The worldwide market for pay TV video encoders is not immune from the global economic downturn. Research by Frost & Sullivan shows an overall decline of 2.3 percent in 2009, driven by lower pay TV subscriptions, delayed digital mandates, capital expenditure freezes, and price cuts.
"As the price per channel comes down, it is expected to bring down the overall growth rates of the market," Meghali Sharma, research associate, digital media, Frost & Sullivan, said during a webinar discussing the results of the report, "Pay TV Encoders Market–Growth Prospects."
Cable and DBS down, IPTV up
Breaking down the numbers, in 2009, the cable encoders market is expected to decline 5.6 percent, due mainly to saturated demand in the U.S., and the satellite encoders market should drop 1.6 percent. However, Frost & Sullivan anticipates that the IPTV encoders market will grow two percent by the end of the year, mainly because in the U.S., AT&T and Verizon will be heavily investing in IPTV services.
"Both these companies have plans to increase on demand offerings and launch more HD channels pay-per-view options. They are also aiming to expand regionally," Sharma said.
Despite the dip this year, the future for the global encoders market is not bleak. Frost & Sullivan expects it to recover in 2010 due to digital trends, the rise in demand for HD, and increased penetration of pay TV in regions like Africa, Asia-Pacific, and Latin America.
Specifically, for cable, in the United States operators will continue a push to expand HD and VOD offerings, and in Europe, the digital deadline is 2012. "This is expected to motivate cable operators in the region to digitize their networks and transition to MPEG 4 format, which will help drive market growth within the next three to four years," Sharma said.
The push to MPEG-4 will drive growth in the satellite market as well. Sharma pointed to Dish Network, which, thus far, has only rolled out MPEG-4 in 64 of its 130 markets, and will continue the process over the next few years. However, Dish and other satellite providers will complete the transition to MPEG-4 by 2012, she said. "After this, expect the satellite encoders market to decline in demand and revenue generation be limited to replacement and channel increases."
From the vendor perspective, Sharma noted that consolidating measures have helped companies enter the pay TV market more aggressively. For example, Harmonic’s acquisition of Scopus has allowed them penetrate Europe and Asia markets.
New software-based solutions are offering almost "hardware-like compression," and will allow for easier upgrades and lower costs, Sharma said. Companies to watch are Broadcast International and Elemental Technologies.
Aside from MPEG-4, the trend toward convergence also offers growth potential for vendors. Operators are seeking to drive content over the Internet and to mobile devices. "MSOs will need efficient encoders and transcoders to distribute video to multiple devices and networks. This is a huge opportunity for vendors," Sharma said.