NAB 2013 brought home three main themes for the digital media team at Frost & Sullivan:
1) There’s a clear drive toward delivering media & entertainment solutions that control bottom line costs while growing top line revenues.
2) Market conversations are shifting toward solutions focused on monetization rather than just products focused on delivery.
3) An HEVC demo is the new must-have booth accessory.
Monetization of video is a particularly interesting challenge, since business models in the OTT and TV Everywhere space remain experimental and online revenues have yet to become significant contributors to MVPD businesses. That said, our recently released study on consumer video devices (executive summary attached below) shows that the devices industry is already in the throes of realizing the lucrative potential of ubiquitous video.
Examining segments including set-top boxes, smart phones, tablets, game consoles, smart TVs, IP streaming devices and more, we found that total unit shipments in 2012 were well past the 1 billion mark, with total revenues exceeding $350 billion. With device shipments on track to triple by 2017, operators across the globe are grappling to bring their ubiquitous video offerings to this critical new ecosystem of unmanaged devices in a scalable, secure fashion. Unmanaged is the key word here – managed set-top boxes only account for under 1/5 of all video-enabled devices shipped in 2012. At the same time, network traffic studies are consistently showing continued growth in long form content consumption on unmanaged devices.
Piracy of course is always a top of mind consideration for content owners and operators when deploying OTT/TE services. The issue gets more critical as live linear content and premium VOD content are delivered equivalently to managed and unmanaged devices in HD resolution.
It's not news to operators that, in contrast to the tightly controlled execution environment of set-top boxes, consumer owned and managed (COAM) devices are far more challenging platforms on which to secure content. Operators are cognizant of the need to support these myriad devices with compelling content offerings despite these challenges in order to minimize churn and remain competitive. The problem is, with revenues still small and business models yet unproven, operators are incurring this complexity and cost with limited upside ROI, particularly when they attempt to extend their traditional conditional access (CA) infrastructure to meet far more dynamic multi-screen needs.
In a white paper we just released, “Cardless Content Security: The Smarter choice for Hybrid Networks,” we examine how challenges like fragmentation of devices and networks and the need to deliver consistent user experiences across all screens can be more effectively overcome. We discuss industry-proven best practices in architecting security solutions for the next-generation ecosystem of multiple transmission networks and devices in a way that minimizes head-end complexity and ensures a future-proof investment.
We also look at how cardless CA and multi-rights DRM platforms are leveraging advances in software anti-tamper technology and silicon-based security measures to deliver cost-efficient, durable content security on the client side. The paper takes a close look at the VCAS solution from Verimatrix as an example of a best-in-class solution that delivers head-end simplification and scalability with robust client-side protection.
The future of the devices market and the security market are both promising to be interesting. Those at NAB couldn’t have missed the HEVC and 4K demonstrations that were running at nearly every booth. Widespread initiatives to deliver HD+ and 4K content to unmanaged devices raise a whole new set of content protection questions.
For example, screen captures of 4K content can easily yield very high quality SD content (perhaps even HD content) for recompression and subsequent piracy, and the incentive for professional hackers to pirate 4K content is thus much higher. Studios and content owners will almost certainly require stronger security standards in terms of encryption and usage enforcement for 4K content. At the same time, as we discuss in this same paper, it will also be important to rely on traitor tracing and piracy tracking technologies, such as watermarking and fingerprinting, to holistically manage this inevitable problem.
We will continue to track these developments in our research coverage of the encoding, transcoding and content protection markets. In the meanwhile, if you missed our recent webinar on our forecasted roadmap for products and services based on HEVC, you can catch the recording here.
India is a vast market today for Pay TV, with over 100 million Pay TV households and an estimated 140 million TV households. It is also arguably among the least developed market for Pay TV, despite these numbers. For example, the number of TV households pales in comparison to the country’s population of over 1.2 billion. Also, India still does not have a digital terrestrial transmission plan, true HD programming is limited, average monthly subscription fees are among the lowest in the world, and cell phones outnumber television sets by more than 5:1.
As with most nations worldwide, cable is the dominant form of Pay TV in India. Frost & Sullivan estimates that there are 6000 multi system operators (MSOs) and 60,000 local cable operators (LCOs) serving Indian subscribers today. In contrast, the country only has seven direct to home (DTH) satellite TV operators and four IPTV service providers, although these are posing a growing challenge to cable. Partly to control piracy but also in large measure to more effectively tap into the vast potential of this market, the Indian cable industry is undergoing a comprehensive and very rapid metamorphosis as the entire country switches to digital cable.
Digitalisation is proceeding in 4 phases. The four major cities – Delhi, Mumbai, Kolkata and Chennai completed the transition last year in Phase 1, while around 40 cities and towns with populations of 1.0 million or more are scheduled to complete their transition in March 2013 as part of Phase 2. All other urban areas are required to digitalise during Phase 3 which ends on November 2014, with the rest of the country following suit in March 2015 during the fourth and final phase.
The investments required for rolling out digital cable are considerable – cost estimates range from USD 2 to 4 billion dollars. Recouping these investments is not a straightforward proposition in India. Consumers have limited awareness of the value of digital cable, and remain significantly more sensitive to cost than to content selection and quality. The role of local cable operators (LCOs) who own the actual relationships with end cable subscribers also makes it difficult for MSOs to independently differentiate services and grow revenues in a way that provides satisfactory levels of return on investment in digitalization, and promises long-term growth potential.
Value added services like internet telephony, triple data services (voice, Internet and TV), advanced media services such as video on demand, multi-screen content services and HD, and new applications such as gaming are attractive targets for monetization for two reasons. First, because they can raise the all-important average revenue per user (ARPU) without the need to increase base subscription fees. Second, because they can promote subscriber loyalty, increase TV watching times in subscriber households, and ultimately serve as a magnet for increased advertisement revenue. However, these services cannot be implemented over the traditional cable architecture that predominantly relies on uni-directional QAM connections to end subscribers. A multi-network architecture that encompasses uni-directional or (better) bi-directional DVB networks, along with IPTV and/or broadband for OTT services is necessary to deliver the full range and quality of possible content and applications to the widest possible range of subscribers.
India is a diverse nation in more ways than one. Consumers vary in sophistication from BYOD cord-cutters who push the boundaries of their devices and connectivity, to traditional viewers who continue to browse through less than 20 channels in live-linear fashion even with digital cable. Content preferences also vary widely, certainly across major linguistic regions in the country but also across various cultural groups within larger cities and towns. Multi-generational households dominate the country, with consequent diversity of viewing preferences across members of the same household as well. Income levels across households also vary tremendously, although income levels are not always correlated to appetite for spending on Pay TV and entertainment services.
It is easy to see that optimally meeting the needs of this tremendously diverse audience using only the bouquet-based linear live model will be neither optimal nor effective in the long term. On-demand, OTT and IP-based delivery can play significant roles in growing long-term monetization capability for Indian MSOs by allowing a much broader range of services and applications to be delivered in a customized and cost-effective fashion to a wide range of households. Still, many risks and questions remain. Are Indian subscribers ready to consider such offerings and will they understand the value proposition? Is it realistic to lay out these more complex network architectures when many MSOs are grappling with the newness of even basic digitalization? What business models will succeed, and how should offerings be positioned and priced? How should MSOs evaluate and select partners, technologies and vendors, and what cost structure and ROI levels can they expect? These are all open issues and unsolved questions for the majority of tier II and tier III MSOs in India, with even Tier I vendors still grappling with many of the same challenges. Predictably, many myths and misconceptions abound in the cable community as well regarding value added services and the role of multi-network solutions in monetization of digital cable. We’re taking this discussion to the floor at Convergence India this week, during 2013’s first event in a planned series of forums on Multi-Network Solutions in the Real World, which will be held across the globe throughout the year. I’m excited to be moderating this discussion, which features panelists from Ericsson, Magnaquest Technologies, iNovo Broadband and Verimatrix. I’ll continue to post insights and discussions from the forum here. Whether you are an MSO, an LCO or a technology vendor – if you have a story to share or a question to ask, please feel free to reach out to us via email, join our group on LinkedIn, or follow the discussion on Twitter (#multinetwork #CI2013).
Software License Management solutions are designed to help independent software vendors (ISVs) and device vendors to efficiently monetize their products. The three main functions SLM systems perform are: defining software versions and licensing rules (development); automating license issuance and invoicing (deployment); and ensuring that software is used in accordance with terms of a purchased license (enforcement). While many mature and functionally comprehensive solutions are sold commercially today, the market itself is far from saturated. Frost and Sullivan estimates that only a quarter of software sold today uses commercial LM systems, while over a half of the software market uses home-grown solutions.
One of the key challenges the market faces is that the return on investment for an SLM solution is hard to measure. License Management systems were originally built with the goal of preventing piracy and thus maximizing monetization of software. Over time, complex business models, automated back-office infrastructure and evolving platforms have resulted in high functional demands on an LM system. At the same time, software is ultimately a collection of digital bits and bytes, and evolving technology makes it easier and faster for pirates to reverse engineer software and tamper with security routines. Over time, nearly every past-generation license management solution has been hacked, and several current generation solutions are considered compromised as well. The industry is drinking it's own proverbial kool-aid, with a widely held belief that software piracy cannot be prevented and maybe not even controlled. Accordingly, most SLM vendors today position their solutions in terms of keeping honest users honest (as opposed to preventing intentional piracy). In effect, software license management solutions are being built and positioned primarily as entitlement management solutions, even though most products still include include anti-tamper protection features.
The problem is, losses from piracy are real and hurt an ISV's bottom line. More importantly, they hurt an ISV's customer's bottom line. Illegal software users have lower cost of business and can consequently afford to undercut pricing offered by legal software users. As markets globalize and economies remain challenged, pirates are able to win more business and flourish while legitimate users see shrinking profits and eventually shrinking workforces. Customer demand, and an ISV's need to maximize their own profitability, are making piracy management an increasingly critical important component of an overall software monetization strategy.
In a recent white paper, we talk about customer-centric best practices in crafting and implementing an effective software monetization strategy. The paper is available for download here. We also presented a joint webinar with Wibu-Systems exploring best practices in software monetization strategies. The webinar discusses technical trends in the ISV market that lead Frost and Sullivan to recommend that ISVs strongly consider adopting commercial LM solutions in lieu of homegrown systems, and ensure their license management strategy encompasses both piracy management and entitlement management components. It also provides a comprehensive overview of Wibu-Systems' CodeMeter solution, which is among the few solutions on the market that strongly emphasizes its software and hardware security capabilities. You can register to view a recording of the webinar here.
If you are a software publisher, what license management solution do you use today? What factors influenced this choice? How are you evolving your software monetization strategy for 2020? We'd love to hear from you, and answer any questions you might have.
Apple announced today its intended acquisition of Authentec for $356 million – a valuation of nearly 7x over fiscal year 2011 revenue. Interestingly, although the acquisition is being highlighted in terms of AuthenTec’s flagship business in fingerprint scanning and touch sensor technology for security of mobile computers, revenue growth for this side of the business has been falling. On the other hand, revenues for the company’s embedded business more than doubled from $12.5 million in fiscal year 2010 to $25.3 million in fiscal year 2011. Margins for embedded are at an impressive 83% for 2011, up from 2010, while the margins for hardware-based smart sensor solutions came in at 36%, down slightly from 2010.
Part of Authentec’s embedded security products include DRM solutions based on OMA and PlayReady DRM for Android and iOS devices. Customers for Authentec’s multi-platform DRM Fusion products include Japan’s largest cable provider J:COM , Cyfra+ (part of CANAL+) in Europe, Pantech – among Korea’s top three mobile handset makers, and Samsung. Growth is fed by the soaring adoption of personal computing devices on the one hand, and massive global investment in TV Everywhere offerings on the other.
OTT and ubiquitous video offerings are becoming a must-have component for any online video offering. At the same time, video is becoming the killer application for a range of high-performing handheld and portable devices, and secure DRM clients are required to receive and render high-quality premium content on such devices. Thus, a range of companies from traditional conditional access systems (CAS) vendors to vendors of home media gateways, set top boxes, embedded operating systems and CE devices are either developing their own software DRM technology or acquiring established vendors of software DRM clients. Examples include Irdeto’s acquisition of Cloakware, Motorola’s acquisition of Secure Media, Google’s subsequent acquisition of Motorola Mobility and also Widevine, and Cisco’s recent acquisition of NDS. Microsoft is an interesting outlier, with its own PlayReady DRM as well as a rich ecosystem of third party solution and component providers. Apple’s acquisition of AuthenTec is interesting, then, not just for the well publicized enterprise security possibilities, but also because it is the latest twist in a long-running chain of interesting merger, acquisition and strategy stories in the conditional access and DRM space. AuthenTec has a significant range of offerings for Google's Android which competes directly with Apple in the smartphone and living room TV spaces. It also offers strong support for Microsoft's PlayReady which has significant market share and forms the heart of secure SmoothStreaming services which compete with Apple's media streaming alternatives.
As a result, this acquisition is likely to cause far reaching ripples and changes in competitive landscape for a wide range of vendors and applications. Does this finally place Apple within reaching distance of the maturity and reach that Microsoft and Google have with their IPTV middleware platforms and OTT TV solutions - which might well justify the high premium Apple is paying for the company? Does this create new opportunities for competitors like Discretix who also offer strong multi-DRM solutions for a range of mobile platforms? Or will Apple simply focus on the enterprise security portions of AuthenTec as expected, and spin off the DRM unit to a vendor of set top box middleware or hardware conditional access systems? Time will tell.
Google is known for making information accessible. The search giant is beloved by end users for the easy search and ready experience it enables for content ranging from books to videos. However, what endears it to the masses has fostered significant distrust in the community it needs most to fulfill its GoogleTV ambitions - Hollywood in particular, and the M&E community at large. Until GoogleTV can win the right to deliver a significant library of compelling content to a broad range of Android-powered devices, reaching critical mass will be challenging. So far, this has not happened.
Two little acronyms - CA and DRM - have the power to change that, if deployed seamlessly and leveraged effectively. With the acquisition of Motorola, Google gains a little more than heavy ammunition to defend Android in the battle of the patents. It acquires a major conditional access technology, with the associated set top box deployment, patents, trusted brand name and content channel relationships. Combined with its low-profile acquisition of Widevine earlier this year, which has established security solutions and a strong installed base in key verticals like connected TVs, Google is quietly but surely filling in the pieces of the content jigsaw puzzle.
For quick background, CA or conditional access is the security scheme used by cable operators such as Comcast to protect their broadcast or PayTV content. DRM or digital rights managment is a per-title, per-user set of privileges that is used by services such as iTunes and Netflix to secure pay per download or over the top (OTT) content. As multi-screen delivery and on-demand models gain prominence, and CA systems transition from hardware to software, the line between CA and DRM is blurring somewhat.
Microsoft has an early lead in the DRM space, with a strong licensing community for its PlayReady (and legacy WMDRM) technology that powers many OTT and IPTV installations, but does not itself provide CA implementations. Irdeto, traditionally a leading provider of CA systems, has been making huge strategic strides in software-based systems to protect a broad range of content delivery models, partly through its acquisitions of Cloakware and Rovi's BD+ technologies. Viaccess also combines a strong pedigree in content protection across broadcast, unicast, over the top and multi-screen applications.
With Widevine and Motorola tucked into its pocket, Google is the unexpected new entrant into the small club of companies who have full-fledged DRM, CA and watermarking platform capabilities. It also has partnerships with Intel, the custodian of link protection for premium content, and Adobe - both trusted copyright community partners. Will this be enough to propel it to becoming a mainstream source for the brave new frontiers of OTT? They are certainly off to the best start that money can buy.
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