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USA - Digital TV - Broadcasting & IPTV Market
In the 1950s to 1970s three large privately-owned networks, ABC, CBS and NBC, claimed 90% of the US TV market with free broadcasts. The rapid spread of pay TV over cable in the 1980s broke the hegemony of the big three and by 2001 around 70% of US TV households subscribed to cable TV (CATV).
During the early 1990s Digital TV (DTV) was available via Digital Terrestrial Television (DTTV) through antenna, via digital cable and via digital satellite. In the late 1990s other delivery technologies became available, such as Digital Multimedia Broadcasting (DMB) using digital radio transmission to allow handheld devices such as mobile phones to receive TV signals, as well as network infrastructures that deliver TV over Internet Protocol (IPTV).
In particular, while the telecom sector fought the unbundling provisions of the 1996 Telecommunications Act, the CATV companies capitalised on this opportunity by digitalising their cable infrastructure, with the result that by 2006 approximately 99% of US households were passed by digital cable. By end-2009 around 87% (or just over 99 million) of US households subscribed to some form of Multichannel Video Programming Distributors (MVPD) service, predominantly cable (62% of households) and satellite TV (33% of households).
Initially, the introduction of DTV did not affect the competitive landscape in the USA with the national Free-to-Air (FTA) networks and content providers remaining as the dominant players. Acquisitions and mergers affected consumer choice more than new technologies. However, since 2000 digital technology has gradually brought about the convergence of telecommunications, broadcasting and content services, causing the market to substantially transform.
For instance, in 2000 the CATV companies launched broadband access services over their digital cable infrastructure and by end-2004 had captured around 60% of broadband subscribers. Another significant change took place in 2004/05, when the dominant cable companies began to build out digital voice telephony or Voice over Internet Protocol (VoIP) infrastructure across their footprints, enabling them to offer triple play communication services - voice, broadband Internet and DTV content - over the same cable pipeline into the home. This placed them as direct competitors to the telcos.
The powerful telcos, Verizon, SBC, BellSouth and Qwest, responded by entering the broadcasting market initially through partnerships with satellite Direct Broadcasting Service (DBS) broadcasters, bundling satellite TV with the telcos’ voice and Digital Subscriber Line (DSL) broadband. The long-term telco strategy is to build fibre deep into their networks, enabling them to deliver DTV over their own broadband networks.
The telcos’ IPTV strategy is one of two broad models involving the use of IP to deliver TV or video services. The other model is one involving video services offering content for download or streaming over PCs and other connected devices. Although by early 2010 subscriber numbers to these two emerging IPTV models were still modest, IPTV is expected to have a profound change on the face of TV delivery over the years to 2015.
Video downloading continued to grow significantly during 2009 and is expected to rapidly increase its role in the overall video market during 2011-15. Rapid growth in revenues will also be driven by an increase in the amount of premium content available online and the increased penetration and speeds of broadband deployment.
Another broadband access technology which is poised to make an impact on the digital TV market is WiMAX wireless broadband. Specifically, in May 2008 Sprint Nextel and Clearwire announced that they were pooling their WiMAX assets to create a new independent company which would take the Clearwire brand name. In October Sprint-Nextel and Intel officially launched their long-awaited ‘Clear’ WiMAX network in Baltimore, Maryland.
Following a last-minute postponement in February 2009, the mandatory analogue switch-off finally occurred on 12 June 2009, taking the transition to DTV close to completion.
Despite the free-to-air networks all offering the benefits of digital TV, such as improved picture resolution and sound, interactive services, subscription programming and HDTV amongst others, nevertheless the number of free-to-air only households continues to shrink as pay-TV penetration, at over 87%, reaches some of the highest levels globally. The cable companies still retain the largest share of pay-TV subscribers, although satellite has been slowly gaining ground. However, more recently the telcos have started becoming notable participants in this market with their extensive fibre network deployments and IPTV strategies.
Nevertheless, one change that is likely to be of some concern to players in the pay TV market is the emerging trend amongst pay TV subscribers to ‘cut the cord’. Specifically, many customers are cancelling their cable and satellite subscriptions and are instead accessing their favourite TV shows via alternative, online video platforms, such as Hulu, iTunes, Netflix, and Xbox. A report released by the Convergence Consulting Group in April 2010, for instance, found that in 2009 alone an estimated 600,000 people had cancelled their cable or satellite subscriptions in favour of online viewing options. Whilst this number is relatively small the trend is expected to grow, with 1.6 million viewers forecast to have ‘cut the cord’ be the end of 2011.
Since 1975 the number of cable subscribers has grown steadily, from around 10 million subscribers to approximately 62 million in 2009. This growth has positioned cable as the dominant force in the pay-TV market, also ideally positioning it to deploy triple play services. However, for nearly a decade the number of basic cable subscribers has been slowly declining, from a high of 67 million in 2001. Indeed, cable’s share of the pay-TV market has declined from nearly 80% in 2000 to around 62% in 2009. The loss in market share has been largely due to aggressive competition from the satellite TV (DBS) providers and more recently due to the deployment by Verizon and AT&T of a video service.
During 2008 and early 2009 the major satellite providers, DirecTV and the DISH Network, continued to make gains at cable’s expense. Thus DBS’s share of the pay-TV market has increased from under 20% in 2000 to around 33% in 2009. DBS growth is partly attributable to price-competitiveness, the increase in local-into-local broadcast stations, service enhancements such as multiple room viewing solutions and HDTV as well as improved marketing.
With IP networks allowing the convergence of voice, video and data services, significant challenges loom for DBS as well as for cable, as telcos deploy extensive fibre networks and move towards triple play, quadruple play and broader digital media bundles. For example, between 2005 and 2010 Verizon has been aggressively rolling out its Fibre-to-the-Home (FttH) network and acquiring franchise licences in order to deploy its FiOS TV service across its footprint. By early 2010 Verizon had approximately 2.9 million TV subscribers out of the 15.5 million households to which the service was available for sale.
Similarly, in late 2007 AT&T started rapidly deploying fibre into its network using a combination of Fibre-to-the-Curb (FttC), Fibre-to-the-Node (FttN) and FttH, on which it launched its U-Verse Video IPTV service. By late 2008, AT&T’s U-verse fibre network had been deployed in 80 major markets across 16 states, with the number of U-Verse TV subscribers increasing 400% year-over-year to pass the one million mark at end-2008. By early 2010 there were over 2 million subscribers from the nearly 23 million households and other dwellings passed by the service.
Given the rate of deployment and uptake of the telcos’ video service, by the end of 2010 Verizon and AT&T are expected to be notable competitors in the digital TV sector and increasingly in broader IP-based digital media markets.
In addition to the mandatory analogue switch-off date, another major impetus to the transition to DTV was HDTV. HDTV contains up to six times more data than conventional TV signals and at least twice the picture resolution. In addition to movie theatre picture quality, it delivers Dolby Digital 5.1 surround sound.
The seven national commercial TV networks all carry some HDTV programming, typically their most popular programming. For instance, major events shown in HD include the Academy Awards, the Super Bowl, and the Masters Golf Tournaments.
The cable Multiple System Operators (MSOs) began broadcasting HDTV in 2002. By early 2010, over 100 million homes were passed by cable delivering HDTV services, with an increasing number of networks producing HD programming. Satellite TV delivers HDTV nationally from a number of movie networks and from the national FTA broadcasters.
The number of cable, satellite and IPTV subscribers that were actually utilising HDTV services with HDTV-enabled TV sets, was estimated to be around six million at the end of 2007, less than 10% of households. However, by end-2008 this figure had more than doubled, as forecast, to a penetration rate of around 23.3%. By early 2010, an estimated 70% of Americans subscribed to some form of HDTV service. As more households obtain HD-capable TV sets and more consumers are exposed to the HD viewing experience, HD is likely to become a standard service offering in the coming decade in the same way colour television did five decades ago.
At end-2009 DVR penetration in the USA was estimated at close to 40%, up from just 12% two years prior. Growth has been driven by the inclusion of DVRs into STBs. Accordingly, the majority are cable-provided DVRs (nearly 20 million) followed by DBS subscriber DVRs (around 14 million). Less than 2 million are stand-alone DVRs with the DVR pioneer, TiVo, now a comparatively small player. Nationwide DVR growth rate is forecast to remain strong for the next few years, with approximately 50 million US households forecast to have DVRs by 2011. The next major shift on the horizon is DVR-networks, which would not require a box. There are, however, several copyright issues to work through before this service becomes a reality.
In addition to the ability to record programs, it is believed that many people buy DVRs because the devices enable them to skip through advertising, and advertisers don’t wish to pay for viewers who don’t watch their spots. In August 2008 it was estimated that approximately 85% of DVR users were skipping through at least three quarters of all advertising.
Concern over the disruptive potential of DVRs has prompted some major advertising companies to announce that they will negotiate advertising deals based only on live ratings. Executives have expressed concern not only about the disruptive capabilities of DVRs to the advertising mix, but to new non-traditional offline and online technologies, which could fragment the industry.
Commuters who use PDAs, cell phones and BlackBerrys to get their news instead of reading newspapers;
The use of mobiles, satellite radio and Internet radio to receive radio broadcasts;
Blogs, podcasts and web-enabled cell phones.An American Advertising Federation survey showed that ad industry leaders are cognisant of the transformation of the industry from traditional media, namely TV, radio and print, towards Internet-based online media, and are thus changing their advertising mix towards the latter platform. Thus it seems likely that rather than adversely affect the advertising market, the changing nature of TV viewing brought about by DVRs, IPTV and other developing technologies will force the advertising industry to adapt to these new models.
This suggestion was lent some support by a study released in May 2010 by Duke University which found that, contrary to widely held assumptions, the use of DVRs is having no negative impact on the TV advertising market. Furthermore, the study found that not as many viewers were fast-forwarding through commercials as was generally assumed.
The study, which was conducted over a three year period and which compared the spending behaviour in households with and without a DVR, found that there was no difference between households in patterns of purchasing of advertised products across 50 categories. The lack of impact was attributed to several factors, including the fact that around 95% of Americans still watch live television. Furthermore, even though some viewers may fast-forward through as much as 70% of commercials, they are still obliged to watch the commercials in order to determine when to resume play, albeit in fast motion, and are thus still being exposed to the advertisements.
The report is expected to be welcome news to manufacturers and advertising companies who have held grave fears about the future of TV advertising in recent years in the face of the increased popularity of both DVRs, IPTV and other developing technologies.
1.2 Key trends
1.2.1 Growth of pay-TV
1.2.2 Satellite versus cable versus Telco IPTV
1.2.3 High Definition TV (HDTV)
1.2.4 DVRs and TV advertising
2. Regulatory issues
2.1 Franchise laws
2.2 Analogue switch-off
2.3 À la carte
2.4 TV white spaces decision
2.5 Spectrum efficiency
3.1 IPTV market overview
3.2 FttH/FttC/FttN networks
3.3 Verizon’s FiOS TV
3.4 AT&T’s U-Verse Video
3.5 Video-on-Demand (VoD)
4. Cable DTV
4.2 Cable statistics
5. Satellite Direct Broadcasting Service (DBS)
5.2 DISH Network
6. Digital Terrestrial TV (DTTV)
6.2 HD over-the-Air
6.3 National FTA broadcasters
7. Digital TV consumer products
7.1 3D-capable TV sets
8. Related reports
Table 1 - Broadcasting coverage, subscribers, annual change and penetration - 2009
Table 2 - Market shares of MSO, DBS and Telco video segments - 2005 - 2010
Table 3 - Market shares of major MSO, DBS and telco video providers - 2005; 2007; 2009
Table 4 - Cable CAPEX, customer and advertising revenues - 2000 - 2009
Table 5 - Basic cable and digital subscribers - 2000 - 2010
Table 6 - Top 20 cable MSOs ranked by subscribers & market share - 2009
Table 7 - Satellite DBS subscribers by major network - 2000 - 2010
Table 8 - DISH ARPU, churn and subscriber acquisition costs - 2005 - 2009
Table 9 - DIRECTV ARPU, churn and subscriber acquisition costs - 2005 - 2009
Exhibit 1 - National FTA broadcasters - 2009
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