Devoncroft Partners’ Joe Zaller is reluctant to make predictions about the media technology marketplace, even though he is a expert analyst of it. However, one thing he sees clearly is the inexorable movement of TV media from baseband video to IT files and IP infrastructure. The reasons for it, he believes, are many and compelling.
Zaller draws his insights from the two principal sources: The Global Market Valuation Report, a joint venture between him and the International Association of Broadcasting Manufacturers, which tabulates the sales of more than 2,500 tech vendors, and his own annual Big Broadcast Survey of media companies, which tries to ascertain technology trends and their technology spending plans.
Zaller was as busy as anyone at NAB last week honing his expertise by presiding at a series of panels with tech buyers and sellers on Sunday and by meeting with executives of tech companies throughout the week. Last Thursday as the convention began to wind down, he took time to discuss the IT/IP future and other trends with TVNewsCheck Harry A. Jessell.
An edited transcript:
In your presentation Sunday, you said the business of the tech suppliers grew 4% between 2009 and 2013 and then downshifted to just 1.3% between 2012 and 2014. You suggested that it reflected a structural shift in the business. Can you elaborate on that?
What we’re seeing is that there is this shift that’s coming with the move to IP, with the move to software. At the same time, there’s a lot of uncertainty around ATSC 3.0, HEVC, 4K and other technologies. If you listen to the comments on the conference calls [of publicly traded vendors], some of the CEOs talk about a pause in spending ahead of the next wave of investment, whatever that might be.
So the big shift is from baseband video to IT files and IP infrastructure?
It’s a fundamentally different way of thinking. The previous shifts have been about boxes. You had an analog box; you bought a digital box. You had a 4×3 box; you bought 16×9 box. You had an SD box; you bought an HD box. The next transition is not about boxes.
The customer now wants to move to a different technology architectural paradigm, which is much more IT focused and much more like a data center. The broadcasters have telegraphed that they’re not replacing traditional equipment when it reaches the end of life. They want to move to generic IT equipment.
The customer wants to buy software not hardware, which is inherently less expensive, so the vendors, who have been making hardware forever, have to find a way to transition what they’re doing into software and then it has to run on something which may be datacenter architecture — you know, a room full of servers,
Some people are moving very quickly to a data center architecture and can’t get there fast enough. They need to wring out the inefficiencies and they need to be able to have flexibility and agility. They have said that they think that IP is the best way to achieve that because there is an enormous economic leverage that comes from the IT industry and there’s a huge innovation cycle. You can move much more quickly in software.
So you would agree with Imagine CEO Charlie Vogt that we’re well on our way to IP and there’s no going back.?
I agree with the vision that Imagine and many other companies articulate as well. The question is, what does it really take to get from here to there, whatever “there” is. And once we get there, what’s left and what does it look like and how much consolidation is going to happen along the way?
Should I see the ABC-Imagine deal as a milestone in the transition to IP?
Last year, [Disney CTO] Vince Roberts did the keynote at our event. He said, we’re going to virtualized everything because we can. We’re not going to buy any more big iron, almost an identical quote that’s in the Imagine Communications press release. They have now gone and done that.
So it’s pretty significant?
Yes. Disney is big. They have a vision. That’s the path that they are moving on. I haven’t been inside. I don’t know what their cost model was. I don’t know how they did it, but the fact of the matter is they did it.
I just had breakfast with Harmonic. They were saying that they have done this over the past two or three years as well for their compression products and the pace of innovation that they can achieve in software versus hardware is enormous. They have made their products significantly more efficient with 20% better video quality.
At Elemental [Technologies], it’s exactly the same thing. There is an inherent advantage to software. For the generic IT vendors, the computer, networking and storage power is there to enable them to focus on the specialized applications and build the tools that media companies need.
This started two years ago when SMPTE and the EBU created a joint task force on network media, which is all about architecting in IP technology and architecting out legacy technology.
You talked about a disconnect in your Big Broadcast Survey between what media companies are saying and how they are spending their money. Explain.
We asked people what trends are most important to try to move the business forward commercially, and for the past five or six years the No. 1 thing that people say is most important to them is multiplatform content delivery. But when we ask people what have the budgeted for or what projects they are you spending on right now, that’s like No. 10 on the list.
Where they are spending money is on are things like work flow management, asset management, upgrading their infrastructure for IP networking content delivery, that type of thing.
So the spending is underscoring this transition to the move to IP?
So what about 4K? How is that impacting the supply side of the tech market?
You are seeing some 4K in theatrical production, episodic production and sports. But when I asked our panel of those four broadcasters, are you going to be doing 4K, the answer was pretty much no, we’re not. There’s not a huge economic incentive for them to move to 4K.
I don’t think that any of your readers would say that they can sell an HD commercial for more than they can sell an SD commercial. They’re not going to sell a 4K commercial for more than they sell a commercial today.
The fact that the CE industry is pushing 4K doesn’t mean that the broadcasters are going to rush out and start broadcasting in 4K. In fact, this transition will probably be the first one where the broadcasters are last not first. DirecTV has already announced that they’re going to do it. They want to offer a premium service because they want to retain their best customers. So it’s going to be satellites followed by Internet delivery. I hear that some IPTV companies will have 4K service this year.
How about ATSC 3.0, a whole new transmission system that promises to give broadcasters access to mobile devices?
First of all, we have to finish the standard and then it has to get approved by the government and then there’s going to be a whole spectrum repacking along the way.
That’s when there will be lot of hardware bought and sold?
Yeah, it probably will be a lot of hardware. This is the thing about the uncertainty of the future. Things like 3.0, HEVC compression, 4K, programmatic advertising, cloud DVR — that’s all part of the vision of the future that I think nobody would disagree with.
The question is the timing. So, if I am a broadcaster or a media company and I know that all that’s coming, I don’t have a lot of incentive to spend today. What I do know is that the future is expensive and I need to find a way to be really efficient and really agile, and IT technology gives me the way to do that.