September 22, 2015

The Evolution of the Streaming Box

Fall is here, and with it TV season. Along with all the new shows, manufacturers have decided that fall is the season to release new TV streaming boxes.

Apple launched a new, more powerful $149 Apple TV box on September 9. Tim Cook and the folks in Cupertino finally decided that the future of TV really is apps and embraced a full-fledged app store platform in the living room, which means the once-hobby product has now converged with Apple’s main strategy of app ecosystem domination.

Amazon, for its part, announced a new round of Fire products this past week, including some absurdly low-priced tablets ($49 for the new 7-inch model – there go the margins in that space) as well as a new, more powerful $99 ($139 with game controller) Fire TV.

What do these new streaming boxes tell us about the future of TV? Three things.

1. The Tablet is the New Foundation of the STB
The first generation of living room streaming boxes was based on either the DVR (i.e., Tivo) or the videogame console (i.e., Xbox and PlayStation). Both devices had their roots, architecturally at least, in the personal computer. This meant (and still means) hard-drive based storage, dedicated chips for high performance graphics or video processing, and power-hungry processors. The result was (and is) a very high bill-of-materials (BOM) cost and a correspondingly long product life cycle of 7-10 years. Other streaming boxes (e.g., Roku) have used bespoke hardware and a proprietary software stack. This results in a much lower BOM cost, at the expense of memory and performance.

The new streaming boxes take a different tack by starting with a Wi-Fi tablet and replacing the battery and internal screen with a power supply and an HDMI port. The new Apple TV uses the same A8 processor as the iPad Air 2. The new Amazon Fire TV, for its part, is powered by MediaTek’s MT8173, a 64-bit quad-core processor, which is very similar to the MediaTek 8135 processor that powers Amazon’s new Fire HD tablets. For those wondering, Google’s Nexus Player runs an Intel Atom processor with similar levels of performance. In each of these cases, of course, the TV boxes run a TV-friendly version of the underlying tablet operating system (iOS or Android), enabling app store support and easy porting of games and other apps.

These may seem like minor technical details, but the difference in the marketplace could prove to be significant. Streaming boxes now find themselves at the leading edge of the performance curve, with the ability to support sophisticated games and other demanding apps. Perhaps more importantly, this means that both Apple and Amazon streaming boxes will be on the same annual upgrade cycle as their tablet devices. Major annual improvements are a given in the mobile phone space, but practically unheard of in living room devices. I expect that the move to tablets as the core architecture of living room streaming boxes will give Apple, Amazon, and Google an advantage that will separate them from other competitors over time. This will be particularly apparent in international markets (outside domestic China), where local competitors who try to offer their own streaming boxes will face an increasingly uphill battle. Microsoft, on the other hand, has some difficult strategic choices ahead. The folks in Redmond need to strongly consider offering a $99 Surface-based Windows 10 streaming box in order to get away from the long product cycles endemic to video console design.

2. Voice Search is the New EPG
Voice search has made significant inroads in the mobile phone and tablet space since the launch of Apple’s Siri in the fall of 2011. Once a parlor trick and target of late-night comedians, voice search has gradually become a core feature of all of the major consumer operating systems, including Apple iOS (Siri), Google Android (Google Voice Search), Amazon Android (Alexa), and Microsoft Windows 10 and Xbox (Cortana powered by Bing).

Industry stalwarts like Roku and Comcast (via the X1 platform) have responded with their own voice search services, thereby training even more users to expect this feature as a matter of course. Just as importantly, in each case voice search has moved to the remote control (or game controller). This results in an experience similar to talking to Siri on your mobile phone, which seems far more palatable than yelling instructions across the room to your TV set. The bottom line is that consumers are steadily evolving toward a new paradigm of video consumption based on app stores, device home screens (that show multiple apps), app home screens (that show featured content), and anchored by robust voice search. The traditional EPG? It’s history.

3. 4K Streaming is Inevitable
A little more than a year ago I authored TDG’s first report on 4K video, forecasting the evolution of this market over the next decade. As part of that report, we predicted that 4K streaming (not broadcast) would lead the way, arguing that the combination of short product lifecycles and hypercompetition between ecosystem vendors meant “[It’s] inevitable iSTB vendors competing for SVOD viewers will sprint to support 4K playback.”

Amazon must have read the report, as its recent announcement of 4K support in the new Fire TV almost perfectly fits to our predictions. Apple’s decision to withhold 4K support for another year is true to form and is also fully consistent with our forecasts. We expect the next hardware rev of the Apple TV platform in September 2016 to support 4K, including HEVC, HDMI 2.0 support, and HDR support for select iTunes content on select partner UHD TV sets. For those interested in our full 10-year forecasts for the US 4K market, this report remains well worth the time.

Conclusion
Streaming boxes (aka, Internet set-top boxes) have supplanted game consoles and TV sets alike as the most important enabler of TV-as-an-app in the living room. This month’s announcements by Amazon and Apple demonstrate the importance this category now has in the overall consumer video ecosystem. As these products roll out globally, we are going to see a step-change in adoption of TV apps.

Stick with TDG and stay ahead of the curve.

Joel is a Senior Advisor for TDG and serves as an advisor and Board Member to the video ecosystem and technology companies. He lives near Seattle, WA.

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