Wireless Watch’s sister service, Rethink TV, has just published a new report, entitled ‘Media & Entertainment Transcoding Workload and Device Royalty Forecast 2020-2030’. This is a 10-year look at the expected shape of the transcoding workload, and the penetration of the new video codecs into devices for video consumption – which are increasingly mobile, or at least, 5G-connected.
The report examines the expected device royalties that will apply in this market, which will deeply affect the business case for technology and service providers in the media sector, and also, potentially, the costs for consumers.
The forecast is made against a backdrop of competing standards for video codecs, which we have followed over the years in Wireless Watch as they impact on the smartphone and mobile video value chains. The primary contenders are the Alliance for Open Media (AOMedia), which has been promoting a royalty-free approach to its AV1 codec; and the MPEG LA, which governs the licensing and patent royalties for the well-established H.264/AVC technology and its extension, HEVC. The royalty-free ambitions of AOMedia were hit when Sisvel formed a patent pool for AV1 and its predecessor VP9, called Video Coding Licensing Platform, claiming to protect the rights of innovators to monetize their inventions.
Our analyst colleagues predict that AOMedia will finally accept that it must abandon the royalty-free approach, and so AV1 will be subject to Sisvel’s IP licensing terms. Sisvel is now also chasing VP9 royalties. The AOMedia family, however, will still gain ground on the MPEG codecs through the period, and AVC will finally decline.
However, OEMs are now looking at climbing royalty costs. The ballooning size of device royalty payments is also exemplified by the flat rate of annual video device sales, which are going to slowly taper down to 2.61bn in 2030. Growing demand for smartphones and smart TVs will be offset by a flat market for games consoles, and shrinking demand for CTV devices, computers, tablets, set-tops and non-smart televisions.
Despite the hype surrounding the capabilities of new technologies, the rise of codecs is directly linked to adoption by OEMs, which in turn is led by consumer demand for device capabilities. This means the rise of the next generation is going to be much slower than some would have you believe, with any seismic changes to the status quo not occurring until the latter half of this decade.
The next generation of codecs is set to be more costly, and this means that the total addressable market (TAM) for video device royalties will grow by 146% to $8.42bn in the decade following 2020. Meanwhile, the service obtainable market (SOM will grow to $7.62bn in 2030. This means that patent pools will be collecting ever more royalties from the available market, with the total SOM reaching over 90% of the TAM by the end of the period.
Of course, AVC’s decline has been long overdue. We expect it to stand at around 26.6% of total transcoding workloads, in 2030, in media and entertainment (M&E) – down from some 79% today. However, AVC should have started this decline much earlier, but the HEVC royalty fiasco derailed that plan.
To that end, we anticipate that the same tri-party royalty competition will continue under VVC, and that the per-device royalties for VVC are going to be higher for VVC than they were with HEVC. On paper, VVC is a great financial success. When you consider its potential footprint if it were being offered at the same royalty structure as AVC, you would likely be disheartened. Any switching of allegiance from VVC to the far cheaper AV1 must be considered a failure, and the blame must be squarely placed on the three patent pools that collectively inflated that price.
However, patent pools are not known for their philanthropy, and because AV1 has been somewhat hijacked by Sisvel, there are limited options for OEMs, which are likely to be paying for multiple codecs.
As for the M&E transcoding workload penetration, we expect AV1 and its successors to reach nearly 20% by 2030, with VVC rising to 11%. Meanwhile, HEVC grows to 35.7%. The annual sales of video devices will reach 2.61bn units globally by this time, with growing smartphone and smart TV shipments offsetting declines elsewhere.
In terms of family share, MPEG currently accounts for 92% of M&E transcoding. By 2030, this will have declined to 73.3%, with that decline accelerating significantly after 2025. If that rate holds, we would see parity between the two approaches in the 2035-2040 range, but there are existential questions about the need for codecs past 2040.
There is a growing divide between the image capture capabilities of modern smartphones and the display capabilities of pay-TV. Consumers will notice that the images captured via their phones, and shared online, will look much better than what they are seeing through their pay-TV services. Over-the-top video can bypass the legacy infrastructure of pay-TV distribution networks, and embrace HDR and improved color gamut on mobile devices, but at some point in the near future, significant investment will be required from the pay-TV ecosystem, to upgrade their systems to support the modern technology.