After years of often-frustrating negotiations, mainstream consumer-electronics manufacturers are finally breaking into the U.S. digital-cable set-top-box market.
The shift in digital set-top relationships appears to be driven by two converging factors: the desire by several big MSOs to break the long-standing Scientific-Atlanta Inc./Motorola Inc. set-top duopoly and the belief that brand-name vendors will become increasingly important as a portion of digital-box distribution shifts from leasing to a retail-based consumer-sales model.
Among recent developments were: the decision by AT & T Broadband to authorize Panasonic Consumer Electronics, Philips Consumer Electronics Co. and Thomson Consumer Electronics to negotiate long-term set-top-box supplier agreements; Time Warner Cable's selection of Panasonic as a fourth source after S-A, Motorola and Pace Micro Technology plc; Pace's contract with Comcast Corp.; and the apparent ability of Sony Corp. of America to deliver a box that meets Cablevision Systems Corp.'s requirements.
The eventual shift to retail distribution is believed to be largely responsible for a contract Time Warner signed with Panasonic in April to deliver at least 600,000 "Pegasus" digital set-tops over the next three years, sources familiar with the agreement said.
A Time Warner spokesman recently declined to confirm or deny the agreement. The contract between Time Warner and Panasonic follows a somewhat larger contract signed late last year between Time Warner and Pace.
Panasonic, knowledgeable sources said, will begin delivering small quantities by the end of this year, ramping up to full-scale production early in 2001. The initial Panasonic Pegasus box will be a rough equivalent of S-A's "Explorer 3000" digital set-top, although Panasonic is believed to be readying an S-A "Explorer 6000" equivalent that could ship by the end of 2001.
That more advanced box is also likely to include an SDRAM (synchronous dynamic random-access memory) card that will be used by Time Warner for a music-downloading service planned for about that time. Panasonic showed a prototype digital set-top with an SDRAM slot at the National Show in May.
The agreement with Time Warner was the first U.S. cable win for Panasonic, although an expected agreement with AT & T Broadband may be just weeks away, according to knowledgeable sources.
The initial pecking order to come out of the AT & T Broadband set-top-box request for proposals has Philips at the top, followed by Thomson and Panasonic, with each expected to produce their versions of Motorola's "DCT-5000" advanced digital set-top.
"This is all part of [AT & T Broadband's] desire for a retail market [for digital set-tops]," said a senior executive with a cable-equipment manufacturer. "It's no coincidence" that AT & T Broadband chose three brand-name consumer-electronics manufacturers in its latest round of vendor selection.
Executives at Panasonic, Philips and Thomson have declined to confirm or deny any relationship with AT & T Broadband, as has the MSO. But Philips, at least, already has an indirect relationship with AT & T Broadband: Philips is supplying digital set-tops to MediaOne Group Inc., which is now part of AT & T Corp.
Pace-which participated in the AT & T Broadband RFP up until the final round-still hopes "that the box that we put together for Comcast will prove attractive" to AT & T Broadband and potentially to other MSOs using Motorola DCT-series digital set-tops, Pace Americas president Neil Gaydon said.
"We didn't pursue AT & T heavily," he insisted, adding, "We were making such good progress with Comcast."
"Good progress" would also appear to describe the relationship between Cablevision and Sony, the MSO's sole digital set-top vendor.
About four months before the initial commercial deployments of Cablevision's planned digital-cable-TV services, the New York-area cable operator is putting the finishing touches on the hardware and software components that will drive that launch.
Still central to its strategy is a complete switch-out of analog-cable set-top boxes in favor of Sony-supplied digital set-tops. But there are apparently some new wrinkles to Cablevision's plans, including early use of personal-video-recorder-like capabilities.
Cablevision took delivery of the first 70 preproduction Sony digital set-tops in mid-April, and it has deployed about 30, amounting to a technology-shakedown cruise.
"As you might expect with prototype boxes, we had some rough edges," Cablevision senior vice president for engineering and technology Wilt Hildenbrand said. "The bad news is that we had to send [software patches]. The good news is that the boxes accepted them."
Cablevision plans to deploy "production-level software and hardware by October or so." The initial deployment, running roughly through the end of the year, will total about 5,000 boxes. "Depending on how well that goes," Hildenbrand said, "we'll go to the [full-scale] rollout."
Despite the early technological hiccups, Hildenbrand defended the decision to go with Sony for Cablevision's initial digital-service rollout. "We're very happy with the way they've responded," he added. "They've been more impressive than anyone I've worked with before."
As a result, there are no plans to seek a second source for digital boxes, although the initial 3 million-unit order with Sony would appear to satisfy Cablevision's requirements for the foreseeable future anyway. "They've got [the set-top orders] for the rollout for as long as they choose to support it," Hildenbrand said.
In something of a surprise, Cablevision has no plans to offer Sony-branded set-tops via its The Wiz chain of consumer-electronics stores. Those stores will be used to sell different packages of cable programming, but the digital set-tops will be distributed through the traditional leasing model.
"Our real strategy," Hildenbrand said, "is to get these changed out as quickly as possible."
The initial box does not include Sony's "Aperios" real-time operating system, despite some indications in recent months that Sony executives pushed hard in its favor. Without commenting on those reports, Hildenbrand acknowledged, "Sony would still like to get Aperios in there. But we haven't seen it."
Instead, the first box will use Wind River Systems Inc.'s "VxWorks" real-time operating system, along with Sony middleware with a Spyglass Inc. browser and both DOCSIS (Data Over Cable Service Interface Specification) and DAVIC (Digital Audio/Video Interoperability Council) cable modems.
The box is able to launch Cablevision Intranet pages, which Hildenbrand said will be used to offer video-on-demand movie streams and, presumably, other interactive services as they are deployed. "We can do interactive advertising," he added.
Cablevision has said little about PVR options, although "at some point in time, there will be a hard drive or PVR capabilities in or attachable to this box," Hildenbrand said. "I think it's an important device."
Cablevision is apparently leaning toward an agreement with one of the established PVR platform developers, ReplayTV Inc. or TiVo Inc. Sony's relationship as a TiVo licensee and set-top supplier will have "no effect" on the decision, he added.
The Sony box will apparently also be the first cable set-top deployed with an IEEE (Institute for Electrical and Electronics Engineers) 1394 digital interface and "5C" copy protection, although the 5C alliance and motion-picture studios have yet to agree on licensing terms for the system.
"Right now, I'm moving forward" with the use of 5C, Hildenbrand said. "Do I have concerns about it? Yes. Am I losing sleep? No."
Somewhat surprisingly, Cablevision has not selected an electronic-program-guide vendor to coincide with its initial commercial deployment starting this fall. "We're trying to make the box as much a thin client as possible," for maximum flexibility over time, Hildenbrand said. "If most of the [software] code is downloadable, the box will have a longer life."
Cablevision will select an EPG vendor "when I find one that is operationally and business-acceptable," he added.
And thin client or not, the box will have to support an EPG with some degree of interactive capabilities, he said, including the ability to act as a portal to a variety of interactive services, as well as interactive advertising.