Sigma Designs says it has about 75-percent market share for the media processor chipsets used in IPTV set-top boxes.
That alone should give it a good overall perspective on where the IPTV market stands and is headed. But add to that the company’s involvement with telcos and middleware vendors in advancing its business, and Sigma Designs appears to have as good a handle as any on the state of IPTV worldwide.
IPTV Update spoke with the company’s VP for strategic marketing, Ken Lowe, to glean some perspective on where the IPTV market stands today and the challenges it’s facing moving forward.
IPTV Update: What does Sigma Designs forecast the worldwide and North American markets to be for IPTV set tops?
Ken Lowe: If you combine the type of response the telcos have had so far to the services they offer and the state of the industry and the relative merits of the offering itself, what we’ve seen is a pretty strong reception given that in the various markets there are alternatives that exist.
In the U.S. market, there certainly is a range of alternatives that exist, and I think AT&T coming out with one of the first offerings in IPTV using the Microsoft IPTV experience was a prudent decision because Microsoft IPTV represents the top end of the spectrum in terms of offerings.
So coming into a space where it’s dominated by premium services you can get from cable and satellite, you’ve got to offer one-upmanship and a reason for people to switch.
What we are seeing is the type of information we are being exposed to is a lot of receptivity and pent up demand, and as soon as the spigot is really turned on heavily and promotions are started in each of the regional areas, that’s really going to start lifting up quite nicely.
In Europe, there is a slight county-by-country difference, but overall the market is strong. There is very little existing cable service installed over there. Premium services for video have not been as prevalent, but Europe is starting to develop an appetite for high-definition TV, and with that appetite it is also bringing them into a situation where they know they are going to have to get premium services. The HDTV uptake in Europe is kind of precursor of what is happening there. We think that is going to spill over to demand for high-definition DVD players and other things as well, which will help the overall demand.
In Asia, we are seeing continued interest by nearly all the telcos. Amazingly, you look at the heavily industrialized nations — Japan and Korea — they certainly have a vast installed base of high-speed DSL. They’ve been prepared for a while to put anything across the Internet that they need to, and they are getting a reasonably strong penetration over there. But in places like China and India, the interest is there as well, even though the economics of the area is a challenge to meet with a set-top box that can be subsidized by carriers and still make money.
We just simply don’t see an area of the world that doesn’t have the interest and doesn’t see the merits. It’s amazing that this market is something that we’ve been trying to penetrate for six to seven years, and the early years of the market was a long precursor tail with latent demand, but now that it has started to happen, it seems that it is bursting at the seams.
IPTVU: One technology point that may have been an obstacle was adequate compression to deliver multiple HD and SD channels as part of a service offering. That seems to have been removed with the arrival of MPEG-4 H.264. Do you agree, and are there other technology obstacles impeding IPTV from reaching its full potential?
KL: There were two challenges over the past four years that presented an obstacle for deployment. One was that existing DSL speeds were barely enough to really allow a standard-definition type of experience, and the standard-definition television experience wasn’t considered to be something anyone would get excited about in North America or Europe.
Simply being able to buy an alternate service from a telephone company with standard-definition TV, nobody was really jumping to get into that. Video on demand kind of increased the ante, but still was something with a lot of uncertainty.
In the last couple of years, there’s been a confluence of two different technological evolutions. One is the advent of the new high-compression standards, MPEG-4/H.264 and VC-1 as a pairing. Since those two standards were anointed as the heir apparent to MPEG-2 by both HD-DVD and Blu-ray committees, everybody knew that the chipsets for those would go into high volumes. So you have commercially cost-effective support for those standards in standard decoder chips.
The other factor was high-speed DSL lines and hybrid fiber DSL networks that were going to enable a bump up in capability and bandwidth. The confluence of those factors really allowed the vision to extend beyond standard definition and beyond what can we do today.
IPTVU: You identified promotion and consumer awareness as needing to be ramped up to take IPTV to the next step in the United States. So if I understand you properly, the technology is in place. Now it’s a matter of marketing and promotion?
KL: Sometimes the best learning mechanism is a parallel comparison. For a while, systems have been marketed fairly heavily in France by a company called Free Box and in Korea by Hanaro Telecom. Both of those situations were areas where people hadn’t been buying much IPTV.
In both cases — completely different market spaces — the reception was very good and exceeded their initial demand expectations. Free Box has continued to exceed what they had been expecting each quarter, and I think that’s a demonstration of the satisfaction and word of mouth spreading that IPTV is something to be looked at, and I think the same will be true in the U.S. when telcos like AT&T, et al. start to turn on their services and start to promote the offering. I think it’s going to become a big uptake in demand.
IPTVU: How has this demand affected Sigma Designs?
KL: It’s interesting because when the IPTV market potential shot up in a big way a little over two years ago, the heat was really turned up, and everybody wanted to get the technology puzzle solved so they could start turning on the services as soon as possible.
Most of the carriers were fairly open about investing heavily into the high-speed DSL networks that they’re going to offer. The main service that justified putting that infrastructure in place was high-speed Internet, but at the same time video services represented a strong upside potential as an add-on. So, there has been a lot of pressure to get these solutions solidified, to get them out into the market, to get things ramped up.
Sigma has worked closely with both the Microsoft TV camp as well as the Linux camp to produce world-class IPTV offerings. We had a long legacy of mining this market with smaller carriers, so we have a lot of experience in the software layers it takes to make the real-time system work. Fortunately, that technology is what has allowed us to be a key enabler in the market as it takes off and being a technology solid enough.
I think moving forward, the challenges is migrating into how to raise the feature content of the services — how to provide enough headroom for the software so it can expand and add more feature value add.
The IPTV set-top boxes being deployed today are head-and-shoulder above any boxes in cable or satellite. These are extremely powerful boxes, and there is a wealth of feature upgrades that every one of these telcos envisions as they move into the future.
IPTVU: And that’s affecting the company’s performance?
KL: Sigma Designs is living proof that IPTV has taken off and has become a real deployment in the world at this time.
We’ve had strong double-digit growth and sequential double-digit growth from quarter to quarter for the last five quarters. That’s being driven by IPTV. Virtually all of our other businesses are still in the offing. IPTV has represented the vast majority of that growth. Sigma Design has about 75 percent or more of the IPTV set-top box market when it comes to the media processor chipsets. So we are probably the best bellwether that exists in the market today for looking at what’s happening with IPTV. As a company that’s almost a pure play today in IPTV, we are a good indicator for someone who’s trying to track IPTV and learn what’s going on and what are the important technological trends.
IPTVU: What impact will the heavy use of the Internet by consumers to stream and download video have on consumer acceptance of IPTV as a multichannel alternative in the market?
KL: I think what’s happening is the telephone companies more than anybody are creating plans and programs to embrace the changes in the ecosystem for delivering information and content into the home. They are looking at the interaction and crossover between the traditional use of the Internet and moving over to things like You Tube and other things people use to access video content, such as SlingBox to feed people their television programs remotely. There are a lot of programs right now being developed to embrace streaming video and incorporate that as part of the overall but making it more convenient to use. Rather than trying to reject this trend or ignoring it, they are doing the smart thing, which is putting in place development programs to integrate the range of Internet video uses into consumers’ homes into one cohesive offering.
IPTVU: Is there anything else you’d like to add?
KL: There are a number of synergies occurring as we move toward the era of widespread HDTV. As consumers, we’re buying various products to give us new-generation high-definition capability in the home, including televisions, set-top boxes and players. When you look down under the hood and look at the technologies that are enabling this to happen, there’s a paradigm shift going on out there. The entire market space for media processor technology is moving to a winner take all. Years ago there were separate components under the hood for DVD players, set top boxes and televisions. Today, that is converging. To a certain extent that is a good thing for everybody because it is raising the quality bar and ensuring more consistency between the various consumer systems.
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