Tandberg Television CEO Eric Cooney believes direct-to-home (DTH) operators are faced with difficult decisions when looking at making the transition from MPEG-2 to MPEG- 4. With DTH players leading the way in terms of providing high-definition (HD) services, the pressure is on, particularly as Internet Protocol (IP) TV and cable alternatives are looking to strengthen.

Cooney expects the satellite providers to be making heavy investments in differentiated services offerings to stay ahead in the market. “For satellite operators the catalyst for moving from MPEG-2 to MPEG-4 AVC will be the introduction of HD services,” he told Satellite News. “However, for the larger satellite operators the installed base of MPEG-2 [set-top boxes] represents a large investment and these operators need to undertake a cost-benefit analysis comparing the price of replacing millions of MPEG-2 [set-top boxes] versus the transmission cost savings due to reduced bandwidth requirements. More importantly, an operator should also factor in new revenues from the opportunity to carry a greater number of channels when deploying MPEG-4 AVC. I think for the larger satellite operators it’s going to be difficult in the near term to overcome this set-top box investment barrier and hence not practical to make a wholesale move to MPEG-4 AVC.”

Company DNA

For Tandberg, a major supplier of video compression systems to DTH as well as other pay-TV operators, 2006 already has been a busy year. The company has made a series of acquisitions as it looks to become a major player in IPTV, in addition to its strong positions in cable and satellite.

Cooney admits that the company’s DNA has changed in recent times. “Four years ago we took a hard look at our business and considered the drivers for profitable growth,” he said. “We identified four drivers for the digital television industry: HDTV, IPTV, and interactive television. The recent acquisitions of N2 Broadband, Goldpocket Interactive, and Skystream enable Tandberg Television to more rapidly scale and expand our offering of technology solutions for these four market sectors.”

One of the more intriguing acquisitions for Tandberg was Goldpocket, which positions Tandberg better in the interactive TV space. “The best way to describe what Goldpocket does is to give examples of some of the interactive examples that its software enables,” he said. “For example, look at gameshows, Goldpocket now enables you to join in with ‘Who Wants to Be a Millionaire’ instead of just watching someone else compete. In home shopping you now have the ability to order products and services via your remote control, and in sports, you can watch multiple NFL games simultaneously. Goldpocket is providing satellite operators with the tools to differentiate themselves against cable, with these hugely compelling consumer applications.”

Other acquisitions could also benefit DTH operators. One such acquisition is Skystream, a provider of encoding solutions. Skystream’s high-density switched digital video headends for MPEG-2/MPEG-4 AVC encoding and transcoding are used extensively by IPTV operators in Asia, Europe and the US. These solutions deliver lower cost, high-density solutions to cable and satellite operators and will be a valuable extension to Tandberg Television’s DTH head end systems and its MPEG-4 AVC HDTV compression solutions, Cooney said.

The acquisition of Skystream has contributed a number of best-in-class technologies to Tandberg Television, and the satellite industry will benefit from this,” Cooney said. “Skystream’s z-band solution is being deployed for push satellite services from Moviebeam in North America. … Moreover, Skystream has a successful VSAT business which further extends our offering to the satellite industry.”

Skystream’s main product group is encoders for IPTV providers, Ole Jorgen Rod, a media equity analyst at First Securities, said in a research note. The company sells 65 percent of its encoders to satellite companies, while the remaining 35 percent sold to telcos. About 40 percent of the satellite business is related to DTH services. “While Tandberg TV has a strong position among tier 1 IPTV providers, Skystream’s strength is delivery of decent quality, low cost solutions to tier 2 and tier 3 customers,” he said.

Cooney believes the company does not necessarily need any more acquisitions. “In terms of business model, do we need to make more acquisitions to enable my go-to-market strategy? The simple answer to that is no. Today, Tandberg Television is perfectly able in terms of scale and scope of supply, routes to market and market reach to sell our range of products and technologies very successfully. We are an aggressive growth technology company and when we come across opportunities that profitably accelerate our growth plan, we will certainly evaluate and consider them.”

U.S Market

One of the major goals for Tandberg is to try and generate stronger business from the U.S. cable market. Cooney believes the aggressive plays of satellite operators will see cable companies investing in their digital infrastructure sooner rather than later. “I would like to see the first HD MPEG-4 AVC sales to a North American cable operator in the next year,” he said. “I think the catalysts will be the DTH players, DirecTV and Echostar, who are dramatically increasing their HD services. Because of this, the cable operators are coming under increasing pressure to provide more and more HD services, however, their networks are already bandwidth constrained. With MPEG-4 AVC offering a 40 percent to 50 percent bandwidth reduction over MPEG-2, it’s a no-brainer for cable to move to advanced compression schemes to support new and expanded HD services. I think the competitive dynamics in the North American cable market are going to push the operators to first deploy HD/MPEG-4 AVC during 2006.”

–Mark Holmes

Contact, Gay Bell, Platform PR (For Tandberg), e-mail, [email protected]
Ole Jorgen Rod, First Securities, e-mail,[email protected]