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Digital Set-Top Boxes: Take Your Pick

Until recently, the market for digital-cable boxes has hearkened back to the old joke about early Ford automobiles: You can have any color you want, as long as it's black.

Early digital deployments were focused on video delivery, so there wasn't much variety in box design or capabilities. But just as the automobile industry diversified, so too has the field of digital set-tops.

Cable operators have taken different paths toward adding new services, and that's moved box manufacturers from a "one-size-fits-all" strategy to one of mix-and-match options.

And although much of the cable market is obsessed with harnessing video-on-demand in boxes already in the field, industry observers expect that some new designs and services will take root in 2002.

For some, the question may not be one of which box to connect to the customer's TV. Rather, it'll be, 'How many?' The sidecar strategy has caught on with cost-conscious MSOs that want to take on high-definition TV or personal video recording capabilities, but don't want to send the existing digital box to the junk heap.

For instance, Comcast Corp. now offers a Motorola Inc. sidecar for HDTV, and AT&T Broadband has a promotional deal with TiVo Inc. through which customers may link TiVo's PVR box to their existing set-top.

That's partly because cable operators are hedging their bets, particularly with respect to new services, said Kinetic Strategies Inc. president Michael Harris. One example of this is the Broadband Media Center 8000 — a feature-packed sidecar developed jointly by Digeo Inc., Motorola Inc. and Charter Communications Inc., and set for deployment in Charter systems by the end of the year.

"Of all this, that sidecar announcement that came out from Digeo is as indicative as anything," Harris said. "As much as the cable industry has aggressive plans for deployed services, historically, the cable industry has proven to be incrementalist."

But other operators may not side with the sidecar. So even as it develops the BMC 8000, Motorola will also expand its DCT 2000 and 5000 lineups this year to offer a variety of built-in functions.

"When you start getting into multiple boxes, I think that is fine," said Motorola director of strategic marketing Bernadette Vernon. "But for some levels of customers, the multi-box solution may not be what they are looking for. So having it all into a single one is the most attractive."

The PVR Factor

Whether integrated into one box or added as a sidecar, the set-top road map for 2002 definitely shows plenty of feature options down the road, including personal video recording functionality and hard-drive storage.

Motorola, for example, aims to debut its new DCT 2600 box with disk drive in the second half of this year. A disk drive also will be standard in its upper-end 52X0 box.

Pace Micro Technologies plc — a relative newcomer to the U.S. market — also anticipates that trend. Much of the interest in hard drives stems from the fact that direct-broadcast satellite providers already offer PVR technology, said Pace director of marketing David Novak.

"It is something that they know they want to offer as a competitive product to the satellite operators, and the demand for integrated hard drive capabilities or PVR functionality is going to grow," he said.

Fellow box maker Pioneer North America Inc. isn't banking on massive deployments of boxes with PVR functionality in 2002. Rather, the manufacturer will ready its latest Voyager 4000 box, which offers a two-tuner PVR and hard drive, among other features.

"The great thing about having a hard drive in the box is all of a sudden you have more space to download applications to," said Pioneer director of marketing Dan Ward.

Cost may play as key a role in holding back the mass deployment of PVR-enabled set-tops in 2002 as the preoccupation with VOD.

"These operators, as far as a hard drive goes, are trying to figure out how they monetize the incremental expense of putting a disk in there," said Harris, who said he has a PVR in his house and is a confirmed fan. "I don't think there is anything that a cable operator can do to enhance the utility of their core service than to add that functionality.

"It basically makes your entire cable service on-demand, depending on your sophistication. The question is, 'What's the business model for it?' "

The HDTV tuner is another box feature expected to make modest gains this year.

"High-definition penetration from a local level for the cable operator is increasing," said Pace's Novak. "They also don't want to shorten the length of their shelf life.

"Being able to offer competitively priced, cost-effective high-definition solutions in the marketplace is very much a top priority for the cable operators. So, you will likely see the introduction of high-definition integrated and those becoming more and more important to the cable operator to lengthen the shelf life of those boxes."

Pioneer also is working on an HD-capable option for the Voyager 4000.

"They are asking for (HD), but I don't know [in] what quantities they will be buying," Ward said. "Every system wants an HD box. They do have those upper-tier customers that will want that."

What's Up DOCSIS

With the potential for Internet services on the digital platform, also look for more boxes with built-in Data Over Cable Service Interface Specification modems. That includes a box Pace is developing for Comcast, due out later this year, which will sport a DOCSIS 1.1-compliant modem.

"It has the makings for a very big movement for the entire U.S. cable industry to move in not just DOCSIS, but DOCSIS/DAVIC technology, integrated into the boxes, because it opens up a slew of revenue-generating services that they can monetize very quickly," Novak said. "It's almost a no-brainer for a cable operator, because once they build in that functionality, they have a whole library of services that they can start to now deploy and make immediate revenues."

For its part, Motorola will incorporate a DOCSIS modem into its upper-end DCT 5000 line, but won't be adding it to its more modest 2000s.

"Some [MSOs] are very interested in that," said Vernon. "I think the value of having it in the box is getting back to a single solution. There is an ease with that."

But there is still the question of how many operators would want a modem incorporated into the box. And again, said Harris, it comes down to cost.

"The reality is, they are just so bloody cheap, who cares?" Harris noted. "Operators are getting modems for $75 now, and in some situations less. So the issue becomes, what do you want that modem in the box to do?

"And since there really isn't a consensus about IP-based services that will be delivered to the TV, why incur that capital expense?"

Many box makers will also take aim at the growing home-networking market by adding multiple connection ports. Motorola's new BMC 8000 sidecar is one such unit.

The idea is to make the set-top more than just a video box.

"Now, these products are now going to be providing a gateway service," Vernon said. "With the 5000 and 2000 providing an experience for the single user, the BMC will now be providing for the whole house."

Pioneer also has a software prototype that allows users to control home networking via a single interface in the set-top box's interactive guide. That software handles not only networked devices but also such home-automation features as lighting and heating.

"What we are trying to do is bring the central control for all of these clusters into one unit and make it accessible," Ward said.

Given access to this wide range of functions and features, cable operators aren't likely to put all their digital eggs in one box. Instead, industry watchers believe MSOs are likely to follow the lead of their DBS competitors by offering customers perhaps two or three options.

"There is going to be a tiered approach to this," Novak said. "The cable operators know that not everybody is going to want home networking, not everyone is going to want integrated PVR control, so why put the cost into all of the boxes? So we are going to have a range of boxes.

"We are going to have a hard-drive box, we're going to have a high-definition box, we're going to have a home-networking-capable box and they will have some variances in between."

Pioneer's Ward agreed, noting that cable operators will have to examine not only how to market these services, but who they'll market them to.

"I don't think the question would be, 'What kind of box do you want?' but, 'What kind of services would you like to take advantage of?' " Ward said. "Now, because there is so much new technology coming out — HD, PVR, a lot of features coming out with networking and all that — not everyone wants those, so I think you will find some segments of your group are willing to pay for it and want that service.

"Others, it just doesn't have a value to it at this point. So you don't want to have to put a box in there that has those capabilities if that subscriber base is not going to pay for it."

All in all, it makes for a more interesting set-top box market.

"It is a very interesting time," said Motorola's Vernon. "We're working with a lot of the MSOs and [with] where they are with their customer deployments, and they look forward to 2002 and 2003. Each MSO right now is working on how to increase the size of their customer base and will continue to do that."