Content Ecosystem Archive

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AVC at HEVC Compression Rates Scrambles Next-Gen Codec Picture

Keith Lissak, senior director, product marketing, Harmonic

Keith Lissak, senior director, product marketing, Harmonic


Harmonic Introduces Technique that Works with Existing Client Base

By Fred Dawson

October 10, 2016 – Harmonic appears likely to shake up industry-wide efforts to save bandwidth with new encoding methods offering HEVC-level bitrate reduction on AVC encoders without requiring any change in device codecs.

“This is something we’ve been working on for some time,” says Keith Lissak, senior director of product marketing at Harmonic. “We’ve gotten AVC (Advanced Video Coding) up to HEVC (High Efficiency Video Coding) levels. Our solution works on all existing AVC-enabled devices, including devices that use HEVC codecs.”

The company’s EyeQ software system, slated for commercial release before year’s end, enters the market amid much uncertainty among mobile, pay TV and OTT content distributors over how to accommodate the rising tide of IP video transmissions as 4K UHD, HDR and other next-gen formats come into play. While HEVC has long been positioned by the ISO and ITU as the successor to the Moving Picture Experts Group’s AVC, the search for lower-cost and more easily implemented solutions has spawned a flurry of initiatives from proprietary codec suppliers such as V-Nova and RealNetworks and from promoters of royalty-free solutions such as Google and the Alliance for Open Media (AOM).

V-Nova, for example, continues to make strides, building on previously reported successes in several market segments with recently announced wins in mobile, OTT and 4K contribution. But, as confirmed in recent testing by independent research firm informitv, V-Nova’s Perseus codec, in the hybrid version designed to work with existing MPEG codecs, achieves just a 33 percent bitrate reduction on AVC-delivered 1080p HD  at comparable quality levels.

Google’s royalty-free VP9, used with YouTube and in many other parties’ OTT operations, last year achieved parity with HEVC, as confirmed by several testing organizations. Perhaps more significantly, the company has moved what had been its VP10 successor initiative into the AOM technology pool.

AOM’s first codec, AV1, slated for release in March, is targeted for Internet Engineering Task Force (IETF) standardization as a royalty-free platform precisely tuned to the requirements of streaming live as well as on-demand HD and 4K UHD content over the Internet with a 50 percent efficiency improvement over HEVC and much lower use of CPU power in the encoding process. VP9 uses almost as much processing power as HEVC, which, with the exception of improvements engineered by encoding companies like Elemental, consumers ten times as much processing as is required by AVC.

While long-term prospects look good for AV1 as a potential force in IP video, the opportunity to exploit the vast embedded base of AVC codecs to achieve HEVC-level performance in the near term promises to expedite efforts to raise the quality of user experience in the congested OTT video space. According to Cisco’s latest VNI Global IP Traffic Forecast, video now accounts for over 60 percent of global Internet traffic and about 60 percent of mobile data traffic.

Viewing of TV shows, movies and other long-form video is now a big part of the video flow, which makes viewers less tolerant of sub-par performance. “Viewers now expect a first-screen quality of experience on every device, with increased video resolution and no buffering, despite network conditions,” notes Bart Spriester, senior vice president for video products at Harmonic,

Harmonic’s EyeQ is designed as an enhancement to the PURE Compression Engine used with Electra X encoders in the cloud-based suite of VOS video processing solutions the company developed to give distributors an alternative to purpose-built hardware solutions. According to Harmonic, EyeQ will allow these encoders to deliver live as well as on-demand video at a 50 percent reduction in bandwidth without resorting to HEVC in complete conformance with AVC specifications.

Lissak says the Q4 implementation of EyeQ will run on the Electra X2, Harmonic’s first software-based encoder designed to achieve performance levels on Intel processors comparable to the capabilities of ASICs used with its E8000 and E9000 hardware platforms. Harmonic’s software-based Electra X3, optimized for delivering broadcast-ready content at 4K resolutions and 60 frames per second, currently employs HEVC Main 10 profiles.

How the company intends to utilize EyeQ to enable 4K UHD over AVC remains to be seen, but Lissak makes clear the new technology represents “an opportunity to accelerate the rollout of UHD.” X3 implementations are slated to appear in mid-2017, he says.

More immediately, Harmonic’s emphasis is on the benefits to be realized with current video streams. Along with cutting bitrates by up to 50 percent, an especially important benefit to bandwidth-squeezed mobile operators, EyeQ directly improves the bottom line for video content and service providers through reduced storage costs at the core and network edges and by enabling a more consistent viewing experience with enhanced video quality and less buffering, Spriester says.

“By lowering CDN and storage costs by half, EyeQ has the potential to help deliver significant CapEx and OpEx savings, and increased profitability, for operators,” he says. “And when viewers spend more time in front of the screen, there’s more opportunity for content monetization.”

EyeQ is not a revamp of AVC encoding. Asked whether Harmonic is simply using extensions available in the AVC profiles, Lissak replies, “This isn’t some patch. If it were, there would be a lot more people doing it. What we’re doing represents a whole new way to analyze and optimize compression performance in real time.

“The optimization is happening based on the human visual system,” he adds. “If the human eye can’t spot the detail it gets cut out in real time.”

In other words, EyeQ executes “quality awareness” analysis of encoded frames using what Harmonic calls “in-loop artificial intelligence” to determine which bits are needed to hit quality targets based on what matters to the human visual system. These adjustments are then communicated to the encoding system, which reprocesses the frames accordingly. All of this is done without adding latency to the encoding process, Harmonic says.

EyeQ relies on variable bitrate (VBR) rather than constant bitrate (CBR) encoding. It is totally different from capped VBR processes, which rely on pseudo-linear scaling of picture- and scene-level quantification to cut bitrates.

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Market Focus on HDR Intensifies

Michael Wise, CTO, Universal Studios

Michael Wise, CTO, Universal Studios


Resolving Production Workflow Issues Is Now a Key Goal

By Fred Dawson

October 3, 2016 – The pace continues to quicken in the long march to full realization of the enhanced quality potential of new video display technologies, especially as regards attempts to capitalize on stunning High Dynamic Range enhancements without the encumbrances imposed by the bandwidth-hogging 4K component of UHD.

Industry acceptance of the primacy of HDR is reflected in the recently adopted ITU HDR–TV Recommendation BT.2100, which, among other provisions, extends the luminance range and Wide Color Gamut (WCG) for 4K resolution displays embodied in the BT.2020 standard to content formatted for both HDTV 1080p and 8K displays.

There are still many issues to be worked out with HDR, which technically refers just to luminance range but in general parlance these days also includes WCG. But with growing consensus on HDR as the surest path to wowing the huge base of viewers who own 4K displays, content producers now have more reason than ever to weave HDR into the production process..

“Content shot and mastered with HDR, in my mind, looks better than any 3D content I’ve seen,” said Michael Wise, CTO at Universal Studios, who spoke at a symposium sponsored by the Society of Motion Picture and Television Engineers (SMPTE) in June. “It’s like looking out a window.”

HDR is now a key consideration in Universal’s and other studios’ production processes, although more needs to be done to reduce the labor involved and to improve creative use of the enhancements. “It’s about educating cinematographers, colorists and filmmakers about the art of the possible,” Wise said. “Honestly, there are some titles that don’t look as good as they could, but we do have really good ones like [20th Century Fox’s] Revenant.”

If striking the right balance between not enough and too much of a good thing when it comes to avoiding unintended perversions of creative intent is as much art as science, at least the science has reached a point where HDR can be used to consistently good effect across a wide range of displays in people’s homes. What matters most is that content be produced in multiple versions optimized to different HDR formats so that any display designed to work with one of those formats and even some that aren’t can render frames in accord with the intended variations in colors and brightness.

The ITU’s BT.2100 helps distributors make efficient use of these different format versions by  navigating a key area of technical complexity that has to do with the so-called “gamma curves” that determine the range of brightness values executed by different types of TV displays. The prevailing gamma curve used with the new generation of HDR sets is SMPTE’s ST 2084 dynamic range electro-optical transfer function.

ST 2084 defines a standardized approach to breaking with the 100-nit luminance limit used with the traditional gamma function on SDR (Standard Dynamic Range) displays. But there’s also growing support for what is known as Hybrid Log-Gamma, which was developed by the BBC and NHK and standardized as ARIB STD-B67 by the Association of Radio Industries and Businesses as a way to enable a degree of compatibility with legacy displays by more closely matching the traditional gamma curve while utilizing whatever capabilities they have to extend beyond the 100-nit limitation.

BT.2100 embraces a newly developed simple conversion process to enable use of either HDR gamma function for rendering content depending on the type of display in use. But the onus remains on producers to devise workflows that can deliver HDR versions suited to different display environments.

Simply scanning a finished film and enhancing it to HDR is not an economically viable solution, Wise noted. “Going forward our studio workflow will incorporate digital migrations that derive versions of HDR for different display environments,” he said, suggesting these would include the two leading TV formats, Dolby Vision and HDR10, as well as versions suited to tablets and other small-screen displays.

Right now this is a laborious process. Better cooperation among producers on formulating common parameters and procedures associated with mapping content to the various HDR format is essential to normalizing and streamlining how things are done from camera operations through all stages of production and distribution.

“We have to get together on this,” said Mark Lemmons, another SMPTE speaker, who at the time served as CTO at Deluxe Entertainment Services Group, a job he left in July. “It’s something that we have to do in partnership with others across the industry.”

But, as Ron Sanders, president of Warner Home Entertainment, noted at the symposium, it’s far easier said than done. Notwithstanding monthly meetings of studios, CE manufacturers, OTT companies and others under the auspices of the Digital Entertainment Group to work through technical issues, the consensus-building process “is like herding cats,” Sanders said.

HDR processes had yet to be incorporated into Warner’s workflow, he said, noting how hard it was to accomplish such formatting under tightening deadlines. “Windows are shrinking,” he commented, which leaves little time for remastering during the home entertainment post-production process.

“We have to get directors and producers to understand HDR,” Sanders said. “Once HDR is in the production process and the tools are more efficiently priced, [HDR-formatted] content will flow.”

The first Blu-ray players supporting the Blu-ray Disc Association’s UHD standard, which establishes HDR10 as the baseline requirement with Dolby Vision as an option, entered the market this year with under 50 titles ready for viewing in the new format. “We expect to have over 100 by Christmas,” Sanders said, speaking of titles from all sources. “You’ll see a huge ramp-up next year.”

Adding to the building HDR momentum is the emergence of content produced in HDR for OTT distribution. As previously reported, Netflix started down this road last year with a couple of series with ongoing expansion this year and now is reported to have about 100 hours of content available in the format. In June Amazon launched its first HDR-formatted series along with support for a handful of HDR-formatted movies with a promise to hit 150 hours of HDR content by year’s end.

Efforts to extend HDR benefits to owners of flat screens not equipped to support HDR per se but with luminance and color ranges exceeding the SDR parameters plays well with the expectations of consumers who purchased 4K UHD sets, especially as that base of users inspires expectations among distributors that there are monetization opportunities tied to delivering content in 4K resolution. According to Futuresource Consulting, worldwide shipments of 4K UHD sets reached 32 million units last year, representing a 160 percent increase over 2014 and 14 percent of all sets sold. Futuresource expects 4K UHD shipments will account for 52 percent of the market by 2020.

A recent global survey conducted for Irdeto by SNL Kagan found that 64 percent of service providers and 73 percent of content producers among the nearly 500 respondents believe consumers will be willing to pay 10 to 30 percent more on their subscriptions for access to 4K UHD content. Ninety-six percent of all respondents believe 4K UHD TV services will be widely adopted by 2020.

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Pay TV Tech Execs Shed New Light on Core Issues

Topics Include Collaboration, Monetization, New TV Formats and the Role of Wireless

Gene Reznik, group technology officer, communications, media & technology practice, Accenture

Gene Reznik, group technology officer, communications, media & technology practice, Accenture

A wide-ranging discussion of the disruptions and opportunities impacting the pay TV business at the INTX Show revealed key players’ latest thinking on issues that will shape their fortunes in the years ahead.

Led by Gene Reznik, group technology officer for the communications, media & technology practice at Accenture, the panel included:

  • Tony Werner, executive vice president & CTO, Comcast Cable
  • Steve Shannon , general manager, content & services, Roku
  • John Honeycutt, CTO, Discovery Communications
  • Kevin Hart, executive vice president & CTO, Cox Communications
  • Darcy Antonellis, CEO, Vubiquity

The final day keynote session drew little attention, as is often the case on the last day of events like INTX, but it bears scrutiny by anyone interested in these companies’ perspective on topics such as collaboration, monetization, new TV formats, organizational approaches to innovation and the role of wireless. An edited transcript of the full discussion follows.

Gene Reznik, group technology officer, communications, media & technology practice, Accenture – The theme here is “From Chaos to Opportunity.” I’ll start, Tony, with you. Chaos to opportunity – clearly Comcast is at the forefront of leading innovation in the cable sector and more broadly now with your X1 platform. With the keen interest you have in the Internet, wireless, Wi-Fi, how do you see the opportunity  that chaos and all the over-the-top (OTT) disruption is creating in terms of what you need to be doing?

Tony Werner, executive vice president & CTO, Comcast Cable

Tony Werner, executive vice president & CTO, Comcast Cable

Tony Werner, executive vice president & CTO, Comcast Cable – I’m not sure there’s necessarily chaos. There are opportunities for us as an industry to go after across the spectrum.

We all feel at Comcast the digital world is well upon us, and we’re embracing a lot of it. But there’s still a lot we can do. Where we’ve turned our sights in the last 12 months in a big way is – we’re still pushing products out the door; we’re still coming up with cool new things and features, and that’s going quite well – but making it a true digital experience for the customer from the time they find you on a website until they have service.

A digital experience isn’t to go there and dial 1-800-Comcast and talk to somebody and then a guy comes out to your house and drills some holes and runs some cables. We’re going across that whole suite to where you have instant gratification. You go to the website, and before you leave the website you have service on an app and you’re starting to be able to already consume the service.

Then we’re app first on walking you through the installation. And we’re putting a lot of effort into wireless devices and the rest of it so that in the vast majority of the homes this is a self-install. And it’s the same way you do a Roku box and you do another box across your suite of services.

That’s going to be a great thing for the customer. Most customers like this a lot. And at the same time it makes our experience a lot more economical and allows us to put more money back into innovation.

Reznik – Steve, Roku has been wildly successful – ten million active customers, 50 percent growth, international expansion. How do you think Roku and where the entire box OTT industry is headed?

Steve Shannon , general manager, content & services, Roku

Steve Shannon , general manager, content & services, Roku

Steve Shannon , general manager, content & services, Roku – We’ve been on fire. Growth has been phenomenal. We’re up to 3,400 apps now and streamed five and a half billion hours last year with the most popular TV-connected platform in the country. We’re starting to expand internationally and we’re also putting the system in televisions.

You know, it’s essentially an operating system. And the reason we’re at the show here is we’re partnering with operators around the world to deliver the best pay TV experience. [Part of] the panel name here is “Harnessing Disruption.” I think a lot of folks call us disruptive, but we are here to be harnessed [laughter].

The goal really is to deliver experiences people love. And how exciting is that for folks to be thrilled about their set-top boxes? Our software is beloved. It’s not just Roku. Apple TV, [Amazon] Fire TV – these are good products.

The change in consumer experience is dramatic, not just from the usability and simplicity of it, but the fact these are developer platforms that third parties can put apps onto is really transformative for the value proposition.

And on top of that they’re way, way less expensive than the set-top boxes that have been used historically. When you sell them profitably at 39 bucks, you can imagine how low the price to make them is. We think that’s going to be pretty transformative.

Reznik – You mentioned 3,000 apps on Roku. Clearly navigation becomes an important part of the story. How do you start to navigate through it all? I know, Tony, that’s a big part of the X1 platform. John, you’re coming at it from a content producer, a production standpoint. How do you think about the whole customer experience and navigation part of the story?

John Honeycutt, CTO, Discovery Communications

John Honeycutt, CTO, Discovery Communications

John Honeycutt, CTO, Discovery Communications – As a content provider we see in all this nothing but opportunity to get our content positioned in front of consumers in the most efficient way possible. Internally what we focus on for this part of the discussion is really about ensuring we have the right hooks, the right information to be able to provide to have it be discoverable, to have it be aligned in whatever structure makes sense for the platform we’re on.

I would say in some areas we are making a lot of progress. I would say in other areas – I think at some point we have to raise the concept of advertising in this and understanding where we are in digital advertising and those topics, which I think is challenged at this point. But as a content provider I think the headline is: Fantastic. All platforms – how do we get it there most efficiently? Working with people like Darcy in her business to [foster] a supply chain that is as efficient, quick and detailed as possible is really what we’re focusing on.

Reznik – Let’s change gears a little bit. [CableLabs] has clearly been the vehicle over the years of driving collaborative R&D, doing product development, really driving innovation across the cable industry. Now we see much different sorts of formats. We see RDK as a platform for innovation, certainly all the open-source, OpenStack, lot of technologies. We also see the destination capabilities that now Comcast is enabling in how it positions X1.

Kevin, you’ve had one of the first experiences thinking about, rationalizing and ultimately deploying the X1 platform. What was the strategy that drove you to that decision, and what have been some of the early results?

Kevin Hart, executive vice president & CTO, Cox Communications

Kevin Hart, executive vice president & CTO, Cox Communications

Kevin Hart, executive vice president & CTO, Cox Communications – Partnering with Tony, surging the X1 platform was a key part of our strategy to being scaled around innovation. With competition, consolidation, there’s more need for collaboration within the industry.

CableLabs has facilitated that, [as has] NCTA. We rolled out Contour 1, our first solution. We had very good success. We’ve looked at some of the features and capabilities and thought it would be a great idea to scale and partner with Tony.

So we did that two years ago – about a two-year development cycle. [There’s been] a lot of agile and DevOps work at play. The partnership has been fantastic. And the early success is off the charts. The customer demand, feedback came back much like the X1 feedback.

We’re now looking at some of our capital models for the year to keep up with the demand this year and next year. I think we’ve also provided some feedback and input back to Tony’s team to help make the product, the solutions and the service better. The collaboration between the teams drives more scale and ultimately a better customer experience.

Werner – The Cox guys have been wonderful partners. And so has Shaw [Communications].

Cox was our first one. We think we used it to get the recipe right. We started with a bunch of DevOps more on the Cox side than ours, but a little bit on both to get the integration layer right. And then after we did, Cox rolled out 20 markets in two and a half months, six regions. So once we got her locked and loaded, these guys went. It’s been a great partnership.          We got a lot of good feedback, and it’s helped us to make the platform more robust. And we continue to.

It’s something I think we both went into a little bit worried. I didn’t want to be a vendor necessarily, and I didn’t know if we’d be able to step up. But so far it’s been fantastic.

Hart – I think the other benefit is, the product is fantastic, but now that the technical development work is behind us, we can focus on innovation around the customer experience, around bundling, automating the home, enhancing the in-home Wi-Fi and really thinking about the customer journey as opposed to just the technology. That’s really where innovation can take on a new life.

Reznik – How do you view RDK as a key enabler of externalizing innovation?

Werner – I think we both love it. I’ll let Kevin speak for himself. Hopefully he’ll say the same. Otherwise I’ll be tackling him here [laughter].

We think on the video side what the RDK has really done is two or three things. There are 280 partners now. We have 280 people who have licensed it, which is great, because it makes it a large base and a lot of contributed software and contributed code to it. So you get this open source development model a little bit.

But the other piece that’s so good, we’re showing devices here on the floor and devices that are going into Kevin’s network and our network where the SoC has only been done for six or seven months, and we’re already able to put it into a customer’s home.

It used to be 18 months or so of development from the time the SoC came out until we could put it in the customer’s hands. That helps us to have a newer, fresher product. But to the point here, it also reduces our costs. It takes a lot of cost out, because we’re getting the latest technology sooner. We think the same thing can happen with RDKB, which is what we’re pushing for the broadband side.

Hart – RDK is a great example of open source collaboration driving speed to market, driving economics and having our partner community rally around that. I remember about two years ago on this panel Tony put his arms around the folks on the panel and said, we’re all in on RDK, right? That’s the same meeting he kept looking at my notes, reading all my answers. But that’s a different story [laughter].

Reznik – Darcy, moving into your world, Vubiquity is a leader in media services. How do you see your business evolving to support where the industry is heading?

Darcy Antonellis, CEO, Vubiquity

Darcy Antonellis, CEO, Vubiquity

Darcy Antonellis, CEO, Vubiquity – Sure. [To Hart:] Can I see your notes [laughter]? You know, I think my colleagues up here have said it best and how it’s impacted our company. Vubiquity is in a very interesting place, because we work directly with the content community from a licensing perspective as well as the service provider community.

To think about it both creatively and technically, the common theme you’ve heard is all about how do you change cycle times from concept directly into the consumer’s home. That’s had a direct knock-on effect for our business.

What we try to do, and a common theme we’re hearing throughout North America and the rest of the world, is where do our customers need to be most focused? It’s truly about taking their human and financial capital and focusing those resources on their brand experience, their best touch point with their subscribers. And our role then becomes important in [shaping] how we can make other pieces of the ecosystem a lot more frictionless. That trend just continues.

If you look at overall availability and licensing of content and how the whole windows and avails and monetization have changed, the need to have a ubiquitous method to manage those changes and availability as well as the need to make sure you’re supporting the knock-on opportunities to monetize is pretty critical. So those are the areas we’ve been investing in.

We were talking back stage about everybody needing the cloud, that it has to be as easy as in where can I get very easy access to the content I need. And, oh, by the way, it’s got to be able to function properly and pass through my infrastructure and show up with the expectations the consumers have.

These guys all make it look really easy, but we all know there’s a lot of complexity behind that. So we’re trying to stay really focused on the managed services and tech solutions piece of it so that they can focus on the content side and the user experience side.

The State of Advanced Advertising

Reznik – John, staying with the content theme, interactive advertising, advanced advertising, data monetization – what do you see happening in that space? Where’s this train heading?

Honeycutt – I wish I knew. Clearly, when we talk about disruption, that has to be one of the biggest disruptive spaces, whether it’s consistency of data, never mind access to it. What language are we talking here, what measurement methodology? That’s one part.  I think the legacy systems we’ve used on the ad sale side, many, if not all, are incapable from a functionality perspective of getting us to where the future needs to be.

Taking it all the way to the top, just simply the mall, what is it we’re selling? There’s one [opinion] that says everything should be targeted and everything should be available. I think that gets hard.

On the one hand you run the danger of putting everything as programmatic into a commodity world, [which puts us] right into the world of banner advertising. That’s not fun. But there’s probably a mix that comes from a business model perspective.

We have some brands at Discovery that have very pure audiences. Think about a business like Investigation Discovery [a Discovery crime documentary channel]. It’s very consistent with what that audience is. So perhaps that’s an opportunity for targeting in the programmatic world.

But I look at the audience on Discovery. It’s very diverse – men, women, old, young, different socioeconomic backgrounds, people from the middle, people from the north. It’s all over. So how you get to a point where you can create a meaningful, at-scale target gets harder.      But in general I will say I’m more bearish on this area than I’ve been, because it’s just not becoming clear at all the levels of the supply chain what the path is going to be. If you’d asked me two years ago, I was probably, yeah, we’re going to get there. I’m struggling right now with the path.

I want it to happen. If anybody can tell me another way to make money in this business besides subscription and advertising, I’m all ears. Clearly, we have to figure that out, but I think it’s pretty muddy right now as to where we stand.

Reznik – Tony, your view on interactive advertising. The cable industry has had a lot of very visible initiatives in this area. Do you feel we’re getting more to clarity or are we still in this uncertainty phase?

Werner – It’s a good question. This is one we’ve talked about for 20 years. So it’s hard to sometimes not be a little jaded.

I think in a number of areas we’re getting there. We on X1 have found the advertisers hard. In the beginning when we didn’t have too many eyeballs on it nobody cared that we weren’t doing advertising in the guide. Now that it’s up to about 35 or 36 percent of our base and headed toward 50 by the end of the year, they’ve been doing the limbo under our door trying to get ad spots on there.

We’ve been very careful on the guide, I’ve warmed up to advertising, [but] we’ve set several rules. It’s got to be endemic. We’re not going to have mattress ads on the front page, because we want it to look good.

We’re neighborhooding on the grid so you don’t have Wrestle Mania right after the Family Channel or something like that. They’ve got to follow exactly the same style guide. There’s a little bit of push back: nobody is going to click on it if it isn’t big and throbbing at you or something like that. [But] I think that’s going to go pretty well.

[With interactive] we have a bunch of ideas coming together that I think will gel. Even though some of the stuff wasn’t as huge a success as people would like – the way that we did interactive triggers using the EBIF (Enhanced TV Binary Interchange Format), which was a very crude way of doing it – there were some of those things that did amazingly well. We will be bringing that back in a big way with more modern technology capabilities.

Initially we use it inside for us being able to target to the right customers. Offering phone for $9.95 a month is a great deal unless you’re paying $39 right now. So we’d just as soon send it to people who don’t have phone, have it only show up for those as the offer.

Some of the areas where we’re having great success are with a number of partners. NBC in particular is really bringing viewership up in there. When you see what we’re doing around the Olympics and some of that, I think there are opportunities starting to emerge.

I agree it’s a little bit murky, but the tools are getting better. We’re getting lots of hardware out there that can do it. For me it’s more on the sell side now than it is on the delivery.

Honeycutt – I totally agree. We’ll figure it out as we always do. But that relationship between the agency and programmer, how does that work?

I think we as programmers have not done a very good job of expanding how we talk about our inventory. Men 18 to 49 or women are interesting [categories], but it’s not very deep. I think we need to come together and expose a better set of descriptors about our inventory as an industry, not only as an individual programmer, if we’re going to be able to move to a digital world.

Werner – One thing that’s very, very clear is that the advertising has to start pivoting and morphing, because the idea that we can just interrupt your show and show you something that’s not relevant and not interesting is going by the wayside.

If you look at the millennials with browsers, nobody’s watching ads. They’re not paying for anything either. So I’m not sure how the monetization works on that. And then with DVR people fast forward through it.

As you start to be able to put ads that are interesting and relevant to you, which I think we will be able to do more and more of – a good example is things that are hobbies to me. If there’s only a magazine without the ads, I wouldn’t pay as much for that as one with the ads. In fact that’s what I read the most in these photography magazines and the rest of it. But I think we have to get that same model over there.

Customers are not going to stick with us if we disable fast forward. At first it was good because it got to more content, but that’s not going to last.

Shannon – Those are important points. We have actually invested super aggressively in advanced advertising techniques on Roku. And it has been very, very successful. It’s a big part and one of the fastest growing parts of our revenue.

What we do is we’ve segmented our data base and we attach a lot of data. We don’t allow the data out of the company. We’re very secure and careful about how we use the data. The deal we announced a few weeks ago with Viacom is one example where we’re working with them to make the ads more relevant.

That does a lot of things. It makes the ads more interesting. It makes them more valuable to help subsidize the programming. And it also allows them to run fewer ads, which is a big benefit to the user experience. People without babies aren’t getting diaper ads.

It’s been phenomenally successful. We are very optimistic about the future of advertising. We do it in display ads, and we consider ourselves the most aggressive OTT platform in partnering with our publishers, content distributors to build their audience. A lot of types of display ad inventory – you click through video ads, install a channel, things like that with interactive capabilities. We’ve really gone full tilt on it, and it’s super popular with advertisers.

Werner – To your point, the ad load is important. One of the things we’re seeing on the IP feeds – we’re going to have all these IP feeds for the Olympics – and we get a sense in generating them they want to get some form of monetization.

The one thing we went back and forth with is we’re doing X1 experience. First they were doing a pre-roll on everyone. We said this isn’t going to work. People are going to want to go to the pole vaulting, and if they go and they get stuck into a 30- or 60-second pre-roll, and you hop over to this one and you get another 60-second and come back to pole vaulting and get another one, it’s going to kill it.

We got our message across. And so they changed it and really reduced the ad load. Doing things like frequency capping and the rest of it and relevance is just so important in my mind to keep this going.

Shannon – We’ve got to get collaborative, too. We had this sort of competitive ad sales organization in cable and our group and Discovery and all of that. One of the things we’re trying to do is actually equip the publishers with basically the same tools that we go to market with. And we sell blind, so we’re not directly competing. But if we can share these tools and find ways to target without violating people’s privacy…

Honeycutt – The exchange of that is critical. How we efficiently exchange information about viewership – obviously privacy [has to be maintained] – but how do we be more effective as a DMP (data management platform) or whatever you want to call it on what that data is and then how we sell against it.

Antonellis – It’s interesting, because you think about it in the scheme of relevancy and getting the right ad at the right time, I still believe we’re so in the nascent stages of continuing to try to refine that.

Reznik – Clearly, monetization around this is key, but also most of us are CTOs. We have a technology radar. We look at what’s in front of us.

4K is in front of us. Gigabit speed into the home is in front of us. Wireless networks pushing gigabit speeds are in front of us.

Do we think this is incremental sort of technology change, and ultimately the things that we do today will just look better, be downloaded a little bit faster? Or do we think these technologies will enable fundamentally different competitive dynamics, business models, and so to some degree it’s really a geometric change that we’re on the precipice of?

Hart – I think from a network perspective it is exponential. It’s disruptive on the one hand. But it’s opportunity for providers on the other hand. We’ve invested billions of dollars building out the best network in our footprint, and that’s going to continue.

As we look at some of the things that are here at the show around DOCSIS 3.1, full duplex DOCSIS, enabling symmetric speeds, a push to a node-plus-0 architecture, it is going to provide us an advantage to provide those next-generation applications at high speeds, high throughput, high quality of service. And then take advantage of emerging technologies whether it’s 5G for access and things along those lines.

The work we’re doing as an industry with the virtual CCAP, remote PHY, not only is driving down the economics but also is trying to put a better experience for the end user based on applications that are to be imagined and developed. I think we’re in a good position.

It’s an opportunity for us not only on residential, but commercial as well. We have a big property in Las Vegas. Things we’re doing in the arenas and hospitality bring next-generation connectivity to enable experiences at a sporting event, at a concert that are just now being imagined.

Werner – I think we very much live in an exponential world right now. It’s not just the network. The network feeds it.

Sometimes we forget how fast it has changed. Four or five years ago most people connected a wire from their cable modem to their computer. Today we don’t connect wires from hardly any of our cable modems.

It used to be people would turn their computer off when they were done. Today everything is persistently connected. And those really change a lot of things out there.

Web pages – we still call them Web pages; they’re not a Web page anymore. This is not a static page that’s coming up.

You look at browsers and how they are going into the devices; you look at how quickly software is changing, and you look at consumption out of the home. Data consumption goes up exponentially. It’s a big deal.

It wasn’t such a big deal when people were consuming kilobytes. But now we’re into gigabytes, and you’re going up 50, 60 percent per year. It all changes. And if we can’t move at those speeds, we have to go after all the tools that our competitors are.

A lot of them are cooperative. All of us on the stage including Roku and us, I think we have more in common than we have not in common. There are a lot of things that overlap. But at the same time they can’t slow down and continue to be prosperous. We can’t slow down and become yesterday’s news.

4K and HDR

Reznik – How far do you feel we are away from 4K changing the game in terms of both the customer experience and the bandwidth you’re utilizing in getting to the users?

Werner – I personally am more interested in HDR than I am in 4K. I think 4K is great; 8K will be better; 16K, 32K, more K is always better [laughter]. But at some point, 1080p up converted [to HDR] looks really, really good. HDR makes a noticeable difference.
For us we will not be a roadblock. We’ll be an enabler. You need more content to come. We are shipping an HDR set-top.

[But] that subtle fidelity thing, that’s not what I see as changing our business and radically changing a lot of things. It’s interesting, it’s good, but that’s not something I call super fundamental to change.

Honeycutt – From a content creative perspective, I think I share a lot with Tony on that.             One more thing into that recipe. Let’s back up a second. We were the first ones to launch a 24-hour HD channel 13, 14 years ago. I think you have to remember in the HD transition there were actually three or four things that occurred.

Obviously the resolution improved. We went from 4×3 to 16×9, at least in the United States. The size of the device changed. It became skinny. We hung it on the wall. And then we introduced the concept of surround sound.

There’s a recipe there. We see resolution, whether it’s 2K or improved resolution, absolutely color space, and then frame rate. We think frame rate is very important to give that experience.

So if those three things come together it will be a nice addition. Will it be as revolutionary as SD to HD? I don’t think so.

Werner – I agree. It’s not going to sell as many sets, to your point. When people bought HD sets – if HD was still a CRT and weighed three, four, five hundred pounds it wouldn’t have taken off. It came right at that same time as plasma, some of the other things to flatten.

I’m 100 percent there with you. I think people are going to buy sets because it’s going to come for free. Content will come. Some people will use as it as a competitive thing to talk about.

Honeycutt – But there is production. It isn’t easy to do this. We produce a few hundred hours now in varying conditions.

Werner – And you make a lot more on 4K than you do on 2K, right [laughter]?

Honeycutt – The one I will raise is VR (virtual reality). I’ll put the commercial in. If you haven’t experienced Discovery VR, check it out. It’s pretty amazing. I think there’s a lot of interest there. I think we’re still searching for that consistent viewer experience in it. But the potential of that is interesting for certain types of  content.

Werner – I think it’s more interesting than 4K.

Shannon – We shipped a 4K product, the Roku 4, last year. It’s doing very well. We shipped a 4K TV as well with our partners TCL, which kind of puts us on the roadmap and helps give us some insight into how those products are made. And the interesting learning for me is they’re not that much more expensive to make than the regular HD products, which tells me we’re going to move a point where it will be hard to buy a TV that’s not 4K eventually.

Antonellis – We’re definitely seeing an increase. We have access to several hundred titles already. On the management and processing side, I’m a huge HDR fan. On the HDR side we’ve been prepping for both dealing with the next generation on the mastering side for pre-distribution and what those archives look like to manage those assets.

On the cost side for production, visual effects are still a little pricey, but that’s coming down. Whether it’s on the television side or on the theatrical side if you’re using a number of visual effects on the 4K front it’s a lot of data, and it adds up. On the high frame rate side I completely agree, but [there’s a question of] how that works its way back up into production.

Honeycutt – We’re advocating from a production perspective to produce in a high frame rate and then make what you want. I wouldn’t call it future proofing, but just having that asset available at 125 frames, or pick a number, and then the equivalent of a 4×3 pulldown, in old school terms, to get to that 24-frame film look. But at least the asset is available to your as far upstream as possible.

Staffing for Innovation

Reznik – Clearly, [companies] all over the globe are now talking about trying to get the innovation gene into their organizations. I’m interested, Kevin, in the journey of Cox Communications and how you see the talent agenda playing out. Is it really about re-invention or about acquisition of new? How are you thinking about getting a fit-for-purpose workforce to take you into the future?

Hart – We’ve been through a multiyear transformation within Cox technology. First things first, you have to take care of the talent that you have right in front of you.

We have a technology leadership academy. We have job rotations. We have training. We have mentoring. We have a lineup of business partners. There’s a lot of hidden talent within the organization and providing them the opportunities to step up is a big part of that.

We also have resource groups. We have a millennial resource group, a women’s resource group. We recruit in the community. I hosted a summit a few months back where we invited about 200 college students from across Atlanta to showcase all the things we’re doing to show them that we’re actually on the leading edge of a lot of technology development. That brought a lot of attention. We’ve built a strong recruiting pipeline.

Also, Cox puts a huge emphasis on culture and diversity. We provide a lot of opportunities within the organization to step up and lead and manage and take us to the new frontier.

It is competitive. You don’t necessarily think of a communications or cable company as your first stop. [But] as you can see on the floor here, we’re changing the game, the perception. We’re investing hundreds of millions, billions of dollars in technology. So it’s actually a great place to be in to build a career.

Reznik – There are a lot of incubators in Silicon Valley, and every company has some level of presence. The question for most is how do you get that back into the core part of the organization, versus having it being a satellite that operates on the periphery. Are you seeing the ability to get that into the core organization?

Hart – Absolutely. We have a new business group within our organization. We partner with Tony; we partner with CableLabs; we have presence in Silicon Valley. We’ve made acquisitions of different companies to bring in that kind of entrepreneurial spirit.

Healthcare is one of the types of investments we’ve made to leverage our network and leverage the connectivity with our customers. I think the spirit of innovation at Cox is alive and well. We have a 20-year vision of where we’re taking the company, growing other verticals, leveraging our existing assets and investing in our people in support of that.

Reznik – Tony, what is your perspective at Comcast? We all see the second building coming up, the technology tower. How do you see the transformation of Comcast going into the future?

Werner – Well, I think talent is key to all of us. All of us are out there searching for the right talent, the best talent. It’s one thing to get them in the door, which is not easy in and of itself, especially when you’re competing with Google, Facebook and these other folks who have got people right off the Stanford campus.

We are getting a lot more Stanford graduates. We’re hiring out of school now, which is good. We’re doing all the things we can.

My full-time job is keeping it a place they want to work. Part of it is, these folks who come in want to start working right away. They want to start developing product. And so we’re trying to keep Comcast feeling like a whole bunch of real small companies where you have your own pieces you work on that contributes up to a larger piece is what we work on.
Even though the cloud is a bit of cliché, that platform helps us so much, because now teams will come in and they own five, six, seven, eight services. They own them end to end, and they can do what they need within the services provided they don’t impact anybody consuming the services.

They give themselves different team names. We have like 50 different team names – Vader, Viper, all these different things. But then they feel like they’re part of a micro-culture.

You have to be able to bring them in. You have to pay them right. You’ve got to do all that stuff. That’s kind of easy. But if they’re not actually producing something and coming in and writing code fairly quickly, they’re leaving you.

This is another area where open source does come in. Open source is great to leverage against. These folks take great pride: I contributed this to open source, I contributed to the OpenStack community, I contributed that. We do everything we can to rebrand, to make them feel like they’re doing something different, and then whatever we have to do to retain them.

Reznik ­– Steve, you were born digital with a good DNA. You didn’t have to be re-invented or reprogrammed. But I also imagine a lot of your employees have a lot of opportunities. Retention, motivation, where do they go next are probably a lot of the issues you deal with. I’m interested in your perspective.

Shannon – I second a lot of what Tony said about talent. We’re headquartered in Silicon Valley. We are approaching [a staff of] 500 people, and the vast majority really are engineers. They are the core of the business.

Hiring the best, really the elite talent is the day-to-day battle at Roku. What we do, as our key metric, we have to win with the reviews in the marketplace. We don’t have the big ad budgets of Apple or Amazon or Google. The way we sell is by winning reviews.

You go look at Cnet, you go look at Amazon, or Best Buy reviews or whatever; we have to win those reviews. We focus on those. We look at that consumer feedback. We really work hard on data infrastructure to make sure we have a bunch of KPIs underneath those reviews that we drive towards. It’s a very analytical, data-driven environment, and, of course, engineers understand that.

The set-up process is paramount, because that’s when people write the reviews, right after the set-up process. We have to nail that. What are the biggest problems of set-up? Wi-Fi.    Our Wi-Fi team is unbelievable. It’s that secret sauce that a lot of consumer electronics folks don’t pay attention to. We have to get Wi-Fi absolutely perfect. It’s all this data driven combined with finding the talent, and at the end of the day, to make sure we have the best product.

Reznik – I think it’s great as you characterize it as selling to them. We’re thinking of them as customers. We’re understanding their buying preferences, and we’re creating experiences for our employees that attract them to us.

It’s a very different way than a lot of us entered the workforce where we were the ones selling to employers. Now it’s the other way around.

Thank you all for the dialog. Now let’s open it up to the audience for some questions.

The Cable Mobile Question

Audience question – You’ve talked a lot about the in-home experience. Can you talk about what you’re doing outside, the mobile experience? Do you see that growing, stagnant?

Werner – First of all, there’s no one size fits all. I think people when they’re in the home with a big screen want to watch it on the best screen available. But with the mobile experience, both in the home and out of the home, tablets have enabled a whole new viewing experience. So we’re doing everything we can.

A lot of what we’re doing for the Olympics will also be available on the tablet. You’ll be able to access these live extra streams. All our metadata enrichment we’re doing where you can search by medalist, you can search by country and all that, will also pull over to it.

We do a lot of mobile viewing right now. We have about seven and half million uniques monthly on our apps going across Web and mobile. I think we’re at about 110, give or take, linear channels that are available out of the home on that device and tons of on demand and the ability to download. The TV’s not going anywhere, but this other is growing, and in aggregate you have to check the boxes in all of them.

Hart – Tony touched on a lot of key pieces. You have the infrastructure, the device enablement, the content. From an infrastructure standpoint, building out through our commercial services, we have the MSO consortium around all the metro access points across the various footprints.

The connectivity, the infrastructure, some of the things we’re doing around small cell, back haul within the commercial space, is another key part of the component. Device enablement, providing rights to the content and [providing] the information and applications our customers want are kind of the three-step approach we’re taking.

Antonellis – I would think everyone is paying attention to the things we see happening internationally. We distribute today to 117 countries in 80 languages. When you go to different places with different topologies where certainly wireless is the first order of business, there are some interesting learnings to watch how mobile-first types of services are occurring. That certainly has influenced how we try to accommodate and service a whole set of seamless experiences.

Honeycutt – I think that’s a great point. We see it. Our footprint is worldwide. We see consumption habits changing in Southeast Asia. Africa will be the first highly connected by 5G. Several countries in Africa will be there quickly.

I think we’ve learned that how to tell stories is different than on big screens for some things. It’s not a completely start again, but there’s a pace and framing on mobile that sometimes is a little bit different. So we shouldn’t discount that screen size, although the message comes across. How you tell that in a compelling way does have some differences in the process.

Shannon – I think the length is obviously an important point. Mobile is obviously important. But this group up here is mostly distributing long-form programming.

I think what you see out there is sort of the revenge of the TV. Mobile has always been connected, PCs have been connected, all of these things by definition, so [there’s been] a lot of growth there initially. But now TVs are becoming connected, and it is roaring back to be the predominant streaming platform and will pass mobile soon.

I was looking at a Freewheel report, which, granted, ad avails was what it was talking about, but it’s a proxy for viewing generally. The television streaming platforms are growing more than twice as fast as mobile. I think mobile is around sixty-something. Television OTT-connected platforms, at around 170 percent growth, have already passed tablets and will soon pass mobile and eventually PC.

So when you look at roadmaps for developing streaming infrastructure, a lot of times we’ve seen mobile get prioritized only to find that the connected TV platforms quickly will pass them, especially for distributors of long-form programming.

One Year from Now

Reznik – As cable operators coming out of a business that’s been constrained by your topography and technology footprint at a time when the OTT game is being played out against 14 billion eyeballs on a global basis, how do you balance those two dimensions of being very much focused on the core footprint that you do serve versus really thinking about a digital opportunity, which is boundless?

Werner – First of all, I agree wholeheartedly, the TV in the home is still the primary consumption device. People turn it on, leave it on. They consume more and consume higher bitrate on it.

But people don’t want to be constrained to never leave the house. They want to take content with them. We see a lot even with cloud DVR where we’ll see that the TV gets paused at 10:15 presumably in the living room, and then about ten minutes later we’ll see that movie or that show pick up on the tablet in some other room in the house. People want flexibility.

I look at tablet viewing, second screen and even out of the home as accretive, not necessarily that it’s displacing some other viewing. It isn’t that people are quitting watching TV because they have a tablet. It’s that now they can fill gaps with it, they can catch things when they’re on the road. I think in hotel rooms there’s a lot more tablet viewing then there used to be, and things of that nature. So I look at it as upside for everybody.

Reznik – We’ll do one last closing question – a quick response from each of you. We’re sitting here next year, same place, same venue. We look back on the year that has passed. What’s going to be the biggest disruption we’ll see in the next 12 months?

Antonellis – I think we’re going to continue to see the current play on that skinny, mid-skinny, fat bundle diversity of content strategies. I think there will be a lot more branded direct-to-consumer offers out in the market, coupled with the advances that are being made on the distribution side.

Hart – The biggest disruption won’t necessarily be technology. We have a wealth of technology, but it’s going to be about how we change the game with customer experience, the in-home experience, the mobile experience. Leveraging our networks, our products, our services, our content in a way that we service our customers going forward to try to meet them where they’re at, where they’re going – that’s going to be what’s innovative around what we’re doing.

Honeycutt – I don’t go with disruption, but I think I’ll say that clearly in the next year we’ll move a significant portion of our infrastructure out of our own physical data centers into a cloud virtualized environment. We have a goal that in 24 months we want 80 percent of our business applications fully in the cloud. We’re six months into that journey.

Shannon – We’re really excited about the Xfinity app coming to Roku. Those kinds of packages and some of the skinny bundles, too. Charter has a super compelling skinny bundle on the platform. We’re real excited to get those engagements going and to enable us a non-traditional streaming style in partnership with pay TV operators around this country.

Werner – I tend to agree. If I could have one wish for next year, it’s that this panel is not on the last day [laughter].

But short of that, I think what everybody says I’m in agreement with. I don’t think there’s going to be a lot of technological ah-ha, the world has changed. I think we’re going to see a lot of steady evolution.

I think we’re going to see everyone on this panel take advantage of all the technologies more and more. And I think you’re going to see more unique partnerships and relationships start to emerge. Even though on some fronts you compete with everybody, on other fronts we all have the same motivation to see great content, happy customers and the best way of monetizing so that the people that are in the value chain actually get returns on their investments.

Reznik – That’s a great way to wrap it up. Thank you.

0

Revamped Vendor Workflows Open New OTT Options for TV Networks

K.A. Srinivasan, co-founder, Amagi

K.A. Srinivasan, co-founder, Amagi


Amagi and Quantum Are Among Suppliers Introducing Ways to Leverage Solutions in End-to-End Asset Management

By Fred Dawson

June 17, 2016 – With the potential to tightly integrate production, post-production, playout and distribution workflows in their transitions to IP-based operations, broadcasters are finding new approaches to building audiences that could radically transform the TV landscape in the years to come.

The possibilities are well illustrated by steps vendors traditionally playing specialized roles in supporting legacy TV services have taken to create more comprehensive workflows designed to enable much more flexible and quicker use of assets to attract viewers and build new business models at global scales. In this new environment, broadcasters can capitalize on the versatility and high-speed of Internet links to dynamically orchestrate use of stored and linear assets with advanced advertising, unencumbered by the limitations imposed by traditional reliance on playout and distribution via satellite and managed terrestrial networks.

For example, San Jose-based Quantum Corp., a long-time supplier of dynamic storage solutions for the broadcast industry, has made it possible for broadcasters to seamlessly integrate all storage points into a collaborative asset management environment that also encompasses production, post-production and distribution workflows. “We have the fastest collaborative file-streaming performance in the industry with integrated intelligence that allows you to manage your assets end to end from camera through archives to delivery,” says Alex Grossman, vice president for media and entertainment at Quantum.

The goal for Quantum, like other suppliers coming from various legacy positions in the supply chain, has been to give broadcasters a first-mover advantage they haven’t had in the Internet era, Grossman says. “We’re giving broadcasters the opportunity to be the tip of the spear in delivering compelling experiences and monetization with their content directly to consumers,” he adds. “It allows them to be competitive in any environment with a speed of innovation that comes naturally to OTT players.”

Another, less well known vendor in North American broadcast circles is India-based Amagi,
As a well-established supplier to broadcasters in Europe and Asia, Amagi brings a strong pedigree to broadcasters here who are looking to maximize the potential of Internet-based playout and distribution as an alternative to legacy models, says Sanjay Kirimanjeshwar, head of global marketing at Amagi, which has opened U.S. offices in New York and Los Angeles. “We believe North America will be our single largest market,” Kirimanjeshwar says.

That’s a significant goal for a company that runs India’s largest TV ad network and has become a major provider of playout support for regional broadcasters seeking to leverage IP infrastructure to handle the tasks traditionally associated with getting content out to distribution affiliates. Amagi has won business for its Cloudport playout platform as a next-generation alternative to legacy playout systems from TV networks in 25 countries.

But Kirimanjeshwar sees even greater potential for a workflow that can extend all the Cloudport processes used for playout, including storage, security, asset management, transcoding and ad insertion, to a hybrid public/private cloud operational environment that includes support for direct distribution to consumers as well as playout at global scale. A key component in the expansion of its solution sets is what Amagi calls “Cumulus,” a Cloudport-powered platform-as-a-service (PaaS) running on Amazon Web Services’ Glacier platform.

“Through the Cumulus broadcast platform, TV networks can assign all of the heavy lifting to the cloud, in terms of content preparation, playout and monetization, while having the flexibility to choose the best delivery method based on market needs,” says K.A. Srinivasan, co-founder of Amagi. “Since the workflow already exists in the cloud, broadcasters will find it easy to create regional sub-feeds, launch new channels and expand across continents to drive new revenue.”

Creating a PaaS on a public cloud service that enables global reach for broadcaster playout and direct-to-consumer (DTC) distribution plays directly to the aspirations of North American broadcasters, Kirimanjeshwar notes. “We’ve had really good discussions with U.S. TV networks,” he says. “Just like broadcasters in Europe and Asia, they want to get their content into different regions with full monetization support.”

In this new scenario content prepared for playout or DTC using Cumulus PaaS is sent over the Internet to regional AWS facilities or private clouds running Cloudport, where additional preparations, including local ad insertions, subtitling and other region-specific elements, are executed prior to playout to regional distributors or directly to consumers. This eliminates the need to lease satellite or long-haul fiber transport to move the content around the world while leveraging the all-IP environment to seamlessly integrate the core processing with what happens at the regional level.

Transport robustness sufficient to TV standards is available with use of the software platform supplied by Zixi through a partnership with Amagi. As previously reported, Zixi overcomes issues inherent to Internet transport to deliver video at high quality without stutter, packet loss or frame-freeze regardless of network conditions.

“The Amagi cloud architecture gives you a lot of flexibility to regionalize content based on user nuances, rights variations and local ad sales while minimizing costs,” Kirimanjeshwar says. “You can spin up new services on the fly for any region or group of regions, including something temporary like a two-month sports event. If you want to go direct to consumers, you can deliver the content in any format to any screen with control over advertising.”

He cites a couple of examples of how content providers are using the platform. One is Scripps Networks, which is using Cumulus for playout and regionalized ad support of its Food Channel to Dubai-based DBS provider OSN.

Another is the recently launched Indonesian OTT movie service FLIK TV. The provider is using the playout platform to get content to distributor Telkom Indonesia, which has installed Cloudport edge servers in local facilities to handle final graphics and other functions prior to distribution in different parts of the country.

“FLIK TV is the only Indonesian movie channel available in HD, and we are looking to expand gradually across multiple countries,” says FLIK TV COO Lavesh Samtani. “Prior to the channel launch, we considered satellite delivery, but ultimately turned to the cloud for playout economics and the ability to scale on an as-needed basis,”

Utilizing AWS, “Amagi Cloudport makes it simple for us to manage video and audio assets, launch additional feeds in new regions with a short time to market, and minimize CapEx and OpEx,” Samtani continues. “At the end of the day, we’re able to quickly deliver broadcast-quality content at significantly reduced costs.”

The Cumulus workflow is an open-ended master cloud asset management system that is designed to support integration with other workflows using standard APIs, Kirimanjeshwar notes. “We have a workflow management system that allows you to choose from different third-party solutions and services and stitch them together,” he says, listing scheduling, EPG management, rights management, ad traffic and delivery, regulatory-related quality control and subtitling as applications customers typically bring into the Amagi workflow.

Production processes, too, can be stitched into the work flow. By combining instant, centralized access to stored content with the ability to produce new content for new audience niches as well as existing audiences in the same workflow, users of the Amagi platform can create the glass-to-glass environment that makes it cost effective to experiment with new business models and content components at the regional and global levels, he says,

A key selling point for Amagi is its longstanding expertise in advertising, which has enabled the company to build a cloud-based server-side solution that does away with reliance on client-side management of ad placements and prevents use of ad blockers. “Server-side is also critical to consistent performance, control over advertising and the ability to target ads,” Kirimanjeshwar says.

Rather than relying solely on traditional ad triggers to designate avails and precisely sync placement into the content flow, Amagi offers a watermarking platform as a way for broadcasters to ensure ad commitments are executed. Dubbed “Thunderstorm” and designed specifically for distribution via ABR (Adaptive Bitrate) streaming, the watermarking component in the workflow communicates with the Thunderstorm software in the ABR manifest to make sure ads are packaged into the linear content stream on a per-session basis in accord with targeted user and demographic categories.

“We’ve used watermarking to support ad insertion in India on our landline ad network for some time,” says Vijaya Sagar Vinnakota, head of ad-tech engineering at Amagi. “By moving this into the cloud for OTT as well as legacy applications, we’re giving broadcasters control over advertising that they lose when third parties move their content into OTT distribution.”

0

UHD Forum Sets Practical Path To Delivering HDR TV in 2016

Thierry Fautier, VP, video strategy, Harmonic, & president, Ultra HD Forum

Thierry Fautier, VP, video strategy, Harmonic, & president, Ultra HD Forum

SDR-to-HDR Conversion Processes and New Backward Compatible Transfer Function Are Included in End-to-End Distribution Guidelines

By Fred Dawson

June 13, 2016 – Significant progress toward industry-wide adoption of guidelines for dealing with the complexities of delivering HDR-enhanced video has increased the likelihood that efforts to generate stronger consumer demand for next-generation TV services are finally going to pay off.

“The standards-setting process is moving slowly and increasing entropy,” says Thierry Fautier, vice president of video strategy at Harmonic, in reference to how the dizzying array of High Dynamic Range display systems now vying for public attention has the potential to drive the kind of confusion and ultimate indifference that doomed 3D TV. “We’re moving fast in the UHD Forum, which is decreasing entropy.”

Fautier, who serves as president of the Ultra HD Forum, points to the first comprehensive set of guidelines issued by the year-old alliance as a much-needed template that will help content producers, MVPDs and OTT distributors adopt procedures aimed at making sure content is delivered as required across not only various types of HDR displays but all types of non-HDR devices as well. The guidelines address requirements for deploying UHD in 2016 and will be updated for deployments in 2017, he says.

The UHD Forum has been operating in parallel with the UHD Alliance, which over the same lifespan has been helping the industry establish basic criteria for creating HDR content. The focus on HDR within two groups branding themselves with the UHD label underscores the fact that industry efforts to deliver UHD services in the 3840 x 2160 pixel resolution designated for 4K TV have become dependent on enabling HDR as the linchpin to creating a truly differentiated next-gen TV viewing experience, which the forum acknowledges can apply to HD 1080p content as well.

The UHD Forum has broad industry support with about 50 members, including many companies involved in both groups, such as AT&T (through sign-ups by DirecTV prior to the acquisition), Sky, Dolby Laboratories, LG Electronics, Sony and Fox. UHD Alliance has many other studios and CE manufacturers on its roster while UHD Forum skews more toward MVPDs, their suppliers and OTT vendors, although there are some in these categories, including Rogers Communications, Netflix and Orange, that are alliance but not forum members.

“We are proud of this collective work synthesizing contributions from content providers, broadcasters, service providers, professional equipment manufacturers, technology solution providers, CDNs, chip-makers and device manufacturers,” Fautier says. “This would not have been possible without close collaboration with our colleagues at MPEG, DVB, DASH-IF, ATSC, SCTE, SMPTE, CableLabs, NAB and the UHD Alliance, with whom strong liaisons are being built.”

As previously reported, the UHD Alliance at the start of the year said it would issue “Ultra HD Premium” labels to identify UHD TV sets that that meet baseline requirements, such as 3840 x 2160 resolution, 10-bit coding, BT.2020 color gamut, SMPTE 2084 transfer function and at least 1000-nit peak brightness or 540-nit peak brightness in the case of OLED displays. The UHD Forum’s guidelines for distributing HDR-enhanced content accommodate a broader spectrum of possibilities with the purpose of ensuring an interoperable network infrastructure is in place to transparently deliver UHD to consumers no matter the format or network type.

The guidelines prescribe an end-to-end workflow for constructing and delivering a real-time linear service with separate sections dedicated to each step in the chain, including compression technologies, metadata carriage options, sample bitrate ranges, audio, captions/subtitles and more. For example, consideration is given to content manipulation that may occur at each point in the chain, such as ad insertion and graphic overlays.

“This type of industry support will help service providers decrease the risk and anxiety that comes with deploying a new technology,” says Craig Knudsen, vice chairman of the UHD Forum’s Communications Working Group and director of strategic initiatives for Dolby Vision Live. Writing in a recent blog, Knudsen adds, “Not knowing if their encoders, stream processors, security systems, CDN’s, ABR packager’s, QAM’s, DSLAM’s, or STB’s will all interoperate together and deliver the UHD content across the network can be a very costly exercise when it just doesn’t work during the initial deployment. The Ultra HD Forum aims to have tested and certified the most relevant ecosystems and have the knowledge base available to help the industry deploy Ultra HD the right way the first time.

Most notably, while UHD Alliance certification requires use of the SMPTE 2084 Electro-Optical Transfer Function (EOTF), also known as Perceptual Quantizer (PQ), the forum’s guidelines include directions for delivering HDR content with either PQ or what is known as HLG (Hybrid Log-Gamma), a transfer function soon to be adopted as an ITU standard. Unlike PQ, HLG works as a transfer function for both SDR (Standard Dynamic Range) and HDR content without requiring a separate metadata stream to direct HDR-capable displays’ rendering of the specified HDR luminance and color dimensions.

Naming HLG as an option in processes chosen for enabling distribution of HDR content reflects growing consensus on the viability of HLG. But there are still doubts in some quarters that the transfer function, a joint invention of the BBC and NHK, is a suitable alternative to PQ.

For example, HLG is only compatible with SDR displays that are capable of rendering the ITU BT.2020 color gamut, which expands the color range closer to human perceptual limits, well beyond the limited color gamut set for HDTV by ITU BT.709. In contrast, the metadata delivered as an overlay signal to the basic Rec.709 signal in the PQ system also ensures backward compatibility with SDR sets limited to the color gamut set by the Rec.709 specifications.

Broadcasters are not convinced that HLG is the way to go, notes Howard Lukk, director of engineering and standards at SMPTE (the Society of Motion Picture and Television Engineers). “Broadcasters are concerned that HLG will limit their flexibility to address all the nuances in contrast, luminance and other details of display technology that are out there in the marketplace,” Lukk says.

Indeed, he adds, as a filmmaker he shares their concerns. “It scares me to think how the color corrections that need to be made depending on whether the display supports 1,000 nits, 400 nits, 4,000 nits or whatever are going to be executed without a dedicated metadata component like you have with PQ,” he says.

“If you’re a broadcaster, you need to be sure the ads you’re running are in conformance with the HDR content,” he notes. “You need to know how the content will show up at the consumer end.” When it comes to agreement on the all-important transfer function to be used in any final SMPTE HDR standard, “it will take a while to shake out,” he says.

Lukk suggests the initial benefits consumers will get from buying HDR-capable displays will be analogous to what happened when DVRs were able to convert SD to HD dimensions for HD set buyers when there was very little HD-formatted content available. Some HDR displays automatically enhance HD content with luminance and contrast levels that offer dramatic improvements over conventional HD displays.

Going farther, the UHD Forum’s guidelines include pre-distribution processes that can be applied to enhance HD content to full HDR and WCG parameters for rendering on any HDR-capable display. As a result, HD 1080p is factored into the guidelines as an UHD format in instances where the HD content is enhanced with HDR.

Harmonic, in a demonstration of HLG in action on LG OLED displays at the NAB Show in April, offered side-by-side comparisons of a set of video sequences in three versions: pure SDR, pure HDR and SDR upgraded to HDR. The latter two sequences were marginally different from each other but dramatically better than the pure SDR version.

Harmonic hasn’t commercialized these capabilities as part of its encoding platforms, Thierry says. “We need to test the concept with set-top boxes and TV sets,” he says. “We’re not sure how long that will take before we get to a decision point.”

Elemental Technologies, too, is looking at the possibilities, says Elemental CMO Keith Wymbs. “We’ve been approached by people interested in us taking a look at it,” he says. “There’s already a good amount of up-converting HD to 4K going on, so adding HDR to the process makes sense.”

The UHD Forum guidelines cover a wide range of conversion scenarios between SDR and HDR and between HDR technologies as well. Other areas covered by the guidelines include security requirements and key decoding and rendering parameters for consumer devices.

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NBCU Ready to Exploit Power of IP Conversion

Brian Roberts, chairman & CEO, Comcast Corp.

Brian Roberts, chairman & CEO, Comcast Corp.


Cisco-Enabled Platform to Anchor Olympics Coverage

By Fred Dawson

June 3, 2016 – What’s shaping up as another leap forward in OTT distribution with NBCUniversal’s plans for covering the Summer Olympics is also a template for a transformation in the broadcaster’s core operations that will open the door to new business models and services from now on.

As Comcast CEO Brian Roberts put it at the recent INTX show in Boston, what NBCU, a Comcast subsidiary, has in store for the 17-day stretch of games coverage in Rio de Janeiro offers a “real look into the future of television.” That’s because, with launch of the Olympics coverage NBCU will for the first time leverage an all-IP production and distribution infrastructure it has been building for the long haul with the support of multiple vendors led by Cisco Systems, the primary contractor on the project.

“We have all sorts of elements and hardware involved in production of the Olympics extending from editing to storage to content delivery,” said Craig Lau, vice president of IT at NBC Olympics, in a recent video presentation. “Cloud and virtualization has basically given us a huge opportunity in terms of scalability – the ability to adapt quickly and exponentially, to simply scale up almost immediately without having to build out a lot of infrastructure.”

Such capabilities start with the ability to implement a unifying master workflow platform that can tie all the stages and the functionalities within each together, Lau added. “If there’s anything we focus and concentrate on during the Olympics it’s workflow simplification,” he said. “Cisco’s IP media fabric is giving us all the reliability and predictability that we had in SDI (Serial Digital Interface).”

Lau echoed the new consensus among broadcasters when it comes to leveraging an IP infrastructure that follows industry interoperability guidelines. “A huge opportunity rests in software-defined networking, software-defined applications,” he said. “It’s a multi-vendor approach that NBC Sports would like to help encourage and, working with Cisco, encourage other vendors to adapt.”

As evidenced by its role with NBCU, Cisco’s Media Datacenter initiative has positioned the vendor, traditionally focused on the network service provider and enterprise sectors, as a major player in the broadcast industry’s IP transition. Cisco is not only providing the knowhow to utilize SDN (software-defined network) virtualization technology in datacenter facilities to support development of broadcast production centers like the one NBCU’s Advanced Television Operations has built in Englewood Cliffs, N.J. It’s also leveraging cloud video processing and management solutions originally developed for MVPDs to support end-to-end broadcast operations that extend from production through to playout and direct-to-consumer distribution.

“Our expertise in IP is key,” said David Ward, Cisco’s chief architect and CTO of engineering, in an interview. “By providing support for routing, switching and storage with hypervisors in the datacenter, we’re well positioned to add specific function applications relating to video processing and end-user experience from our own or other vendors’ solutions.”

Roberts contrasted the volume of live events NBC is able to cover in Rio as a consequence of Internet streaming to the last time the scheduling of a Summer Olympics in a Western Hemisphere time zone drove live TV coverage. The 1996 Olympics in Atlanta produced 172 hours of live coverage, he noted. “This year’s Olympics we’re streaming 6,203 hours, every event live over 17 days,” he said. “There will be more live coverage on day 1 in Rio than the entire ’96 Olympics.”

Beyond the number of hours, of course, the fact that most of this coverage will be through the interactive Internet medium provides producers an opportunity to spin up immense amounts of ancillary information and video sequences complementing events as they unfold. From Comcast’s perspective this means the MSO will be able to deliver to the TV screens of subscribers connected via the X1 platform the full scope of Internet as well as TV channel coverage from nine NBC networks, including navigational assistance devoted specifically to the Olympics.

Leveraging its own all-IP service management backend, Comcast will be able to organize the various feeds of live events from the Internet and TV channels along with ancillary features coming out of the NBCU production facilities into a unique Olympics navigation space on X1 subscribers’ TV screens. “We’ll be able to provide real-time updates in the guide on what’s happening,” Roberts said.

Viewers will be able to check out details about who’s in a particular event, pick up events by sport, country and other categories, conduct full search and find every stream of competition finals in a Gold Zone. If they miss the live coverage, everything will be available on a time-shifted basis. When users tune into a live stream or into an NBC network channel offering live broadcast coverage, they will be able to start from the beginning.

All of this will be doable via voice commands for X1 subscribers who have voice-enabled remote control devices, Roberts said, noting the new remotes are now in seven million subscribing households after less than a year. “We’re registering 180 million voice commands per month,” he said. “A year ago we had zero.” As for X1 penetration, he said the MSO is now hooking up people at a rate of 40,000 per day with expectations X1 penetration of its entire pay TV subscriber base will be close to 50 percent by the time the games get underway in August.

The combination of the advanced production and distribution capabilities NBC will be able to employ in its Olympics coverage and the blending of TV and Internet content enabled through the Comcast X1 platform opens a window on what might be in store as broadcasters and MVPDs cooperate on enabling new viewing experiences. At the same time, the broadcast IP transition as enabled in this instance by Cisco points to the new opportunities broadcasters will have to create direct-to-consumer (DTC) content offerings over the Internet.

Indeed, apart from the Olympics, NBC as previously reported is already leveraging the capabilities implemented by the ATO unit in the new DTC business mounted by NBCU Digital Enterprises. Starting with Seeso, a comedy-themed package priced at $3.99 per month, Digital Enterprises plans to target special interests with a variety of new offerings that leverage its vast archive of programming with new in-house and third-part content to create multifaceted live and on-demand viewing experiences.

With datacenter virtualization, “it’s not just about eliminating old hardware and having the flexibility to upgrade or whatever,” said Cisco’s senior director of video strategy
Simone Sassoli in a ScreenPlays video interview. “It’s a level of flexibility we’ve never seen before…[It’s] not just limited to what we were seeing two years ago around transcoding, but all the rest of the publishing elements, all the platform preparation post and pre-production, playout systems and even the publishing to the end devices.”

Following open interfaces and the interoperability prescriptions of broadcast industry organizations like the Alliance for Internet Media Solutions (AIMS), Cisco is able to bring vendor partners like Imagine Communications into the SDN infrastructure to provide elements that aren’t part of its product portfolio. “We really believe in an open source, open environment where we don’t have to be the only vendor that plays in the ecosystem,” Sassoli said.

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New Encoding Advances Expedite Availability of HEVC Alternatives

Guido Meardi, CEO & co-founder, V-Nova

Guido Meardi, CEO & co-founder, V-Nova


H.264 Compression Gains & Deployment of V-Nova Codec on Legacy IPTV Set-Tops Open New Options

By Fred Dawson

May 24, 2016 – Fast-moving developments in video encoding technology are adding new considerations for decision makers to weigh in determining whether HEVC represents the best path forward in the multiscreen premium TV business.

As previously reported, initiatives such as the Alliance for Open Media and Google’s VP10 project aimed at driving adoption of alternative next-generation codecs are gaining traction amid rising concern over the licensing terms and computational complexities associated with HEVC, the MPEG-derived successor to H.264. New developments, however, suggest there may be solutions closer at hand which could get video distributors where they need to go much quicker in their efforts to minimize the bandwidth impact of  services offered in 4K UHD, HDR and virtual reality formats, not to mention HD in mobile and wireline environments.

In one direction there are signs that some mainstream encoding platform vendors will soon be able to achieve improvements with H.264 that reach HEVC-like compression levels without the licensing, computational and device replacement hassles associated with HEVC. On another trajectory, there is the growing success of V-Nova in finding customers for its Perseus codec as an MPEG ecosystem-compatible means of breaking through to extremely low bitrates.

“One of the challenges for us has been people wanted to see commercial deployment of Perseus before they were willing to believe it would work as we say it does,” says V-Nova co-founder and CEO Guido Meardi. “What we’re doing with Sky in Italy shows Perseus is ready for prime time.”

Sky in Italy, so named by the U.K.’s Sky following completion of the Sky Italia and Sky Deutschland takeovers in late 2014, has been using Perseus in contribution applications with its DBS operation for some time but only recently began using the codec for distributing IPTV HD services over ADSL links. This was done in conjunction with implementation of the codec as an option on Sky’s Vibe IPTV encoding platform supplied by Thomson Video Networks, which was acquired by Harmonic last year.

“We upgraded our headend and set-top boxes with V-Nova Perseus compression to bring the average HD bitrate down from 8 Mbps to 4 Mbps,” says Massimo Bertolotti, head of innovation and engineering at Sky in Italy. “We are thrilled with the outcome of this challenging project.”

As explained by Meardi, the challenge was to make it possible to deliver HD signals over ADSL lines that could not consistently deliver an H.264-encoded HD service at acceptable quality owing to bandwidth limitations. In order to capitalize on Perseus to enable launch of HD service on the telephone lines, the operator had to be able to download the Perseus client as a software plug-in on legacy set-tops with limited CPU capacity, most of which was consumed by middleware and the decoding process used with H.264.

“When we promised we could upgrade set-tops in the field people told us enhanced middleware applications have consumed so much compute power there’s often not even one cycle of CPU left for Perseus,” Meardi says. “But we free up resources by using less processing power. Until we turned on Sky’s IPTV, people said it wouldn’t work.”

Meardi also notes that there will soon be another distribution application of the V-Nova codec going into commercial operation in conjunction with a broadcaster’s OTT service using transcoding support from Imagine Communications. Imagine has included Perseus as a codec option on its Zenium encoding platform workflow, as demonstrated at Imagine’s NAB Show booth in April.

Any programmer using Perseus on Zenium can reach a wide range of devices at bitrates well below levels required for a high-quality experience via MPEG compression, Meardi says. “If you can reach a device with plug-ins, you can run Perseus,” he adds.

Meanwhile, Harmonic, notwithstanding the successful integration of Perseus onto the Vibe platform, is focusing on another approach to reducing bitrates that aims to enable HEVC-level compression with H.264 processing on its software based Pure Compression Engine. “We are moving toward AVC (Advanced Video Coding, another name for H.264) bitrate reduction to HEVC encoder levels this year,” says Thierry Fautier, vice president of video strategy at Harmonic.

Harmonic, which builds its own MPEG codecs, has already achieved 25-30 percent better efficiency with H.264 on its Pure platform in comparison to output on its hardware-based Electra 9200 encoder at comparable quality within the same channels-per-rack-unit density. Fautier declines to comment on the question of whether Harmonic will commercialize the connection with Perseus beyond the Sky application in Italy.

In a recent blog, Fautier hints at how the Pure platform could achieve HEVC performance with H.264. “[I]n a cloud-based architecture, such as with our VOS virtualized media processing platform, even more compute capacity can be made available [than is the case in the direct comparison with Electra 9200], resulting in even greater compression gains,” he writes. “The ultimate result will be that ‘AVC by Harmonic’ may soon challenge HEVC as the codec of choice.”

Elemental, now an independently operating unit of Amazon Web Services, is also pushing in this direction, says Elemental CMO Keith Wymbs. “We’re working on it but don’t have anything to announce,” he says.

On the proprietary codec front, at least two suppliers have made claims for performance superior  to HEVC, but neither has followed up initial announcements with evidence of commercial traction. Canadian startup Tveon says it can stream 4K UHD at 2 mbps but has yet to release a commercial product. A year ago Saudi Arabian entertainment platform supplier Selevision, a subsidiary of Khusheim Holdings, announced its new Nukodec with similar claims but has largely been silent since then.

V-Nova has gone much farther with announcements of applications in commercial broadcast contribution applications preceding the distribution rollout with Sky in Italy. But the company faces the same uphill climb confronting all proprietary codecs in a business accustomed to reliance on standards-based solutions.

Meardi cites unique aspects of the Perseus technology which could go a long way toward overcoming those barriers now that the codec is in operation on a Tier 1 distribution network. In so doing, he goes deeper into describing the way the codec works than he has in most press encounters, making clear much of the speculation about the technical aspects has missed the mark.

For example, Meardi notes, Perseus is built completely from scratch and, in terms of the core architecture, even though it uses the Discrete Cosine Transfer process common to MPEG and many other codecs, does not rely on MPEG-related intellectual property that has entered the public domain over the past few years with expiration of patent protections. The tie-in with MPEG technology, and it’s critical to the appeal of the codec for legacy pay TV distribution such as Sky’s, has to do with the fact that the hybrid version of Perseus is optimized for encapsulation in the MPEG-2 Transport Stream container.

With this encapsulated version the Perseus decoder running on Sky’s set-tops can interpret the MPEG TS metadata compilation so that when the content is being sent over the DSL network in HD, the decoding is performed by the plug-in. In this or any other scenario where the plug-in is not used on a given device, the decoding is done using the baseline MPEG codec.

The compression ratio on the MPEG transported HD stream is only slightly lower than the ratio obtained with the pure version of Perseus, Meardi says. At a little over 2:1 versus H.264 the hybrid version will continue to improve at a rate “even higher than anybody thinks,” he adds.

The fact that Perseus at this early stage in its evolution is improving rapidly was evidenced in new test evaluations performed in April by informitv showing the bitrate for contribution-quality 4K UHD is now 200 Mbps, compared to the 300 Mbps level reported for 4K contribution in tests conducted last summer by Germany’s Institut für Rundfunktechnik. “We drove the improvements much faster than we anticipated,” Meardi says.

In distribution applications, V-Nova is claiming Perseus can support 4K UHD at 7-8 Mbps, or about one half to a third the bitrate required for transmission at similar quality over H.265.
V-Nova says it can achieve the touted bitrate reductions encoding 4K UHD at 60 frames per second in real time on two standard eight-core Intel Xeon processors, which are running on datacenter servers worldwide.

To achieve this level of compression, rather than taking the MPEG linear macro-block approach to segmenting and encoding each frame in a video sequence, Perseus supports what Meardi describes as a hierarchical technique using the massively parallel processing capabilities of today’s multi-core microprocessors. “We’ve built Perseus using processing technology that wasn’t available when MPEG encoding was designed,” he says.

Describing what happens as a video sequence conveys a particular scene from frame to frame, Meardi likens the Perseus method of building a video frame to how the human visual system works. Just as the core foveola portion of the retina brings a scene into focus as attention shifts or the scene itself changes while the broader field of vision remains unchanged, the Perseus process determines what portions of the frame need to be reconstructed in strict adherence to the original signal.

This layering in of ever more detail depending on what’s required to meet that stipulation for any given frame is simultaneously orchestrated across the microprocessor cores. “First we specify the gist of the information with very few samples, such as a face, and then we add additional information to reach the required quality level [relative to the uncompressed frame],” Meardi says. “From there we only add information that reflects changes like a turning of the head from frame to frame.”

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Wall St. Analysts Confounded By Uncertainties Roiling Pay TV

Lack of Clarity on OTT Monetization Strategies Combine with FCC Actions to Sow Confusion

Chris Winfrey, EVP & CFO, Charter Communications

Chris Winfrey, EVP & CFO, Charter Communications

Upheaval in the pay TV industry has made the job of providing guidance to investors harder than ever for Wall Street analysts. There’s not only considerable disagreement over who has the upper hand, MVPDs or broadcasters. More fundamentally, there is deep concern over how FCC regulatory initiatives are going to impact the health of the industry and its ability to sort things out in an intensely competitive environment.

Just how difficult it has become to weigh any entity’s prospects was evident in a discussion involving leading investment analysts and Charter Communications CFO Chris Winfrey at the recent INTX Show in Boston. The following edited transcript of that conversation offers their take on where the bundle is going, how far the broadcasters will go in pursuing direct-to-consumer business models, what the impact of Google Fiber will be, the future role of wireless and many other issues in the context of the new regulatory environment.

Participating with Winfrey were: Jason Bazinet, managing director, Citi Research; Craig Moffett, partner and senior analyst, MoffettNathanson, LLC; Marci Ryvicker, managing director, Wells Fargo Securities, and Ben Swinburne, managing director, Morgan Stanley

Chris Winfrey, EVP & CFO, Charter Communications – I want to ask each of you to give us your broad assessment of the overall health of the industry. And, in particular, from a financial perspective, growth and protected earnings, what’s your favorite platform right now – whether that’s satellite, cable, programmer, content production, OTT – and why?

Jason Bazinet, managing director, Citi Research

Jason Bazinet, managing director, Citi Research

Jason Bazinet, managing director, Citi Research – I’m going to distinguish between favorite stock and favorite platform, just to make that clear. I don’t think it’s controversial on the Street to say that the satellite operators are in real trouble without broadband. There’s the most concern on the buy side about their growth prospects. So I think you have to put that at the very bottom.

At the very top I would probably say content owners, but it depends on what sort of content you’re talking about. I’d put at the very top anyone that owns sports content. And probably in the middle I would put the cable operators.

The way I think about the cable operators is they may not have the most robust growth prospects, but it’s very stable and largely hedged from a lot of the changes that are going on in the ecosystem. You have a great Internet business, a very robust small-medium enterprise business, a video business that probably faces some challenges but, I think, manageable in the broad scheme of things.

Craig Moffett, partner and senior analyst, MoffettNathanson, LLC

Craig Moffett, partner and senior analyst, MoffettNathanson, LLC

Craig Moffett, partner and senior analyst, MoffettNathanson, LLC – I think the cable business right now is actually in a pretty good spot with a very big caveat, and that is, as former [FCC] chairman [Michael] Powell [now president and CEO of the National Cable and Telecommunications Association] said this morning, there are some very real regulatory questions that have suddenly become much more pressing. Leaving aside the regulatory or at least marking the regulatory as a question mark for the moment, I think the cable industry is probably in the best position.

We’ve [heard] for a long time this old adage content is king and distribution is just a commodity. Historically that has always been a good sign to say, well, I’ll take the distribution, thank you very much, and it’s usually worked out pretty well. Distribution right now is in a pretty good position. On the content side of the world, it’s a little less my coverage, but I think I’d rather be a studio than a programmer at the moment.

Marci Ryvicker, managing director, Wells Fargo Securities

Marci Ryvicker, managing director, Wells Fargo Securities

Marci Ryvicker, managing director, Wells Fargo Securities – I’m a cable bull. I would choose cable over media any day.

I’m going to disagree already with Jason. I actually think sports content providers are in a very, very difficult position, because they have a multibillion-dollar, multi-year investment cycle. And as we go over the top and a la carte and skinny bundles, if they’re not included, that affiliate revenue goes down. And I don’t know how they ultimately match up the sports content. So I would put those guys towards the bottom. I think cable with the pipe is where I’d want to be, as a platform, as a stock, because no matter how you monetize your content you need your cable in your home.

Ben Swinburne, managing director, Morgan Stanley

Ben Swinburne, managing director, Morgan Stanley

Ben Swinburne, managing director, Morgan Stanley – I guess I’d add a little nuance to Jason’s point. I’m not sure he was talking about sports networks or sports IP (intellectual property), but I would go with IP and sports. You want to move as far upstream as you can in this environment. There’s an explosion in distribution platforms, and it’s hard.

If you had asked us about stocks, we wouldn’t be able to answer content players’ IP [intellectual property] because it doesn’t really exist as an assessment vehicle. But if I could snap my fingers and own the Red Sox, I would do that. I think that’s the appreciating asset with the most secure future, given the landscape today, than anything else that you’ve asked about.

Winfrey – That’s an interesting way to get into the next question I was going to ask, because if you think about it, there are really big changes in content afoot right now, whether it’s a change in the landscape for who’s buying the studio output or in some case who’s buying the studios, short-form and user-generated content, or consumers who are now conditioned to view content from different places and without advertising. A lot of balls are up in the air. So from your financial perspective, where is the content market heading and how do content players across that ecosystem evolve, and, to make it more complicated, how do they make sure they have a revenue stream that’s protected?

Swinburne – I’ll pick up on the comment I just made. If you think about distribution more broadly than we have historically, you could look at Facebook as a big distribution platform of content. Most of that content historically has been what your niece and nephew are up to, but that’s quickly evolving into live video. They have a sports piece, etc.

I think you’re going to see more and more platforms leverage content to drive their business and use it as a loss leader, and that’s going to drive margins down for the historic program aggregators. If you think about your typical cable networks who have enjoyed this beautiful bundle generating 40, 50, 60, sometimes 70 percent contribution margins, you’re now facing a world where you’re competing for audience, advertising dollars. And also you’re competing for IP and content with so many more players than you did before who have a lot more capital and often have the permission of Wall St. not to make any money for the foreseeable future.

That’s going to squeeze margins in that part of the ecosystem over the long term – we’ve already seen that start, and I think that’s going to accelerate. If you can figure out how to play that trend as a piece of IP, I think that’s a great place to be. But it’s very hard to find that space if you’re an operator. The reason the cable business is so obviously, as a consensus view, doing so well is it has that connectivity piece of the puzzle that’s very difficult to compete with without a lot of capital.

Winfrey – So you’re suggesting that having the distribution but adding some unique content even potentially as a loss leader is a way to offer something else for customers.

Swinburne – Yeah. We’ve seen that happen outside the United States already pretty dramatically in use of content in a mobile setting where mobile carriers are using content to differentiate their product. That’s going to happen here. We might all chuckle at [Verizon’s] go90, but the go90 concept of using content is to differentiate, I don’t think that’s going away. I think you’re going to see a lot of money thrown at that, successfully or unsuccessfully.

Ryvicker – I think we’re just at an early stage of experimentation [with] content providers going all over the place. I think Fox was very clear on their [earnings] conference call that they want to be everywhere the consumer is, and I don’t know that they know what that means. So we’re sitting here trying to figure out what does the ecosystem look like five years from now and assign a multiple to stocks, and you really have no answers.

Winfrey – That sounds a little bit dangerous. Not to pick on one particular company, but if you have people saying I want to be everywhere in everyplace in every home, but they don’t have a view of exactly how it’s going to be monetized and how they protect their revenue streams and the advertising, where does that leave you in terms of feeling about the ability to model the revenue stream, and what are the ups and what are the downs, and how do they mitigate them?

Ryvicker – It’s a tough fight. You can see it by the stats. You can see why Fox’s stock slid. I don’t mean to pick on them, but they were very clear that they want to be everywhere, and that stock went down on a good print, because the question was, okay, you did really well this quarter, but what happens in the transition from where we are today to wherever you want to be? And that’s what we can’t answer.

Winfrey – As an operator’s translation, print means their quarterly results.

Moffett – It’s a really interesting question, because I hear from investors all the time that the cable industry is in real trouble because they have these big fat margins in video, maybe less fat than they used to be, but they still have all these margin dollars in video. Inevitably the content owners will go direct to consumers and try to keep that margin for themselves. I’ve heard that argument since it became the key controversy in the cable industry at around 2004. And I always scratch my head and say, what in the world would that look like?

Winfrey – From the consumer perspective or from the programmer’s?

Moffett – From the programmer’s perspective. Let’s say there’s $40 for argument’s sake of programming cost in the bundle, and let’s say they bring the price down to something, not all the way to $40, but they’re entirely made whole. Well, what does year two look like when they’re typically used to pushing a 10 percent price increase through to distributors on a like-for-like basis?

Are they going to push a 10 percent price increase through to consumers on a like-for-like basis? You do that for three years, and suddenly the economics look horrible. Is that the model? I’m going to create a new Netflix that raises its prices by 10 percent a year?

Winfrey – With or without advertising.

Moffett – And, by the way, at a time when the advertising is going to start to come down.

Those things look good as a sort of bumper sticker as long as you don’t poke at it. When you poke at it you realize this is really squishy. It doesn’t hold up to scrutiny very well as a premise.

As I said, I’ve been hearing that same argument since 2004 that it’s right about now that it’s coming. And maybe Hulu is the thing. They certainly have access to programming rights because of who owns it. If they decide that’s what they want to do, they can get the rights packaged together. But I’d love to see what the spread sheet looks like that says this is a good idea.

Winfrey – Meaning, this is the way you actually get dollar increases?

Moffett – Not only net dollar increase on day one, but net dollar increase in the terminal year of whatever that spread sheet looks like. It’s a hell of a challenge.

Bazinet – I don’t think it’s challenging.

Winfrey – So you’re a believer. Tell us why.

Bazinet – Let me step back just to give you some context in terms of how at least I think we got here. Everyone in this audience has a different utility that they would ascribe to their particular channels. Maybe you like ESPN; maybe you like CNN. Maybe you like podcasts. It’s all different.

What the industry has done – your industry and the content owners – is they’ve pushed all that content together into a big fat video package and essentially taken very steep demand curves and made them quite flat. If I put enough stuff in the bundle, everyone essentially has roughly the same utility for that content.

What we’re all struggling with here on this stage, and it’s the crux of the controversy that I have with Marci, is where is the value? Where does it really reside? We really don’t know today.

What I would posit is that for sports content, yes, it’s the most expensive part of the cost of goods for a cable company, but I actually think there’s a tremendous amount of headroom in terms of what consumers would pay for that piece of content.

Winfrey – When you say that, are you multiplying it by the percentage of consumers that would actually take the content? Or are you saying the retail rate would go up on those who do?

Bazinet – The retail rate goes down. The number of consumers that take it will be a subset of the total universe. But by pivoting from wholesale economics to retail economics, getting rid of equipment lease fees, getting rid of DVR lease fees, it leaves a lot of headroom.

Moffett – Adding customer service centers?

Bazinet – Adding customer service centers.

Winfrey – From a cable operator’s perspective, I actually hope you’re right. It would give us the opportunity to do what we’ve always wanted to do, which is to build genre-based bundles and packaging. But it does mean a complete breakdown of the economic model for programmers. That has to be scary.

Bazinet – So I would say on this platform question it’s impossible to stand up here and answer. Is it a content packager that’s in good shape or not? Because what we’re going to see is some of the packagers are in good shape and some aren’t.

Moffett – The question that always comes back to me is, find me another model that’s better than ESPN saying I can get $7 for every family in America who chooses not to take my product. Where else can you replicate that?

Bazinet – Well, I would just say using your $80 ARPU/$40 cost of goods, $7 from every household on a wholesale basis is $14 for half the houses. I see that as headroom.

Ryvicker – But it’s not $7, because what Disney does with ESPN, they have a whole bunch of other networks. It’s actually $11.24. And then if you have the average, the 30 million viewers on a unique basis every month with ESPN, those guys are going to have to pay $33 a month.

Winfrey – So the ecosystem is changing. It sounds like there are different views of where it’s all going to land. It’s going to be fun to watch.

In the meantime, we’ve heard the death of pay TV for many years now, that this change in landscape was going to cause a falling apart of the ecosystem. But if you take a look at 2015, there wasn’t a meaningful decline in pay TV penetration yet.

So what does it tell you despite all the things we think are happening and the consequences that could be for different players in the industry? What’s the play about the pay TV business as it stands today? And when do you think we’ll really start to fundamentally move away from that in a material way?

Bazinet – I think it’s happening. The typical buy sider would say one to two percent cord cutting is sort of the generic answer you get from those clients. I don’t disagree with that. It was about that rate on wireline voice, and it lasted for about five years. And then it accelerated to three, and it accelerated to four. I don’t see why that’s not a reasonable outlook for the business.

Swinburne – It’s definitely happening. I guess the only nuance is how we define pay TV is the biggest challenge to answering your question. Just look at the fully distributed cable networks, your VH-1s, ESPNs, CNNs. They’re losing two, three percent of their subscribers already.

If you look at the pay TV universe, it looks pretty flat. But the subscriber counts for the networks are declining much faster. And that’s a function of the shrinking bundle, shrinking of root networks. We went through a 30-year period of adding more and more channels to the legitimate scenario. [Now] we see real reduction in the number of networks that the consumer has access to.

Winfrey – Because of viability.

Swinburne – Yeah. It seems like the media companies are reaching that conclusion, that having a small number of strong networks is preferable to having 20 plus.

Winfrey – You’re jumping to something else I was going to ask. Maybe you’re saying it’s just a fait accompli. But do you see any skinny bundles out there that you think work for the mass market and that have the ability to be sticky and to gain real customer counts and market share? And attached to that, do you see the opportunity for a lower number of channels billed that sits inside of that baseline program that MVPDs can sell, meaning you have a baseline that’s smaller so that you can sell more and tack on other genres?

Swinburne – My sense is in the last 12, 24 months there’s a pretty dramatic shift in the media companies’ perspective on this topic. Years ago it was we’re absolutely not doing a deal unless you carry everybody. Now it’s how do we make this work so that I can at least keep most of my economics.

I thought of [Discovery Communications CEO] David Zaslav on the last earnings call for Discovery. He made a really interesting comment. His top six networks are X percent of his earnings – I think it was 78 percent – I’m not quoting exact numbers. But he said this specifically: we as an industry are going to have to make some compromises.

Thirty channels for $30 isn’t going to work with every network. I think that’s the reality today. That’s going to lead to more and more flexibility for the MVPDs and bundling. And I think we should give some credit to Mr. [Charlie] Ergen for pushing the puck down the ice.

The Sling TV idea was generally mocked when it was first announced. I think Disney sort of suggested, well, no one is really going to want this – you mentioned mass market – it’s niche. And maybe it is niche. I think Sling is niche.

But what Sling started is not niche, at least in my view. You asked about the mass market demand for the new bundle. It’s impossible to answer what the real utility value of video is inside the triple-play bundle – you know, $85 video ARPU. That number seems increasingly made up.

I don’t mean it in a nefarious way. Broadband is such a big part of the value the consumer sees. If you call your cable operator or telecom operator and ask for just broadband, and it’s 80 bucks and video plus data is $75, what is the value of video in that bundle?

Winfrey – What do you think the timeline is for an MVPD that has a discussion with a programmer and starts to have some flexibility to be able to pick and choose, maybe not without limits, but has the ability to put together packages the way it thinks is going to sell the best in the marketplace? And how does a programmer economically rationalize that in a way that they have a glide path for what they’re doing in terms of revenue today?

Ryvicker – It’s starting now. We only really have numbers, sort of, for Sling. Comcast is doing something. Charter is doing something. Everyone is trying to come out with smaller bundles.

I think what’s really interesting is Intel fails, and Apple is nowhere. So that just tells you something about the relationship between the incumbent provider and the programmer. I think that as long as there’s flexibility among the two parties and they’re both there for the same purpose, to make money and provide for the consumer, we’ll start to see it happen.

I think one of the reasons Sling was really successful – think about what Sling was. It was one stream, one device. So there was no threat that a family downgrades to this product. It was more for the cord-nevers, the millenials.

Winfrey – But that is changing.

Ryvicker – That is changing, which is really interesting. Even Disney, Bob Iger, said on the call, we are having conversations that are productive with the multi-stream, which you never would have thought someone like Disney would be involved in, because that may actually lead some people to downgrade.

We still think it’s part of the common experimentation. Everybody is experimenting. They seem to be experimenting together within the ecosystem, which means, at least to me, that it’s a net positive.

Winfrey – The rumor on the Street is that some of these agreements have subscriber ceilings, which is designed to protect. But is the genie now out of the bottle, and how do you put it back in from the programmer’s perspective if you have something that’s working in the marketplace? And, from a regulatory standpoint, how do you put it back in, if that’s generally what the consumers wanted because it leads to something that’s a more affordable product set? How are they able to balance those thoughts? And did they ever really intend to hold people accountable to the subscriber limits that were in theory put in place?

Swinburne – I think you answered it in your question. I’d be surprised if those agreements actually impacted what happens on the field.

You bring up the regulatory issue that you’ve eliminated consumers’ choice. That starts to taste bad for everybody involved.  It reminds me a little bit of, instead of the ceilings, the floors we always talk about for network subscriber numbers. Are you hitting your floor? Is that good?

Well, no. People actually don’t like your service; it was actually bad. And, ultimately, as negotiations rumble on over time, things reach a market equilibrium.

Ryvicker – You could have asked the same question on Netflix. They [the programmers] let the genie out of the bottle. They sell a lot of content to Netflix. Now people are watching prime TV, and we’re not getting paid as much.

Winfrey – Beautiful feed into my next question, which is how much of this content are people really paying for? One of the things that we spend a lot of time worrying about, thinking about at Charter, isn’t that you have to deal with paid competition, but the fact that in many cases we think we’re dealing with free competition, because it’s been the content that has been placed sometimes for free, sometimes at lower prices, many times unbundled, and many times without a brand and usually without advertising. And it’s also put in an environment that’s not authenticated; it’s not encrypted.

So you’re fighting in terms of selling cable subscriptions against free. And that makes it pretty challenging. At the end of the day it hurts us. But I would argue it hurts the programmers every bit as much as it hurts us.

Why do you think the security topic, the password sharing, hasn’t gotten more air time? It hasn’t really created more concern and, frankly, so far has been perceived a little bit as a joke on the side. But the reality is that those are paying dollars that are going out the door and not paying.

Moffett – My own theory, and it’s sort of dispiriting, is that we’re responsible and that the pressure on media companies – and, look , I get to say this because I don’t cover the media companies, so it’s easy for me to say – but the pressure on media companies to meet the expectations of their shareholders to say that we are at the avant garde of selling our content, that we are actually participating in the ecosystem and capturing advertising, that we are competitive with Google and Facebook in the ad community and what have you, creates this tremendous pressure where it’s just not acceptable to say, you know what, some of this is a dumb idea and that actually protecting the existing ecosystem is a better model.

You’d be laughed out of the corner office if you said that even if it was the right answer. And so it’s very difficult if you’re managing one of these businesses to try to be steadfast in saying, until we find something better, we’re going to stick with our existing distribution model. It doesn’t fly.

Winfrey – All four of you speak to media companies all the time, some more than others. How often does the topic of security and encryption come up in those conversations?

Swinburne – Never.

Winfrey – Marci?

Ryvicker – I can’t remember one.

Winfrey – Craig?

Moffett – I don’t talk to the media companies as much, but it’s very rare that it comes up in those discussions. It does to some extent, but not frequently.

Bazinet – Certainly not in earnings calls. But it does come up with them when you meet with them one on one. The general response is, we’re just in the experimental phase; we’re just marketing.

Winfrey – We’re getting free eyeballs. We’ll put the genie back in the bottle later.

Let’s talk a little bit about competition for cable – back to cable a little bit out of the ecosystem around programmers. There is competition coming for cable whether it’s in the form of Google Fiber or whether it’s in the form of wireless.

For many years we’ve been debating what is the key objective for Google Fiber. Are they multiple objectives? Are they fallback objectives? Or is it really just an experiment? Where do you think Google Fiber is now in terms of the broader rollout?

Bazinet – We struggle with this question. The only thing I can tell you is we sort of rank ordered 30,000 municipalities by population density. We used whatever Google is charging in some of their markets as a proxy. We asked a simple question. What penetration would Google need if they’re willing to have breakeven economics, zero NPV (net present value)?

And [the calculation] said they could pass half the United States, where it was neither so urban where FiOS is already there and you wouldn’t get 50 percent penetration, so it would be a three-player market, nor was it so rural that you’d have to have a penetration more than 50 percent to get zero NPV. Intriguingly, in all the real markets, they mapped against that 50 percent of the country where they could earn zero NPV.

So it at least suggested anecdotally that Google isn’t throwing darts at a map to decide where they’re going to go. There is some logic behind it. But what their overall motivation is, I have no idea.

Moffett – It’s pretty obvious now. Remember the bakeoff that led to Kansas City started in 2010. We’re now seven years into this, and they are far behind where a typical overbuilder would be.

So it’s pretty clear looking backward over seven years, if their ambition were how many homes can you pass and how many subscribers can you get, this ain’t that. So it’s something else.

That doesn’t mean it can’t change later. But if you look at what they’re doing – in Kansas City there was largely feeder plant that existed that was built by the electric utility, and they’re building their own drop. In Provo they bought a network for a dollar and they’re going to market it. In Huntsville, Ala. they’re actually going to have the municipality build the network and then they’re going to sell it. In Atlanta they’re only doing apartment buildings. In San Francisco they’re having Zayo [Group] build some facilities out to public housing, and then they’re going to resell that.

So it seems to me this is more a let’s see how many different constructs we can find with municipalities in order to showcase as many possible models as we can in the hope that other people will come along and say, okay, I’m going to do the Huntsville model or I’m going to do the [Atlanta] model. They just want as many different flowers blooming as possible, but they don’t want to have to plant them all.

Bazinet – There’s an irony to me about the FCC getting very concerned about broadband prices rising. If I was sitting in DC, I’d be begging you guys to raise prices so it would attract capital to be the next overbuild.

Winfrey – So far Google has been able to go into different towns and get a reverse auction bidding process to get the most favorable terms that really don’t apply towards a typical cable company or overbuilder. So people are very willing to accept Google coming in and building not only where they want to build but only where they have a pre-determined successful penetration by getting consumers to opt in first before fiber ever gets built. And that’s worked well so far.

But if they didn’t get it to scale, do you think that type of approach to the marketplace that only goes after the more attractive places really can hold up? Or do you think they get pushed from a regulatory standpoint into more types of typical franchise buildouts where they have to do it all?

Ryvicker – I went to Kansas City. That’s the only way you can really see Google Fiber, because they don’t really talk to people. The product is amazing, and I was really nervous, because I came out of there saying, my gosh, what’s going to happen to cable? And then I realized that the rollout is taking forever.

I think their ultimate goal is every time they announce a market everybody else’s speeds increase. So I think that’s helps their search. When I went they were very clear to explain to us that we will not build in a municipality that doesn’t want us and that doesn’t allow us the flexibility. So our scale will be capped naturally by those who don’t want us. And [if there’s] any threat of a regulatory issue in any specific state or municipality, they go away.

Moffett – It’s a lot easier to see this happening in traditional red states than blue states for that exact reason. It’s easier logically for a Texas, for example, in Austin to say we will allow digital red lining than it is for a Massachusetts.

Massachusetts is an interesting example. Verizon just announced they’re building fiber in Boston. One of the really interesting parts of that build, by the way, is they’re not building FiOS in Boston, they’re building fiber in Boston.

This is a small but important distinction, because they’re actually cost justifying it with some of the feeder plant for wireless as opposed to video on its own. But in the press release announcing the fiber build, the first two places they’re building it are in West Roxbury and Dorchester.

Winfrey – Underprivileged areas?

Moffett – Yes. It’s still the old model, if you’re going to do this in Massachusetts. That’s not the Google model.

Winfrey – I’m going to use this as a good entry point into 5G. From a cable perspective is 5G friend, foe, unknown? Could it bring business to us? Could it be a new business? Or is it something that could replace cable altogether from a connectivity standpoint?

Swinburne – If I could quickly answer on Google, with our covering it, Google very importantly for us on the investment side split themselves in two in January. One of their companies is called “Other Bets” and actually reports capex on a standalone basis. They have told us and told everybody publicly that the primary capex item is Google Fiber. You can all track at home every quarter the dollars [spent]. So instead of us guessing on their motivations, we’re going to have a real track record.

Winfrey – Dollars per passing, where they’re building?

Swinburne – No dollars in capex.

On 5G I think the answer is both. It could be an opportunity. It’s also a threat.

We don’t have time to get into the regulatory side of this, but to me the most interesting development around 5G recently has been the FCC’s BDS (Business Data Services) initiative. To have Verizon publicly support rate regulation of the wireline business is something that’s kind of mind twisting.

They’re doing that, I think, and Chairman [Tom] Wheeler seems to be very much supporting it, to make sure Verizon has enough backhaul capacity to make 5G work for them when 5G is ready for prime time. If that regulatory path is the path, that seems more of an investment concern, as we like to say in this business, for the cable industry than an opportunity.

Moffett – The chairman is in a tough spot, because obviously he wants to see infrastructure built for 5G. But as the BDS proposal stands today, and there could still be a lot of changes before the final report and order, but as it stands today it’s hard to see the economic motivation for [a cable operator] saying, I’m going to build a lot of that.

Swinburne – If you put the conspiracy theories aside and just think about wireless versus wireline, every G that I can remember being introduced to was supposed to beat wireline. And by the time the consumer growth reaches the point of deployment, we’re back to where we are today.

Moffett – The old adage is a wireless network is 90 percent wired and 10 percent wireless. Well, if you’re going to shrink the radii of the network down to 300 feet, which is what they’re talking about, you’ve effectively built a wired network. And then the question is, we’re right back to the Google Fiber conversation. What are the economics of building a wired network?

Winfrey – If all that’s true, why not cable?

Moffett – Right. We thought about convergence in the past as, do customers want to get their wireless and wireline service from the same operator. But the right question is, ten years from now, is there a distinction between wireless and wireline networks? Even today, nobody connects to their wireline network with wires. You connect to your wireline network wirelessly. So all you’re really talking about is what’s the last connection and what is the OTA (over-the-air) interface. Is it Wi-Fi; is it 5G; is it 4G? And the answer is, who cares? Topologically they’re the same network.

Winfrey – I agree. Let’s move on to regulatory.

The press is full of assertions that the current FCC is highly anti-cable with a slew of different initiatives, and all of them look less interesting from a cable perspective, according to the press. I’m curious to see what your assertions are. You’ve seen a number of different regulatory cycles. What’s the viewpoint here as to whether it really is anti-cable, or is it something else?

Bazinet – When I first started covering cable stocks, it was sort of the good old days when the expert agencies were largely neutral. Maybe they would deviate from the mean a little bit to the left or a little bit to the right. I think we’re living in a world now for better or worse that is so hyper politicized that the expert agencies, whether it’s the FCC or EPA, are going to careen far left, far right as the executive branch changes, which is tragic.

It makes it very uncomfortable for equity analysts, because you don’t have a constant sort of policy coming out of DC. You have these zigs and zags. I would say, yes, it’s anti-cable. But I think it’s probably broader than that. It’s anti-business.

Ryvicker – Or at least anti market forces. This is a government and an FCC that wants desperately to regulate everything. They’re not just anti cable, they’re anti broadcast. They’re anti telco. They’re just anti.

Winfrey – For the transcript, that was not the moderator. But thank you for your candid input.

Bazinet – The only thing they seem to be pro, and, again, 15 years ago when I started with the NAB, it was quite powerful in DC, and now it’s really the Silicon Valley mix that has all the power in Washington. I was in a meeting with a client, and he jokingly said, does Skynet really need any help out there in the marketplace, referring to Google. And that’s the way I think Wall St. sort of looks at it.

Everyone knows Google has huge cash flows. The Street’s willing to accept no profits. They have a great business model on the advertising.

Winfrey – Essentiall a monopoly in search.

Bazinet – Yeah, exactly. To say they need help; it’s mind boggling.

Swinburne – Without taking a political view if at all possible to answer this question, you know Kevin Martin days were some hand-wringing days. I think we all thought they were pretty aggressive. The cable card stuff seemed kind of scary and out there.

I think there’s no question this FCC wants to bring more competition to cable. Whether that’s anti cable or not, I’ll let people decide that. But it’s tough right now between set-tops, special access, blocking mergers, Title II reclassifying broadband. It’s been a tough string for the industry.

Winfrey – Let me turn this back on cable for a little bit of perspective on ourselves. Is there something to think that we have done over the past five to ten years of the cable industry that we could have done better?

It’s very easy to sit back and say, wait a second, we as a cable industry, just the cable operators, we employ hundreds and hundreds of thousands of employees, and we grow employees every year. We invest billions of dollars into network infrastructure, and essentially built the broadband Internet in the U.S.

So it’s very easy to sit back and pat yourself on the back and say, we brought the competition. But obviously we didn’t do something well, or else we wouldn’t be sitting in this position. So what do you think cable could have done differently to avoid some of this taking place and be put in the position where it has the ability to continue to innovate, invest and earn a rate of return?

Ryvicker – I don’t think it’s what you did. I think it’s the fear of what you will do as a monopoly.

Winfrey – Given what we just talked about with wireless, Google Fiber, with U-verse, satellite still competing very much in video, do you think we’re a monopoly?

Ryvicker – This ecosystem has thrived with new competitors, with disruption, with consumer choice. And I feel like the FCC wants to make everything happen faster without realizing there is a lot of investment that has to be made for all this content to come out and all the content to be distributed. And if the cable companies and programmers can’t invest, we don’t get any of it.

Swinburne – I’d introduce both a big compliment to the industry and also maybe a little accusation. I don’t know if this quote is totally accurate, but I think the chairman and the founder of MCI was asked what is his goal for his company, and he said, I hope someday to be broken up by the government.

To some extent the success of the industry, particularly around broadband – we report it every quarter, 100 percent of market share growth is going to the industry – can lead to some unwanted attention. That’s part of it.

On the negative side, there’s always been this undercurrent of consumers complaining to congressmen and senators about their cable bills. I think every one of you, if you haven’t read it, should read the [FCC general counsel Jon] Sallet speech that was made public last summer about why the FCC blocked Comcast-Time Warner Cable and why they approved AT&T-DirecTV.

It’s very clear there that when we all talked about broadband market share it was really about video. They really wanted to help the OTT players enter the market, bring competition to video.

One of the reasons [AT&T-DirecTV] was in the public interest was because of cost synergies on programming costs. It was an amazing sort of conclusion. They thought it would make U-verse a more viable platform. So I think high video prices, and high is a relative term, but that undercurrent of being frustrated with pricing in video may have led into this real push to support OTT.

Moffett – Which, by the way, was the rationale for the ’92 Cable Act. In essence, the FCC has been trying to get at this issue since ’92 without much success.

Even the birth of satellite was originally designed in some ways to help restrain rising end user video prices. It backfired and created more negotiating leverage and ultimately higher prices rather than lower.

I guess I feel a little differently in that it seems to me the FCC is now playing a little bit of catch-up and regulating what they can. You went down the path of Title II, and once you went down the path of Title II – whether that was advised or ill advised is a separate discussion – but once you went down that path, the ’96 Act pretty clearly says, here’s the role of the Federal Trade Commission, and they’re not involved anymore.

And now I have a void to fill, and I have to go in and fill the void for privacy, for example. So I rush to fill the void for privacy that I created by the reclassification, and, by  the way, I don’t have jurisdiction over Google. So regardless of what I’d like to do with Google if I had my druthers, it’s not really my bailiwick.

And so a lot of this has followed from, if you’re going to move one piece of this incredibly complex mosaic, you’ve got a lot of other things that you have to do. And inevitably each of them has their own unintended consequences. And that’s, I think, in some ways the vortex the FCC finds itself in now, which is they’ve moved around a few pieces and it set a whole lot of things in motion. They’re reacting to their own agenda.

Winfrey – Let’s talk a couple of specific items that are on the agenda. Title II. Anybody have any insight, want to take a stab at whether it gets overturned or not?

Moffett – I think the consensus seems to be, leaving aside the procedural issues of whether or not the notice issues were sufficient, but on the merit, wired broadband Title II reclassification will be allowed to stand. Wireless will be tossed out. And interconnection is a tossup.

That seems to be kind of the way most people read it. And then the procedural issues are an overlay on top of that, which people think is interesting to insiders but probably less critical.

Swinburne – I think the consensus also believes there will be an appeal to the Supreme Court, which only has eight judges, in which case the lower court stands.

Winfrey – On the set-top NPRM that Chairman Wheeler has launched, do you  think it’s needed? Does it get done? What’s it mean for MVPDs and perhaps more importantly, what’s it mean for programmers and the ability to protect their content, and the edge providers who would like to intercede on the copyrighted content and advertising?

Swinburne – That order is a tough read. It makes your head spin. I try to boil it down in my simple brain to create sort of the Android or iOS ecosystem run by the FCC and some standards body that doesn’t exist yet in sort of a cable ecosystem where the vendor community has always been relatively small and lacking in leverage. I understand the hopes and dreams of that order, but the implication of what they’re trying to do seems virtually impossible.

Moffett – The hard part to me is, when the White House has intervened and said, it’s a great idea, it’s really hard for the Democratic commissioners to say, no, it’s not. On the other hand, there are an awful lot of traditional Democrat fund-raising constituencies, not least the entertainment and creative communities, which are really important in the upcoming Congressional elections, who are not pleased.

And politically that’s something that I’ve never seen the FCC have to grapple with, something this politicized where this many Democrats are coming out against it and yet the White House has come out for it. If you’re a Nancy Pelosi in California and there are a lot of unhappy Californians in the entertainment industry, I don’t know how you juggle all that stuff. It’s not easy.

Winfrey – All this activity that’s going on, it certainly feels that cable is being intentionally disadvantaged. So whether it’s neutrality and privacy on the last mile versus the edge providers or its traffic management versus wireless, I think Marci hit her own opinion straight on the head and said, yes, it is intentional and it’s being done by design. Do you feel that’s the case?

Ryvicker – I feel it’s the case. Netflix can throttle and cable can’t.

Moffett – Where does the FCC have jurisdiction? The FCC doesn’t have jurisdiction over Netflix. The FCC regulates what it can.

Winfrey – Understood, but does that create an unfair playing field?

Moffett – Sure. Life’s not fair.

Winfrey – Your message to us is tough luck. Find another way.

Moffett – Yeah. It is what it is.

I do think what the FCC is grappling with, as Marci put it, the economics of success in distribution networks are challenging from a regulatory perspective. The pendulum started swinging decisively toward deregulation in 1984 in this country.

When you deregulate telecommunications networks of whatever kind, it tends to create this explosion of innovation and investment. But as you do it, the microeconomics start to swing the pendulum back.

Unfortunately, these are businesses that have really draconian economics. There are winners and there are losers. There’s not a bunch of people in the middle.

My suspicion is what the FCC is looking at is, longer term, it’s pretty easy to see that cable is the winner. And, by the way, not just the winner in broadband, but go back to the conversation we were having about wireline. Where is the economic value created in wireless eventually? Wires. Who owns the wires? The cable industry.

And so they’re already looking forward to the day that cable has effectively won the battle for the U.S. network. And if you ask anybody with really long tenure at the FCC, and by tenure I mean going back prior to the Big Bang in 1984, they would say that ultimately that has to be a regulated business. And so there’s at least one line of thinking that, if you say what the FCC is doing, it’s already doing the hard work of putting the stakes in the ground for the ultimate regulation of what will end up being a single network.

Winfrey – It will be interesting to see how that plays into the ability and desire to invest.

Swinburne – I also think the FCC has an awareness of the role of content cost on the consumer price point, but they don’t regulate the bundling of networks by media companies. So they’re aware, but they’re not actually doing anything about it yet.

I wouldn’t be shocked over the next five years to see the FCC move in that direction somehow, whether it’s through merger reviews or something else. I think there’s a clearer understanding around retransmission fees and the rising tide of sports networks, etc. That area will be one to watch going forward.

 

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