The global set-top box (STB) market to grow at a CAGR of 2.84% during the period 2017-2021. Growth is expected in the Asia Pacific region, with disposable incomes rising in developing economies, especially in India and China. Production of set-top boxes by local companies is leading to increased competition with global set-top box manufacturers and putting pressure on prices. The Asia Pacific region, excluding Japan, is the largest single market, estimated to be worth over $6.5 billion in 2017 and forecast to rise to nearly $10 billion in 2027. The focus is increasingly on high definition video and high-quality user interfaces, with increasing interest in customized 4K Android set-top boxes.
The North America market is valued at around $5.75 billion in 2017, and forecast to reach nearly $10 billion in 2027, with increasing demand for 4K. North America and Latin America are worth almost $7.5 billion. Western Europe is around $4.5 billion, with Eastern Europe approaching $1.5 billion and the Middle East and Africa at almost $2.5 billion. The satellite set-top box segment is estimated to be worth $8.5 billion in 2017 and is forecast to rise by 8.1% a year over the next decade.
The annual market for over-the-top broadband boxes is estimated at just over $3 billion in 2017 and is forecast to grow to $3.4 billion in 2018, an annual growth rate of over 12%. The numbers come from a market report from Future Market Insights.
The latest trend gaining momentum in the market is Availability of TVs integrated with STBs. One of the upcoming trends in the global STB market is the increasing availability of TVs integrated with STBs. They ensure clutter-free installation as there are a limited set of wires within a single device.
According to the report, one of the major drivers for this market is introduction of advanced features in set-top boxes. Technological advances in the global STB market have led to the development of a wide range of STBs equipped with multiple features. Digital video recording is one of the most popular features as it enables viewers to watch and record their favorite shows. Over-the-air DVR systems are standalone STBs that enable viewers to broadcast and record TV programs. Apart from DVRs, subscription-based TV services providers offer STBs to customers.
Further, the report states that one of the major factors hindering the growth of this market is low scope of customer retention. Low scope of customer retention is one of the serious challenges inhibiting the growth of the global STB market. The global STB market has been witnessing steady growth since 2013, and a significant number of new vendors entered the market by 2016. This has intensified competition, and the technology offers immense opportunities for vendors and investors.
India is well known as a huge market for set-top boxes (STB). In addition to a thriving direct-to-home satellite business, the country is nearing the end of the digitization of its cable TV system—an effort which saw a massive upgrade of cable boxes across the country. DTC estimates that over 195 million set-top boxes shipped in 2015 and 194 million in 2016 worldwide. But India’s sizeable STB market may be on the brink of a significant change.
The first, and less significant, change would impact domestic STB production. In a report to the Indian Parliament, the Standing Committee on Information Technology (SCIT) claimed that while the 19 Indian firms manufacturing STBs had the capacity to meet domestic demand, they were being undercut by foreign, mostly China-based, rivals. Indeed, an estimated four out of every five STBs sold in India originate abroad, leaving India’s domestic manufacturers out of the lion’s share of a $750 million annual market for TV access devices.
According to SCIT, one reason why Indian producers were failing to keep up was a lack of government support. While Indian regulators have taken some steps to boost domestic business under the “Make in India” campaign, such as reducing the Value Added Tax on Indian-made STBs, China was supporting its own STB industry by providing generous loans to Indian STB importers. Indian banks, on the other hand, were not offering generous terms to the country’s own manufacturers. As a result, Chinese vendors were able to grab the lion’s share of the volume generated by India’s digitization.
Unfortunately for India’s domestic STB manufacturers, any move by the government to provide more generous financing will come too late to capitalize on the cable digitization initiative, which is due to conclude at the end of 2016. Still, domestic support would enable the country’s manufacturers to capitalize on future volume, which will still be sizeable.
But India’s STB market could witness a major shakeup beyond who is making the boxes if the country’s telecom regulators get their way. Since the end of last year, the Telecom Regulatory Authority of India (TRAI) has been floating proposals to make the country’s set-top boxes interoperable so Indian consumers could change TV services without discarding their old box. According to TRAI, roughly 30 million STBs worth $750 million sit unused across the country, contributing to e-waste. The regulator further claimed that a move toward interoperability would help drive down pay TV prices for consumers and allow TV operators to redirect the money currently flowing toward box subsidies into other areas of their business.
Not surprisingly, India’s pay TV operators have argued that between incompatible conditional access modules, modulation methods, middleware and different compression standards, creating a “one size fits all” STB simply isn’t feasible—and even if it was technically achievable, it wouldn’t come cheap. Beyond equipping new customers with interoperable boxes, India’s pay TV providers would have to grapple with updating a truly mammoth installed base.
Given these hurdles, it’s doubtful that TRAI will succeed in its vision of having STBs and TV services function like mobile phones—where consumers can keep their phone number while moving between providers and choosing from a multiplicity of phones to access their service. Nonetheless, given the size of India’s STB market and given a similar debate unfolding in the U.S spurred by the FCC, the issue of a “universal” set-top box is now front and center.
Cable Digitization – the major driving factor
A huge demand for set-top boxes was there with 120 million analog cable television homes in India, to go digital, and DTH connections alongside continuing to gain popularity. The increasing demand for STBs is expected to be driven mainly by two major sectors of the Indian Pay-TV industry – DTH and cable.
India’s Pay-TV distribution market has maintained a firm foothold in the country’s TV-viewing homes and is on the cusp of a high growth value phase. DTH and cable TV are the two main drivers. Out of 148 million TV households, the potential demand for STBs comes from 90 million homes, which are being digitized.
The Pay-TV sector is experiencing 10-12 percent year-over-year growth. There is a tough competition between DTH and cable TV. DTH operators who use satellite and dish antennae are well placed to corner the business from cable operators, especially in cable-dark rural areas. DTH broadcasters are aiming for a major share in the Indian Pay-TV industry by ensuring enough number of STBs in place, increasing trained workforce for installation of STBs, and strengthening the back-end. The STBs installed by DTH are powered by MPEG-4 and DVB-S2 technologies, while carrying value-added services.
As competition intensifies with the growth of DTH in key markets, cable operators in India and other parts of the Asia-Pacific region are responding with the introduction of STBs with digital output, interactive services, and next-generation ramp-up like digital video recorders (DVRs), video-on-demand (VoD), and pay per view (PPV) services.
Consumer demand for media-rich home entertainment services is driving innovations and new revenue opportunities in the STB industry. Next-generation STBs will become hybrid devices, integrating the video content from multiple signal sources such as broadcast television, premium VoD, and Internet-based over-the-top (OTT) video services, providing value-added capabilities like time shifting, and allowing content to be distributed to a variety of viewing devices including multi-room TV networks, personal computers, portable media players, and other mobile devices. STB manufacturers are looking to decrease the bill of materials (BOM) cost by using in-house CAS solutions and low-cost system-on-a-chip (SoC) optimized with lower-powered CPUs that support HD video, but only simpler graphical user interfaces.
STB from foreign countries flooded market
Foreign set-top box makers have benefited the most with India’s policy on cable digitalization, having garnered around 95 per cent of the business, Industry body CEAMA told. “During the phase 1 and phase 2 of cable TV digitalization, there was total demand of 26 million. Indian manufacturers of STBs have only secured 5 per cent of business so far.” Industry body CEAMA’s secretary general Suresh Khanna told PTI. He said around 95 per cent of the market demand had been met through imports mostly from China and other Asian countries.
According to statistics shared by CEAMA with Department of Electronics and Information technology (DEITY), the import of STBs during the period of April to November 2012 was 10 million for Cable and 4 million for Direct-to-Home (DTH). “During Phase 1, Indian players were able to achieve about 19 per cent market share but in second phase demand has dropped only because of pricing factor,” Khanna said. The indigenous production during this period is 0.3 million for Cable and 3 million for DTH against monthly production capacity of over 7 million unit. “Many Indian players had to close their production lines because there was no demand for Indian STBs,” Khanna said.
CEAMA has said Indian players are losing business to imported STBs due to price difference arising out of tax structure. “At basic production cost of Rs 1,012 per unit, the final price of STB made by Indian player’s lands in the market for Rs 1,296.27 compared to Rs 1,202.5 per unit price of imported STB,” Khanna explained. CEAMA has requested for level playing field in the market for domestic players. “STB manufacturing is new in the country and need at least two years protection to flourish. We are not asking for special incentives but a level playing field,” CEAMA said.
Major competitors in Indian market
Some of the major players in the DTH sector include Huawei Devices India, Homecast, Skyworth, and Kaon Media. Others include Coship, Intek Digital, Digital Media, Zenega, and Samsung. Huawei holds a 25 percent market share in this market, with its focus being in the DTH segment. The company is aiming for sales of 2 million STBs in the cable TV segment and 4 million in the DTH segment by end 2018. NDS Services Pay TV Technology Pvt. Ltd. and Conax are software integrators. NDS drives down the cost of STBs by licensing its technology to many manufacturers.
STBs may be broadly segmented into two categories – MPEG-2 and MPEG-4 STBs. Traditional STBs are designed to receive standard definition (SD) MPEG-2 video format broadcasts. Many STBs are now HD-ready. Selected cable television service providers, networks, and local terrestrial TV stations are concurrently transmitting both SD and HD contents. Over time, MPEG-4 is expected to displace the MPEG-2 format for both SD and HD.
MPEG 2 STBs, being competitively priced, are generally used by cable operators for providing digital TV connections (the average unit price is less than USD 20). MPEG 4 STBs are more expensive and are mainly used by DTH service providers (the average unit price is USD 30).
A digital head-end is required that processes and secures an enormous quantity of information along with an STB that can be tuned to digital services it sends out. STB software like MediaHighway from NDS supports electronic program guide (EPG), user interface, and interactive applications. The middleware and conditional access are inextricably linked, since these elements must be integrated and closely work together. The middleware and conditional access (CA) also impact on the type and complexity of EPGs, which can be implemented.
MSOs that have invested in the new digital infrastructure can leverage their digital cable platform to provide better technology and more services than an analog cable TV operator. A server-based VoD solution can provide a range of movies and personalized content. The digital cable infrastructure offers efficient delivery options, which take advantage of distributed head-end architectures. Interactive services are another differentiator in a competitive market in drawing more subscribers, increasing ARPU, and reducing the churn. Interactive applications include an enormous range of customized services, each bringing unique demands on resources and response time. Some applications, such as a banking application or stock market information, are only accessed by a few users at any given time and require timely two-way information exchange, while popular games and some other services may be accessed by hundreds or thousands of users at the same time, who all need essentially the same information. Thus, the MSO has the flexibility to allocate bandwidth per application according to demand, thereby charging channels for access to the interactive infrastructure.
DVRs can play an instrumental role in completely changing the way subscribers watch TV. DVRs such as those based on XTV from NDS give viewers the freedom to use functions including simultaneous recordings and recording multiple episodes.
Chinese companies trying hard to enter STB market
As digitization rolls out in India, cost of importing set top boxes go up and Chinese component makers rush in to fill the slot. During 2014, India had to complete phases three and four of the TV digitization plan rolled out by the Telecom regulatory Authority of India (TRAI). In the first two phases of digitization that covered the metros and tier 1 cities close to 30 million STBs were sold.
However, there are few manufacturers of STBs in the country. The cost of importing STBs from abroad has gone up sharply with the government hiking the import duty on set top boxes during the last Union Budget by five per cent. It is this market that Hangzhou, China-based NationalChip plans to tap. The company supplies chips to manufacturers like Videocon, ABS and MyBox.
The problem is that India does not have the wherewithal to manufacture semiconductor chips. Says Patrick Dou, vice-president, Hangzhou NationalChip Science and Technology: “Since the semiconductor eco-system is not available in India, we provide the chip to make STBs in India.” Pune-based Millenium Semiconductors imports the main chip from NationalChip also sources various other components from component makers across the world. Says Haresh Abichandani, managing director, Millenium Semiconductors: “Apart from sourcing the components, we also support key customers.”
Dou points out that unlike in manufacturing electronic components, the chip for the STB has to be customized to meet the needs of different multi-system operators (MSOs). As a result, the chips are for specific customers. While the Indian market is just getting STBs for digital TV, Dou points to the stage when the consumer can use the cable TV connection to get access to broadband connectivity. Currently that is just happening in a few pockets in India.
Over the last couple of years, the company has shipped in 1.5 million chips to India and hopes to get a 30 per cent share of the market in the next five years. That’s not going to be easy since the market is dominated by big players like STMicroelectronics, Cisco Systems, Broadcom and Taiwan’s Ali Corporation. A lot depends on tying up with the large direct to home (DTH) service providers. NationalChip already supplies to Videocon, but it will need to join hands with other service providers to make a bigger impact in India.