The Incredible Disappearing Magic Box1/06/2006 7:11 PM Eastern
The device was supposed to be the “Rolls-Royce” of set-top boxes, allowing cable-television customers to receive digital video programs, high-speed Internet connections, phone service and more, all at once.
No less a visionary than cable pioneer John Malone promised to deliver the machine. At the time — 1997 — he ran Tele-Communications Inc., which served more customers than any other operator. Thousands of cable-industry executives at the Western Show convention heard him promise to bring the glitzy box to market.
But the cost of the $500-plus receivers were to be subsidized by agreements — announced in March 1998 — with Bank of America, Intuit Inc. and other firms that wanted to sell services to cable subscribers.
None of it happened. Malone’s Rolls-Royce, the General Instrument Corp. DCT-5000, never got out of the shop. TCI wound up selling much less expensive set-tops that could deliver hundreds of digital-TV channels, but lacked the communications features of the DCT-5000, which would let viewers take phone calls, order pizzas or activate other interactive services with the click of a remote control. The “walled garden” of banking and personal-finance services Malone spoke of as underwriting the box’s cost never materialized.
POWER BOXES IN VOGUE
Has the world changed in eight years? Today, the concept of a powerful set-top box that does more than manage TV signals is again in vogue. New digitally run devices from Motorola Inc., Scientific-Atlanta Inc., Paul Allen’s Digeo and other vendors are being marketed as “media centers” that contain digital video recorders, link PCs to TVs and create a network of set-top devices that let subscribers pull up content such as music from a PC or TV shows from a DVR from any TV in their home.
But cable companies aren’t betting the farm on high-end machines, even now. Low-end boxes that cost just $50 and still deliver digital channels are on their way. And the day might not be too far off when cable subscribers simply slip smart cards into TVs, DVD players, gaming systems and other devices to tune in and decrypt the programming they want to see.
Meaning: the set-top box — the most visible evidence of a customer’s commitment to cable-television service — could begin to disappear before this decade is out.
More than any other device, executives at top set-top vendors Scientific-Atlanta and Motorola say operators are demanding new media center set-tops that contain digital video recorders, and allow cable subscribers to watch programming from the boxes through other set-tops in the home.
“Our best video customers — all of them will evolve into having a DVR,” said Comcast senior vice president of business and product development Mark Hess.
Comcast plans to roll out a combination of high-end set-tops containing digital video recorders from S-A, Motorola Inc. and Panasonic — devices that can be linked in a home network to less expensive set-tops from Motorola, Samsung and S-A. That will allow viewers using the set-tops in their bedroom to pull video content off of a media center set-top in the living room.
With cable competitors such as phone company Verizon Communications Inc. and satellite service DirecTV Inc. preparing to roll out multiroom DVRs, Motorola expects its U.S. cable customers to push their rollouts of multiroom products and receivers that allow subscribers to shuttle content between set-tops, PCs and mobile devices, said vice president and general manager of digital video solutions John Burke.
More than 40 million Motorola digital set-tops are wired to TVs in U.S. homes, Burke said. Its DCT-2000 set-top, the first digital box line it deployed in the late 1990s, won’t work as a multiroom receiver. But Burke said that Motorola will supply operators with software during the first half of 2006 that can turn the Motorola DCT 2500 and 3412 — two of its most popular set-tops in the last year — into boxes that will be able to access content from a DVR created to work across multiple rooms.
While cable operators and set-top vendors expect media center set-tops to gain popularity during the next three years, the set-tops are currently used in a small percentage of homes.
Only about 200,000 cable subscribers are using Digeo’s Moxi Media Center set-top that can record HDTV programming. They include subscribers of Allen’s Charter Communications Inc., Adelphia Communications Corp. and Sunflower Broadband.
Digeo also signed Comcast to a trial agreement, but the MSO hasn’t yet deployed any of the set-tops, Digeo president Greg Gudorf said.
But Gudorf, a former Sony Electronics executive, said the rise in HDTV sales bodes well for Digeo, noting that 30% of all high-definition sets sold in the United States in 2005 were second televisions for buyers.
“This opens up a whole different way to think about high-definition,” Gudorf said.
Operators are also looking at rolling out set-tops that would allow customers to offload content from DVRs to portable media players — a sector that has been led by Apple Computer Inc.’s iPod and Sony’s PlayStation Portable devices. That approach could see operators compete with Microsoft Corp., which wants consumers to use PCs running Windows Media Center to view TV programming and transfer shows to portable media players.
SMALLER, CHEAPER BOXES
While expensive set-tops such as the Moxi Media Center, which costs about $500 per unit, haven’t yet gained significant traction, Motorola is seeing strong demand for its new DCT 700 box, a device that delivers digital cable channels and on-demand programming, but doesn’t contain a DVR.
Burke says Motorola has sold the DCT 700 set-top, which costs about $50 per unit, to Charter, Comcast and several other North American operators.
“There are lots of drivers that are driving operators to want to deploy the 700. I think in the case of Comcast, they’re a very strong proponent of video-on-demand services and the 700 provides a very cost effective way for them to get video on demand functionality more deeply penetrated through the households,” Burke said.
BOXES AREN’T EVERYWHERE
About half of U.S. homes still don’t have a set-top box of any kind; cable customers just plug their sets into a wall outlet. With Charter, Comcast and other operators switching some systems to all-digital networks that require subscribers to use a digital set-top to get TV programming, rolling out inexpensive boxes such as the DCT 700 could allow the operators to upsell subscribers to premium channels and other subscription packages.
About 15% of U.S. homes still don’t subscribe to cable or satellite, relying on analog over-the-air signals from local broadcasters to watch TV. But with the FCC setting a February 2009 deadline for broadcasters to return their analog spectrum, those homes will need to buy a digital converter to watch local broadcast TV, or get a pay TV package.
The cutoff may bode well for operators looking to place set-tops in new homes.
“Those households are going to have to either get a converter box or sign up for cable or satellite,” Scientific-Atlanta vice president of strategy and product marketing Dave Davies said. “There’s probably some opportunity to convert those households into paying subscribers.”
Cisco Systems Inc. is betting big on the future of set-tops. The company is shelling out $6.9 billion in cash to acquire S-A — a deal that is expected to close in April.
Since 2004, Panasonic, Pioneer and other consumer electronics firms have been marketing “digital cable-ready” TVs. The TVs, most of which are high-definition, allow consumers to decrypt cable programming with the use of a smart card, or a CableCard, that is inserted into a slot in the back of the sets.
Consumers may also soon be able to use CableCards to view cable programming on PCs. Microsoft plans to support CableCard technology through a new version of its Windows operating system which will ship later this year.
Only about 100,000 CableCards had been installed by cable operators by the end of 2005, according to the National Cable & Telecommunications Association. NDS Corp., S-A and other vendors supply the smart cards, which most operators have been leasing to customers for a few dollars a month.
One drawback of the first generation of digital cable-ready TVs is that they’re only capable of receiving one-way programming. Subscribers still need a digital set-top to access video-on-demand programming or an interactive program guide.
“It is antiquated technology and we’re stuck living with that dinosaur,” said NDS Americas vice president and general manager Dov Rubin, whose company supplies CableCards to Cablevision Systems Corp.
For the last three years, cable, satellite and consumer-electronics firms and other technology companies have been trying to hammer out an agreement on a standard for two-way digital cable ready TVs that could access VOD programming and other interactive services.
Comcast’s Hess said he expects more subscribers will rely on CableCards to receive programming, but that set-tops aren’t going away anytime soon.
“Ten years from now, it’s hard for me to envision a world that doesn’t have a set-top. Quite frankly, I could take you into some systems in Comcast and there will be an analog converter,” Hess said.
MODEMS IN SET-TOPS
Most digital set-tops shipped by Scientific-Atlanta and Motorola during the last two years contain modems, which would allow the boxes to connect to the Internet. But the vast majority of operators haven’t yet activated the devices, which would enable subscribers to surf the Internet through the TV or access other interactive services.
Davies said Cablevision is the only S-A customer that has activated the modems on its New York-area systems, which use the CableLabs DOCSIS (Data Over Cable Service Interface Specification) standard.
But industry executives said that will change during the next few years, as operators will activate the data modems in set-tops to deliver specially chosen packages of Internet content as well as interactive TV services.
NDS’s Rubin said his company would soon debut set-top technology that combines content delivered via the Internet with broadcast programming. He said the strategy could allow cable operators to market niche programming “that satellite can’t provide.” Hess said Comcast plans to activate the data modems in its set-tops some time down the road to possibly deliver some new interactive services or new programming content.
The “modem to me isn’t about connecting to the Internet. It’s about a better two-way interactive pipeline,” Hess said. Among the applications Comcast officials said DOCSIS could allow the company to deliver are caller ID to the TV, video-on-demand and adding interactive enhancements to cable programming.
Also in the works: “media gateway” receivers from set-top vendors that would allow viewers to shuttle programming from DVRs to portable media players. S-A’s Davies said his company is developing a gateway device. And S-A and Sprint Nextel Corp. demonstrated a product last week at the Consumer Electronics Show in Las Vegas that would allow cable subscribers to program their DVRs with a mobile phone, and send pictures or videos from mobile phones to cable set-tops boxes.