Seismic Shift: Broadcasters Usher In New Era Of Software Defined Networks (Pt. 1)

The IABM is one of the industry's most crucial financial health and technology trend predictors, mainly through the stat research it shares with its 300 members, but also through the intriguing changes to its own membership. So where is the industry heading? George Jarrett explores...

With IBC's new 100 exhibitors, and the small companies showing they might have the edge on new technologies despite the big companies holding the R&D muscle, IABM CEO Peter White was a mixture of gung ho and launch the lifeboats when he fronted the annual IBC market evaluation.
"The purpose of the session was to establish a feel for our industry, and to ask if it is still making money and what the drivers are," he said.
"Broadcast suppliers are suffering from the way broadcasters are driving change through IT convergence.
"We have noticed from our research that there is less and less traditional hardware being purchased. More and more people are going for software-defined networks," he added.
"Broadcasters are looking for longevity from products. They are looking for interoperability. They are looking for a good ROI on everything they buy, and this has put a lot of pressure on the margins at the supply base."
One big factor is the mass of acquisitions and mergers that happened around NAB time.
"In recent times there have been great series of consolidation. If you are a systems integrator, for example, you are probably not in a good place at the moment because marking up hardware has just died," said White.
"Unless you can offer an added value service there are very slim margins indeed."
The worrying paradox is that sales continue to grow, but margins are hard to justify. Why?
"Broadcasters say that they will only buy if it is absolutely necessary. They want systems to work for a longer period of time and work closely together with the vendor," said White. "They are looking at new ways of monetizing content across multiple screenings. It is all streaming. It is all IP driven, and broadcasters are not investing in traditional hardware like they used to. It is all about workflows."
The head scratching ended when White proved that the market is still pretty buoyant.
"It is around $40 billion currently and we expect it to advance to $45 billion by the end of 2017. But things are going to change from there in," said White. "Indeed everything we observe externally is reflected inside our membership changes.
"We are finding now that the large global type of member – the likes of Grass Valley, Imagine, Sony and Quantel – are not to be found any more," he added. "There are a lot of small guys coming along who are providing IP network services, and streaming, and a lot of the market innovation is coming from the smaller players. The whole shape and profile of our industry has transformed in just five years."

Reading the stats as runes
Research always throws up oddities and contradictions. In one strand – looking at vital products going forward – the number one purchase intention was workflow and asset management, and audio consoles came third!
Essentially the IABM identified 5.8% growth year on year, but vendors with at least a €50m turnover show 7.1% year on year growth, and they take 85% of market revenues. In fighting over the 15% left to them, smaller companies show just 1.7% of growth year on year. The better news is that companies in profit make up 70% across the market, but sadly two thirds of the rest have shown no profit for three years.
The mind can get excited about a profit to sales ratio of 11.3%, but the mention of a lack of skilled staff introduces the jitters. Basically, the IABM surveys and indices show that the market has changed beyond belief. Users want best of breed, but the one element of change that makes them nervous is when acquisitions see their pet systems swallowed up by a predator. This is where some of the bigger IABM members come in. Where is it all heading?
"At IBC and NAB there are always lots of small new companies. We are busy on the acquisition trail because we found it a bit difficult as a niche player. We needed to service customers on a wider front," said Quantel CEO and executive chairman Ray Cross. "Companies are spending money more wisely than they did, and expect to get a lot more for their money. Initially we would be selling to chief engineers, but increasingly we are selling through procurement.
"My thoughts are about IT and IP deployment and the adoption of cloud, and have we listened enough. I do not think there is enough user education at present. There is a lot of confusion about cloud, but it is simple for me because basically it is out sourcing," he added. "We do not have a cloud offering today, but we will have.
"Service contracts are a big issue. My background is in IT service, and when I first came to Quantel I was surprised that we did not have an awful lot of support contracts. As we gear towards IT everyone in the world expects service contracts," he concluded.

George's piece is also available to read in BFV online.

(IT/JP)