"It should be acknowledged that video and television broadcasts on a platform other than the traditional one with which we are familiar from our living rooms, is now a niche and it will remain as such. I believe that at best, it will account for one quarter of our revenue, so it's important that we invest in it - but we need to keep things in proportion." So says none other than Raffi Kesten, COO at the Israel branch of NDS Group plc (Nasdaq: NNDS; Euronext:NNDS), who is leading research and development amounting to tens of millions of dollars a year into the "new television."
Kesten, and the NDS team in general, should be listened to very carefully when they talk about the future for television. They, perhaps, are the ones who know it the best, and from every possible angle, so there is considerable significance to their claim that the new world of video broadcasts will not be leaving the familiar box, certainly not in the short or medium-term.
NDS initially focused on solutions for securing content, principally against theft and unauthorized use. This field, which is based on the smart card and its encoding systems inside set-top boxes, is still its core activity. It seems that the fact that NDS is centered around the world of traditional multi-channel television (primarily satellite companies) has made it the company with a key interest in maintaining the existing status quo, and supporting the world of traditional television. The revolution that has been ushered in by broadband, portability, and the Internet was supposed to have played into NDS's hands, since the fact that television can now be viewed on additional screens has created, in principle, a need for additional protection of the content when viewed on the new platforms. The ongoing revolution seems to provide fertile ground for the development of new services that can strengthen NDS's financial results.
From the other end, and in contrast to television, which is a fairly closed system that enables excellent content protection and the exercise of full control by the service provider, the Internet is an entirely open platform. This is the secret of its success, but it is also a key drawback for all those who create expensive content, as well as those who until now usually served as that content's pipeline.
Despite this, traditional television, which some people are describing as anachronistic, faces a tangible threat from user-generated content, content sharing sites that enable pirate viewing of many of Hollywood's top productions, and from ventures such as Google's "Joost", which purportedly provides legal and quality viewing of television content. "There is no doubt that we should, we really must, be in the new worlds of television such as the computer and cellular, but the repercussions of these changes on us, and on the market and consumers in general, are not that great, and they will not happen quickly," claims Kesten.
Globes: So this does not amount to a revolution?
Kesten: "It's more evolution than revolution. We're moving towards the use of new platforms, since the young people of today want things that adults haven't heard of. But this is also the very reason that it is moving fairly slowly, because the technology has to mature together with the public that uses it."
So the multi-television market has not been harmed by the entry of new platforms, and the ability to access any content with the help of an aggregator?
"Our key market, that is to say traditional television, will continue to grow at a rate of 15% a year. This is our core activity, and it will continue to be such, something that indicates that this market has a good rate of growth. But we will also increase revenue from the new the fields that we're developing."
What is driving growth in the world of "old" television?
"The transition to HD, high-resolution television. It should be understood that a switch like this also necessitates the purchase of a new set-top box, a field we operate in, so in effect, another NDS box enters the home. Another set-top box equals another income-producing smart card.
"Another factor driving growth is the switch to more sophisticated set-top boxes that can also record programs, a field that has been growing considerably. The entry by satellite companies to Push VOD has also triggered a need for new set-top boxes, and it has created services that did not exist previously, together with added revenue. All this highlights the fact that some of NDS's growth centers come from the world of conventional infrastructure. Our goal in this field is to expand our market share. It should be remembered that we have also been acquiring companies, such as Orbis from the UK and Jungo in Israel, in order to grow in the new fields."
Is this how your customers, multi-channel television companies, are coping with the change in their business environment?
"What the customers are trying to do is increase average revenue per user, over and above their attempts to reach more subscribers. They're doing this through added services, but also through the expansion of services to other screens, such as those on computers. Multi-channel television providers also do this to prevent the content world from being penetrated by new competitors such as YouTube, Yahoo!, or Google's Joost, which want to be content aggregators. The thinking behind this is that if television players give additional services for the PC as well, plus 'tail end content' (niche content viewed by a small number of viewers only, G.H.), they can integrate into the new world, and also give the new players a fight. It will also be possible to enhance regular television through user-generated content, while maintaining the television provider framework. Today, all content providers want to be on every platform, and be able to provide service on any kind of screen. User-generated content creators are looking for a way into the living room, while the multi-channel companies want to integrate such content into their own products."
But how will you, identified as you are with copyright protection, and the need to protect content and, primarily, to charge for viewing it, manage in a world of absolutely free content with no copyright protection?
"We want to be there, when new content is added to multi-channel television platforms as well, so that we can help prevent penetration of the field by new players. From the other end, we want to be a key supplier to new content providers wishing to enter the living room, so we'll be working for both sides."
Do IPTV broadcasts over the telecom companies' infrastructures pose a threat to you, or an opportunity to sell the equipment to another provider?
"We're in IPTV as well, and we'll supply products to telecoms companies such as Bezeq. Telecoms companies also need to enter the television world. They use IPTV to offer a full service package, so NDS's world is full of activity."
So far, it looks like IPTV has not met its expectations, and its penetration has been slow.
"IPTV has been moving slower than was expected, because telecom players, usually the large, veteran telecommunications companies, don't understand content, and don't know much about television. We can help them with this. I believe that ultimately, television will be hybrid. That is to say, we'll receive part of the content through broadband, mainly content-on-demand, while broadcast mass-audience content, will be carried principally over cable or satellite platforms. No one will outclass the other, and technologies will coexist in harmony."
Published by Globes [online], Israel business news - www.globes.co.il - on July 8, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007