Published in 2003 IT/AV Report

$3 Billion Business by ’07
By Neal Weinstock

Heat up a business in lots of little increments, and eventually things come to a boil.

     AV over standard IT infrastructure: What’s the point of that, from a business perspective? Is it a business at all, or is it a natural technology progression within our established business? Or is it not even that, just a few hyperbolic buzz words? A new study sees a wholesale technology change- over that leaves equipment sales flat in dollars, hugely larger in units, and sold through a strengthened and more profitable integration channel.
     The buzz words certainly are coming fast and furious. Sony, the biggest professional AV equipment supplier of all, themed its appearance at this year’s NAB convention, “AV IT.” JVC did the same for its new industrial video products. But the products are coming fast and furious, too. JVC, for example, is highlighting cameras that record in MPEG4 [see page 22] and output over IP.
On the sound side, Peak Audio’s pioneering CobraNet had the field of quality networking over Ethernet to itself since the mid-‘90s. But now, as part of chipmaker Cirrus Logic, Peak finds itself competing with Gibson’s MaGIC, which is supported by 3Com. Meanwhile, Yamaha’s mLAN, Texas Instruments’ first 1394b PHY (finally making possible long-haul networking over 1394), and others’ contributions are making IEEE 1394 a respectable medium for audio networking.
And multiple vendors now offer solutions for transmitting quality AV over power lines or phone lines, basically aimed at home networking—but also applicable to some professional uses. Suddenly, there is a large and competitive business in creating special silicon meant to bring high-quality AV to common IT standards.
     Of course, IEEE1394’s main use is as a video-camera connection, for both consumers and professionals. Video servers and post-production workstations have long made use of nonstandard adaptations of Ethernet, too. There is a long history in professional AV of cobbling together systems on the back of technology basically meant for consumer and IT markets. So what’s different now?
     To some extent, it’s merely the intensification of the old “adapt mass technologies” trend. But heat up a business in lots of little increments, and eventually things come to a boil.
‘Ride the Cost Curve’
Building AV systems on top of standard IT components allows those systems to “ride the cost curve of Ethernet and mass-produced chips and Cat5 or optical cable,” in the words of Peak Audio co-founder, marketing vice president and IT/AV pioneer Rich Zweibel, rather than continue to pay the costs of the specialized electronics and multiple multi- core cables still most typical of AV installations. Building AV on standard IT infrastructure allows labor savings and increased reliability by carrying AV and control signals over a single wire—maybe even over the wire that also carries a facility’s data network, for additional savings.
     And it offers opportunities for digital audio amplification and equalization, or digital video imaging and processing, to be built into the same chip (or chipset) as the network interface.

Network Control
     This would allow loudspeakers, cameras, video monitors and other devices to become network-controlled devices—possibly plug-and-play network devices—and allow the junking of lots of heavy, power-hungry analog systems in the process.
     But this trend is not only about cost, and it’s also not only a one-way reaching out from AV to IT. IT is also reaching out to AV, thereby enabling many new applications that promise to bring new opportunities for us all. Power over Ethernet (up to 30 watts), voice over IP (VOIP) and Session Initiation Protocol (SIP, which now competes as a conferencing protocol with the more established H.323) are all developments that aim to allow telephone conversations and AV conferencing with quality of service guarantees over Ethernet LANs and the internet.
     Just how much of the traditional switched telecommunications network will change over to VOIP is debatable, but the VOIP market is already worth multiple billions of dollars by any of several widely varying counts, and is growing rapidly. And VOIP is an enabler for AV over IT.

New Technologies, New Applications
     The new technologies bring new applications to our market, which simultaneously bring new ways to sell those applications. What’s it all worth? Weinstock Media Analysis (WMA) estimates that installed IT AV equipment is now worth about $412 million in North American sales, plus about $105 million in integration and contracting services. We expect those numbers to grow to about $3.15 billion in equipment sales and $2.11 billion in services in five years. Here’s how we arrive at the data and how it breaks down.
     Prognosticators look at replacements, first of all. VOIP forecasters expect those systems to grow rapidly to replace up to 10% of the $3 trillion world switched telephony business in five years. Insight Research Corp., for example, recently published a report showing VOIP services worth $13 billion in 2002 and growing at about 72% per year to $197 billion in 2007.
Basically, they expect cable-system operators and VOIP application service providers (ASPs), such as the Cisco Systems-backed Vonage, to take some business away from local telcos, while a fair number of large enterprises put voice on their data networks to save costs, and long-distance and enterprise service providers (such as AT&T) do likewise.
     These VOIP revenue projections include almost nothing of the IT-based replacements for current AV applications, and almost nothing of the new applications that may allow the installed AV business to grow strongly in the near future. Desktop-controlled voice and videoconferencing are included, but not high-quality music reproduction or MPEG video distribution to thousands of nodes in an enterprise network or across a wide-area network, and not all the applications that can be built on top of those capabilities. Insight and the other VOIP forecasters simply don’t include distributed AV information systems, digital audio public address, digital video signage, and all the great hopes that AV companies have from IT networking.

Current Market
     The current market for installed audio gear is about a $1.1 billion business in North America, according to WMA. About $71 million worth of that is either CobraNet-compatible or mLAN-compatible, or is Peavey’s MediaMatrix custom variant of CobraNet (actually, Peak Audio developed MediaMatrix first under contract to Peavey).
     These data are based on interviews with industry buyers and integrators. Projecting forward from other interviews with manufacturers, we expect IT-based solutions to grow toward almost 100% of this equipment market by the end of this decade but, because of the cost savings the new technology brings, we expect that equipment market to stay flat overall at about $1 billion.
The pro video equipment business is much bigger, at about $2.5 billion annually in North America as we measure it, but it has been declining at a rate of about 8% per year in dollar value since 1998. It also entails a much smaller system integration and contracting added value in relation to equipment sales, at about $800 million annually.
     Most of the video system integration business has been in the core broadcasting area, which hit a wall a few years ago. Including video servers, digital video distribution systems to digital displays, and a few other products, installed IT video gear is now about a $341 million market in North America. (We are not including workstations and software used in AV graphics, animation and post-production for audio or video IT-based systems. That’s IT AV, too, but it is a rather separate business from installed audio and display and conferencing systems.)

Expected to Grow, But.…
     We expect this business to grow to about $2 billion in installed video sales in 2007. But much more interestingly, as systems are customized for sports, religious, educational, medical, financial, retail or any of many other vertical markets, and must be integrated with the specialized IT systems in use in all of those markets, we expect that system integration revenues will rise from almost nothing associated with installed video today up to about $1 billion in 2007.
Combining audio and video for both equipment and integration services, we’re expecting a $5.144 billion market in North America in four years. Companies that now separately integrate either IT or AV systems for all of these vertical markets will fight over that pie. After all, it isn’t newly budgeted money. In most cases, it is money coming out of either the IT or AV budget, now directed toward integrating the two.
     Established IT suppliers may not know much about AV, but they know their customers, they are adept at writing enabling code for their applications, they often manage clients’ data centers under long-term contracts and they want to keep those contracts. So, they will be difficult to displace and, today, they typically are no longer tiny, local companies but are divisions of huge computer companies.

Leverage Expertise
     For AV systems integrators, the challenge will be to both partner with these IT integration giants—which may also be the original IT or AV equipment providers (companies such as IBM and Cisco Systems and Sony are among those IT integrators)—and to compete with them. AV integrators must do this by leveraging their expertise in acoustics, the requirements of real-time media delivery, cost-effective systems design and installation, and customer relationships.
Meanwhile, IT integrators and manufacturers of all stripes will leverage their expertise. Bets will have to be placed on technologies: H.323 or SIP; CobraNet or MaGIC or mLAN or some other 1394 or some other Ethernet variant; cooperation with incumbent telcos on wide-area solutions or with a wholly IP-based CLEC; Windows or Apple OSX or Linux; the potential bets go on and on.
Some of those bets will be losers. Some will be tremendous winners—all of which will add up to tremendous additional value for end users, and strong market growth.

US Installed IT AV Equipment and Integration Services
In US$ Millions
Audio Equipment
Audio Integration Services
Video Equipment
Video Integration Services
All Equipment
All Integration
Source: Weinstock Media Analysis

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