From talking to many operators across the world over the last year, it’s clear that the set-top-box (STB) market is consolidating around fewer operating systems. This is in part driven by a need to simplify operations but also to recognize that consumers are no longer tied exclusively into the pay-TV ‘big bundle’ as the rise of OTT and streaming services continues to radically reshape our industry.

Key STB operating systems including Android TV, RDK and Harmony are supplanting generic Linux alternatives. This consolidation is matched by another trend where consumers, not just across the TV landscape, are utilizing services where data is retained on the cloud rather than locally stored media. This is evident across the board in SVoD services like Netflix and the decline in DVD sales. In video gaming, it can be seen with the rise of cloud-based services like Steam and the next generation of games consoles that, unlike previous models, have modestly sized internal capacity. Even consumer laptops are shipping with smaller, faster solid-state drives (SDD) rather than spinning rust (embedded hard disk drives). In fact hard disk drive (HDD) sales have fallen every year since 2011 – although capacities have grown.

Bundled services: Simplifying the TV landscape?

Within the TV industry, this is most noticeable in areas such as DVR connected to TV services. Although a useful device in an era where content flowed through digital television or was controlled exclusively by the pay-TV service provider; the modern situation where consumers pick and mix from a range of media options including Amazon’s Firestick, Google Chromecast, Roku and Apple TV  – make the utility of the DVR somewhat redundant. However, going back to the consolidation of the STB landscape, this gives operators an opportunity to regain relevance through the ability to simplify the myriad of possible TV services into a unified and easy-to-access service for consumers.

This process is starting to take place within the larger operators such as Sky in the UK and Comcast in the US that have “bundled” Netflix into their offerings. The Netflix options within these services use a set of well-defined APIs and there is nothing technical to stop other integrations such as Hulu, Roku, Amazon Prime and others from becoming integrated services within an operator’s portfolio. This not only applies to SVoD but also to traditional digital television and ‘as-live’ streaming via OTT.

Mobility & Bandwidth Matures: Is this the time to expect connectivity?

An undeniable backdrop to the discussion of reduced attractiveness of spinning rust is the rise of 5G and the promise of ubiquitous fat-pipe data services. When the DVR originally hit the market (around 1999) there was no expectation of connectivity to a robust Internet service for most consumers. Mobility existed in pre-3G form, and the iPhone was some eight years in the future. However, Internet connectivity has now matured to the point that most consumers rely upon a robust service to drive most of their daily activities. With the COVID-19 virus forcing much of the world into remote work situations, it is fully expected that Internet bandwidth will become even more of a critical commodity moving forward as many individuals and corporations will embrace remote work.

Add to this the explosion of wireless connectivity in and outside of the home. This is evidenced by the fact many of the newer laptop models no longer provide an RJ-45 Ethernet connector (in order to shrink the device casing size and make it lighter). All of these trends point to a growing expectation that consumers will be far less amenable to devices that locally store their media and want to be able to access their media from any device.

Software-centric, cloud native future = an end to spinning rust DVRs?

There is a near future scenario where operators have adopted a software-centric and cloud-native position that underpins the delivery of all content, irrespective of where it originates and on which device it is consumed on. The underlying STB estate does not evaporate but instead of the current proliferation of different STBs from the likes of Apple, Roku etc that are cluttering up the HDMI ports and consumer living rooms – these becomes applets on a unified and standards-based architecture.

This approach is better for operators as there is less hardware to support – especially spinning rust DVRs that have a much higher CAPEX and shorter life span than a solid-state STB. Another operator benefit is that with the STB becoming relatively standardized and, in many ways, simpler, the network service delivery layer for features such as cloud DVR, catchup, buy-and-keep (Ultraviolet) and other innovation is also simplified and extended across a wider range of services. These services will likely be delivered from the cloud as this allows operators to scale (and pay) as customers on-board and scale back if needed.

A new future for the STB?

Although this may sound radical, a 10,000-foot view of the industry shows many of these trends leading to an inevitable conclusion. For operators to stay relevant in an industry where content owners are increasingly going direct-to-consumers, with the stunning rise of Disney+ as just one example. Disney+ reached 54.5 million subscribers by May 2020, while Digital TV Research analyst Simon Murray predicts that it could boast around 202 million subscribers globally by 2025). Operators must carve out a value-add to stay relevant and avoid just becoming commodity content transporters. Creating a more personalized consumer experience through unified search, EPG, catch-up, billing and support is a real, tangible benefit and one that is achievable with the technology we have available to us, here and now.

Yes – it will require bold thinking and a recognition that future will not revolve around the current 5-8-year cycle of STB refreshes. However, the STB is far from dead. And there is a big refresh due to enable support for more 4K content and to meet the ATSC 3.0 specification in the US. This refresh offers the perfect opportunity for operators to start to think about the strategic direction of not just how they get content on the consumers screen but more about their longer-term value position in this dynamic and rapidly shifting TV market.