Serving New Screens: Satellite, Video and Display Devices

The opportunity of additional video display devices is to deliver content to more screens, but the risk to broadcasters is that some subscribers may go entirely online. Pay-TV satellite operators are accommodating the growing demand and satellite distribution companies are seeing a rising tide that lifts all boats in the market.

With people showing more flexibility than ever before in how they access video content, traditional pay-TV models could be about to change. The question is — does the multi-screen world we now live in spell danger for the satellite sector?

Second and third screens are impacting companies at various points along the video distribution food chain. For the satellite industry, it concerns both satellite transport companies and pay-TV operators, whose subscribers are among the large number of consumers using these IP-enabled video display devices.

The numbers associated with online video are surprisingly large. Nielsen and comScore estimated total unique online viewers in the United States in December 2011 at 164 million and 188 million, respectively. (Even the lower number is more than half of the total U.S. population.) In terms of hours, the two companies differ wildly, with Nielsen at five hours and comScore, 23 hours. However that plays out, the question remains — Can DTH operators join this bandwagon?

“Satellite clearly has a little bit of a problem, because they are pretty much a one-way channel down to the television,” says Parks Associates research director Brett Sappington. “So much of second-screen interactivity — smartphones and tablets and things like that — is not really initially designed for their type of network.”

Like other disruptive technologies, these devices pose threats and create opportunities. “The opportunity is to deliver content that is subscribed to, to more devices without requiring additional subscription,” says In-Stat principal analyst Michelle Abraham.

The threat facing pay-TV operators is cutting the cord. “In general, Internet video delivery is a threat if new channels decide to use the Internet to get their content into consumer’s hands, rather than via satellite distribution,” says Abraham. In those terms, a Web-only distribution model could disintermediate both DTH operators and satellite wholesalers.


Multi-Screen Opportunities

While orbital space communications imposes constraints, satellite operators are not without resources. “What we’re seeing satellite operators do is using a mix of other, non-traditional technologies either to approximate the services available from other landline operators or using over-the-top (OTT) services to be able to mimic those types of services,” Sappington says.

One of the technologies he underscores is Sling. Launched in 2005 and later integrated into satellite set-top boxes, Sling Media, which was acquired by Echostar in 2007, enables consumers to watch their home TV on any IP-connected device, inside or outside the home. Abraham had that general category in mind when pointing to “transcoding and place-shifting in the home” as the two most promising technologies for satellite operators.

Expanding on set-top capabilities, Steve Christian, vice president of marketing at Verimatrix, a content security company, says there are two ways to enhance the traditional satellite subscriber experience: the first is using the box as a home gateway with a transcoder that can repurpose content for devices such as tablets; and the second is using the broadband connection to the household as a means to offer parallel device-formatted video services, either linear or on demand, through a separate portal that can be authenticated through an existing account.


An Operators Reality

A review of the past several months shows operators implementing these and other strategies. Several weeks after Netflix’s January 2012 launch in the United Kingdom, BSkyB announced plans to launch an enhanced IP-delivered video service that would be available widely over any broadband connection (Sky has its own fiber and copper-based network) to households that do not subscribe to pay-TV. Sky also expanded the reach of its multi-screen Sky Go app for existing subscribers to Android devices.

At CES2012, Dish Network launched its 2 TB Hopper and Joey HD DVR home networking system. While not explicitly multi-screen, the central DVR Joey device has optional Sling Adapter capability. Dish also refreshed its Remote Access app for iPad with on-demand access to its content library and was offering three free months of Blockbuster content to consumers who took the new DVR. Dish also announced a partnership with ViaSat for faster-than-DSL satellite broadband services.

Last October, DirecTV updated its Apple iPad app with live streaming options. It also soft-launched a competitor to Sling, dubbed Nomad, that enables a consumer to transfer DVR recordings initially to select IP devices, with more to come. Continuing to fill its broadband services gap by way of partnerships, in November DirecTV signed a three-year extension to its co-marketing agreement with AT&T.

Each of these operators has its own approach to embracing the opportunity of second and third screens. But it is interesting to note the similarities: they all have apps that enable secure streaming to Apple and Android devices, they all have some sort of broadband strategy, and they all offer enhanced customer premise equipment (CPE).

The case of Sky is perhaps unique. “Sky is one of the most innovative operators in the world, period,” says Sappington. Like other European operators, it was early to deploy broadband-connected set-tops. In the case of its planned OTT service, Sky is leveraging its content rights to compete with Netflix and domestic rivals YouView and LoveFilm. Operating its own satellite and terrestrial broadband network, Sky also must serve multiple versions of the same content, branded for separate distribution channels and encoded to end-device specifications. Doing so efficiently poses challenges of it own.

At CES, Dish showcased its DVR system, with catch-up TV service that automatically records three hours of prime time TV nightly for eight days running. But it also continues to offer its customers place-shifting Sling technology, mobile apps and a beefed-up repository of on-demand content. “Dish has increased its server capacity in an effort to deliver programming from both satellite and via the Internet, giving consumers thousands of movie and family shows to watch on demand,” says Vivek Khemka, vice president of consumer technology, Dish Network.

DirecTV also has been in evolution mode for several years. It beta-launched its DirecTV-to-PC application in November 2008. Its reseller deals with AT&T and Verizon enable it to market the kind of broadband connectivity that customers would need for service such as Wi-Fi or 3G/4G-enabled tablet viewing. And while its Nomad was late to the game and has generated negative comments on some user groups, it does provide another way for subscribers to move content around.


Derivative Value?

Devices such as Sling and Nomad are bellwethers in this multi-screen landscape. Much as DVR pioneer TiVo championed time shifting, Sling Media introduced early adopters to place shifting. In turn, Dish was the first operator to offer Sling to subscribers, creating as a result, according to Khemka, “a more loyal customer to the Dish brand.”

Like TiVo, Sling has its devotees. It also has distinct use cases, such as frequent travel and second homes, that are weighted toward the high-end market. But like most cable operators, Dish has been losing video subscribers. (DirecTV and Sky are still growing, but at a slower pace.) A rough analysis suggests that having a superior place-shifting technology does not by itself generate superior results. For its part, Sling is disseminating its technology across a wide range of platforms; at CES 2012, it announced its integration in Broadcom’s set-top system-on-a-chip (SoC).

The downside to some OTT solutions has been complexity. “The challenge is that the consumer has to be savvy enough to be able to set it all up,” says Sappington. The simplicity and user-friendliness of Wi-Fi enabled tablets perhaps has altered that equation. A larger question is whether the value of second and third-screen solutions is derivative.

If the value of additional screens is independent of the content paid for on the television, then the threat they pose grows. If not, their threat diminishes, reducing the motivation for cutting the “cord,” or dropping the dish. One complicated and moving variable is content rights.

Whether or how much “cord cutting” is occurring are much-debated questions. To cite one source, in a study commissioned by Orange (France Telecom), market research firm TNS released data in November 2011 indicating that the use of tablets in the U.K., France, Spain and Poland, where satellite TV dominates, is actually “cannibalizing” the home TV and PC usage.

But there are other views. Bart Palmer, CTO of Orange subsidiary GlobeCast Americas, which provides content management and transmission services for broadcast delivery, sees minimal threat. “We feel that new connected devices are just another method of getting content to consumers,” he says. “In this way, they are an opportunity because they drive and increase the consumption of content.”

“Studies show that viewing content on tablet and smartphones does not come at the expense of television viewing,” Palmer adds. “These devices are used ‘on the go’ or as part of a simultaneous multi-screen viewing experience. They do not replace the television.”

Supporting the optimistic view is the persistence of old models. According to recent, independent surveys by Nielsen and Turner Networks, monthly television viewing in the United States averages about 147 hours, not far off its all-time high. A report by the E.U.’s Open ContEnt Aware Network (OCEAN) project pegged European viewing last year at between 100 hours and 120 hours.

“We still see a lot of growth in that standard old linear television platform that goes to DTH and cable around the world,” says Tim Jackson, vice president, media product management at Intelsat. “We talk a lot about over-the-top and whether there’s going to be a replacement of traditional television viewing methods through these devices, and I’m not seeing that on the horizon. I see a lot of this as being very complementary.”


The B2B Equation

Companies such as GlobeCast and Intelsat are one step removed from the subscriber and serve multiple access networks, which reduces their risk. But does a Web-only distribution model threaten them at all given the amount of disruption pervading today’s video ecosystem?

Streaming services such as Netflix, for example, reaches hundreds of devices, including TVs. According to BTIG financial analyst Richard Greenfield, Netflix would rank 15th in hours if it were a TV “network,” and second only to CBS, in Netflix homes. That is an astounding figure, but once again this is on-demand or catch-up (and not first-run) television or movies.

To date, very little commercially viable content has adopted a Web-only distribution model. It is true that Google, Hulu and Netflix have begun investing in original content. Google’s efforts include $100 million of seed money for 100 new niche online channels, a venture spotlighted in a CES 2012 keynote address by a YouTube executive. Such efforts merit attention. Not only will they build online viewership (and in YouTube’s case, perhaps help it turn a profit). They also could incubate content that breaks into the mainstream. But the idea that second and third screens could seriously reduce the transponder capacity required by major content providers is dubious.

By year-end 2011, for instance, satellite operator SES said it was broadcasting more than 5,200 TV channels, including more than 1,200 HD channels. “The addition of new HD channels continues to accelerate globally and will remain another growth driver for our company,” says Ferdinand Kayser, chief commercial officer of SES. “(Those numbers) demonstrate the advantages of satellite for the distribution of high-quality content to large audiences.”

The risk of disintermediation that satellite transport companies face is less a matter of consumer electronics than of fiber optics. But that is no new threat, and companies such as Eutelsat, GlobeCast, Intelsat, SES and others have already responded with fiber offerings of their own. “For us, it really is looking at expanding and exploring new technologies and how the technologies work in harmony, rather than focusing on just one technology versus the other,” says Jackson.

The growth in video display devices therefore could benefit distribution players in another way. Related increases in demand for network services, such as fiber backhaul that handles 3G or 4G traffic, will benefit anyone with available capacity. According to one Northern Sky Research (NSR) estimate, the satellite industry share of the backhaul market could reach $600 million by 2015.

Hidden Costs, Rising Tide

As online content proliferates, the cost of content rises. GlobeCast trucks that capture sporting and news events around the world, for instance, must transcode to appropriate specification for each type of device, and that creates additional capacity requirements, Palmer says.

In terms of bearing the cost of multi-screen scaling, satellite pay-TV operators have turned to in-home transcoding technology, deployed mobile applications and leaned upon fixed and wireless broadband networks to serve those among their subscribers who would like to view content on multiple display devices.

Satellite distribution companies appear confident that the rising tide of multi-screens will lift their boat, too. “I think that the growth and explosion of multi-screen, whether it be tablet or cellphone or computer or whatever, is obviously creating an increase in demand for content,” says Jackson. “And any increase in demand for content is going to be good for all of the technologies that involve themselves in the content and distribution value chain.”

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