"Change it had to come
We knew it all along
We were liberated from the fall that's all
But the world looks just the same
And history ain't changed
'Cause the banners, they all flown in the last war"
- The Who, "Won't Get Fooled Again"
Intel's recent announcement that it is leaving the digital TV (DTV) market is the second major company exiting the DTV business in the last month - Broadcom recently announced it is shutting down its DTV and Blu-ray business units as well. There really hasn't been much good news in the DTV business for the last few years. Trident Microystems, once a leader in the category, ranked 3rd in global DTV SoC sales in Q1 2011 with only 7% of total revenue according to iSuppli (MStar was #1 with 37%, Mediatek #2 with 9%), and that was after acquiring the DTV and STB businesses from both Micronas and NXP; Trident recently announced a 20% headcount reduction to reduce expense amid a continued decline in its business. STMicro acquired Genesis Microchip in 2008, which was also a former category leader; STMicro ranked 5th with 2% of total sales.
The trend is obvious: DTV chipsets, which are extremely complex SoCs containing multi-standard HD digital audio/video decoders, video image enhancement processors, DTV demodulators, high speed/high precision video A/D converters, and many different interfaces, have become a commodity and market share is consolidating in Taiwan, which has built an industry on taking over high volume markets by competing on price. The consumer, of course, benefits from this: a recent scan of advertised prices for 55 inch, LED backlit, 120Hz/240Hz 1080p HDTVs showed prices in the $1500 - $2000 range for premium brands like Sony, Samsung and Sharp. It's truly amazing how much value and functionality is available for so little, but that has been the calling card of the semiconductor industry - giving its customers more and more for less and less.
What may also be driving companies like Intel and Broadcom out of the DTV market is the TV's diminishing role in the future vision of the all digital, connected, anytime, anyplace media experience. The large screen, high definition flat panel HDTV will still be the anchor viewing device that sits in the family room with the requisite couch and bowl of popcorn for social or family viewing events like sports, movies, award shows or the continually devolving array of reality shows, and it will increasingly be connected to the Internet, but it will remain primarily a passive viewing device. Many attempts and painful lessons have been learned in trying to force interactive TV down the unwilling throats of the viewing public. No, people generally don't want to interact with their TVs, they want to be entertained by them.
Intel said they would shift their focus to the IP set-top box (STB) and gateway media processor business, which is being folded into its tablet organization, which is focused on tablets, smartphones, and ultrabooks. Gateways and next-generation STB's are becoming more intelligent, more complex, and are where the action will be in the connected digital home. And where change and complexity are the greatest is where the opportunity is for companies to develop new solutions that can be sold at acceptable margin.
Consumers, content providers, and network operators are all scrambling to protect their existing content, networks, and advertising and PayTV revenue while making their programming content available to viewers on any platform at any time. TV Everywhere, introduced last year by Comcast and Time Warner, is essentially an effort to provide content from the cable and satellite operators' portfolio of highly rated channels and programming content through the Internet to Web-connected devices like notebook PCs, tablets and smartphones. The catch is that you must be a subscriber to the cable or satellite provider's network in order to access the content. "Free" Web content providers like Hulu and Clicker are limited in the content that they have access to, and based on some of Hulu's well know financial difficulties seem to be inevitably heading toward moving their content behind a pay wall. Premium content, which wins high viewer ratings, generates high advertising rates, and draws subscribers, isn't cheap to create and isn't going to be free to watch, at least not for much longer.
The network operators and content providers have a mutual beneficial arrangement that provides the incentive to remain joined at the hip: the network operators need to have a complete package of highly rated channels to offer in order to attract and retain subscribers; the channel owners receive about $32 billion dollars annually in affiliate fees paid to them by the network operators for the privilege of offering their channels and programming content. That's a pretty strong reason to keep their alliance intact even while providing the content through time and space shifted Internet distribution.
So what does this have to do with semiconductors and Intel and Broadcom exiting the DTV business? Semiconductor companies are struggling to generate revenue growth and preserve profit margins in a business that is increasingly seeing compressed product cycles (and profit cycles) as these extremely complex SoC's are becoming commoditized faster and faster. The next major evolution in the DTV business is likely to be in the STB or broadband gateway, where HDTV content will be received from both broadcast and Internet sources and distributed over home IP networks on different physical media (WiFi, coax, powerlline, CAT5 wiring) and stored and viewed on any type of platform: DTV's, STB's, DVR's, PC's, tablets, smartphones, gaming consoles, etc. By the way, there will be multiple viewing platforms in the home, and the PayTV content can only be viewed if you are a subscriber, and the viewing statistics need to be captured for rating systems and advertising rates, so it will be necessary to provide absolutely watertight security on these multiple streams of content. This may be the tie in to Intel focusing its efforts in STB and gateway media processors and moving the business into the group that is responsible for tablet, smartphone and Ultrabook technology.
The next generation of gateway's and STB's will need to be much more intelligent, provide multiple HDTV stream processing, and offer much more stringent security than today's systems. This capability will come from the semiconductor SoC suppliers, and this is the opportunity they will be maneuvering to win. The distributed digital media era is upon us. Amid all the change, one thing is constant - the major production studios and network operators will maintain control of the content. As the Who wrote it in their song, "Meet the new boss, same as the old boss."
