It's Rise of the Generics as Video Equipment Prices Take a Beating

Once a market starts to break down in terms of generics and name-brand stock, the name-brands start to take a bit of a beating in terms of the price that can be charged. Any time a market even starts to get commoditized, there's a fairly rapid impact on prices that follows. A new report from Infonetics Research, now part of IHS Inc., recently released a new report spelling out just how this effect was taking place in the video equipment market.

The report in question, titled the “Broadcast and Streaming Video Equipment and Pay TV Subscribers” report, focused not only on pay-TV subscriber counts, but also looked at video equipment and its sale to a variety of firms, including cable and satellite providers, as well as IPTV offerings from telecommunications firms. The report noted that revenue was down for the first half of 2014, down fully four percent to a combined total of $810 million. Nearly every segment in the market saw some kind of loss from earlier numbers. However, there was a gain in terms of video-on-demand (VOD) playout servers, which saw a 20 percent gain from the second half of 2013 to the first half of 2014, mostly attributed to gains from China and the Middle East. Content delivery network (CDN) edge servers, meanwhile, were forecast to gain at a compound annual growth rate (CAGR) of 14 percent in the time between 2013 and 2018, while there was moderate growth ahead for the multiscreen broadcast encoder market.

However, it wasn't all unpleasant news; indeed, Infonetics expects revenue for the full 2014 year to be up, at least slightly. What's producing these unusual results? According to Infonetics' Jeff Heynen who serves as principal analyst for broadband access and pay TV, it is a combination of factors. Particularly, it's a matter of two key points: an increase in virtualization, which is pulling some of the demand for hardware out of the market altogether, and an increase in generic hardware, which is putting further weight on prices. Heynen explains: “The cost of encoding and transcoding platforms continues to come down, pressuring video and broadcast equipment revenue as pay-TV providers move to generic hardware platforms and, ultimately, network functions virtualization (NFV) rather than dedicated platforms. This is a long-term shift that will keep video revenue from growing more significantly, despite the fact that pay-TV providers must fundamentally alter their video processing environments to support linear, over-the-top (OTT) and multiscreen content that continues to grow exponentially.”

That's a two-fold hit. Not only are the prices trending downward as buyers turn to generic as opposed to more name-brand, but also the prices are trending downward since there's less demand in the sector altogether as businesses turn to virtualization in increasing numbers. Naturally, there's going to be some growth; there's simply too much demand in the sector overall for there not to be some kind of growth. But as cost-saving measures kick in on several fronts, so too will sales be hampered by these measures. That's likely to have a farther-reaching effect on the market, as some firms drop out of the field altogether.

With fewer competitors around, prices may come around and so too revenue growth, but in the short term, it looks like there will be quite a shakeup to come. Only time will tell just how far the market is hit by these developments, but there's certainly a great potential for such impact all around.

Edited by Maurice Nagle