It didn’t go unnoticed three years ago when the number of Comcast broadband customers surpassed the number of folks subscribing to the cable company’s pay TV services.
Arris seemed to cross a similar threshold during its fourth-quarter earnings report this week, revealing a largely flat revenue performance, despite a huge 23.4% dip in video device sales.
That’s right. The No. 1 pay TV set-top vendor in the world lost nearly a quarter of what is perceived to be its bread-and-butter business. Yet, its broadband device sales, as well as its network and cloud business, drove the Suwanee, Georgia tech company’s bottom line to within 1% of even in the fourth quarter.
“We expect sales in the CPE segment to continue to shift towards the higher mix of broadband and less video,” Arris CEO Bruce McClelland told investors during Wednesday’s call.
For all of 2017, Arris’ video device sales tumbled 13%.
“What we've seen is things like network-based DVR becomes a more significant capability,” he added. “Devices that include embedded DVRs will shift over time, and the ability now for a gateway to be able to serve content to a whole variety of lighter-weight client devices in the home is an ongoing trend.”
In the fourth quarter, Arris saw demand for DOCSIS 3.1 modems and gateways push broadband device sales up 9% to $433 million. Fourth-quarter revenue from Arris’ CPE division dropped 13% to $1.09 billion, but broadband devices accounted for nearly 40% of revenue vs. around 32% in the fourth quarter of 2016.
Meanwhile, Arris’ Network and cloud business was up 18% in the fourth quarter to $496 million, driven by deployments of Arris’ E6000 CMTS and the overall expansion of cable operator clients of DOCSIS 3.1 networks and technologies like Remote PHY and Remote PON. There’s also Arris’ $800 million purchase of Ruckus Wireless to consider, which McClelland said will goose the company’s revenue by around 9% this year, giving it entry into enterprise networking.
As Arris’ priorities shift, other set-top makers are grabbing market share. Last week, Centennial, Colorado-based Evolution Digital became the latest pay TV vendor to offer an Android TV-powered set top for MVPDs.
The company’s new eStream 4K device will be individually branded by Evolution’s Tier 2 and 3 cable clients and will come certified with Android TV Oreo 8.0 software. The set top will blend cable programming guides with popular over-the-top services, as well as transactional components through the Google Play store.
And earlier this week, Evolution announced that Mediacom is its latest client for its hybrid QAM/IP eBox video solution, which is based on TiVo software and UX.
Evolution has previously struck deals for eBox with WideOpenWest, Wave Broadband, GCI and TDS Telecom, as well as numerous NCTC-member operators. The hardware can be deployed as an HD set-top or a “zapper”-class box. With a change in configurations, eBox can be a client in Evolution's multiroom DVR, the vendor noted. And as an operator moves to a cloud content strategy, it can be a client on a cloud DVR.
As other vendors make inroads into a what is become a skinnier, lower-margin set-top business, Arris and its operator clients remain very much involved in the video business, just in a different way.
“What's driving the need for more broadband is video,” McClelland said. “A lot of that video is over the top traffic today, whether it's streaming on Netflix or Amazon, etc., or as the cable operators move more of their content to IP. That just drives the need for a better broadband network, a more reliable network, and more capacity no question.”
Deeper Dive is a new weekly column, appearing on Friday, offering more in-depth reporting on a story appearing earlier in the week on FierceCable.