Cable operators' need for additional bandwidth to deliver an increasingly differentiated service offering such as high-definition (HD) signals, video on demand (VoD), and quality digital simulcast has spurred massive hybrid fiber/coax (HFC) network upgrades across the United States, producing an average 750 MHz plant or better.
As competition remains fierce across much of the country, the average revenue per user (ARPU) of $40 per analog sub in small markets in the range of 16,000 subs does not economically justify the $4,200 per plant mile of upgrade dollars (or more based on wiring conditions) needed to enable delivery of these differentiated services. Instead, a steady 550 MHz or lower plant has been maintained for the continued delivery of 80 analog channels and no more than a handful of digital channels at lower than 30 percent penetration levels.
Such offerings, in the absence of a 100 percent digital quality lineup, HD video channels, VoD, and the revenue associated with ad insertion, have positioned these cable markets as an easy subscriber acquisition target for those competitors offering such services.
A recent study from Cowen & Company shows that satellite subscriber growth—attributed in part to the acquisition of cable customers—exceeds 140,000 subs per month. By their recent earnings announcements, EchoStar and DirecTV together reached a total of more than 28 million subscribers.
There are approximately 1,100 smaller and medium-sized independent cable companies that service more than 8 million subscribers in the United States. These markets are crucial battlegrounds for the cable industry and often face more fierce competitive pressures. Because of these pressures, approaches to expanding and managing bandwidth to make room for churn-reducing services such as VoD and digital video recorders (DVRs) are crucial to competing successfully.
Small markets could prepare their networks and increase their revenue by implementing a slew of advanced solutions such as switched digital video, linear and on-demand dynamic advertising, network DVRs (nDVRs), and VoD.
In plants where lower bits per Hertz are available, smaller market providers also face several architectural challenges that hinder their competitive product offerings. For example, in most plants, the few digital signals being offered are delivered via a digital turnaround system where video multiplexes from satellite receivers are directly fed into quadrature amplitude modulators (QAMs). Such systems are vulnerable to the encoding and multiplexing of these signals by the broadcaster, which seldom takes into account the bandwidth concerns associated with smaller plants. Larger markets in general have exclusively depended on their ability to statistically multiplex their digital offerings in such a way that a more efficient 12:1 standard-definition (SD) signals per 6 MHz slot or two HD plus four SD signals in the same space can be realized. The lack of an economical multiplexing implementation that takes into consideration the limitations of smaller markets exacerbates the strained bandwidth situation.
In addition, most smaller markets lack digital transport capabilities and rely on a distributed architecture for the delivery of video and data services. The distributed design does not allow such markets to take advantage of equipment centralization, which can reduce cost, improve operational efficiency, and maintain high equipment availability. Figure 1 shows a two-ad zone system. Clearly, the availability of gigabit Ethernet (GE) digital transport would allow such markets to eliminate redundant equipment and streamline operational productivity.
Since ad insertion at the local level provides a much-needed revenue-generating opportunity for the local operators, relevant local ads to the specific community served is a differentiator only the cable operators can capitalize on. For a successful implementation, it is important to minimize operational complexity and equipment and enable content acquisition via virtual interconnects and the cue tone routing needed for proper ad splicing and insertion algorithms.
On the VoD front—which remains a very successful, mostly cable, differentiated offering—smaller markets are faced with a very high per-sub cost of entry. On average, industry cost has hovered around $125 per stream during the past few years. In addition, content acquisition, video pumps, addressable systems, the sizing of service groups, and interactive network components all require highly skilled expertise to manage.
For example, a simple QAM 256 upgrade would improve plant bandwidth by 11 Mbps per 6 MHz slot, but despite the levels of a digital signal being 6 dBmV lower in power than its corresponding analog counterpart, an important aspect to consider is the plant's susceptibility to increased composite second order and composite triple beat interference levels in addition to the lower forward error correction resiliency associated with QAM 256 coding in such an upgrade.
Making the upgrade will enable operators to deliver at least three more SD channels, two VoD streams, or perhaps a single low-complexity satellite HD channel with an appropriate statistical multiplexing engine for each 6 MHz properly converted.
In addition, the recent addressable system upgrades (whether local digital access carrier [DAC]/digital network control system [DNCS] or remote NAS/NAS-RAC implementations) and the existing STB population would require efficiently managed VOD, switched digital video (SDV), and nDVR client applications. Due to the finite number of technical and operational resources in smaller markets, head-end personnel find themselves having to learn parallel on-demand and ad-insertion platforms, troubleshooting procedures, the various performance characteristics, and operational and maintenance activities essential to each piece of gear. It is a great advantage to standardize such implementations and management platforms to allow operators to simplify and streamline operational activities. The benefits are quicker deployment times and faster reaction to changing market conditions.
To alleviate some of the operational impact of deploying advanced services, it is critical to ensure that vendors and their professional services teams are well versed in the architectural and operational constraints that are unique to small market operators.
Because smaller markets lack statistical multiplexing and splicing equipment, a bandwidth-efficient digital lineup and ad-insertion delivery is impossible. On the other hand, installing such equipment would require regeneration of the PSIP tables to maintain FCC compliance.
Other soon-to-debut mandates, including separable security, would inevitably induce changes in the service delivery plant and set-top box (STB) population.
Remaining competitive and meeting the changing market conditions often require the small market operators to learn and maintain an increasing number of platforms and solutions with an already strained resource pool. Minimizing the equipment and parallel platforms allows for operational efficiencies in small markets when selecting scalable solutions with a favorable integration history.
The key to meeting subscriber demands in the small cable market territory is to maximize service offerings relative to bandwidth and relative to expense constraints. The lack of sufficient digital transport capabilities points to the need for distributed architecture models in the design. The design should also consider minimizing parallel platforms, closed standards, or any other system diversities that increase the operational burdens on the provider's staff. Do not write off the opportunity to include local and on-demand ad insertion, as low-cost, localized control of the process can help stabilize costs with an additional income stream that does not depend on ARPU. Along with ad insertion, consider providing local content via an nDVR solution, which allows a thinner/lower cost STB solution, because competing delivery technologies cannot match the lower costs of remote DVR storage. It would be ideal to select a multi-use and open platform that can handle VoD, ad insertion, and nDVR. One last condition is to make the solution scalable, as your streaming, storage, and demand will grow with each appealing solution you deliver to the subscriber base.
Aside from scaling the network architecture, attaining positive results requires such operators to construct a proper return on investment (ROI) by observing the close balance between the costs and expected revenue. Components to consider are the costs of addressable system upgrades, new service group sizes, new programming, and the cost of SDV while maintaining existing infrastructure. In light of the monthly revenue from each subscriber when adding HD, VoD, nDVR, and the advertiser revenue from local and dynamic on-demand advertising systems, small market operators are poised to remain competitive in today's broadband landscape.
