Digesting AVIXA’s latest IOTA report
What’s the outlook for the EMEA region and technologies such as direct-view LED? Tim Kridel shares insights from AV pros and AVIXA’s latest Industry Outlook and Trends Analysis report.
In April, Saudi Arabia’s first movie theatre opened, and the kingdom’s Ministry of Culture expects to license another 2,000-plus screens by 2030. Lifting the decades-old cinema ban is just one part of Saudi Arabia’s Vision 2030 plan, which includes a 2.3 billion investment fund dedicated to theme parks and other entertainment options.
For proAV, Saudi Arabia and the global cinema market are two of the many bright spots amid the gloom of Brexit and the trade wars. That’s one takeaway from AVIXA’s latest AV Industry Outlook and Trends Analysis (IOTA) report and from InAVate’s interviews with integrators, distributors and analysts.
“Cinema is one we’ve highlighted as a strong grower for this forecast period,” says Sean Wargo, AVIXA senior director of market intelligence. “Some of that is regional changes, opening of markets, but more systemically across the region is the upgrade cycle driven by things like direct- view LEDs.”
“Video-audio-data communications is ubiquitous. Businesses are saying: ‘This is not a luxury installation that I do in a few rooms. This is a must-do in every room.”
The March 2018 issue of InAVate covered direct-view LED screens, including Europe’s first theatre with one: Zurich’s Arena Cinemas. It uses Samsung’s Cinema LED product, the first product approved by the Digital Cinema Initiatives (DCI) standards organisation.
“There are at least three companies in the pipeline to get DCI approval,” says Chris Chinnock, Insight Media founder and president. “Certainly next year you’re going to see competitors coming into the market.”
Those vendors will be selling to a growing number of exhibitors due for a technology refresh, thanks to the virtual print fee that financed first-gen digital projectors.
“A lot of those deals are expiring, and that equipment is getting on 10, 15 years old,” Chinnock says. “It’s time for those exhibitors to think about upgrading to an LED or a laser projector, or keeping what they have and just expecting to pay more in maintenance. These decision points are an opportunity to enter the market with LED. There’s a lot going on here.”
Emerging markets include AI
As a brand-new technology, direct-view LED hasn’t begun to slide down the cost curve. That descent could get a push from yet another emerging technology—one that has potential outside of cinema, too.
“There are newer technologies—mini LEDs or micro LEDs—that promise to reduce the cost of those screens significantly,” Chinnock says. “People are talking about putting them in TVs, digital signage and cinemas. We’re not quite there yet, but three years is a very reasonable time frame.”
Displays continue to displace projectors outside of theatres, too.
“We are still in a period of transition from projection to professional-grade flat-panel displays,” says Jenny Hicks, Midwich head of technology. “In addition, the next transition period has already begun from flat-panel to direct-view LED.
“One area where I’d like for us to dig deeper is services. It’s about 17% right now: the portion of total AV that is services.”
“Over the next two years, we expect to see networked AV solutions and LED more widely adopted. My personal prediction would be that by 2025, these technology categories will have overtaken their predecessors in revenue performance.”
Two other emerging technologies are artificial intelligence (AI) and machine learning (ML), which the January-February 2018 issue of InAVate explored.
“AI and ML have entered and influenced the AV market the most, with analytics now a must-have for digital signage systems, device and building management, targeted marketing through gender, age and mood recognition, and voice control offering the simplest user interface we could hope to achieve,” Hicks says.
“Demand for AI and ML is already there, and the market is frantically playing catch up to offer the variations on solutions required.”
Is a cloudy forecast good?
Other big market opportunities are the result of trends that have been playing out for a decade or more, such as AV-IT convergence.
“We’re seeing real, live examples of multiple- thousand-room deployments of single- configuration solutions around voice-video- data collaboration,” says Jon Sidwick, Maverick AV Solutions global vice president. “A lot of it is being fuelled by the last two or three years’ worth of work done by Microsoft and the other unified communications (UC) platform providers.
“It’s taken us to a place where video-audio- data communications is ubiquitous. Businesses are saying: ‘This is not a luxury installation that I do in a few rooms. This is a must-do in every room.’ It’s every meeting room and every office.” Cloud-based services and infrastructure are common in IT, and convergence is bringing that model to pro AV.
“We believe the pro AV market will remain strong over the next two to three years, but will continue a major shift towards scalable huddle room systems that support UC platforms,” says John Bailey, Global Presence Alliance president. “That forecast is supported by major analysts who are predicting a 15-23% compound annual growth rate for UC cloud technology, as well as real estate and workplace trends, and the total global addressable huddle room market.
“That shift brings some difficult change for the AV industry, which was built on technical complexity and customisation, because UC ‘cloud-connected’ rooms are simple and standardised and built for scale. To some this might indicate further commoditisation of AV hardware. However, the scale of the deployments also requires professional services such as program, project and quality management.”
Cloud and UC also are continuing to change the vendor field.
“It’s creating a landscape that’s a strong mixture of really good proAV companies and completely new entrants,” Sidwick says. “A great example is Zoom, which is a company that most probably wouldn’t have thought about two years ago. But Zoom is now entrenched right in the middle of the UC platform market.
“We’re supplying the market channel with consistent Zoom rooms on a global basis. In those rooms, we’ve got a mixture of computers from Dell, control from Crestron or Apple, Logitech audio-video conferencing, and a variety of display options from very well-known proAV companies such as NEC and Samsung.”
These trends show up in the IOTA report. One example is commoditisation, where vendors such as QSC is moving its software from purpose-built hardware to off-the-shelf IT servers. This trend is negative for integrators that live and die by hardware margins and positive for those that rely more on services for revenue and market differentiation.
“We are still in a period of transition from projection to professional-grade flat- panel displays. In addition, the next transition period has already begun from flat-panel to direct-view LED.”
“There’s tremendous potential for value-added services, [such as] design, installation, managed services, those sorts of things,” Wargo says. “So I think it creates more opportunities than it kills off revenue through price compression.”
Expect this topic to get more attention in future IOTA reports.
“One area where I’d like for us to dig deeper is services,” Wargo says. “It’s about 17% right now: the portion of total AV that is services.”
GDP growth nearly everywhere
ProAV serves just about every vertical. That makes gross domestic product (GDP) a key barometer for sales opportunities. IOTA forecasts a global GDP of 4.3% through 2023, with variations by country and region.
“Where you see higher GDP is where you see higher growth for our industry,” Wargo says. “That’s going to be APAC. Europe is a little lower. US is around there. In the Eastern part of Europe, you’re starting to see a return to higher GDP growth rates above average. But the consistent theme globally is that you’ve got GDP growth pretty much everywhere you look.
“We’re seeing more and more evidence that APAC as a region starts to overtake even North America as a market. There’s just so much growth potential there. MEA, while [home to] smaller economies, the growth rates there are impressive. The whole African continent is lit up with GDP growth.”
“The Middle East is an exciting market for impressive, large-scale projects,” says Midwich’s Hicks. “All research suggests the Germany- Austria-Switzerland (DACH) region will continue to see success.”
A growing middle class, particularly in China, is noteworthy for a couple of reasons. First, some of that disposable income is going towards electronic gadgets, which influence consumer expectations about what’s possible and preferable in the workplace, such as video chats instead of calls. Second, businesses are increasing spending to try to grab a bigger share of consumer spending, such as with digital signage for advertising and the “wow” factor.
“We see increasing investment in vertical markets where user experience (UX) is important,” Wargo says. “Retailers are trying to differentiate themselves from the online experience. They do that by making it more [of a] destination and more brand specific. So as consumers increase their disposable income in China, that fuels those kinds of UX vertical markets.”
Brexit and trade wars bring uncertainty
One big wild card is, of course, Brexit.
“The UK’s market outlook is impossible to predict with Brexit pending,” Hicks says. “We can expect a period of uncertainty that affects spending following Brexit regardless of a deal or no-deal conclusion.”
Some integrators and distributors are cautiously optimistic.
“We’re lucky being part of Tech Data,” says Maverick’s Sidwick. “If we were a standalone business, I’m sure a lot of my time would be sucked up with ‘What are our actions for different scenarios?’ Smaller companies that we buy from, sell to or compete with are having those conversations, which is very distracting.”
Brexit and tariff changes also affect where vendors, integrators and distributors keep inventory.
“Being part of Tech Data, we have a cross- Europe ability to put stock where it needs to be, and we have a central supply chain mechanism to cope with that,” Sidwick says. “So that doesn’t affect our European business.”
“It is inevitable that prices and resulting margins will be affected by the trade wars, but also likely that negative impact will swing to be positive or vice-versa as details become clearer and agreements made,” Hicks says. “Clever buying will be required of distributors to maintain stability for integrators and users.
“It feels as though the manufacturers and distributors are all working closely to protect the market in the immediate aftermath of Brexit. Should the channel eventually experience cost increases, it should be a gradual and smooth transition.” Some AV pros say they’re already seeing price increases.
“Amongst our suppliers, we have seen a surprising range of responses to the US trade policies and tariffs, in addition to the rising cost of raw materials in the US such as steel and aluminium,” says Global Presence Alliance’s Bailey, who’s also Whitlock vice president of technology.
“These tariffs are not only making Chinese products more expensive in the US, but they are also driving up the cost of US-based manufacturing.
“Some suppliers have direct and succinct responses to the situation. Some are cautioning price increases are coming. Still others have no response and in fact no dialogue at all.” Fluctuations in the cost of raw materials and manufacturing will have the most effect in technology sectors that are emerging or highly competitive.
“When we consider how competitive the market is currently for display technology— particularly direct-view LED—it’s hard to not anticipate price increases resulting from these tariffs,” Bailey says.
“In addition, the tariffs may increase again in January 2019. One of the worst things for business is uncertainly, and there is plenty of that currently surrounding these trade disputes and their impact on our industry.”