The Best of Times & Worst of Times in the Video Business

Can a four character technology save us?

This is an interesting question because there is a paradox emerging in the video business where it feels like the the best of times for many, but the worst of times for some.

Here we have Disney announcing that they have already accrued one billion dollars in loses, and this even before launching their direct to consumer business. And then we have Verizon Media announcing sweeping layoffs which represent an exit from some of the core entertainment service and technology businesses that were operating under the Oath umbrella.

And of course there isn’t a reporting interval that goes by where the cord cutting numbers haven’t grown, which puts increasing pressure on the video side of the service provider business.

Yet, Netflix stock is on the rise again, allowing the company to invest in content at levels that must bewilder their rivals. And then we have news of PlutoTV selling for a mouth watering $340 million dollars in cash to Viacom (deal was announced on January 22, 2019), proving that the AVOD business model can be viable and quite valuable.

5G is going to save us all, right?

This is where I want to connect with the massive investments being made in 5G and provide my perspective on why 5G may well break some video companies while at the same time make others.

Let’s look at AT&T.

So in the last four years AT&T has added 80 billion dollars of additional debt leaving it with more than 160 billion dollars of short and long term debt. Now, 50 billion of this staggering number was the result of the 2015 purchase of DirecTV.

My point is not to break down the AT&T debt numbers, I’m not an analyst, but rather provide a perspective that the financial situation for AT&T going into its massive 5G investment cycle, while at the same time making known their strategic initiative to build up their video service capacity through Warner Media direct to consumer offerings like HBO, and DirecTV, is going to be challenged, unless they do something very different with video.

So what can a service provider like AT&T do to address the economic squeeze, and the overall headwinds to the video business? Such as declining pay TV subs, and fragmenting OTT service offerings. This is the question on many minds who are analyzing the future of the video business.

It is my strong belief that ubiquitous high speed mobile networks powered by 5G will unleash a video tsunami of traffic on the network like we’ve never seen before.

This will be good news for the PlutoTV’s of the world and other innovative video services like Quibi who will be able to reach more consumers with a better quality experience as a result of being able to leverage a faster network thanks to 5G.

But, it’s bad news for network operators without a plan to monetize this additional traffic load, and of course incumbents who are hoping to get by with incremental improvements to their services; such as switching from managed to unmanaged, or OTT distribution, while continuing to use aging video standards like H.264 to deliver low resolution mobile profiles.

Video distributors who continue to under serve their customers will quickly be at a disadvantage, and ripe for disruption, I believe, from new business models such as AVOD and the newest and most efficient video technologies.

The four character video technology that may save the video business.

The four character video standard that I believe will play a key role in the success of the video business is HEVC, the video codec that is now deployed on two billion devices. The following slide presentation provides numbers regarding HEVC device penetration which are worth seeing.

There has been much written about HEVC royalty concerns, something that triggered development of an alternative codec which presumably is royalty free. However, while some in the industry became preoccupied with questions around licensing and royalties, major developments have been made on the legal front, including nearly every CE device manufacturer including HEVC playback support.

For example, HEVC Advance waived all royalties for digital distribution of content. This means, HEVC encoded content that is streamed will only carry a royalty for the hardware decoder and this is already covered by the receiving device. Provided that you are delivering bits over the wire and not via a physical mechanism such as Blu-ray Disc, your company will not have to pay any additional royalties, at least not to HEVC Advance.

Now, if it’s any comfort, the companies who have already done their due diligence on the royalty question, and are streaming HEVC content to consumers today, include: Amazon, Comcast, DirecTV, Dish Network, Netflix, Sky, Sony, Vudu, Vodafone, and Orange, just to name a few.

What about HEVC playback support?

This is a very good and important question and perhaps the area of development around the HEVC ecosystem that is least known or understood.

Starting with in-home playback, if your users have purchased a TV, game console, Roku box or Apple TV in the last 3 years, you can be nearly guaranteed that support for HEVC is present without any need for additional licensing or player upgrade.

HEVC is now resident in almost every SoC that goes in to any mid to high-end CE video device. In fact, since 2015, industry reports show this group of products numbers 400 million. That’s 400 million devices that support HEVC natively. It's a great start, but what about mobile?

The data company ScientiaMobile maintains the largest dataset of network device access profiles by receiving data from the largest wireless operators in the world. This company reports that a whopping 78% of all iOS smartphone requests come from devices that support hardware-accelerated HEVC decoding. And though iOS devices are predominant in most developed markets, Android is still an extremely important device profile, and here the ScientiaMobile data is very encouraging with 57% of Android smartphone requests coming from devices that support HEVC decoding.

These two numbers are where the picture of HEVC as the most logical video standard to follow H.264, begins to take shape. Here we have major video distributors and tech companies already encoding and distributing content in HEVC. And given the HEVC device penetration and hardware support any worries about a premature move to HEVC are not warranted. But, what other factors validate the idea that HEVC will be a booster to the video business?

LiveU recently published a report called ‘State of Live’ that showed growing trends in HEVC broadcasting, especially in the world of sports. And just in case you have thoughts that the use of HEVC is a passing trend on the way to some alternative codec, consider that in 2018, 25% of all LiveU generated traffic was streamed using the HEVC video standard while the only other codec used was H.264.

In fact, the report stated that the high HEVC usage was a direct reflection on the increasing demand for professional-grade video quality, a trend that was clearly evident at the 2018 FIFA World Cup in Russia.

So what does this mean for the industry?

The trends we just examined reveal that we have an ever more demanding consumer who wants content that shows off the full capabilities of their viewing device, which means higher resolutions and more advanced video standards like HDR. But, this same user is now consuming more content, which contributes to further congesting the network.

This consumer consumption pattern is colliding with a shift from managed services to unmanaged, or OTT distribution and creating technical tension inside incumbent service operators who are facing technical shifts and business model fracturing. Amazingly, in spite of a very clear threat to the incumbent services who are seeing video subscriber loses mounting into the hundreds of thousands over just a few short quarters, some are continuing with the status quo even while new entrants are launching services that give the consumer more for less.

This is where the end of the story will be written for some as the best of times, and for others as the worst of times.

HEVC is more than a technology enabler. It’s a video standard that is set to disrupt many of the traditional operators and early OTT streaming services. Not because the consumer knows the difference between H.264, VP9, or even HEVC, but because the consumer is becoming aware that better quality is possible, and as they do, they will migrate to the service who delivers the best quality affordably.

At Beamr, we believe that the proof of our product and technology excellence must be experienced and not just talked about. Which is why we’ve put together the best offer that we have seen in the industry where you can use our codecs in combination with our VOD transcoder, 100% for free.

Just go to https://beamr.com/free and in minutes you can put your hands on the best quality and highest performing HEVC and H.264 software codec implementations anywhere. In fact, our offer is so good, that we will give you up to 100 hours every month of free transcoding.

As always, thank you for reading. And tell me if you have an additional perspective to share. I want to hear from you.