Mergers and acquisitions offer a path to scale and growth. The willingness of broadcasters to accept common off-the-shelf hardware, such as servers, switches and routers, from the IT industry rather than demand custom-built, broadcast-specific alternatives marks an attitudinal sea change that will impact the direction of tech innovation and adoption for the foreseeable future.
Consolidation, an urgent desire to increase workflow efficiency and a hastening transition to IP-based technologies are transforming broadcast television and the technology industry that serves it.
These factors are driving broadcast technology vendors to devote a growing number of dollars to R&D. However, industry studies show revenue across the full range of industry suppliers remains essentially flat, putting pressure on net income.
The 2018 NAB Show offers insight into how these developments are playing out for the industry at large. According to the NAB, attendance was down this year by more than 10,000 people to 93,171, a likely sign media ownership consolidation is taking a toll on the show as mega-ownership groups eliminate duplication and reduce costs.
However, the number of vendors was up by 200, from 1,518 to 1,718. While this increase appears encouraging, there is more to the story. According to NAB, 244 of these were first-time exhibitors, meaning fewer exhibitors returned this year to the show than exhibited last year.
Of those that returned, many come from the IT industry, such as Cisco, IBM and Google, while familiar faces, such as Snell Advanced Media, were acquired by competitors (Grass Valley, a Belden brand in the case of SAM) over the past year.
Even the flat revenue growth among broadcast technology vendors is a bit misleading because many of the growing companies, such as Cisco, Arista Networks and Juniper Networks, come from the IT industry.
They are hoping to satisfy the demand of broadcasters for IP-based solutions that replace broadcast-specific technologies and deliver greater workflow efficiencies by more closely tying their far-flung organizations together and leveraging the cloud.
This willingness of broadcasters to accept common off-the-shelf hardware, such as servers, switches and routers, from the IT industry rather than demand custom-built, broadcast-specific alternatives marks an attitudinal sea change that will impact the direction of tech innovation and adoption for the foreseeable future.
Traditional broadcast vendors have recognized that in this environment scale matters more than ever. Only large companies can spend the money required to develop products, national sales and service organizations.
There are other important benefits to size, as well. In general, big companies are more comfortable doing business with big vendors. Additionally, as vendors grow through mergers and acquisitions they reduce the playing field of competitors, and in so doing gain an element of pricing power.
Greater pricing power makes it easier to increase revenue and achieve higher margins, which in turn can support higher R&D spending and more competitive product offerings.
The best example of a company pursuing this strategy in recent years is Belden, which purchased Grass Valley to be its flagship acquisition, production and playout technology source, added companies such as Miranda Technologies and Telecast-Fiber, and then two months before the 2018 NAB Show completed its acquisition of SAM.
The company’s latest acquisition only accelerates its efforts to offer the market innovative IP- and cloud-based alternatives to traditional broadcast solutions, while continuing to serve the broadcast and production needs of organizations that remain rooted in legacy solutions.
Belden has announced that it has not finished acquiring companies, and the industry is rife with speculation on the company’s next target.
The transition from traditional broadcast technology to off-the-shelf IT alternatives at networks and stations is having an effect on the role of the broadcast engineer. Increasingly IT managers and CTOs are making product recommendations, and CFOs are making the ultimate purchasing decision rather than broadcast engineers.
At the same time, consolidation in broadcast ownership has meant a reduction in broadcast engineering staff and increased reliance on technical support from vendors and system integrators.
The systems integrator sector has also experienced rapid consolidation. Where there were once hundreds of system integrators dotting the landscape from coast to coast, a much smaller number of national and regional players exist today.
In this environment, it is highly likely that the trend will continue, and mergers and acquisitions will be the rule, rather than the exception.
Many of the companies at the 2018 NAB Show will likely be buyers or sellers over the next several years. Indeed, the worst thing most companies could possibly do at this time is to sit idly by on the sidelines.
There are several likely consequences for TV broadcasters, production companies and other technology buyers stemming from continued consolidation in the vendor community.
First, fewer technology vendors means fewer choices, not simply fewer companies from which to buy technology, but fewer products and fewer support and integration resources to provide the tech handholding many buyers have come to expect.
Second, continued consolidation will likely create greater pricing power for the vendors that remain, which may offset some of the anticipated savings tech buyers hope to achieve by adopting off-the-shelf IT solutions as alternatives to broadcast-specific technology.
Third, consolidation means buyers can expect their interactions with vendors to change as familiar faces who understand their operations lose their positions due to mergers and accompanying workforce adjustments.
On the plus side, however, broadcasters and other tech buyers can expect the R&D efforts of consolidated companies to become more focused on technologies that unify once disparate product lines and achieve greater workflow harmony, thus easing implementation and reducing the inevitable finger pointing among vendors when systems break.
Edward Grebow is managing director of Lakewood Advisors, a boutique financial advisory firm that serves broadcast technology companies. He is a former EVP of CBS, CEO of Chyron Corp. and deputy president of Sony Electronics. He has been an investment banker for more than 20 years.