When I recently saw the headline “Solving the TV Station Hardware Dilemma” on the Broadcast Engineering website, I stopped to read.
Although the article turned out to be about integrated playout (a.k.a. channel-in-a-box) automation servers rather than a debate about hardware versus software in a broadcast facility, it got me thinking about the shift in broadcasting towards IT-oriented technologies, and what vendors are doing about this market transition.
Our research has found that the move to IT-based operations is one of the broadcast industry’s most important technology trends. This will obviously have a major impact on the broadcast technology vendor community.
Some commentators like boutique investment bank Silverwood Partners say that there is a diminishing hardware opportunity and that value is migrating to software-based products. So what are broadcast technology vendors doing to change their product ranges and business models?
To better understand these issues we asked the nearly 800 broadcast technology vendors who responded to the 2010 Big Broadcast Survey, about the make-up of their current and future product portfolio. Vendors were asked to break down the sources of their revenue by product hardware, software, maintenance, and service.
Here’s what we found:
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Current Sources of Vendor Revenue – Product Mix
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Hardware products represent the largest percentage of vendor revenue, with more than 80% of respondents indicating that hardware sales represents greater than 20% of revenue, and 31% reporting that hardware products represent more than 80% of revenue.
While more than half of vendors reported that software represents a significant portion of their revenues, only 6% identified software as representing more than 80% of their sales.
Maintenance and service revenues represent a small part of the overall vendor revenue stream today.
But what are vendors projecting for the make-up of their future revenue?
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Future Sources of Vendor Revenue – Product Mix
Vendors were also asked to predict how their revenue by product mix would change over the next several years.
More than half of vendors report that they expect sales of hardware products to stay the same or increase over the next several years, while 20% expect hardware product sales to decline over the same period.
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Vendors expect to see large growth in software sales, with 76% of vendors predicting sales of software products will increase over the next 2-3 years. Included in this number are an impressive 51% of vendors who expect software product sales to increase by more than 10%.
Vendors are also clearly looking towards maintenance and service revenues to expend their businesses. Whereas the previous chart shows that today’s revenue from these sources is not huge, vendors are almost all anticipating that maintenance and service income will stay the same or increase over the next several years. 47% of vendors predict that maintenance revenue will increase, and 48% of vendors predict that customer service revenues will increase during this period.
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Projected Future Vendor Hardware / Software Revenue – by Company Type
To better understand these responses, it’s helpful to profile the research participants according to the type of company they represent.
In the charts below, I have broken out the responses to the projected product mix question based on whether the respondent works for a company that provides primarily hardware products, primarily software products, or has a mixture of both. In this case “primarily” is defined as more than 70% of a company’s revenue. Responses for the average of all vendor responses are also shown for the sake of comparison with charts above.
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Hardware Sales
Firstly, let’s look at what vendors predict will happen to their hardware sales. The chart below shows that 20% of respondents expect hardware product sales to decline over the next few years, while more than half expect hardware product revenue to stay the same or increase over the same period.
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However, there is a clear difference between those vendors who currently produce primarily hardware products versus those who currently produce primarily software products.
73% of respondents from companies who primarily sell hardware products think that their hardware revenue will grow over the next few years. Conversely, just 39% of respondents from software-oriented companies think their hardware revenue will increase.
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Software Sales:
What about revenue from software products? The chart below shows how vendors project their software sales will change over the next 2-3 years.
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Virtually all vendor respondents predict that their revenue from software will increase over the next few years. Just 5% of respondents believe that software revenue will decline during this timeframe.
67% of vendors respondents whose company sells primarily hardware products predict that their sales from software products will increase over the next few years, while 86% of respondents from software-oriented vendors believe their software revenue will grow.
These results show that while hardware product sales are not going away any time soon, technology suppliers are responding to market demand for software-oriented products. Although this analysis does not attempt to put a value on or quantify the percentage of future software sales, it appears that vendors are gearing up to provide more software solutions in the belief that this will help drive revenue growth.
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This article is based on the findings from the 2010 Big Broadcast Survey (BBS), a global study of industry trends, technology purchasing behavior and the opinion of vendor brands. With more than 5,600 people in 120+ countries participating, the 2010 version of the BBS is the largest and most comprehensive market study ever done in the broadcast industry.
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