-resolution video across a growing range of devices will be one of the key reasons subscribers continue to pay for video access. Besides owning the network connection into the home, service providers are also more likely to own the connection in the home—be it a high-end residential gateway, set-top box, or both.
And though service providers are still figuring out how best to bundle their video channels and multiscreen services, they are likely to get the video content side of their businesses right, so that they can be perceived as offering the most flexibility to subscribers, especially when compared to OTT providers. It isn’t coincidental that Netflix, Amazon, Hulu, and other OTT players are now generating their own content or purchasing the distribution rights to feature programming. The OTT players understand their existence will depend on the content they bring to the table, especially as service providers improve their user interfaces and overall multiscreen experience.
The differentiation service providers desperately need will come from the combination of premium broadband services, 4K UHD multiscreen content, and a commitment to offering subscribers choice. Choice can be in the format of linear channels, VOD and OTT programming, hardware, user interface, and in-home network and service management—all the things OTT providers can not do.