Look on the accounts of any global set top maker and you find that they are struggling under the expectation of revenue decline. So how is it that a report on the set top this week claims that it will shift from a $21 billion business to an over $25 billion market in just 7 years’ time?
Most conventional thinking says that set top companies will sell more set tops, but at downward-spiraling prices, resulting in lower revenues. But the grandly named Grand View Research, which seems to serve every industry known to man from energy and power and bulk chemicals to food and beverage markets and silicon, seems to think differently.
By including the DTT set top segment, and tracking the analog to digital conversion dates in the Asia Pacific, it comes up with the idea that the DTT segment will drive 25% of the revenues. Obviously analog switchover is coming slowly in some countries from 2016 for countries like the Ukraine, Chile and China, to 2022 and 2023 for Cuba and Brazil. But the majority of countries have already gone through this, usually with digital adapters costing $30 or less to make and retailing for no more than $50, while advanced cable, IPTV and DTH set tops rank closer to $250 to the consumer and sometimes more. In most of these conversion markets the set top then suddenly disappears as all TVs sold after switch off can be plugged into DTT without a set top.
The real drivers which push prices up for the set top industry are surely HEVC and HDR to accommodate UHD, and those which drive it down including putting more function into SoCs and shifting features to the cloud. Grand View is still citing 3D uptake, which of course has now completely withered.
What is true in the DTT market is that new initiatives like HbbTV in Europe and ISDB-T in Brazil, and YouView in the UK, are leading to some level of innovation at the DTT end of the market, and revitalizing UIs and hybrid broadcast broadband, but these tend to be consumer retail propositions towards the low end of the market.
Grand View says, “The conventional digital model is emerging into a hybrid version supporting alternative sources of premium content such as OTT video services. Asia Pacific dominated the global set top box industry contributing to over 35% of the global revenue in 2014. IP transmission recording features and higher storage specifications are expected to ensure a steady growth in the North American region.” Are volumes really up in North America?
Grandview expects Asia Pacific set tops to grow at a CAGR of nearly 2.5% from 2015 to 2022 with major manufacturers coming from China and Taiwan and it names Samsung, Skyworth, Cisco, Echostar, Amazon, Huawei, ADB, HUMAX, Coship, and Technicolor. It interestingly fails to mention Arris, which perhaps is better known for cable and through its Pace acquisition, DTH. It has also failed to note that ADB no longer makes set tops, but sub-contracts it out.
We don’t think that Grand View has got this completely wrong, but we would be surprised to find the set top industry, healthy, and less consolidated come 2022. It says that there will be increasingly demand from IPTV in North America and Europe.
It does miss the entire shift to cloud based DVR and clearly has a model where more and more DVRs are shipped – something that might be true in DTT, but not elsewhere.
How it can say that North America will witness increasing demand for IPTV is a mystery when AT&T has virtually dropped its IPTV U-Verse system stone dead and opted instead for DTH and OTT set tops. FiOS also has stumbled to a halt in new customers at Verizon and these two make the bulk of the IPTV market in the US.
Rival IHS in July came out with a report that said that set top revenue would peak in 2015 and then fall, saying that cloud would be a big contributor to the decline. Much as we hate to agree with IHS, that’s pretty sound logic.