Aren’t Set Top Boxes dead now we have Connected TVs? Both types of device have their place in the modern connected home; along with anything that can playback multimedia content. In this session, I’ll cover what we have today, how I think it will evolve and the future combined opportunity
So what do we have today? Connected TVs provide a great platform for the delivery of Internet sourced as well as broadcast content in one device. Latest in a long evolutionary line of technology, started with B&W TV : 1930s, Colour : ‘60s, Teletext : ‘70s and Digital Interactive TV in the late ‘90s. Basic Connected TVs have the ability to play back web video from one or more sources and the television vendor determines nature and number of client applications. Advanced Connected TVs offer more usually include a web browser which is capable of surfing a limited subset of the web.
The first Set Top Boxes appeared as cable converter devices with the wide adoption of Cable TV from the 1950s onwards. Cable TV first appeared in the UK in the 1980s and the cable converter remained until the conversion to Digital TV in the late 1990s. At this time we saw the first sophisticated STBs being produced that enabled Interactive Data Services to be broadcast alongside video. IPTV Set Top Boxes appeared at the same time A service provider or operator normally offers a Pay TV Set Top Box as a subsidized product and it is they who determine the customer offering in return. This offering is commercially driven to keep their customers (or reduce churn) and maximize average revenue derived per user or ARPU from services enabled by the set top box.
And what are the differences between the two platforms? Replacement cycle: TV, 7 years (was 10) STB, 3 years Why 3 for STB? Customers demand new features which can only be delivered with new hardware. STB replacement financed by revenue from customers. Connected TVs: not many s/w upgrades post sale, vendors don’t usually have the support infrastructure, less chances for new apps to be deployed STBs are designed to be updated frequently in the field and operators have sophisticated support infrastructures deployed. Mostly over a managed network but increasingly OTT. Latest STBs can take atomic updates rather than whole s/w images. Latest Connected TVs have cloud based app stores that can be updated remotely. Content on Connected TVs from different sources compete with each other for user attention. PayTV operator owns entire STB UI and the users attention and therefore any potential revenue.
Some recent news headlines concerning connected TV uptake: 20m app downloads for Samsung. 25bn for Apple. Common application platforms are starting to emerge through standards such as HBBtv and also commercial alliances producing common SDKs. They show great potential as the customer gets used to the platform and applications start to gain penetration, although I would say that the apps that will get most use will be ones that are closest related to the primary function of the device, which is watching video. Some operators are testing the water for off-net strategies by deploying their own applications on Connected TVs as seen here with FiOS apps being deployed by Verizon on LG and Samsung TVs And this is an interesting story that is the subject of a whole other presentation, the value of Android applications on a TV, giving access to existing mobile or tablet app stores will that give some economies of scale for the content producer already working on mobile apps?
This is the key differentiator that a Pay TV can offer its customers: a quality experience. It can be described as a positive feedback loop. Because they have a sophisticated support and management infrastructure, they can deliver the latest content, provide the latest user experience, and provide a quality of experience through frequent software upgrades. This is fuelled by customer demand for new features and applications, technical support, the ability to give feedback and this is underpinned by continuous payment which finances the operators investment above.
So the problem is….? Content Providers do face a fragmented app ecosystem on both platforms giving rise to multiple development and support costs. On a Pay TV service, deployed in territory dominated by one operator, the platform is usually the same but not across operators. Connected TVs offered by one manufacturer may offer a common platform between several models but not across an entire range or across different manufacturers models. Several attempts to solve this fragmentation through the development of standard platforms e.g. MHP, the D-Book and now HbbTV. None of these have been a universal success. In fact the closest we have to that is HTML. Content offerings are constantly changing. Look at the PayTV evolution, started with premium broadcast channels, evolved into PPV, nVoD, VoD now PayTV service apps even ”off-net” and also the PayTV media hub where the content exists cross-device giving the user the experience they want on a contextually appropriate platforms. Constantly evolving content means constantly evolving technologies needed to support it. HLS becomes MPEG-DASH, more and more video codecs, WebGL, CSS 3D or even Flash 11.
So what’s the Combined Opportunity? Well a lot of connected devices are going to be sold. The number of Connected TV shipments is set to continue to rise through the next few years, as it becomes a default feature on every television. IMS Research predicts 150 million units shipping per year by 2015. There will also be a relatively stable demand for Pay TV set top boxes and they will also offer access to internet derived content as a default feature as well. Volumes are expected to also reach 150 million per year by 2015.
They will be part of the new home cloud consisting of highly capable playback devices such as advanced connected TVs, PCs, Simple Set Top Boxes, Tablets and Phones all feeding from a sophisticated Media Gateway device which can freely distribute content around the home without burdening the operator network. They will be able to manage in home content and these connected experiences will be distributed using DLNA, UPnP and RUI. Also we may finally see the mass-market adoption home monitoring and automation. And with this sophisticated new home ecosystem comes more opportunities for reduction in churn and growth in ARPU via the new gateway device. Customers are enabled to participate in this world through features like an OTT connection and Storage with a high quality of service that builds loyalty. There are also direct revenue opportunities from Triple and Quad play subscriptions, Anchor tenancy fees, Video Calling, T-Commerce, Home Monitoring and Control, On demand gaming, apps and video and indirectly from targeted advertising, multi screen services, and service level agreements.
So what’s the conclusion to this story, well its that the Connected TVs are here to stay but reports of the death of Set Top Boxes have been greatly exaggerated. They both have key roles to play in the modern connected home and support each other’s function. The Set Top Box will evolve into two devices, sophisticated media gateways and low cost media adapters, which connect those TVs that remain offline panels. The connected TV will become a high quality playback device, which can keep up with the fast evolving content ecosystem by using the transcoding, transcrypting and transmuxing capabilities of those media gateways to receive content they can play. Why should we care? Well, the development, provision and management of the home cloud that underpins this ecosystem is a fantastic opportunity for all players in this market and its coming whether we like it or not.