2015 Prediction Update: Last December, we predicted that the increase in 4K content offered by over-top-services like Netflix and Amazon Prime Instant would place pressure upon Pay TV providers to offer more 4K content. We envisaged that this could impact the capital spending plans of IPTV providers, who would look to improve network infrastructure to support and enable high bandwidth video. We take a deeper look at the action and examine how it’s unfolded.

By Simon Evans, Adam Fraser and Rishi Modha

- Industry Prediction Update

4K Is Coming

Your TV picture is about to get sharper. Increases in the volume of ultra-high definition video content, in addition to greater availability of television sets that can display such content are the key reasons behind this.

There are a number of ultra-high definition formats currently emerging which are commonly marketed under the banner of ‘4K’, despite not all meeting the precise definition. What 4K, 8K and UHD share, if not the same definition, is that each format contains more pixels than current high-definition formats. The 4K format (3840 x 2160) contains four times as many pixels as 1080p (1920 x 1080). With television screen sizes not increasing significantly to match this, the introduction of these new formats will increase screen pixel density, creating a more detailed and vivid picture.

The ability to display an increasing number of pixels requires a compatible screen display. The number of 4K-compatible television sets available is rapidly increasing and consumer demand is expected to grow in line with this. By 2016, one in five flat panel television sets sold will be capable of displaying 4K, with China, North America and Western Europe accounting for most of the demand[1].  By 2020, the vast majority of high-definition television sets sold will be 4K-compatible.

Netflix and Amazon have led the charge in producing all of their original content in 4K. As more consumers purchase 4K-compatible television sets in the near future, there is increasing pressure upon Pay TV operators to follow suit and provide more 4K content.

Is Infrastructure Ready?

Netflix usage already composes 37% of all downstream internet bandwidth in North America during peak periods[2]. Though they already offer 4K streams, the majority of users are not streaming in 4K yet. However, the number that do is likely to grow fast.

Increasing the content resolution has an impact upon its file size, increasing the minimum downstream bandwidth requirements to stream it. Netflix require an internet connection speed of 25Mbps or higher for 4K content, a significant increase on the 5Mbps they require for 720p content.

Given the significance of video streaming to internet usage, the increased pressure applied by the gradual shift to 4K will likely take its toll on broadband infrastructure that is not yet capable of fully supporting it. In long term, supporting widespread 4K video streaming will require significant improvements in network contention and flow control at content distribution networks to avoid network congestion. In the short term, access networks need to be improved to increase the number of homes with internet connection speeds capable of streaming 4K content.

Figure 1: Internet Connection Speed by Home-to-Cabinet/Exchange Distance

Internet-connection-speed-2

Source: Cartesian, Increase Broadband Speed, Netflix

As seen in Figure 1, for a given home as the home-cabinet/exchange increases, the received internet connection speed drops significantly for common broadband technologies (particularly in Western Europe). Unless a home is very close to an exchange, or receives fibre-to-the-cabinet and is less than 1.2km away from the cabinet, it will not have a fast enough connection to receive a single 4K Netflix stream. When accounting for additional concurrent home broadband usage, it’s clear that fibre-to-the-premise connectivity is needed in many cases for the access network to not be a restricting factor.

2015 Industry Prediction: Pressure to implement 4K creates hardship for IPTV providers

IPTV providers who own/operate their own network infrastructure face two issues. The pressure to provide 4K content to maintain parity with over-the-top service offerings and to improve their access networks so that homes are capable of receiving the service, the latter of which could easily disrupt existing capital spending plans.

Figure 2: 4K Readiness and IPTV Penetration in Western Europe

> Click to view on mobile

Western Europe is a key market. It is a key consumer of 4K television sets and comprised nearly 30% of global IPTV subscriptions at the end of 2014[3]. However, as seen in Figure 2, even countries with high IPTV penetration do not have a large percentage of homes with 4K ready connections.

A Slow Start?

In 2015, there has been a large increase in 4K content offered by Pay TV operators. In July, Vodafone Portugal and NOS launched 4K channels in consecutive days. In August, BT launched BT Sport Ultra HD, the UK’s first 4K channel. Japan expects to go even further in 2016, with initial testing of 8K broadcast scheduled ahead of the 2020 Tokyo Olympic games.

However, despite this increased momentum, there have been a number of factors impacting the pace of change, which in turn could limit the extent to which capital spending plans are disrupted.

One factor is the volume of 4K content currently available for broadcasting. Though a significant amount of content acquisition takes place in 4K, end-to-end content production workflows have already taken some time to reach the requirements of current high-definition standards. It may take longer yet for full 4K-readiness, due to the multiple layers and costs involved in upgrading.

Another impacting factor is the uncertainty over compression standards that has loomed over 4K in 2015. As 4K files are very large, efficient compression is key to sustainable delivery over existing networks. In July, HEVC Advance, a patent pool related to use of the HEVC (High Efficient Video Coding) compression standard, set out an intention to demand 0.5% of gross revenue from every content owner/distributor using the standard under their licensing terms. Given the implications of this, content distributors quickly sought an alternative. In September, the Alliance for Open Media (with members including Amazon, Cisco, Google, Intel, Microsoft, Mozilla and Netflix) formed with the explicit intention of producing a royalty-free video codec to compete with HEVC.

Finally, the closer we move to 2020, the less likely existing capital spending plans are to be disrupted in Western Europe. There are a number of government-backed agendas which will have been factored into investment plans and are likely to be subsidised. For example, the EU Digital Agenda intends to provide half of all European homes with 100Mbps connectivity by 2020. Individual countries have set out even more aggressive agendas, evidenced by as BT’s plan to have 10M UK homes connected to ultrafast broadband (300-500Mbps) by the end of 2020. With such plans already in place, the 4K momentum required to accelerate them further would have to be tidal.

Have any of these factors been enough to hold 4K back in 2015? Has the format grown quickly enough to disrupt capital spending plans yet? We will conclude in our 2015 Year End Review in December.

In the ten weeks leading up to our Year End Review, read about the ten events and themes we believed would shape the technology, media and communications industry in 2015. Which ones are leading the transformation?

Read about:

Coming soon:

  • Soft SIM
  • OTT and the cable industry
  • Cloud services
  • Wearables
  • The sharing economy
  • Apply Pay

> Read our industry predictions for 2015 in our December 2014 Coordinates Newsletter

Sources:

[1] IHS

[2] Sandvine

[3] Digital TV Research