Cablevision Picks Sony Boxes

New York -- Sony Corp. of America has secured a major
beachhead in the U.S. cable market, landing a $1 billion deal to supply advanced digital
set-tops to Cablevision Systems Corp.

The deal covers three million OpenCable-compliant boxes
running on the Aperios operating system, which Sony developed with General Instrument
Corp. It marks Sony's initial deployments of both the box and the OS.

Sony also will provide headend equipment and other gear to
create a new broadband communications and entertainment platform using Cablevision's
rebuilt, two-way plant.

Cablevision plans to begin deploying those boxes
aggressively next summer in its metropolitan New York City market, which passes about 4
million homes, CEO James Dolan said in a news conference call.

Like Philips Electronics, which is providing set-tops to
MediaOne Group Inc., Sony is taking advantage of the industry's movement toward
interoperable cable-network and consumer equipment -- and upcoming retail sales of
set-tops and cable modems -- to attack the duopoly held by General Instrument Corp. and
Scientific-Atlanta Inc.

GI commands about 72 percent of the current North American
market for cable set-tops, a market that could grow to about 113 million units in five
years from the current 20 million, according to the research firm Allied Business
Intelligence Inc.

But although GI and Scientific-Atlanta control about 90
percent of the market, operators are willing to consider vendors that, like Sony, bring
technological expertise and a potent consumer brand.

"Sony understands its customers, and I believe
Sony's customers are our customers," said Dolan. He said Sony would be his
exclusive digital set-top supplier. "Sony understands how to please [consumers] and
offer them exciting products."

Analysts cited Sony's wealth of content and
applications experience, ranging from its movie and music studios and interactive Web
sites to its hugely successful video gaming hardware and software enterprise.

Sony also views its set-top as a networking hub that will
pass a variety of information streams from various household devices such as TVs,
video-game machines, DVD players and PCs.

"Sony being able to break into the market is
significant, because it essentially poses a challenge to the duopoly in the
industry," said ABI analyst Navin Sabharwal. "It all comes down to the fact the
set-top, especially the digital set-top, is more of a multimedia device. When you get into
that field, you play into the strengths of a company like Sony."

The MSO and Sony are exploring which services would be
offered on the first deployed boxes, both sides acknowledged. However, Cablevision
executive vice president of technology Wilt Hildenbrand indicated that video-on-demand,
which the MSO has tested for years, is likely.

Executives also mentioned services such as always-on Web
access; electronic mail; Internet chat and customer access to cable accounts, which could
be configured at will to add or drop services.

"The purpose of the relationship is to help define
those services," said Howard Stringer, Sony of America's president. "The
advantage to us in working with Cablevision is they want to be an industry leader, and are
doing it in the most important market in America with some of richest customers in

Dolan sidestepped questions about Cablevision's
strategy for placing the set-top in a consumer retail-sales environment, saying the MSO
would emphasize marketing the services enabled by the device rather than the device

"This digital set-top technology changes our
relationship with our customers," Dolan said. "It puts the customer in control
of their service."

Cablevision has been the object of much speculation about
its digital-service plans. Recent reports indicated that the MSO was ready to choose
Liberate Technologies Inc. to provide middleware, or software that enables advanced
applications. Hildenbrand said Cablevision had not picked a middleware provider -- or VOD
and electronic program guide vendors, for that matter.

The primary Sony set-top will incorporate an IEEE-1394
"firewire" standard high-speed digital interface to link the box to other
devices, such as a digital-TV set. Sony and Cablevision said they would work to leverage
the 1394 interface with Sony's HAVi home networking software and the Aperios OS to
expand the potential universe of applications enabled by the set-top.

The early boxes also will pass high-definition digital
television signals to the TV via the 1394 connection. Later generations will likely be
directly compatible with HDTV, once cable-interface standards are completed and the cost
of technology that makes the terrestrial digital broadcast compatible with cable's
modulation scheme declines.