Emerging Digital Formats Show Immense Potential Despite Initial Resistance

Business Wire, July 7, 2004

PALO ALTO, Calif. -- Though the MPEG 4 and VC digital formats have immense potential they must be ready to face a slow adoption process. This is primarily because most end users are skeptical about which format to choose while others have invested significant sums in their recent move toward MPEG 2.

New analysis from Frost & Sullivan (www.it.frost.com), World Video Encoding Markets, reveals that revenue in this industry totaled $235 million in 2003.

"Due to the huge investments and the uncertainty surrounding new digital formats, end users will be wary of switching to MPEG 4 and VC9, and therefore, prefer the tried and tested MPEG 2 to meet their digitization needs," says Frost & Sullivan Industry Analyst Mukul Krishna.

Moreover, due to the lack of universally accepted standards, end-users are hesitant to make an immediate transition to new digital formats. The good news is that as the market matures, more vendors are likely to move away from proprietary platforms toward more standards-based or open architectures.

For example, Microsoft has started moving toward a more open architecture such as VC9 to address compatibility issues. Apple's QuickTime platform has also opted for an open source platform based on the MPEG 4 format.

The United States Federal Communications Commission is also trying to champion the cause of digitization by mandating a compulsory switch from analog to digital formats within a stipulated period.

However, broadcasters feel that they would require more time to make the heavy infrastructure investment and are lobbying to push back the deadline for digitization.

The rollout of video on demand (VOD) applications is also expected to have a tremendous impact on the video encoding market. Though VOD applications have been test marketed effectively, some telecommunication companies are still skeptical since VOD is yet to prove itself as a viable business model.

This is likely to have a restraining effect on further deployment of video streaming and encoding solutions until VOD is deemed profitable. Streaming and encoding vendors are largely dependent on VOD providers' success in implementing their business model.

Despite the many obstacles, MPEG 4 and VC9 are lobbying for a place as potential replacements for MPEG 2 in the video encoding market. Their ability to provide bit rate savings and better quality compression is drawing the attention of broadcast, cable, and wireless segments.

Encoding vendors can combat the resistance by reiterating the good return on investment to end-users. They must emphasize the cost savings of moving from a physical archive to a digital one coupled with real-time collaboration capabilities, which helps improve the end user's bottom line.

"In addition to a competitive price point, the success of new digital formats will hinge on the level of functionality, portability, fault tolerance, and reliability that they can provide to their customers," says Krishna.

If you are interested in an overview of the latest analysis of the World Video Encoding Markets, please e-mail Dustin McVey at dmcvey@frost.com with the following information:

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World Video Encoding Markets, part of the Digital Media subscription, is a comprehensive analysis of the challenges and drivers in the video encoding market. Revenue forecasts and pricing trends enable market participants to craft reliable business growth plans. Executive Summaries and interviews are available to the press.

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World Video Encoding Markets

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