Pre-IBC, TV Tech Firms Cautiously Optimistic

After achieving no year-over-year revenue growth in 2015 and a slight decline in the first quarter of this year, Belden in July reported a modest increase of 2.6% in the second quarter.

Credit went to its TV tech segment, where revenue jumped 10.6 %. “[T]here is no question that we entered the back half [of 2016] with quite a bit of momentum,” CEO John Stroup told securities analysts. “In broadcast in particular, it was a great quarter.”

Stroup singled out the Grass Valley unit, attributing its “very strong” performance to a surge in international sales and customers gearing up for the Olympics in Rio de Janeiro.

Upbeat reports by Belden, EVS, Avid and other tech vendors in the second quarter cheered investors and may mark a turnaround in a market that had been struggling to keep pace with powerful technology trends and the shifting demands of their TV customers.

They should also lift spirits among suppliers as they gather next week for the IBC TV tech exhibition in Amsterdam.

“Traditionally, 2016 would be the fourth year of the traditional [four-year] cycle, and, based on the past, you would expect it to be a good year all around, as you’ve got [U.S.] elections and the Olympics,” says Devoncroft Partners President Joe Zaller, who closely tracks the sector.

And based on that same four-year cycle, 2017 would traditionally be a down year, he says. But, according to his conversations with leading vendors, he says next year could show “low-to-mid single-digital growth” as media companies finally warm up to the new technology and replace aging equipment.

“The spending may be in live production rather than the core plant where the IP standards are still being finalized,” Zaller notes.

Leading vendors and industry watchers contacted by TVNewsCheck for this story are feeling cautiously optimistic. They second Zaller’s view, adding that the market may also get a boost from deployment of 4K and other advanced picture formats and new entries into the market.

Don’t Look Back

Although many media companies say their spending has remained steady or grown, revenue for vendors worldwide is down 2.4% since 2012, according to joint research from the International Association of Broadcast Manufacturers and Devoncroft, which together follow roughly 3,000 technology vendors and service providers.

Taking a longer look doesn’t improve the picture. The compounded annual growth rate for the sector was a negative 1% for 2012-15, according to the IABM/Devoncroft report, compared to 4.6% growth from 2009 to 2012.

Last year, the trend accelerated, with product revenue down 4.4%, Devoncroft says. More important, revenue for services, which account for around 55% of the industry’s overall revenue, took a 4.2% dip. That led to an overall 4.3% decline, to $49.3 billion, compared to 2014.

The 2015 shortfall was not a surprise. From early 2015 on, executives from publicly-held vendors had been talking in earnings calls about a “spending pause” or “elongated sales cycle” among their big customers.

Part of last year’s dip can be attributed to currency fluctuations, Zaller says, as the IABM/Devoncroft research is based on the U.S. dollar, and several large foreign vendors were hurt by the relative weakness of the Canadian dollar, euro and Japanese yen.

But for the most part, the trouble stems from a structural shift — a disruption — in the TV tech space, probably beginning in 2011 or 2012, Zaller says. TV media moved past HD implementation and started looking at managing workflow more efficiently in ways that traditional vendors could not immediately accommodate.

They were interested in “virtualizing” functions, substituting the software for “boxes” and running it on common-off-the-shelf (COTS) hardware, Zaller says. They were also looking at IP networking and outsourcing-intensive functions like transcoding OTT content to third-party data centers such as Amazon Web Services or Microsoft Azure.

“The next transition is a simultaneous transformation of business models, operational practices, company culture and, of course, technology,” he says.

All of TV is in a “period of transition,” seeking new business models and distribution schemes, adds Jeff Rosica, SVP, chief sales and marketing officer at Avid.

“And those models aren’t yet mature. It obviously puts some pressure on customers and thus the suppliers to be able to handle and meet the challenge.

I think this is creating a shift in our industry we have to face as suppliers.”

The Shift Is On

Richard Friedel, EVP-GM of Fox Networks Engineering and Operations, says the move from “a heavy traditional broadcast supplier list to a more IT-centric list” began about five years ago, placing new demands on vendors. “I think everybody has done this to some degree.” 

While Fox continues to spend with longtime suppliers like Evertz, which makes an IP switcher that Fox now uses in live sports production, it has also invested heavily in networking, security and storage from IT vendors.

“If you go into one of our equipment rooms today, it looks more like a data center than a broadcast center,” says Friedel. “There are rows of storage and rows of servers, where before there were rows of DAs [distribution amplifiers].”

A technology executive for a large station group expressed a similar sentiment, saying that his group’s spending had shifted from a traditional vendor set that included Imagine and Grass Valley to a more IT-heavy set of Cisco, VMware and EMC.

Traditional functions that once ran on a dedicated box, like a PSIP generator, now run as one of 30 applications in a virtualized environment based on VMware software and Cisco blade servers, he says.

“We don’t look at equipment anymore, we look at systems now, we don’t buy a box.”

Del Parks, SVP and CTO of the Sinclair Broadcast Group, says that software vendors should be able to cope with the move to IP.

“But it is more troubling for makers of hardware like production switchers, who may have a perfectly good HD/SDI product today but are “being pushed into IP,” Parks says.

Bright Lights Ahead

As those second quarter earnings reports suggest, the immediate future for the tech sector may be brighter than the immediate past.

Ed Grebow, an investment banker specializing in TV tech, says that the move to software and IP may be more measured and less disruptive than once thought.

At the NAB Show in 2015, “a lot of people were talking basically about broadcast hardware disappearing,” he says. “What we saw at the show this year is that is not the case. It’s going to be around for a long time. You still need specialized interfaces, you still need broadcast hardware technology to work with the IP, to work with the cloud.”

Despite the sluggishness of the market over the past several years, Grebow sees positive trends that bode well in the years ahead. One is the rising interest in video among “non-traditional” customers — corporations, sports venues, medicine and education, he says. “I mean, look at the number of schools building television studios. I was at a hedge fund office recently in Connecticut and I was shocked by how much video equipment they have.”

The non-traditional market has opened up as the cost of the technology has fallen, he adds.

The best example of how companies have been able to catch up with the trends may be Sinclair’s decision to standardize on Avid’s IP-based MediaCentral editing and content management platform across all 64 of its news-producing stations.

As part of the enterprise-wide contract, announced last December, Avid will provide software, training and support for all of the Sinclair news stations.

“Avid has done one of the best jobs in our industry of transitioning from an old-thought, old-school type of company into a very open environment that realizes that some people like chocolate ice cream, and some like vanilla,” says Sinclair’s Parks. “If I can provide the dish that the ice cream sits in, that’s good enough for me.

“I think the Avid deal was so significant because it’s a different way to look at a business,” says Parks. “Now people are approaching us and saying, ‘What can we do to do that; what services can we offer?’ ”

Avid’s Rosica calls the deal “transformational…. More broadcasters are going to have to move to a model similar to that to meet their needs.”

“We are still seeing good market conditions generally around the world,” Rosica says. “A lot of that has to do with the segments we are focused on — workflows and platform innovation.

“We are trying to help people improve their operational efficiency with solutions, and that resonates with a lot of broadcast media companies.”

Evertz, which saw its revenue grow 5% in the fiscal year ending April 30, is also bullish as it sees media getting off the fence and investing in IP. “The IP transition is happening faster in the U.S. than in the international market,” says Mo Goyal, director of product marketing at the company.

IP optimizes workflows, facilitates distribution of content on multiple digital platforms and assists in the move to 4K and 8K, he says. “We are at the beginning part of the IP transition. As people start to get more comfortable with IP, the transition will grow.”

Vendors are working hard to conform to the market. Belden, for instance, is moving toward more system sales and software-based products as customers seek agility and flexibility, says Roel Vestjens, Belden EVP and president of broadcast solutions.

Vestjens says that its Edius editing product is 100% software, while its ITX playout server is 90% software-based. It is also selling products as services, as some customers look to shift technology spending from capital investment to an operating expense by signing month-to-month, six-month or yearly contracts.

“But the majority of what we sell is still hardware-based,” he adds. “Obviously software is growing faster. But you can’t capture an image on software, you need a lens.”

Sony is among those who see advanced TV formats like 4K as a growth engine just as HD once was. John Studdert, VP of sales and marketing at Sony Professional Solutions of Americas, notes that Rogers Communications and DirecTV have already decided to push ahead with 4K.

“We believe others will follow as the demand for 4K increases. We believe as the percentage of households with 4K grows, linear broadcasters will respond to that demand.”

The Shakeout

Despite the optimism, some believe that the structural shifts will lead inevitably to a shakeout or consolidation among the vendors.

“If the industry is going to migrate to software, and migrate to virtualized [plants], that means a lot of traditional technology companies are probably not going to see it through to the other side,” says Imagine Communications CEO Charlie Vogt.

“For some, there is a window here where they can provide some functionality [with existing products]. But I think five or 10 years from now, the landscape is going to look very different.”

Adds Sinclair’s Parks: The consolidation on the tech side has already begun. “Look at all the mergers and consolidation [among the vendors] with Belden, Snell, Harmonic.… You see all that consolidation happening and it’s no different than our [broadcasting] business.

“You’ve either got to get bigger or go away because small doesn’t work anymore.”

For years, the great barometer of the TV tech market was the number of exhibitors at the annual NAB Show in April in Las Vegas.

Lately, the conventional wisdom espoused by Vogt and others has been that consolidation and companies failing or simply exiting the market would lead to a shrinking NAB.

Grebow was once a believer in the conventional wisdom. He predicted it himself in 2007 and then again in an article he wrote for TVNewsCheck in April 2014.

But the exhibition has defied his predictions and grown, underscoring the basic health of the TV tech business, he says. (According to the NAB, there were 1,697 exhibitors in 2014, 1,874 in 2016.)

Yes, companies go out of business, abandon the market or are absorbed by others, but they are quickly replaced by other companies with new ideas and new products, Grebow says. “We have been talking about [the downsizing] for a long time and it hasn’t happened yet.”

TVNewsCheck Technology Editor Phil Kurz also contributed to this article.

To see all of TVNewsCheck’s IBC 2016 coverage, click here. 

To stay up to date on all things tech, follow Phil Kurz on TVNewsCheck’s Playout tech blog here. And follow him on Twitter: @TVplayout.