Plugged: Time To Play

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It's been a year since the cable industry signed the beginnings of a comprehensive "plug-and-play" accord with consumer-electronics makers, and fruits of the deal include Panasonic Consumer Electronics' first shipments of digital-cable ready TV sets containing the same technology used by one-way digital set-tops.

Digital-cable ready TVs are forcing cable operators to come up with strategies to distribute the smart cards — also known as CableCARDs — that will allow subscribers to decrypt scrambled cable programming.

While one of the goals of the digital-cable ready project is to reduce costs for MSOs and allow consumers to get access to DTV programming without the help of a cable technician, operators are still grappling with several issues, including:

  • Deciding whether or not to lease the CableCARDs to subscribers — as they would a set-top box — or to give them away for free to customers who order digital-cable packages.
  • Educating consumers that the first digital-cable ready TVs are only one-way in nature; subscribers who want interactive services such as video-on-demand will still need a digital-cable set-top.
  • Developing a self-installation program that would allow consumers to pick up a CableCARD at a retail outlet or receive it in the mail, and hook up the card to a digital-cable ready TV.

Time Warner Cable selected its Minneapolis system as the testing ground for digital-cable ready approaches, and plans to send technicians to the homes of consumers who purchase digital-cable ready sets.

"The obligation in the FCC regulation is that all of cable television be ready by July 1, 2004, so we're going to be aggressive with this project," Time Warner Cable vice president of strategy and development Jim Braun said. "We believe in this project, and we plan on getting our 31 divisions up and running by the end of the first quarter."

Across the Mississippi River, Comcast Corp. picked its St. Paul, Minn., system to conduct a similar trial, and the MSO's Portland, Ore., system is also supplying customers with CableCARDs.

Comcast doesn't know when it will be ready to supply customers on its other systems with CableCARDs, according to Page Thompson, vice president of marketing for new video products.

Charging For Cards

A snapshot of the Minneapolis-St. Paul market shows how subscribers will face unique strategies from different cable operators.

Chief among those differences: While Comcast plans to supply CableCARDs to customers for free, Time Warner Cable will lease the cards to subscribers.

"We plan on leasing the card exactly as we do with our existing set-top boxes," Braun said.

And while Time Warner Cable will use CableCARDs manufactured by Scientific-Atlanta Inc. in Minneapolis, where its system uses an S-A conditional-access system, Comcast will use CableCARDs produced by Motorola Inc. because it uses a conditional-access system from that vendor.

If the CableCARDs are eventually distributed through retail outlets, stores will have to keep cards from multiple vendors on hand. But cable executives said they don't think consumers will be confused by the variety of CableCARDs.

"It's really just the same situation that they'd have if they're a regular digital-cable subscriber," Comcast's Thompson said. "They need a Scientific-Atlanta box if they're Time Warner, and a Motorola box with ours."

Cable Television Laboratories Inc. has also given qualified status to a CableCARD from NDS Group plc.

One drawback of Comcast and Time Warner's strategy to schedule truck rolls to handle CableCARD installations is that consumers will not be able to view cable programming on their digital-cable ready TVs until the operators send technicians to their homes, which might not occur until a few days after they purchase the set.

Some retailers said they would prefer if the customer was able to watch the TV the day they purchase the set, or when the retailer delivers it to a customer's home.

"I would like the ability when I install a set in the customer's home to have it work before I leave," said Roland Hiemer, a merchandising manager at Harvey Electronics Inc., which operates a chain of high-end home theater stores in New York. "I want to make sure the customer is happy before I leave the home."

Even if the CableCARDs are eventually distributed through retail outlets, cable operators will maintain ownership of the cards, National Cable & Telecommunications Association general counsel Neil Goldberg said.

"I think it's important to point out that those CableCARDs have all of the signal security technology in them, and there has to be significant protection of those cards before they can be let into the market," Goldberg said. "They are always going to be property of the cable operator. They're not going to be sold; they're going to be leased, as the FCC contemplated."

Best Buy Co. senior buyer Jeff Stratman said the company has had talks with cable operators about how to distribute the CableCARDs — including the possibility of using CableLabs' Go2Broadband site to qualify customers — but that the issue hasn't been resolved.

"We've had all of those discussions, but I don't think we have it all the way baked yet," Stratman added.

Time Warner expects eventually to be able to allow customers to install the CableCARDs themselves, Braun said. "Some day I hope that we could get to a place where we could offer these both at the payment centers or our local offices, as well as perhaps at a retail location, or even perhaps mailing them out to customers. But because it's so new and there will be a lot of questions and frankly confusion, we want to address it up front. We want to be with the customer to explain this."

In order for consumers to be able to watch their digital-cable ready TVs as soon as they purchase the sets, some electronics manufacturers said it's important for the CableCARDs to be available through retail outlets.

"Everyone is fully in belief that it [CableCARD] needs to be at the time of purchase in the retail store front — you're able to go home immediately and plug the card in, but it would be separate from the sale of the television set," said Matt Deaver, vice president of product planning at Pioneer Electronics Home Entertainment.

One-Way Hurdle

Stratman said the success of digital-cable ready acceptance will come down to three factors: Whether there is enough programming available in HDTV; how much premium consumers will have to pay for digital-cable ready sets; and whether the one-way sets are sufficient.

"Is one-way enough?" questioned Stratman, who has worked with MSOs such as Cox Communications Inc. in the past such to build cable kiosks in Best Buy stores. "The one thing that I was always excited about was the concepts around video-on-demand and some of the things that were beginning to happen in the industry around [digital video recorders], and it remains to be seen if a customer will forgo those things to get the presumed benefit of being able to not have a set-top box to control the basic digital feed," Stratman said.

For cable operators, digital-cable ready has its drawbacks. While digital-cable ready sets will allow MSOs to remove the cost of a set-top from their balance sheets, operators are banking on interactive services such as VOD to drive new revenue.

In order for subscribers to get access to interactive services, they'll need a digital set-top.

"We really feel that some of the new products we have like on-demand are great products, and we will be rolling that out in Portland, Oregon, sometime in the coming months, and I think people will be excited to have it. So I would think there will be customers who would like to have that product and will want the digital box to get it," Comcast's Thompson said.

The Federal Communications Commission adopted rules covering one-way digital-cable ready televisions in September. Cable operators and CE companies are still negotiating terms of a two-way plug-and-play agreement, but there's no set timeline for reaching a two-way deal.

Educating Consumers

In the one-way agreement, cable and CE companies agreed that retailers don't have to notify consumers before they buy digital-cable televisions that the devices are only capable of one-way transmissions.

Instead, CE manufacturers are required to provide post-sale material to a consumer which would explain that the TV he just purchased would require a separate digital set-top in order to receive a cable operator's interactive program guide and other interactive services, such as VOD.

In a report and order the FCC released in October, the commission noted that it was concerned that consumers aren't required to be notified until after they buy the digital-cable ready TVs that the devices can't support two-way applications.

"We believe that the digital-cable ready designation, absent further clarification or explanation, may cause consumer confusion because it does not indicate that a set-top box will be needed to receive interactive services," the FCC wrote.

Although they're not required to tell consumers considering purchasing digital-cable ready TVs that the devices are only one-way capable, some retailers insist that they will tell their customers that a separate set-top would be required to receive interactive services.

"We'll certainly let people know how these items work — we're certainly not going to keep that from them," Circuit City Stores Inc. spokesman Steve Mullen said.

To help educate consumers, Braun said Time Warner Cable is encouraging its division employees to reach out to local retailers to communicate with them about digital-cable ready. "What we've been finding in the early phase of this is while some of the corporate retail organizations know a lot about this product, it hasn't filtered down yet to some of the local retailers," Braun said.

Pricing Sets

Retailers and consumer electronics companies said they expect that digital-cable ready sets will cost several hundred dollars more than a similar television that isn't digital-cable ready.

Pioneer Corp., which plans to have digital-cable ready products in store by the 2004 holiday season, expects that adding digital-cable ready components will add anywhere from a $200 premium to a $500 premium to Pioneer televisions, Deaver said.

Mitsubishi Corp., which plans to ship its first digital-cable ready TVs next year, doesn't expect that consumers will see a big price difference with digital-cable ready sets, said Marty Zanfino, Mitsubishi Digital Electronics America director of product development.

Stratman said pricing of the sets remains a key issue. "These TVs, although they've come down in price, are still very expensive in the grand scheme of things for most consumers and a pretty hefty investment," Stratman said. "So what's the additional premium that I'll have to pay to get this kind [digital-cable ready] of capability?"

Hitachi also plans to manufacture digital-cable ready TVs. The company announced in June that it would ship its first digital-cable ready set during the fourth quarter, but spokesman Greg Belloni declined to comment when asked when the first Hitachi digital-cable ready sets will be available.

While issues such as how to handle the CableCARD distribution haven't been resolved, Best Buy's Stratman said he's optimistic that the digital-cable ready transition will be successful in the end.

"There's going to be some chicken and the egg here," Stratman said. We're going to have to get solid plans back from manufacturers in terms of what our mix will look like. We're going to need to get solid plans back from the cable providers on what our footprint is going to look like and what their pans are in terms of rollout, and all of this is going to be like herding the cats for a little while. But it'll come together."

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