Home Analysis Connected TV The connected STB, not cloud, will dominate the next decade

The connected STB, not cloud, will dominate the next decade

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Decipher, the UK media consultancy, has just published research that indicates that cord cutting is finally starting to be felt in the UK but points to weaknesses in the Smart TV consumer proposition that mean platform operator connected STBs are winning the battle for our attention. The research, which harnesses findings from a 3,000 home study plus detailed market analysis, indicates a bright future for the connected DVR especially.

According to this research, the cloud must wait. Nigel Walley, MD of Decipher, declares:  “There is an assumption that because of Smart TVs and OTT apps like Netflix we are moving to a ‘cloud’ TV world, but that is one whole generational leap away. Before then we have a decade where the super STBs dominate home media.”

Decipher predicts that, thanks to powerful home media servers that enable connected services and also multiroom viewing, Pay TV platforms will dominate the next decade, before OTT and cloud concepts make significant in-roads into the pay markets.

The new media servers will have implications for both player use around the house and for the ability of Pay TV channels to project themselves in a multiroom environment, the company says. “We forecast that pay channels will increase their share of total viewing, with both live channel and PVR viewing, projected into every room.”

The new research, ‘Set top boxes are fighting off the threat from Smart TVs’, is the first quarter output of Decipher’s FutureMedia 2013 programme, which reviews the UK’s changing TV landscape. This uses the quantitative research from the Decipher MediaBug home study.

There is plenty in this research to cheer Pay TV operators but also some cause for concern. “Evidence of cord cutting or shaving in pay homes that have got Smart TVs remains small but it is finally on the radar,” the company reports.

“Last year we could find no evidence. This year it appears that approximately 4% of Pay TV customers have reduced or cancelled Pay TV subs after purchasing a Smart TV.  An element of this fits with the normal churn rates the pay platforms encounter but claimed use of pay OTT apps is finally having an impact.”

It is the Smart TV vendors who have most to worry about, however. Decipher declares: “The first output from this year’s research shows clearly that the connected STBs are successfully fighting off the threat from Smart TVs at present and, with new STB functionality arriving, are set to dominate the home media market for the foreseeable future.

“Where consumers have the same player in a connected STB and on a Smart TV, 73% of them said they favoured the player on the STB.  This trend was seen across both pay and free TV set-top boxes,” the company explains. The usage rates varied considerably between providers. STB ‘player’ use is highest on YouView, with 28% of users claiming to regularly use BBC iPlayer. 20% of Virgin TiVo customers claim regular use but only 8% of connected Sky customers do.

Nigel Walley has highlighted the failings of Smart TVs that are allowing the traditional platform operators to secure their customer relationships (in most cases). “The Smart TVs have not made any effort to integrate on-demand with broadcast in their interfaces. The STBs have a much more UK centric view of the market and recognize that they need to work with the broadcasters to keep the consumer in the STB environment,” he comments.

Decipher has previously noted how Smart TVs have struggled to gain momentum, with no Smart TV carrying more than two of the UK’s main broadcast player apps in 2012. “This year DemandFive arrived on Samsung, but still no 4OD,” the company notes.

“The biggest and most damaging omission, in the battle against the STBs, is the lack of ability for Smart TVs to offer DVR capability,” the consulting firm adds. “Our FutureMedia research shows that after live broadcast the most compelling features that a TV device can offer are live pause and record. At CES, no screen manufacturer yet offered this capability without the need for USB extensions. It became apparent through 2012 that PVR still trumps VOD.”

Platform operators are going to use connected DVRs to effectively piggy back on the Smart TV revolution, co-opting it to their own devices, Decipher predicts. “US MSOs are moving towards DVRs configured as complete home media hubs. In line with the UPC Horizon box being rolled out across Europe, they have launched DVRs with six tuners, massive hard disks and smart multi-room functionality that allows full DVR capability simultaneously in six rooms,” the company adds.

Decipher predicts these home media hubs will not arrive in the UK until 2016, driven by Sky and then by an upgraded TiVo/UPC PVR.  “We are questioning the ability for the free and quasi-free boxes to follow suit,” the company says.


Editor’s comment

This research confirms what we have sensed, that Pay TV operators are seizing the initiative in the Connected TV market and that Smart TV vendors are now the ones under pressure, potentially sandwiched between compelling free-to-air HBB platforms on the one hand (like YouView and <freetime > in the UK, and increasingly connected Pay TV operators on the other.

Virgin Media TiVo gives you access to YouTube via the EPG now, plus some great apps including the BBC Connected Red Button, which is the entry point to lots of online content including linear streaming channels. The company pioneered catch-up TV to the living room big screen and this includes BBC iPlayer, which is delivered from the web to the television but with guaranteed QoS. BSkyB now offers VOD and catch-up TV via broadband into the back of its DVR.

At CES this year there was little significant progress in the Smart TV market, although clever innovations in terms of user interaction and important efforts to make platforms upgradeable. The danger for the CE platforms is that they become second room experiences in free-to-air homes that have next-gen HBB platforms. That is probably the worst case scenario.

One option for TV manufacturers is to partner with Pay TV to become their virtual STBs, an approach Samsung is taking. The Samsung strategy now is to tackle the Pay TV and free-to-air markets differently, as a virtual STB for Pay TV homes and as an entertainment portal in FTA homes. But even in the FTA homes competition is heating up.
Many of these themes will be tackled at Connected TV Summit this year and Nigel Walley, MD at Decipher, will be presenting there on the Pay TV versus Smart TV debate and talking about the likely impact of connected Pay TV DVRs. Decipher is also publishing a new report specifically for this conference. More about Connected TV Summit here.

More about Decipher here.

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