Ultra HD: Lessons learned from the Microsoft-Intel duopoly
Herve Utheza
Why it matters
Microsoft-Intel created a virtuous cycle as the two innovated in lock step to keep consumers buying the new “new”
Content providers and TV manufacturers, operating in a looser cabal, have had similar success moving consumer through upgrade cycles from analog to digital to HD.
Ultra HD is not likely to cause wholesale upgrades of consumers, and will be more of a high-end niche offering.
I am headed to Amsterdam in a just a few weeks, along with many others who work in the digital TV and media industry. I fully expect to see a lot of Ultra HD logos and marketing pitches while there, which reminds me of the good old days when Microsoft and Intel had a lock on the PC market.
A trip down memory lane
Remember, when Microsoft and Intel were in a duopoly alliance?
One would continuously develop ever larger, power-hungry versions of the same operating system, and market it to consumers as “the next big thing you can’t afford not to have.” This justified to consumers the need for ever more powerful hardware, running, of course, on the next generation of the Intel CPU.
What a simple, powerful model the two behemoths had, ensuring margins and their continued dominance.
The legislators and regulators (either the Federal Trade Commission, or the European Commission) tried to rein-in their power … but all they could do was to nibble at the margin, on smaller issues such as the bundle of Microsoft Explorer, or the Intel – AMD compatibility fights.
Yet, it is a paradigm shift which neither of those two companies had foreseen, nor could foresee, which slowly eroded their hegemony and market position.
They had built their strength on the paradigm that computing was about utility, and productivity.
And suddenly, the advent of faster broadband speeds allowed video to creep into consumer services, applications, and devices.
And, within less than 5 years, the market shifted to more nimble devices, to tablets, mobile devices, to a computing paradigm focused on media and entertainment.
That wave also took down RIM-Blackberry, Nokia, and countless others.
With this backdrop and history now laid out, let’s look at premium video.
Premium video and its repeated attempt to feed the hardware beast
In my view, the same search for an “industry level” alliance animates the TV OEM manufacturers and the content providers.
The major shift toward the creation of a virtuous upgrade cycle happened twenty years ago, when the TV and content industries began the migration from analog to digital.
The jump was “Big Bang” like, allowing a visible huge jump in image quality, and, mostly, an exponential rise in content choices.
Consumers are prompt to whine that there are “1,000 TV channels and nothing on”, but they miss the fact that everyone now has the power to choose their top 10 favorite channels among those 1,000.
That is the power shift which rocked, and still rocks, like earthquake aftershocks, the content industry.
However, there were many different TV OEM manufacturers and content providers, each with their own competing interests. When they went to battle they lacked the cohesion of the Microsoft/Intel duopoly.
Nonetheless, manufacturers started selling digital TVs to the world, and over the past two decades have saturated the world TV markets. This has helped drive digital adoption to the point where now analog transmission is a thing of the past.
The set-top box (PayTV or analog to digital converter) was also involved in the evolving content/hardware alliance. It provided the “transition device” delivering a constant revenue flow to manufacturers, until the chipsets achieved cost-reductions sufficient to bring digital standard definition video into the television itself.
However, one needs to continuously feed the hardware beast to keep consumers buying televisions.
Samsung, LGE, Vizio, Panasonic, Loewe and countless others, are, at their core, hardware companies and need to ship hardware devices. Consider thatin the United States alone there are around 35 million TV sets sold each year ([1]). To maintain that sales level, TV manufacturers need to convince TV householders to buy a new TV set every three years.
What to sell consumers, after the Standard Definition Digital TV market became saturated?
The manufacturers and content owners prepared the High Definition wave, another marketing pitch to sell the “new”, the “better”, the “future”.
While manufacturers were fueling hardware demand with large screen flat panel HD screens, content owners and studios were pushing ahead of the piracy wave with bandwidth and memory space hungry video streams and file formats.
As in the analog to digital transition, sports content help provide the industry alliance with the justification consumers needed to upgrade their TV set from SD to HD.
The model was established by the top CE manufacturers and content providers – the Grand Alliance - to keep consumers upgrading to their latest format.
However this passage from SD to HD was the last time a clear, video quality based justification would be successful in marketing the “new” to consumers.
And then followed a plethora of video formats and associated hardware, including HD-DVD, Blu-Ray, and 3D.
Remember 3D?
Panasonic went as far as funding the development of 3D movies with its marketing funds, attempting to prime the pump of content creation in 3D. Unfortunately the investments in sports, news, live TV cameras never followed suit. Oh, and not to mention the unanswered question of holding a family movie night with the eyeglasses.
The heart of the problem with the 3D value chain was that:
- there were too many players, with widely diverging business goals
- these players follow vastly different R&D, CAPEX investment and product sales lifecycles.
Diagram 1. The more complex world of hardware and content / services and applications
Here, we are now faced with a much more complex world which delivers premium video offering to consumers:
- TV OEM manufacturers, which need to sell “something new” every four years, are condemned to seek a set of “new features” to appeal to consumers who are increasingly growing weary of being sold useless gimmicks they need don’t need… while consumers search for seamless experiences… which makes the bed, by the way, of Apple success in media experiences
- Content owners and creators, which are structured in a tightly held group of mega media conglomerates, and try to define the specifications of the next generation of content, trying to sometimes lead, sometimes follow the devices innovation
- Distributors, whose network bandwidth needs to accommodate the traffic and transport of such content, sometimes over:
- public goods like the broadcast free to air spectrum
- privately managed networks such as Cable and Telco, which are now under legal attack to be treated as public spectrum by the legislator under the “Net Neutrality” debate
Their business life-cycles aligned perfectly during the passage from analog to digital…
But public service broadcasters no longer can afford to overhaul entire infrastructures, from content creation / camera / production / post-production to contribution, distribution and display, every four years…
Content distributors are caught between the necessary infrastructure upgrade to higher bandwidths, and wireless, while the legislator and political climate calls for Net Neutrality and treating the private networks as public goods, just like free to air spectrum.
So the three business constituents of the premium video are not aligned, like Microsoft and Intel were, to go to battle.
Table 1. The three constituencies of the premium content world
Meanwhile, what do consumers care about?
The root of the problem with 3D is exemplified by a consumer poll I ran while GM of TV at place-shifting pioneer Orb Networks, in 2007. The results were published for the Internet TV conference in July 2007.
The survey asked consumers if they preferred programming choice over video quality. Their answer was clear: by a resounding 75-25% ratio, they voted for programming choice.
Diagram 2. Image quality over programming choice
Breaking down this question by content category, the result is even clearer.
Diagram 3. Image quality over programming choice, by content category
The only categories where survey participants were swayed from programming choice to image were sports and movies. The jury was clear: consumers want content choice, first and foremost.
Anticipating in 2006 / 2007 the market evolution towards multiscreen, I asked maybe a prescient question: will you prefer programming choice over video quality?
Diagram 4. What consumers care about
This 2007 data illustrates the foundation for the success of companies like Netflix, which invested heavily in catalog choice.
Later, those companies added ubiquity of device presence, and voila, they had a market winner.
The true challenges of the industry still remain today: the delivery to multiscreen, over IP, support for the plethora of mobile devices, and access to deep and rich catalogs of quality content.
Back to Ultra HD
Through the lens of multiscreen delivery and the failure of 3D, should we say that Ultra HD and its cousin 4K are still-born?
Perhaps we should not be so harsh. However, we can say that Ultra HD will not be the panacea that the Grand Alliance would like. In other words, it will not continue to feed the television and content upgrade beast at a pace anywhere near to that of the move to HD and to digital.
There is too little content, and the infrastructure investments will be too great to accommodate its ascension in the consumer mindset. This will take many years, if it happens at all.
For now, it looks like Ultra HD will remain a solid R&D project for the coming five years. It’s likely that market actors will throttle and “right size” their Ultra HD investment, focusing on testing, integration, and interoperability along the entire distribution chain.
Rather than moving in lock-step, as Microsoft and Intel were so adept at doing, the various players of the premium content world are going into battle in a disorganized fashion. This is certain to lead to many self-inflicted wounds.
For example, Comcast, Verizon and Netflix will continue to disagree and have tough negotiations, like they did in 2014, over bandwidth speed, bandwidth throttling streaming. This will slow down the progress of 4K streaming at scale in the United States. This will have a knock-on effect, slowing the cost-reduction so necessary for chipsets to increase volume, scale and ultimately market adoption.
Apple will continue to drive its closed format ecosystem for years to come. It can be argued that Apple is actually focused on the right thing: delivering a seamless and awesome consumer experience, powered by its closed software and hardware ecosystem. Although it is still separate and incompatible with the rest of the content world, the Apple volumes are still too huge to ignore for all the content owners of the Grand Alliance.
Content owners will continue experimenting with direct-to-consumer subscription models (e.g. HBO Now, Viacom Noggin, Lifetime, Movieclub). Aside from the possible revenue derived from these standalone services, they are also giving themselves a tool to gain leverage in negotiations with Pay TV operators over TV Everywhere rights 6 to 7 years from now. Those agreements today prohibit the cable channels from streaming their Pay TV offering directly to consumers, unless such consumers are already Pay TV subscribers. However, little by little, content owners and programmers are preparing bundles of original programming (i) which are not breaking the TV Everywhere contractual constraints, and (ii) which are starting to teach the audiences (starting with the younger generations) to pay, monthly, for content.
In the coming years it is thus likely that the content market will split between:
- “Ultra-premium” content packages, with increasing prices breaking the $200 bar per month, delivered in 4K or Ultra HD quality over managed networks, which are only offered by incumbent PayTV operators. This market will be reserved for 10% to 20% of the market in 2025
- A plethora of cheaper, smaller content bundles and services, marketed to targeted consumer audiences, with more and more direct competition between content owners and distributors… delivered over managed or un-managed network access.
In that sense, I see Ultra HD becoming a “niche” offering in a vast universe of content packages and distribution models.
Where is the real fight?
In that sense, the real fight is truly in answering the underlying challenge laid out on diagram # 1.
Competition is good for the consumer, which has, by the way, been handed the ultimate power of choice since the analog to digital transition.
But content creators, distributors and equipment vendors should deeply think about their software and metadata strategy.
Apple, in its closed ecosystem, is showing them the power of alignment of their hardware based experiences by a solid, software driven strategy.
Google Android and Comcast X1 are the prime competitors for the media OS of the future.
How Google plays its embedded OS is relevant to content owners, distributors, and device manufacturers.
Whether Comcast makes its X1 software solution accessible to all other industry players will be key (maybe even, imagine that, on an open source basis).
Whether Samsung can continue to push, market, and support its own Tizen platform as an Android alternative remains unproven.
Hollywood studios also need to think deeply about the role and control of their content metadata in this new world of complex digital distribution – and stop treating it like an afterthought.
This is why my focus at IBC in Amsterdam will not be on the myriad Ultra HD announcements that are sure to accompany the show. I will be paying more attention to the software and metadata that is powering the real revolution in video distribution and consumption.
That is where the real fight will be in media for the next ten years.
[1] http://www.statista.com/statistics/220739/forecast-of-dvd-player-shipments-in-the-us/