Following several years of healthy growth, demand for set top boxes (STBs) continues to climb this year, on track to reach 228 million units shipped globally, according to new research from Futuresource Consulting. However, as demand from maturing pay-TV markets like North America and Western Europe begins to slow, the market will start to see moderate decline over the next few years.

Despite this, STBs will remain a core component of the pay-TV industry's service proposition as operators utilise the box to exploit existing services and look beyond the delivery of video to improve subscriber retention and grow revenues.

Leading manufacturers are launching a new generation of STBs labelled as media gateways or smart boxes. This new generation of STBs offers features such as transcoding, wireless routing, multi-platform content management, media distribution and multi-room delivery.

"The roll out of these new boxes comes at a time when the saturation of subscriber bases in mature markets is resulting in the need to develop new non-video related services. The ability to incorporate these boxes within home networking infrastructures and their compatibility with portable devices provides the ability to roll out services that allow the control of in-home lighting, temperature and security. Such offerings are expected to become increasingly widespread due to the competitive nature of the market and slowing video related revenues forcing operators to embrace new growth opportunities," says Carl Hibbert, Head of Broadcast Research at Futuresource.

On the video front, facilitated by enhanced broadband performance, pay-TV operators are beginning to incorporate IP not only to enhance existing services to the big screen, but to boost content delivery to multiple devices including tablets and smartphones.

Regionally, growth opportunities are still present. Asia Pacific, which is expected to represent 45% of global shipments in 2012, will see growth through to 2013, with smaller regions including Eastern Europe and Latin America growing from 16% to 18% and 4% to 6% respectively.

Asia Pacific has witnessed tremendous demand and growth, with India's satellite industry and growing digital cable base and China's cable sector driving much of the volume in the region. Asia Pacific however represents a short term opportunity for the STB industry as subscriber growth is beginning to slow in comparison to previous years, although with India's cable digitalisation initiative, demand will continue to be high.

Latin America represents a long-term growth opportunity for the STB sector with an abundance of new pay-TV services rolling out in the region, analogue to digital conversion of cable subscribers and the roll-out of new free to air digital services, but the region is unlikely to provide sufficient demand to sustain global growth.

In Western Europe, cable represents the largest proportion of pay-TV homes and close to half of all pay-STB demand, and the continuing migration to digital services will drive cable STB growth through to 2014. However, cable operators are losing a proportion of their analogue subscribers to alternative pay platforms and FTA services. Overall cable subscribers will fall over the forecast period, in turn negatively affecting long-term demand for STBs.

In North America, the saturated pay-TV market continues to lose subscribers quarter on quarter, negatively affecting demand for STBs, resulting in a 4% fall over the forecast period.  Revenue however will be sustained as operators move to more advanced set top boxes allowing for the roll-out of more sophisticated services that will attract new revenue streams from subscribers.

The brave new world of the next generation STB will undoubtedly be the key driver in this market moving forwards. Operators are compelled to offer higher value service propositions to consumers, and the advanced features delivered by these new STBs will be fundamental to future success.