For MSOs, whose business depends on satisfied digital subscribers, the gateway to consumers' pocketbooks is through the digital set-top box. That's why, in an effort to combat "digital churn," cable operators are working closely with manufacturers to develop and deploy models that facilitate the most popular applications.
Competition to win MSO business has become fierce as dominant players Motorola (formerly General Instrument) and Scientific-Atlanta (S-A) have been joined in recent years by aggressive upstarts Pace, Pioneer, Samsung and Sony.
"It's no longer a two-horse race, and that's good for everyone," says Neil Gaydon, CEO of UK-based Pace Micro Technology. "This industry needs somebody to challenge the pricing, quality of service and delivery capacity that have existed for years."
Manufacturers new to the U.S. have found it hard to break into the market. Sony, for one, had such a hard time convincing U.S. MSOs that it helped Cablevision Systems Corp. transition its head-end facility in Bethpage, N.Y., as part of an agreement to have its new digital set-top box deployed.
No Sony boxes have been deployed to date, but, according to Cablevision spokesman Keith Cocozza, deployment will begin in the fall, with the MSO giving analog subscribers the boxes at no additional cost.
New features of set-top boxes are being deployed in limited test markets. Although Replay Networks and TiVo have stalled as stand-alone consumer devices, many MSOs are betting on personal video recording as an internal feature of the set-top. Indeed, after unsuccessful tests of Replay devices in Florida, Time Warner Cable is looking at S-A's efforts to integrate PVR functionality into the new Explorer 8000 set-top, according to company spokesman Mike Luftman.
Interactive applications—shopping, playing along with a TV program, online gaming, surfing the Web—are also being tested, and the jury is still out on whether significant numbers of consumers want these capabilities. Many industry observers cite Time Warner's Full Service Network trial in Orlando, Fla., eight years ago as proof that there's a limit to what subscribers want, but much of the technology developed for that business has since matured and is being included in the latest set-top boxes and cable head-end facilities.
Processing power has also increased substantially. In most of the latest boxes, separate 300-MIPS (million instructions per second) silicon processors are being used for box functions and applications, improving speed and on-screen display quality.
Combined, Motorola and S-A manufacture about 90% of the analog-to-digital processing and satellite transmission equipment in the head-end facilities. For set-top newcomers, then, it's important that their boxes are compliant with existing Motorola and S-A systems.
For example, companies wishing to work with AOL Time Warner's S-A–based systems must design their products to Pegasus specifications, which came out of the Full Service Network project. Motorola systems, on the other hand, require building to the DigiCipher spec.
There have been industry efforts to make all set-tops compatible. A 1998 agreement between Motorola and S-A called Harmony, for example, was supposed to enable each company's boxes to work with the other's head-end equipment. Nearly three years later, most cable facilities today are not Harmony-compliant.
This issue affects the FCC's desire to get set-top boxes into retail stores. The government wants to enable consumers to buy a box outright to avoid monthly rental charges while still having access to encrypted programs.
The FCC mandated that cable companies operating in the U.S. had to make a Point of Deployment (POD) module available to consumers by last July. Specifically, proprietary security functions to enable conditional access (CA) had to be separated out of the set-top box.
The mandate required that the PODs be available to facilitate the sale of set-top boxes at retail. The manufacture of consumer set-top boxes, however, was not mandated.
Most set-top manufacturers agree that full-featured cable set-top boxes with CA functionality will not be available at retail realistically for several years. Manufacturers wonder whether consumers will buy them.
"You're adding a whole level of cost that will make the box expensive," says Pace's Gaydon. "It's clear by the ferocious deployment of digital boxes by the MSOs that they are getting to their premium-package and high-end customers as fast as possible before that mandate arrives."
Pioneer New Technologies, according to director of marketing Dan Ward, will have a full-function set-top box in stores this year, but he predicts sales will not be significant until 2003, at the earliest.
S-A has a POD device, called PowerKey CA, but will not yet market a cable box for retail because of a lack of consumer interest. "It's hard to find an attractive price point," says Sam Lim, vice president and general manager for S-A's Media Networks division. "Anything over $400 is not going to find many takers, yet that's the bottom line for companies to make money."
Motorola offers a POD device and will also have a set-top box, called DCP, at retail later this year, priced at about $800. It includes a 30-MB hard drive, 500-W A/V receiver and internal DVD player. "Based on research we've done, if you offer a box that has features that people want, the uptake will be there," says Bernadette Vernon, director of strategic planning at Motorola. The box is able to display premium digital channels, however, only with Motorola-based cable systems.
LOOKING AT FEATURES
Pace Micro has several million digital set-top boxes deployed overseas but none in the U.S. Like Motorola and Sony, it declines to provide pricing details, saying only that its products are "competitively priced" (putting them at the $300-plus level). However, Pace has sold products to the U.S. DSL market for distributing video over twisted-pair phone lines and has made strides toward breaking into the set-top market, having 20-year licenses for both Motorola and S-A.
"Having both licenses allows us to talk to the other MSOs and offer them the services of one company, building for two operating systems," Gaydon points out. "For them, it means convenience and less cost."
Pace has received an order for 750,000 Pace 500 "home gateway" boxes to be deployed nationwide throughout Time Warner's 40 cable systems over the next three years. Comcast Cable will test 50,000 of them for its S-A–based network, using S-A's PowerTV for interactive services.
The Pace 500 features a single-chip (Broadcom's BCM7100) and integrates a cable modem, conditional access and a choice of an S-A Resident Application (SARA) or Pioneer Passport interactive electronic program guide.
Pace also offers two models in its 700 Series, the 710 and 750. The former incorporates S-A conditional access, an integrated DOCSIS (Data Over Cable Service Interface Specification) cable modem and support for OpenTV, Liberate and Microsoft TV interactive services. Options include HDTV display and a POD interface. Comcast has signed a three-year contract for 300,000 of the 710 boxes for its Motorola-based networks.
Meanwhile, Pioneer New Technologies has shipped approximately 1.5 million boxes in the U.S., where they have been deployed by major MSOs like Cox and AOL Time Warner, as well as by small, independent operators. To meet the digital demand, Pioneer recently opened two factories—in Japan and Malaysia.
Its latest offering, the Voyager 3000 (priced $325 to $350, with volume discounts available) incorporates a Broadcom single-chip MPEG processor with 16-MB memory (32-MB optional) and up to 8 MB of flash memory for maintaining and documenting user preferences.
The company's Passport Application Suite software—with an interactive EPG, channel banner browser and parental-control features—is deployed in approximately 2 million Pioneer and other boxes in the U.S. The software supports both Motorola and S-A digital infrastructures.
Pioneer hopes to introduce PVR technology into its boxes sometime next year and will integrate it in the Voyager next-generation box, which will also have up to 30 MB of internal storage and the ability to network with other Pioneer consumer electronics devices.
"The Passport software will become the unified GUI," Ward says, "bringing together all of Pioneer's products that will be controlled through the set-top box."
With the largest installed base, Motorola has shipped more than 14 million set-top boxes in the U.S. and Canada, most of them carrying the General Instrument brand. Declining to reveal actual numbers of units produced or pricing, Vernon says Motorola has increased production to meet the digital demand and is working with the MSOs to improve forecasting of product volume.
Most of Motorola's customers deploy some type of VOD system, whether with local or national control, and PVR capability is in their immediate future. "With products like [Microsoft's] Ultimate TV available in some homes via cable," Vernon says, "we are seeing some demand for PVR service."
Motorola's DCT-2000 is the most commonly deployed cable box, able to facilitate VOD and Internet access. Software upgrades since its deployment two years ago have added such features as an intuitive EPG.
The DCT-5000 offers more capabilities for two-way interactive services, such as a built-in high-speed cable modem and a 300-MIPS internal processor to facilitate home networking. Software development for the 5000 has been slow to materialize, but it is happening.
With deployment since 1998 of nearly 7 million Explorer 2100 and 3100 boxes (each priced about $300), S-A envisions "home network" use for its Explorer 8000 media server (about $500). Introduced late last year, it incorporates PVR and interactive streaming-video capability and a 30-MB internal hard drive. It has been ordered by Time Warner in limited numbers but not yet deployed.
S-A's Explorer 4100 digital set-top, introduced at the recent Cable-Tec Expo's Engineering Conference in Orlando, Fla., and priced $330 to $350, is described as a "home gateway" and features two tuners, a DOCSIS modem, high-performance graphics and memory interface. USB and Ethernet ports suit it for home-network connectivity and interactive-TV applications.
S-A's Explorer 3100HD digital set-top functions as a network computer capable of presenting high-definition (1080i) programming through its component outputs.
Because interactive applications are driving set-top-box deployment, the company has approached design of its boxes from a "TV-centric" point of view, as opposed to trying to emulate a PC, says S-A's Lim. "We try to make graphics look better on an interlaced TV set. To be successful, we had to allow for the inevitable progression from single-channel audio to multichannel audio, accommodate HDTV and include a down-sampling capability for SDTV."
Sony Electronics markets two set-top boxes, the DHG-M55 and DHG-B45, but declines to provide details on pricing and features, saying those issues are still to be addressed—the boxes are not yet available. Set to be deployed by Cablevision, they are designed to be part of a home local-area network. They are not compliant with either Motorola or S-A headends; Sony plans to leverage its systems-integration expertise to help head-ends customize their equipment to work with them.
The DHG-M55 includes a 300-MIPS application processor, 32-MB DRAM/16-MB flash memory, a DOCSIS cable modem, iLink (IEEE 1394) and a "Smart card" port for future CA applications. It also features separate processors for high-quality graphics and interactive and middleware applications. The secondary cable receiver, the DHG-B45, includes a 100-MIPS processor.
According to Sony Electronics Vice President of Corporate Communications Mack Araki, MSOs, in addition to Cablevision, are considering the box. "Cablevision's box has been designed with VOD in mind," he says. "We basically wanted to create a box with an easy-to-use interface because that's what Cablevision asked us to do."
The newest player in the set-top arena, Samsung's Dallas-based Broadband Network Terminal division is introducing its SMT-F220 at this week's NCTA show in Chicago. Features include VOD support, high-speed Internet access, a DVD-ROM drive, EPG and PVR functions.
For all companies, despite the slow U.S. economy, the digital set-top business is thriving. "When the economy turns down, our business goes up," says Pioneer's Ward, "because everyone is staying home and watching TV."
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