Will DISH Network Drive a New Spike in AVC STB Shipments?

Tuesday, September 2, 2008 - Antonette Goroch

That H.264/AVC would be the next generation codec to MPEG-2 for commercial digital video applications has been evident for some time. The pace at which that transition would occur has been far less obvious, given MPEG-2’s widespread digital legacy. The recent announcement by Dish Network, the second largest DTH operator worldwide, that it would adopt H.264/AVC for all of its broadcasts—both SD and HD, not just HD as most other operators do—may have just sped up that timetable considerably.

Dish Network, along with DirecTV (the largest U.S. DTH operator), led the way in H.264/AVC deployment back in 2005, as the two were the first DTH operators to adopt the standard for HDTV deployment. Within two years DTH AVC set-top box (STB) shipments had reached nearly 5 million annually, and AVC is now the standard for DTH HD deployments worldwide. DTC’s most recent forecasts expect nearly 10 million shipments for the category in 2008. But, as DISH spreads the use of AVC throughout its subscriber base, hastening the end of its MPEG-2 legacy, AVC STB shipments could see even stronger growth overall -- particularly if this trend is picked up by other operators such as DirecTV or BSkyB.

The reasons for DISH’s strategic shift are likely two fold. Fundamentally, AVC is all about bandwidth—and bandwidth is at a premium now more than ever. Maxed out multichannel markets find operators adding channels (particularly HD channels) to sweeten their offerings. Indeed, DISH says it will offer some 150 HD channels in this new advanced package to be offered first in 21 markets. But DISH Networks’ subscriber growth is also slowing, and this new phase of service offers ample opportunity to beef up STB shipments (down this year) at the recently spun-off EchoStar Corporation (DISH’s STB arm) by converting its roughly 14 million subscribers to these new advanced models.

These competitive realities are not unique to DISH Network, and are shared by multichannel operators overall. That’s why its all the more likely DISH’s moves embody a fundamental tipping point in the transition to H.264/AVC, which leaves a non-MPEG-2 market not so very far off.