After hovering in the inexpensive, modest end of the set-top spectrum for the past year, the pendulum in digital set-top boxes appears to have swung back toward the high end.
But what's on that high end looks quite different than the middleware-driven über box
of old. Top-of-the-line entries now aim at the twin darlings of digital: high-definition television and personal video recorders.
Ask the digital box vendors which feature they've been hounded for, and the answer is almost universal: HD capability. Though the drive towards high definition has been partially fueled by Federal Communications Commission pressure on MSOs, industry observers also see HDTV as a competitive counterstrike against direct-broadcast satellite.
While MSOs continue to make video-on-demand roll out a major focus, HDTV is just as significant an acronym these days, said Motorola Inc. Broadband Communications Sector director of strategic marketing Bernadette Vernon. Not surprisingly, Motorola is finding a ready market for its DCT-5100 HD box.
"HD is hot, hot, hot, and as we are looking at the upcoming holiday season, the trends are saying people are investing a lot more in their homes right now," Vernon said. "So putting a $1,000 or $2,000 HD set into your house right now — it looks like a lot of people are willing to make that investment.
"I've heard them make projections that they say 5 to 10 percent of their marketplace will be taking HD," she added. "I'm not sure if that is within two years or three years.
"My gut feel would be that is probably that's within two years, that we would be up to 10 percent. But I think a lot is certainly dependent on the cost of set-tops of HDTV sets as well."
Scientific-Atlanta Inc. is working on its second-generation HD box, a follow-up to the Explorer 3100 now in deployment. While there is no set debut date, the updated HD unit sports upgraded processing power, ports to connect to other devices and more-advanced user interfaces.
"There has been fairly strong demand for HD, which continues to grow, and we expect at some point in the future to have a new version of an HD set-top available for our customers and for consumers," said S-A director of strategic marketing for subscriber networks Dave Davies.
For its part, Pioneer Electronics (U.S.) Inc. will take the HD plunge in January when it debuts the Voyager 3510 HD unit.
"Definitely HD — it's a big focus of ours, not only on the cable side but on the consumer side," said Dan Ward, Pioneer's director of marketing.
British-based box supplier Pace Micro Technologies plc is readying an HD box for rollout in February. While that might be somewhat later than other competitors, when the box does come on the market it will have some connectivity advantages, according to Neil Gaydon, president of Pace's Americas unit.
"We've taken a very hard, long look at what's required in terms of connectivity because systems are getting quite complicated in the house, with DVD players and home theater systems, VCRs and all of the rest of it," he said.
Gaydon said he is confident the Time Warner Cable divisions that have already ordered Pace boxes will buy into the HD unit. The box maker has shown off a prototype to nine of the MSO's divisions so far, and plans are to start testing later this year.
"We are pretty certain they will," he said. "We will have to see when the orders start coming, but it has been designed for them."
It looks like units with digital recording capabilities and a hard drive, though not exactly a new concept, are the other big item on the MSO set-top shopping list.
After rushing to create box designs that incorporate the modern version of video recording more than a year ago, until now Scientific-Atlanta's Explorer 8000 has been the sole deployment. The 8000, which sports an 80-gigabyte hard drive and a dual tuner, has been rolled out by TWC in Rochester, N.Y. and Green Bay, Wis. Austin, Texas, is the next launch site.
"The deployments have been extremely successful," Davies said. "I think it is exceeding our expectations. Customers really seem to love the DVR product. It really changes the way they watch TV."
While it has been somewhat slow to catch on, "I think 2003 is going to be the year of DVR," Davies said. "I think it's going to see some pretty substantial deployments and growing interest by operators across the board."
The new big box
Motorola, Pioneer and Pace will make their first leaps into the DVR realm with boxes that combine HD capabilities.
Motorola plans to roll out its DCT-5200 DVR box with HD capability in the summer of 2003. When it debuts, Vernon said, it will be the only unit that can record in the HD format.
"As we look at a lot of our product evolution, we do realize HD and DVR are things that are growing in popularity," Vernon said. "Potentially, the marketplace could be 50 percent on either feature — potentially. Especially with DVR, I think it will be interesting to see how that begins rolling out over the next year or so."
Similarly, Pioneer has set the Voyager 4000 for debut in mid-2003. The set-top will sport dual tuners, an 80-Gb hard drive and optional HD capabilities.
"The 4000 will come with HD as an option, so you can have it with or without," added Neil Jones, Pioneer's senior vice president of operations. "But we like to think that because of the nature of the box, and the kind of customer, that it's likely that a big majority of those boxes will be the HD version.
"You've spent that much money on your entertainment system where you want a high-end HD set or something like that — you're probably going to want every bell and whistle you can get."
Pace's combination HD/DVR unit will round out the bunch sometime in late 2003.
"I think the reality is and what the demographics will show is it's the same customer who wants both. And probably really a mixture of HD and DVR is really the right solution," Gaydon said. "And that's what we are working on for our DVR solution.
"It won't be around probably until the end of next year, and the reason for that is we believe there will be silicon around where it's a lot cheaper than today."
The relative delay for the Pace box may also allow time to sort out some marketing issues, Gaydon added.
"We are struggling a little bit internally about the price of a box like that, and the business model when we've seen all around the world that DVR, although it is compelling, rolls fairly slowly because of the price of the box," he said. "Now maybe Time Warner has a slightly different business model to accelerate that, but we take a little bit more of a cautious view until we can really see what the market is going to do."
Not to be outdone, S-A also has plans for a combined unit.
"I can't give you any specific timing, but clearly we think that there is going to be a segment that is interested in HD and DVR," Davies said. "One can argue in particular some of the early adopters — people who are buying these $3,000 and $4,000 TV sets — would be very interested in an HD DVR set-top box."
The trend toward HD and DVR does mark a return toward more sophisticated boxes, but this is not the same big box the industry originally envisioned.
Gone for the most part is middleware, and much of the interactive and Internet functions once envisioned. At least for the next year or so, these new big boxes will be more function-specific, and aimed specifically at high-end subscribers.
"I would say the boxes you will see coming out next year are the boxes everyone envisioned five years ago but the applications are different," said Haig Krakirian, Pioneer's vice president of software engineering. "They are not focusing on middleware and ITV. They more are focusing on better video service, recording on your hard disk or better-quality video."
Evidence that thin — i.e., boxes without middleware –— is still in can be found in the method operators will use to deploy Motorola's HD box, Vernon noted.
"The 5100 can handle both thick and thin, and people are using it thin. I don't think people see as much need for thick right now," she said. "I hate to say that for anyone in that business, but I think it's hard for someone to justify putting in all of that software when you can't justify as many things as you had hoped to justify on the other end with it."
While none of the vendors expect basic box orders to dry up overnight, its dominant position may dwindle somewhat.
"If you think about the set-tops we are talking about on the high end — DVR and HD — they have fairly strong appeal into the install base as well," Davies noted.
"As operators are purchasing set-top boxes, they are purchasing boxes for new subscribers they are adding, as well as purchasing boxes to swap out with existing subscribers who want HDTV or DVR. So when you swap out an Explorer 3200 from somebody that now wants DVR, that 3200 can go to satisfy some new subscriber demand. So the mix ends up shifting somewhat to higher-end boxes in order to satisfy both sets of demand."