[10-25-07 – Satellite News] Over the last couple of weeks, two major research organizations, IMS Research and ABI Research have released detailed market reports on the set-top box arena. ABI Research’s report, ‘Global Set-Top Box Markets’looked at the industry more generally, whereas IMS Research issued a report ‘Hybrid Set-Top Box Developments and the Impact of Other Hybrid Equipment’, which focused more on the potential impact of hybrid set-top boxes going forward. Both reports came up with interesting findings for the satellite sector, which we will examine in more depth here.

IMS Research

IMS Research predicts confidently that the industry is moving towards hybrid set-top boxes and that satellite pay-TV operators will be pacing this change. In terms of the major findings of the hybrid STB report, Anna Hunt, research director for the connected home group at IMS Research, said to Satellite News, "The trends are definitely toward hybrid set-top boxes. Although historically these were mainly deployed in France (DTH/DTT, and IP/DTT), Japan (DTH/DTT and Cable/DTT), and the United States (DTH/DTT, Cable/IP/DTT), this is quickly changing as operators in all major markets are either deploying hybrids in 2007, 2008, or planning to do so. The main driver is the need to more effectively bring content and advanced services to subscribers, while most efficiently utilizing bandwidth resources. No surprises in satellite — this will be the biggest hybrid segment, with all flavors of hybrid boxes, but this was not unexpected. Satellite is the biggest segment, and somewhere around 70 percent of satellite boxes in 2012 are forecast to be hybrid.”

Hunt believes it makes a lot of sense for satellite pay-TV operators to go down this route. She added, "Satellite operators are supplementing their offering by having true IP back channels for true interactive services. They are also working to free up bandwidth so they can broadcast more HDTV via satellite, and provide additional services via IP or all the local terrestrial channels via DTT being implemented within the DTH box.”

For set-top box manufacturers, this will become an increasingly important market and a key new battleground. Hunt said, “If a set-top box supplier focuses on IPTV and satellite, then hybrids are already becoming very important to their product offering. Initially, many of these boxes will be higher end, so not basic, so there is opportunity for higher revenues. For cable- focused suppliers, hybrid segment may not be as significant for another three to five years (although this does vary by market).”

In discussions with set-top box manufacturers for the report, Hunt believes most of the manufacturers are determined to seize the initiative in this new area. She said, "All I can say is that from the interviews completed with satellite set-top box suppliers, and major satellite TV operators, they are all talking about hybrid set-top boxes. There are rollouts in some major markets from several major operators.”

With cable players and telcos already having triple play capabilities, the onus will be on the satellite players to expand their offerings so they can maintain their competitive advantages over their rivals. Hybrid set-top boxes could be a focal point of their strategies to do this.

Hunt said, "Hybrid will allow them a new means of delivering additional content and have true interactivity (with DTH/IP hybrid). I think that satellite operators are already aware of the threat of not having a bundled triple-play offering, and are addressing this via acquisitions/mergers/partnerships with broadband companies. Of course, a hybrid set-top box doesn’t help address the threat of triple and quadruple play competition, but it does help strengthen the video offering.”

ABI Research

ABI Research analyst, Paulhwa Lee said one of the major findings of its report was a "sense of urgency”on the part of satellite operators to "match the VoD offering of wireline operators.”He added, "The slower growth and higher churn rates are wake up calls. There is a great deal of movement towards push Video-on-Demand (VoD) both in deployments and also in marketing push VoD as not just an alternative to ‘pure VoD’, but as an equivalent offering. However, we feel that the satellite operators tacitly take push VoD as a complementary solution and that once they ramp up their hybrid set-top box deployments, push VoD will ultimately receive less of their focus. Another area is the HD channel war. I think they are trying to equate more HD content to move value to subscribers. Time will tell whether channels will exhibit decreasing marginal returns.”

Like IMS Research, ABI Research believes the hybrid set-top box market will be particularly buoyant. Lee said, "We expect that the hybrid set-top box market will have strong growth due in part for the need for satellite providers to offer a ‘pure VoD’ option and other interactive services. Hybrid set-top boxes can accomplish this with IP backchannels. Other sectors already have the two-way capability. We see cable operators seeking IP backchannels as an interim solution to eventually taking advantage of unbundled HFC build outs. Also, we count Verizon‘s set-top boxes as in fact a hybrid IP-CATV solution. In addition, we are seeing traction in digital terrestrial deployments in Europe. Those deployments also have a need for IP backchannels to provide interactive services.”

Lee believes the recent deal between EchoStar and Sling Media is evidence of satellite operator’s innovative thinking when it comes to set-top box strategies. He said, "We think the recent deal between EchoStar and Sling Media is a glimpse of the opportunities that exist for satellite providers to innovate. In this case, one thing the sling box can do is push content onto mobile phones. Also, as the IPTV advertising business models mature, the satellite operators will also have to consider those models.”

Lee believes the satellite pay-TV operators have a huge influence in driving the set-top box sector. He commented, "We think that satellite operators do have influence. For example, they are the ones driving the demand for set-top boxes capable of push VoD. The next features the satellite companies will be looking for are ways to compete with triple play and quad play offerings. They will start thinking about VoIP and mobile.”

In terms of the main trends to emerge in the set-top box space over the next few years, Lee said, "We think that there will be emerging technologies that can compete with the set-top box. For example, it was recently announced that the Playstation 3 will double as a set-top box in Korea. To stay competitive, set-top box vendors have to convince consumers that their products can add value to their consumption in ways that the emerging technologies cannot. The operators are adding value by offering more consumption choices with more channels. We think set-top box vendors can add value by increasing the opportunities to consume. For example, time shifting creates the opportunity to consume at a different time. Placeshifting creates the opportunity to consume when you are away from home.”