Since its founding in 2009, Devoncroft Partners, headed by Joe Zaller, has provided media market research and consulting services to a wide range of digital media clients. The company, based in Coronado, California, publishes the annual Big Broadcast Survey and, with IABM — the broadcast industry trade association — produces the IABM DC Global Market Valuation Report.

Q: What surprised you at NAB 2015?

Zaller: We did a discussion with Bob Bowman, who is president and CEO of Major League Baseball’s Advanced Media. The subject was the future of television. He said if you’re looking for the future, it’s here. In the first 12 days in April, MLB hosted 400 million live streams that included 60 million streams for baseball’s opening day.

Ten years ago, most people were giving away that kind of content. But MLB saw its value. They discovered that radio stations were streaming their games online, but told them they didn’t have the rights to do that. MLB took all the digital rights to those games and made them into a subscription service. The first year they charged $10 for the season. Now MLB has close to a billion dollars in revenue and streams audio and video from every team. They recognized the value of their content before others and that’s a remarkable story.

Also interesting at NAB was the announcement that Imagine Communications made about Disney/ABC virtualizing their master control. Lots of people at the show were talking about IP and many are adopting different strategies both on the vendor and end-user side.

Some are going for it, while others are taking a more measured approach. It’s very interesting to see the different ways people — whether vendors or users — are approaching the business question of what they are going to do in the future. The technology exists to support the business models so the changing models will drive what gets bought and doesn’t get bought in the future.

Q: So you see the changing of business models driving the technology?

Zaller: If you look at the video market between 2009 and 2014, compounded annual growth has been just under three percent. It was higher than that between 2009 and 2012 and lower than that between 2012 and 2014. So in the past three years, the market for (hardware) products declined. However, the market for services went up. Overall, the market went up. We are looking at 150-plus product categories and a couple of thousand companies. So we measure what vendors sell and what customers buy. And increasingly they are buying services over hardware.

I think the broadcasters that own content have a bright future because fundamentally there’s a value shift happening all over the industry. Previously, we’ve seen technology shifts from analog to digital or from 4x3 to 16x9 or SD to HD. But now we are in a different kind of transition. It’s not so much about changing out boxes as it is about business models and operational practices. The industry is no longer being led by technology, but by changing business models.

Q: How does the transition to IP technology connect to this?

Zaller: The cause of the change is millennials are demanding they be able to watch anything, anytime, anywhere on any device. This is causing the economic model to change. So there is a cost challenge because delivering digital programs to multiple platforms is more expensive. A media company can cut costs by virtualizing playout and getting rid of their traditional infrastructure. That’s what is driving the use of IT. It’s not technology for the sake of technology. The technology exists to support the new business model and the business model is changing because the economics of the industry has changed.

As a company, I can’t make my Akamai bill come down, so I have to be more efficient and cut my costs somewhere else. IP is an important component in helping lower operating costs for some companies. But remember there are people on the leading edge like a Disney and there are still people still using analog in the smaller U.S. markets.

A camera in a small market costs the same as in New York City. But the advertising revenue in New York City is much higher than in a small market. So there isn’t one answer. There are lots of answers depending on the use case and the business model of the company. Most people feel these technical challenges will be solved. Maybe not this year, but they will be solved because the companies have no choice.

Q: So is there a clear industry trend right now?

Zaller: Some companies are delaying spending. They are trying to figure out where to go next. Some are considering utilizing SAS models or cloud services to augment the technology infrastructure that they now have. That might allow them to avoid buying a lot of equipment not being used every day. All of this reinforces what we were seeing in the market before. There is a structural shift going on. In hindsight, it’s more evident when you can look back and see the result.

Q: You put out a pre-NAB report which found the two biggest trends to be multi-platform content delivery and IP networking and content delivery. Is it correct to assume the millennial viewers are forcing the multi-platform delivery and the IP technology is enabling it?

Zaller: The reason any person subscribes to media services is the content they desire. Content is king and it’s owned by the large media companies. Disney’s numbers just came out and they are pretty good. They are making money from their broadcast networks, cable networks and from content licensing. When ten OTT platforms license Disney’s content to show on their service that money comes back to Disney. So if you’re a content owner, the more OTT the better. Every OTT provider wants Disney’s content because they need premium content to attract subscribers.

Millennials are driving the digital transition and it’s creating a lot of investment. That’s the reason people are talking about IP. IP enables an agile infrastructure. Media companies want to be able to take programming in, process it and put it back out...no matter what it is. They want to be able to spin up new services and turn off those services if they are not successful without having to make huge capital investments. At NAB, I heard that an owner can now spin up a new channel in seven minutes. Ten years ago that would have taken six months and cost a million dollars.

Q: What about 4K? How does it fit in today’s media picture?

Zaller: At a conference at NAB, we had four CTOs on a panel and I asked if they were doing 4K and I got four no’s. However, they are acquiring shows on 4K. They want 4K because the longevity of the archives is greater the higher the resolution a show is captured in. Episodic production has already shifted. For distribution, it’s already happening on Netflix.

It will be the first time the broadcasters will be last, rather than first, with a major new technology. It’s still in the early days though. From the U.S. broadcaster perspective, ATSC 3.0 is not finished. Once it’s finished, it will have to go through government hurdles, which will take a couple of years. So it will all take a while.

Q: Are boxes as video products now dead? Have we moved to software?

Zaller: It all comes down to who you are and your business model. At NAB, Blackmagic Design announced a range of low-cost video converters that use uncompressed 12G-SDI 4K technology. Others are making gateway cards with very light compression. So boxes are still being made and sold. But software and services are also gaining ground as well.

Ten years from now, however, it will be a different story. There’s a nirvana out there, but it will be hard to get from here to there. How long long did it take to go from black and white to color — about 25 years. Or from SD to HD — about 20 years. Maybe this transition will be shorter, but it is different.

This transition is not about replacing an SD box with an HD box. It’s about business models and content. It’s an exciting time because there is a lot going on. I don’t think anyone has a crystal ball to say what the future is going to be.