TVN Tech | Tech Vendors Face Uncharted Waters

Just as broadcasters have no idea when — or if — the bulk of their personnel will return to stations and network broadcast centers after COVID-19 pushed them into remote workflows, technology vendors are also grappling with uncertainty as they face the fall of 2020.

COVID-19 lockdowns negatively impacted first-quarter revenues for many established vendors, particularly those with a big presence in sports production. Some new facility projects have been delayed as broadcasters reconsider their operational needs in the face of depressed advertising revenues and new social distancing considerations. And broadcasters’ sudden shift to remote and virtualized workflows has sped up a move to IP and cloud-based systems that most vendors expected would be a more gradual rollout.

Joe Zaller

“This situation certainly accelerates things that were going to happen anyway,” says Joe Zaller, founder of research and consulting firm Devoncroft Partners. “There’s always an institutional resistance to change at big companies. But with this, everything changed and everything was fractured at once. I’ve heard from numerous broadcasters who say they’ve been able to achieve five years of progress in five months.”

The Cloud: From Theory To Urgency

Imagine Communications President Steve Reynolds notes that broadcasters have been talking for years about doing cloud-based contribution and using the public cloud as a transport vehicle to move content around.

“Because of COVID, there was no alternative,” Reynolds says. “And so a lot of the conversations that were going on about is this is a good idea, is this the right workflow, how do we solve these security concerns, how do we solve the cost concerns — all of a sudden those got moved from theoretical investigations into the realm of, we have to figure out how to do this by next week.”

Imagine had started planning before then. When the COVID-19 situation started to get worse in late February, the company did a broad assessment of how much work it could do remotely. That included making sure that its software developers had adequate home connectivity to work efficiently, and reaching out to customers to ensure that technical support people would be able to have necessary remote access.

Through the first four months of COVID-19 lockdowns, Imagine has been able to keep about 135 active projects on track, he says, even when most customers could no longer give physical access to their site.

Steve Reynolds

“The net impact on project activities really hasn’t been that measurable for us,” Reynolds says. “We had a couple projects that got slowed down just because things were locked out. And we’ve had a couple of projects that have been delayed, or even canceled, because they were associated with some of these big sports events.

“Obviously the Olympics was the biggest hit there,” he adds. “The fact that it didn’t happen in 2020, and there’s still some question of what will happen in 2021, has certainly had an impact on us and our customers. But for most of the rest of it, we’ve been able to manage through it pretty well.”

Tough Times Ahead

One industry veteran is forecasting rougher waters ahead.

Ed Grebow

“I think we’re in for a slow period, and we’re going to see continued consolidation of broadcast equipment companies,” says Ed Grebow, managing director of financial advisory and consulting firm Lakewood Advisors. “The focus is on technology that saves money as a high priority. The business has changed in the last couple of months here that we’ve all been in quarantine and working from home. Will anyone buy a $35,000 studio camera again? I don’t know.”

COVID-19 has proven that remote broadcasting can be done in a cost-effective manner, Grebow says, and has also shown that broadcasters may have been too worried about maintaining the highest quality video and audio. He notes most viewers don’t seem to mind a lower-quality production from an anchor’s basement as long as the content itself is compelling.

The pandemic also led to increased business for companies that specialize in delivering video over IP or virtualizing functions from a broadcast center to enable remote access. Two companies that are doing well, he says, are Japanese switcher manufacturer For-A and smartphone live remote specialist Video Call Center.

“Some manufacturers are doing well, primarily those that sell equipment for work-at-home [applications] and remote broadcast,” Grebow says. “But by and large, the industry is struggling.”

Grebow says one major network is considering dramatically reducing the number of on-site personnel at its broadcast center on a permanent basis, while another is reconsidering plans to build a major new facility. And systems integrators are telling him that some customers are putting projects on hold.

“I think we’re going to see a ratcheting down of big projects by broadcasters,” Grebow says.

He adds that the recent sale of Grass Valley by Belden to private equity firm Black Dragon Capital is a further sign that “financially-oriented companies” don’t want to be in the broadcast business. And he expects the COVID-19 pandemic to accelerate that trend.

“I think you’re going to see that size matters, and many smaller companies may not be able to continue,” he says.

Karl Paulsen

Karl Paulsen, CTO of systems integrator Diversified, says there has been some near-term impact from COVID-19, but not as much as one might suspect. Big IP projects like the Los Angeles Rams’ new stadium have continued apace, albeit with a bunch of social distancing and PPE measures in place.

“Yes, there were some projects we had under contract that had not started yet that have been delayed or postponed to some degree,” Paulsen says. “But there are projects underway, either a little or a lot, that haven’t stopped at all.”

Varying Impacts

Zaller sees various video-over-IP specialists flourishing in the current environment, including LiveU, Zixi, LTN Networks and Latakoo. On the other hand, he says some traditional players took a big hit with the timing of the COVID-19 lockdowns in mid-March, as broadcast vendors typically book a lot of business in the last two weeks of the quarter.

In its first quarter earnings report, Avid cited the timing of the shutdowns in explaining its 16.3% year-over-year decline in total revenue, even as it grew recurring revenue 10.4% largely on the basis of cloud-based software subscriptions. And Zaller notes that Grass Valley’s slow 1Q sales eventually led to much more favorable deal terms for Black Dragon Capital in its acquisition of the unit, which closed earlier this month.

On the other hand, he thinks Evertz did well to only be down 14% in revenues for its 2019 4Q, which ran from February through April and thus was impacted by COVID-19 for half of it.

“There are relative shades of doing well,” Zaller says. “We used to say flat is the new up. Now, is 10% down the new flat?”

Devoncroft is working on a global market evaluation report of the broadcast technology market, which it publishes through a joint venture with industry trade group IABM. Some 2,000 companies are in the model, contributing sellout data and revenue projections under NDA. In 2019, the Devoncroft/IABM report counted the total market as being $53.5 billion, with 44.5% of revenues ($23.9 billion) coming from products and 55.5% ($29.6 billion) coming from services.

Arriving at a number for 2020 is proving challenging given the various “doomsday scenarios,” says Zaller, such as the NFL season or big-time college football getting scrapped. He notes 2020 has already taken a big hit with the NCAA Tournament scrapped and the Tokyo Olympics getting postponed.

“All of this is overcomable unless sports don’t come back,” Zaller says. “That’s a huge volume of advertising dollars, and the pay-TV bundle drives subscription revenues.”

Zaller says the biggest vendors will likely survive. But most of the 2,500-odd companies that make up the global broadcast market are smaller companies that don’t have “fortress-like balance sheets that can sustain a prolonged downturn.”

More Vendor Uncertainty

Devoncroft is also working on its annual Big Broadcast Survey, which gauges buyer sentiment across a number of different topics. It usually wraps up its queries by the NAB Show every April but took a break this year due to the show getting canceled, Zaller says. It restarted the project this spring. Zaller says there has been a lot more uncertainty expressed by broadcasters after April 1, compared to answers that came before that date.

“There’s a marked difference in attitude from end users,” Zaller says. “When you ask a question, the percentage of ‘I don’t know’ goes up a lot. That uncertainty leads to delayed spending.”

Vendors have also been forced to rethink their sales and marketing strategies with the cancellation of the two biggest trade shows, NAB in Las Vegas last April and IBC in Amsterdam this September. And next year’s editions are already in doubt, as the Consumer Technology Association just announced this week that the 2021 CES show in Las Vegas will be a virtual event.

Zaller says the big media companies he’s spoken with are not returning employees to the office anytime soon, and some are now questioning the wisdom of paying for expensive urban real estate. That thinking also doesn’t bode well for trade shows.

“If you can’t get people back to the office, how are you going to get 50,000 people to the RAI Center or 100,000 people to the Las Vegas Convention Center in the near future?” Zaller asks.

He notes there are some near-term benefits to vendors’ bottom lines, as Avid said it saved $3 million in the first half of 2020 by not attending NAB and putting on its Avid Connect conference. It and other major vendors have replaced those efforts with virtual events. They have been well received, though it is too early to gauge how effective they are in driving sales by comparison.

Imagine would like to see the shows return, Reynolds says, but it had already moved away from tying its R&D and product release cycles to them. In recent years the company has used NAB and IBC mainly to highlight a few select products introduced in in the previous six to 12 months.

“Part of the reason we moved to smaller and smaller booth space was that we really didn’t need to show the entire product catalogue anymore,” he says. “We were just trying to focus on what was new and maybe customers hadn’t seen. The good news is by moving to more of a virtual-event style, we’ve been able to continue doing that.”