In Broadcast - March 2018 - 28

28

www.inbroadcast.com | Vol: 8 - Issue 3 | March 2018

InForm

Does Dedicated Broadcast
Equipment Have A Future?
The industry is on point of being eviscerated
by consolidation and M&A, Contributing
Editor Adrian Pennington investigates...

I

s the broadcast equipment industry
cratering? The warnings have been
apparent for years but at some point
over the past few years media and
broadcast crossed the threshold where
commodity technologies perform at
the levels needed for professional
media. This squeezes what consultants
Deloitte have termed the 'special sauce'
out of hardware and into software and
there's no return.
On the one hand this seismic
transition
is
enabling
new
infrastructure options like Cloud and
new business models for vendors like
software-as-a-service, but it comes at
a brutal cost.
Technology that was once the
exclusive preserve of large broadcast
organisations is now available to
the masses at consumer prices. This
influences every aspect of a technology
supply company.
The swallowing of what remained of
fabled brand Quantel (Snell Advanced
Media, previously owned by private
equity firm LDC) by Belden in February
is the latest reminder that the healthy
margins many vendors enjoyed selling
proprietary hardware systems has
been whittled away to nothing.
Belden has grown fat treating cables
and connectivity as a commodity,
generating US$2.4billion revenues
last year. The broadcast market is
way smaller than other verticals such
as cyber security and industry which
Belden, caters to.
"Of all the industries we're in, media
and broadcast is where the economic
capabilities of the vendors are the
least developed, and that creates a lot
of stress for us," admitted Belden CEO
John Stroup to the 2017 Devoncroft
Media Technology Business Summit.
"This is a business that requires a lot of
scale. To operate globally, you need to
generate the amount of revenue that
gives you the scale from an R&D point
of view."
Scale is what those in traditional
kit supply do not have. IHS Markit
reports the broadcast equipment

industry generating US$23.5 billion
in 2017, although the IABM's own
figures (for 2016) double this at U$51
billion. Regardless, this is dwarfed
by revenues in the global IT industry
of about US$3.5 trillion in 2017
according to Gartner. This means that
the broadcast and media technology
market is about 1.5% of the total value
of the IT industry.
Changing Market Boundaries
The boundaries of the market are
changing. While bespoke broadcast
technology is on the decline, new
categories such as Cloud and OTT
services are growing significantly.
The IABM is working to redefine its
industry model to reflect this - expect
an announcement at NAB.
"While the 'traditional' industry
is largely static in terms of size,
today's wider industry is expanding
dramatically, but doing so at a lower
price point," says IABM CEO Peter
White.
HIS Markit highlights two "realities"
shaping the industry's value. First, as
a share of the wider Pro AV market -
which wholly subsumes the broadcast
equipment industry - equipment
revenue is falling. Second, the
composition of broadcast equipment
value is changing. As recently as
two to three years ago, capture and
production equipment, and media
servers, were the market's main stores
of value.
"Through 2022, capture equipment
revenues will flatten, and media
servers will lose considerable value,"
states analyst Merrick Kingston.
"Broadcast services, encompassing

Peter White,
CEO, IABM

The IT technology sector
is massive compared
to Broadcast & Media

51bn

Broadcast & Media Technology
IT
everything from engineering and
design, to fully managed broadcast
media services, will near-exclusively
catalyse the industry's net value
creation over the next five years.
Hardware will retain high nominal
value, but will cease to be a growth
catalyst."
Value creation in the IT and
broadcast
equipment
segments
resembles a parallel evolutionary
process. Value - and revenue - doesn't
reside in the sale of a camera, a
conferencing phone, or a server.
Hardware is simply a conduit for the
sale of software and services.
Hardware Value Sinks
According to IABM data, the
deflationary effect of hardware
commoditisation continues to stifle
traditional
broadcast
technology
suppliers' profitability despite the
sustained level of R&D investment
made in recent years.
"While hardware has intrinsic
and high nominal value, the sale of
production services, teleconferencing
services, and cloud computing underlie
the net creation of new worth," says
Kingston.
SAM's sale fits a wider pattern of
merger & acquisition as companies
seek scale. Belden itself accumulated
Miranda, Softel and Telecast Fibre
Systems as well as Grass Valley under
which SAM products will be sold.
Another
industry
behemoth,
Imagine Communications (owned by
venture capitalists Gores Group) was
formed from the merger of Harris
Broadcast and GatesAir in 2013, Harris
Corporation having earlier spent a
billion dollars swallowing Leitch, Louth

3500bn

and Encoda.
At the end of January, Ericsson
divested itself of its Media Solution
Business which was built in part
through the acquisitions of Tandberg
Television
(2007),
Microsoft
Mediaroom (2013) and Envivio (2015).
What's interesting is the scale. While
the Media Solutions assets are fairly
significant in the media technology
sector, it only accounted for 3%
(US$380 million) of Ericsson's annual
revenue. Nothing like a core business.
"Traditional
businesses
are
going through a transformation to
adapt to their customers' changing
requirements," says White. "What they
need to do is change, offering products
that tackle their customers' issues in
a multi-platform world and moving to
new business models centred on the
flexible provision of software."
Think Out Of The Box
John Ive, who delivers strategic
insight for the IABM, thinks he has put
his finger on the problem. He says that
the old method of designing, releasing
and then fine-tuning a product over
successive product generations is no
longer fit for purpose. All this succeeds
in doing is optimising the status quo.
"Being obsessed with improvement
inhibits thinking 'out of the box',"
Ive argues. "Continuous product
improvement follows a law of
diminishing returns despite escalating
support costs. Once the product has
peaked and market penetration is
high there is a diminishing return on
investment."
Some companies find that by the
time they've achieved the perfect
product, having diligently responded
http://www.inbroadcast.com http://inbroadcast.com/Belden_Acquires_SAM.asp
Table of Contents for the Digital Edition of In Broadcast - March 2018
