Microsoft Mediaroom buy gives Ericsson leadership in fast-growing IPTV STB middleware biz

USA: With its purchase of Microsoft Corp.’s Mediaroom properties, Ericsson not only will become the leading player in the market for Internet-Protocol Television (IPTV) set-top box (STB) middleware, it also will be able to expand its IPTV offering into a complete, integrated solution that will give the company a competitive advantage over its rivals.

Ericsson in 2012 held a 1 percent share of the worldwide installed base for IPTV STB middleware, according to the IHS TV Systems Intelligence Service.

Meanwhile, Microsoft’s Mediaroom was the market leader, accounting for a 20 percent share, as presented in the attached table. Following the acquisition, Ericsson would have a 21 percent share of the market, based on the 2012 rankings, giving in a 7 percentage point lead over the next largest third-party supplier player, UT Starcom. The company also would have a 3 point lead over proprietary solutions from STB makers.

This gives Ericsson a commanding position in an IPTV STB market that is expected to more than double in the coming years, with IPTV STB industry shipments rising to 158.4 million units in 2016, up from 76.3 million in 2011. IPTV represents the fastest-growing segment of the pay-TV market, with a 16 compound annual growth rate (CAGR) in homes served through 2016.

However, beyond market share, the purchase of Mediaroom also gives Ericsson other important advantages in this booming market.

“With the acquisition of the largest IPTV middleware provider, Ericsson now becomes the leading IPTV STB middleware provider, serving a fifth of the world’s IPTV homes,” said Daniel Simmons, senior principal analyst for TV technology at IHS.

“Just as importantly, Ericsson now can expand its IPTV offering into a complete, integrated solution. With the company now able to offer IPTV network equipment, integration services and middleware, it is better positioned to serve the needs of leading telcos, especially as television transitions from a single-screen service to a multiscreen service.”

Middleware is becoming a key area of innovation and competition in the STB market, managing the communication between the head end and the STB. It also provides the user experience, which is an increasing point of differentiation among pay-TV operators. Middleware plays a key role in allowing STBs and multimedia home gateways to serve content to all kinds of IP-connectable devices, including today’s increasingly popular mobile devices such as media tablets and smartphones.

Mediaroom in the middle
Prior to the acquisition, IHS had forecast Mediaroom’s installed base would rise by a 10 percent CAGR between the end of 2012 and 2016. However, the overall IPTV market is projected to add households at only a 16 percent CAGR during the same period, which means that Mediaroom’s market share is actually forecast to decline to 17 percent by the end of 2016 given that growth in China outpaces the IPTV growth in the developed markets that Mediaroom predominately served by Mediaroom.

Mediaroom’s installed base is expected to expand based on the success of its existing Tier-1 customers, especially AT&T, Deutsche Telekom, the Canadian Bells, Swisscom and Portugal Telecom. This forecast assumes that Mediaroom neither gains nor loses a major customer during the four-year period.

IPTV on a growth track
While IPTV is nearing saturation in the United States and some other developed markets, it continues to compete successfully against incumbent pay-TV providers—and even expand the overall pay-TV market—in countries with limited interactive cable footprints.

IPTV is enjoying particular success in China, which is forecast to account for 41 percent of all IPTV households by the end of 2016. China’s 3 percent IPTV household CAGR is driving the majority of the growth in the IPTV market.

Mediaroom migration
Microsoft’s entire Mediaroom team appears to be moving to Ericsson. Mediaroom is no longer part of the Windows Embedded revision cycle, and it has been operating as an independent software ecosystem for a few years.

As a result, no resources for Microsoft other than cash are freed up. The selloff does alleviate some potential conflicts of interest if Microsoft wants to pursue a more aggressive over-the-top video strategy with its Xbox video game console platform, but those issues were relatively minor in the first place.

Source: IHS iSuppli, USA.