Tuesday, April 8, 2014

AAPL, AMZN, AVID, BDC, HLIT, NFLX: “Consumers, 4K, and Next Generation Home Entertainment” session at the NAB conference

We also attended the “Consumers, 4K, and Next Generation Home Entertainment” session at the NAB conference.  Participants in this session included: Jimmy Schaeffler (The Carmel Group), Darcy Antonellis (Vubiquity), Brian Markwalter (CEA), Vince Pizzica (Technicolor), Vince Roberts (Disney/ABC TV Group), and John Taylor (LG Electronics).  Below are some of the main points and our takeaways.  

  • Many consumers still don’t know that 4K is the same as ultra-HD TV 
  • More effective marketing of 4K hardware is needed on the retail side 
  • Increasing use of 2nd (or 3rd, or 4th, …) screens, especially by young consumers
  • More simultaneous use of different screens.  AMBlog: this could mean that ads could become ‘commoditized’ as volume over many screens might be pursued more aggressively than expensive ads.  This could also mean that traditional TV spots (not necessarily all linear based) will continue to have the highest ROI, therefore prices.
  • Linear TV is growing at around 5%, but bringing in approx. $16bil in ad revenues; while online TV is growing at 25%+ but bringing in only $5bil in ad revenues.  AMBlog: this shows just how important minimization of subscriber churn rate for most OTT’s is, as mentioned during the Frost & Sullivan session. 
  • 3D TV is not ‘dead’, but all participants have realized that unlike HD, 3D is more of a new ‘feature’ rather than a ‘next generation’ product.  AMBlog: not enough 3D content to make the 3D feature a purchase driver for consumers 
  • Content providers such as Disney/ABC are looking for an answer to “what is the value proposition of 4K?” before they create 4K content more aggressively.  They have enhanced their infrastructure allowing them to create 4K content when that question is answered.  AMBlog: in other words, they, along with other content providers, are waiting for more consumers to purchase 4K TVs (hardware).  They are waiting for the 4K eyeballs to increase.  Once it hits around 40mil households (HHs), then they will create more 4K content.  We believe this will not happen until TV makers such as LG, Sony, Samsung, etc. lower their prices.  TV hardware certainly has a very high PED, as we have seen with HD TVs (Plasma, LED, etc.). 
  • Disney/ABC not planning to launch ‘4K networks’ anytime soon.  They have created some 4K programs for NFLX, but that’s about it. 
  • More support is needed on the network side for 4K to become successful.  As Vince Roberts of Disney said, “pipe to home must be fixed”.   AMBlog: we agree, and we touched on this in our post on AMZN’s Fire TV and NFLX. 
  • Success of HDTV will drive success of ultra-HD (or 4K). 
  • Hardware vendors, such as LG, think (or hope) adaptation of 4K will take place a lot sooner.  CEA estimates 500K 4K TVs will be sold this year, LG thinks it might get to 1mil.  AMBlog: obviously, we assume that the near 1mil figure is a bit biased. 
  • Panelists agreed that software (content creation and enhancement) and hardware (devices or screens) are both important.  AMBlog: we think they were trying to show respect for each other.  Content, created via software, remains king.  As long as there is not much 4K content, not many 4K TVs will be sold.  And as long as 4K TV prices remain high, not many consumers will upgrade their big-screen HD TVs.  And as long as consumers do not upgrade, most eyeballs remain on HD TVs, which is why content providers will remain on the sideline when it comes to 4K content.  We hope this makes sense!  Basically, the pressure is on the hardware providers to lower prices, which means lowering margins, as usual. 
  • Vince Roberts was very content on cloud and collaboration of workflow, which is good news for software providers such as AVID, Grass Valley (BDC), HLIT, AAPL, etc. 
  • AMBlog: our main takeaway from this session was – ultra-HD TVs remain too expensive for consumers, not enough eyeballs for content providers yet to create more 4K content, and cable operators and other Internet service/network providers must be included in this discussion.  More bandwidth is necessary and the question is: who will pay for it?  If the cost is passed down to the consumers, it will take longer for more consumers to purchase 4K TVs.  In addition, limited bandwidth, or the cost of more which will be needed, impacts video ad revenues on which the content creators/providers are dependent.  Video ad revenues will have to be limited in order to control cost of the bandwidth and deliver the 4K content without any issues to the consumer.  The non-ad or limited-ad OTT service providers don’t care much as their revenues are based on subscription payments.  However, we think as ad revenues may be impacted, content providers will charge OTT companies much more for the content, which may be bad news for NFLX.

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