Should You Build a Cable TV Headend?

I still meet new businesses all of the time who are just entering the cable TV business for the first time or who are opening up remote markets from their service core. In the past it was a no brainer to build a new headend for a new market as long as that market had enough potential customers to justify the capital outlay. But I find myself hesitating today when I am asked the question of whether one should build a new headend. I don’t think the answer is an automatic yes any longer and there are a number of reasons for this.

Transport. One huge consideration is bandwidth transport. It always makes more sense to use the signal from an existing headend somewhere as long as you can get the signal there for less ongoing cost than building a new headend. The amount of bandwidth needed to transmit a full channel line-up is huge and can easily require at least 100 Mbps. The bandwidth varies a lot depending upon the specific method that is being used to send the TV signal to customers. For example, the bandwidth needed to send a lineup that has both analog and digital tiers will be larger than a lineup that is all IPTV. And the amount of bandwidth is even greater if you want to transmit video on demand.

The price of transport varies widely by location due to the availability of fiber, but overall there has been a big reduction in transport prices. The long-haul transport business has gotten very competitive and there are a host of companies that sell not only bandwidth, but also dark fiber or fiber lamdas. Also, a number of new middle-mile networks were built with federal stimulus grants and those networks, by definition, have to offer reasonably priced bandwidth. In many cases I am seeing transport as a good alternative to building a new headend, whereas a few years ago building a headend almost always looked like a lower-cost alternative.

Aggregators. You also should consider using a network aggregator. One that many of my clients use is Avail Media. Avail has aggregated a channel line-up that comes from the satellite directly in MPEG4 format, meaning that it can be taken directly from the satellite and used in an IPTV distribution network. The advantage of doing this is in the cost savings for the headend. A lot of the capital cost in a traditional headend is spent for equipment that translates TV signals from one format to another. The cost, size and power requirements for a headend drop significantly if the TV signals don’t have to be translated.

Of course, Avail and others aggregators charge a premium for getting the signal to you in the right format and you need to do the math to make sure that there is a net savings in equipment compared to their ongoing transport charges. But many of my clients have found aggregator arrangements that have saved them money.

Headend Sharing. Before I would build a new headend today I would always look around to see if there is an existing headend in the area that I could share. Generally, almost anybody except for the major cable companies would be interested in sharing a headend. Sharing a headend can help a headend owner offset the cost of running their headend while requiring very little ongoing effort after the initial connection.

There are a number of issues to consider when thinking about sharing a headend, but I have dozens of clients who have figured out ways to share. The biggest issue is the signal format. For example, it would make no sense to share an analog headend with somebody who is operating an IPTV system. The cost of translating channels from analog to digital would be almost as costly as building a new headend. There are also contractual issues with some of the programmers who make you jump through extra legal hoops before they will agree to let you transport signal from an existing headend to a different operator in a different market. But headend sharing makes a lot of sense and today, and sharing would almost always be my preference over building a new headend.

Other Issues.  There are always other considerations to consider. For example, if you share a headend or buy content from an aggregator you are still going to have to somehow insert the local must-carry networks onto your system. So you will need to a ‘mini-headend’ of some sort that lets you add your own content to the content that comes from somebody else.

Even if you share somebody else’s headend you might want to consider operating and inserting your own video-on-demand. This will cut down on the transport needed between the locations. If the market is large enough you also might want to consider inserting your own local advertising rather than inflict ads from some distant market upon your customers.

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