Linear encoder market to dip markedly over next five years

DetailsJoseph O'Halloran | 29 July 2015

As HDTV roll out slows in mature markets and legacy infrastructure and reduced end user budgets hold back technology replacements, the broadcast TV encoder market looks set for secular decline.

This is the standout finding of research from Futuresource Consulting predicting that over the next five years linear broadcast encoder market revenues will decline by as much as 21% in the distribution market and by 10% in the contribution market.
The report stresses the market-changing nature of the emergence of software encoding. It calculates that in 2014, a still dominant figure of 81% of distribution encoders shipped were hardware-based, but now expects this to drop to 41% by 2019 as end users embrace the lower price points as part of the shift from CAPEX to OPEX. The analyst expects further attrition from the transition to software-based encoding, which will further erode price points, particularly within distribution encoding.

"The encoder market is set to go through a significant change," commented Adam Cox, Senior Analyst, Futuresource Consulting. "If the industry is going to weather the storm, it will need new market drivers, significant growth in emerging markets, and, perhaps most importantly, a change in approach."

Looking at potential rays of lights, the analyst pinpoints the emergence of 4KTV and HEVC as potential market drivers, but with high price points for the first generation of such products, the company does not hold out much hope for them having a significant impact in the short term. In addition it warns that many users are also waiting to see how the transitions and technologies evolve before investing, wary after the failure of 3DTV.

Yet in volume terms, the report suggests that the encoder markets in APAC, and to a lesser extent Latin America, are enjoying significant volume growth, with the transition to digital coupled with the rapidly expanding broadcast markets fuelling demand. However, it also notes that with extremely low price points, the value of the market will decrease over the coming years despite the increase in volume.

In a call to action, Futuresource advises manufacturers to alter and evolve their business models, perhaps along the lines of software as a service, in order to tackle the new challenges.

"Encoders are an essential part of the broadcast chain and will have to be upgraded as the market transitions to 4KTV or more efficient compression technologies," Cox added. "It is clear therefore that the encoder market will bounce back. To do so, however, it will need to change, and embracing software encoding and all that goes along with it will be an important and necessary step."