Putting UltraHD in the Picture

UltraHD is seen as cutting edge technology – one which provides a more immersive customer experience, and is expected to open up new revenue streams for manufacturers, pay TV platforms, and satellite operators alike. However, there is currently debate on the long-term picture for UltraHD – some envisage either a comprehensive range of channels like HD offers many countries today, a small but increasing niche, or a repeat of the downfall of 3D content.

The UltraHD end-game differs between developing (high subscriber growth, low ARPU) countries, and those which are developed (high ARPU, low subscriber growth). In NSR’s view, UltraHD will lie somewhere in-between, with SD and HD channels remaining dominant, and UltraHD channels being broadcast in smaller quantities for only the most premium content, such as live sporting events and blockbuster movies.

In the recently released UltraHD via Satellite, 3^rd Edition report, NSR expects that by 2025 platforms in all regions will offer a small handful of UltraHD channels via leased satellite capacity, totalling just under 150 TPEs. By comparison, in NSR’s Global Satellite Capacity Supply and Demand, 13^th Edition report, NSR expects that across all channel types on DTH and Video Distribution to account for over 3,700 TPEs on C- and Ku-band in 2025.

Around half of this UltraHD capacity will be leased in North America, Western Europe and East Asia (mostly Japan and South Korea, which already have commercialised UltraHD channels). In North America, dedicated DTH platforms Dish and DirecTV are expected to have a much greater number of UltraHD channels on their platforms. Further compression, and removal of SD channels on their dedicated satellites are expected to free up capacity for a greater number of UltraHD channels to become available.

In developed regions, OTT is expected to have a huge impact on the future development on UltraHD, in some ways positive, and in many ways negative. The earlier accessibility of OTT content on platforms such as YouTube and Netflix has created additional competition and is spurring DTH, IPTV and Cable TV platforms to expedite their UltraHD trials, and ultimately 24-hour linear UltraHD content, in order to obtain a competitive advantage.

However, the much larger, and longer term impact of OTT platforms is to reduce overall revenue opportunities for pay TV platforms. With greater OTT competition, it is expected that subscriber growth will be restricted, especially in North America, Europe (Eastern and Western) and East Asia, where subscriber declines will eventually become reality. The lower cost of OTT will put pricing pressures on traditional pay TV platforms, effectively capping ARPU growth. Meanwhile, the bandwidth required for a single UltraHD channel over satellite will remain at approximately 20-25 Mbps, a two-fold increase over HD, even with HEVC encoding. Implementing High Dynamic Range (HDR) increases bandwidth required even further (around 10% additional capacity required).

All of this combined means that in markets where this is limited subscriber growth (developed regions), there are reduced revenue opportunities to go ‘all-in’ with additional capacity leases for UltraHD subscriptions, in addition to other costs associated with acquiring UltraHD content and equipment. While UltraHD is expected to nudge ARPUs higher, especially for highly valuable sports content, the overall breadth of content will remain more limited.

This is contrasted to developing regions, which are driven mostly by new, but low ARPU, subscribers. In these regions, the vast majority of customers are price sensitive, and tend to avoid premium or ultra-premium subscription packages. Should the option exist between a large number of SD channels, and a single UltraHD channel for the same price, the vast majority of subscribers will pick the former. This customer preference along with a challenging environment for up converting ARPUs will limit long term UltraHD channel growth. While there will be some inroads for OTT, the primary restraint for UltraHD becoming the dominant broadcast format will remain low disposable income levels, making the business case for UltraHD a difficult one.

Bottom Line

Longer term, pricing declines for capacity will assist pay TV platforms to lease more capacity for more UltraHD channels; however, the fundamental impacts of OTT will restrain ARPU growth, which will limit UltraHD growth moving forward. Nudging ARPUs higher will remain a challenge, as this needs to be balanced against driving subscribers to cord-cutting. With most customers preferring quantity over quality as it relates to TV content, it is difficult for many platforms to justify investing in large bouquets of UltraHD channels.

Nevertheless, UltraHD forms an important part of the future of DTH and other pay TV platforms, providing both potentially higher revenues and a means of customer retention. However, NSR does not expect UltraHD to drive an enormous new untapped revenue stream, but rather deliver modest benefits to satellite operators and Pay TV platforms alike.