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Forum: Speaking of Satellites and Sexy Set-Tops

And God frowned as he looked down upon the entrenched
monopolies. And God said, "Let there be competition." And the people developed
and implemented digital devices. And affordable choices abounded. And God said, "It
is good."

Moving into the first week of 2000 -- and the first week of
Las Vegas' annual Consumer Electronics Show -- focus comes easily on several key
consumer-electronics devices.

Yet in a survey of various manufacturers, requesting their
prognosis for the years ahead and the ultimate consumer-electronics device, answer after
answer showed a strong passion for boxes big and small, brainy and beautiful -- bytes and
bits full of set-top boxes.

Within the set-top-box community, most observers still see
digital-satellite set-top boxes -- much like those being created for subscribers to
DirecTV Inc.'s and EchoStar Communications Corp.'s services -- as leading the
charge into a new millennium and a revolution in the gathering and presentation of data,
video and audio in the home, the car and business.

In slightly more than five years' time, satellite
set-tops have already delivered just about every "first" the set-top-box
industry has seen during that time frame. This includes services such as digital TV,
interactive electronic program guides, in-home tie-ins (such as security and lighting),
Dolby digital sound, home theater, 200 to 300 video channels, 30 to 40 audio channels, 50
to 60 pay-per-view channels, numerous season-long sports packages, dozens of multiplexed
premium channels, private messaging, advanced interactive-multimedia capabilities (such as
Replay Networks Inc., TiVo Inc. and EchoStar's "DISHPlayer") and a huge
convergence platform.

Sources from within Thomson Consumer Electronics, Sony
Corp., Hughes Network Systems, Scientific-Atlanta Inc., General Instrument Corp. and NDS
Ltd. were consulted to confirm the views expressed in this article.

It is an understatement to say that each company is quite
optimistic about the future of set-top boxes, including digital-satellite set-top boxes.
Yet most of what is expressed below is not reserved for satellite, as within a few years,
most consumers will also be accessing equal amounts of digital audio, video and data
choices via cable, wireless cable, telephony and electric-utility set-tops.

Nonetheless, for at least the next year, digital-satellite
set-top makers will stay in the lead, if for no other reason than the volume of their
subscribers.

As the chart below suggests, the long-term sales future for
all versions of digital set-tops is indeed bright. Just about every future satellite box
will be digital, and a greater and greater number of other set-tops will also feature
digital services.

What will these future digital boxes include? Whatever it
is, the consumer won't care how it gets to him or her -- that is a universal
paradigm. The consumer also won't see the interface between audio and video and
future interactive sources, because the delivery of these services will be seamless.

Convenience and choice will morph the vision of
"TV" and even "computers" way beyond the "Model T" phase we
are now entering. Time-shifting (using huge built-in storage devices) will be the norm.

Consumer control and choices will abound.
Consumer-electronics hardware manufacturers, system operators, software providers and
computer makers will strike unique new alliances aimed at finding the new Holy Grail.
Gaming was mentioned again and again. And not unlike the AM-to-FM days of radio, the pie
will eventually grow, rather than services like satellite substantially overtaking cable
and telephony.

In addition, several pundits believe the ultimate set-top
box will be one device, typically stored in a place like the closet or the attic, that
will hold the true "brains" of a given building.

This super set-top will run or link computers, appliances
and security, home-theater, heating and air-conditioning systems. It will also do its work
using signals from several sources, which will vary depending upon where one lives and
what sources are available (e.g., wired, wireless or satellite).

Wire and wireless signals will also tell the superbox to do
what it does from anywhere in the world, including one's car, one's workplace,
or the stores where one shops, whether in one's hometown, a remote office, or on
vacation halfway around the world.

Services like British Sky Broadcasting Group plc in the
United Kingdom and the one planned under America Online Inc.'s $1.5 billion
investment into DirecTV, "DirecPC" and "AOL TV" will bring this vision
closer and closer toward reality.

What are the challenges ahead? No. 1 on just about all
lists was bandwidth. There simply will not be enough, so what there is will be coveted
dearly. Rewiring existing homes will be time-consuming and costly, so wireless
capabilities that link set-tops to devices will eventually dominate the landscape.

Security will continue to frustrate all elements of the
signal-delivery food chain, requiring more diligence and more secondary devices to ensure
privacy and reliability. Maintaining open, interoperable systems via the industry-led
implementation of standards is an additional concern. Keeping devices and software simple
and affordable so consumers will continue to want to buy them is perhaps the biggest
challenge.

For years, analysts at The Carmel Group have envisioned a
future of set-top-box merchandising not unlike that of an automobile purchase. That is,
depending upon a consumer's resources, interests, curiosities and needs, they will
buy a "Mercedes" or a "Chevy Nova" make and model of set-top box.

The analogy is perhaps even more apt because during any
given day, you and your family will spend as much time in front of the set-top box as you
will in your automobile. Thus, the typical new purchase of a digital set-top box will
include several visits to different Sears, Roebuck and Co., Circuit City and RadioShack
stores, where you will "kick the tires" on numerous set-tops that fit your
pocketbook and value proposition.

Plus, as we move closer toward the ultimate set-top box,
the line between TV and computer will blur completely. The set-top brain will bridge, sort
and scramble the signals, making the viewing screen nothing but a viewing point for
whatever you want, wherever you want it and whenever you want it.

And in the end, God smiled and looked down upon the people
and their sexy new set-top boxes. And God saw people with choices galore (most of which
were affordable).

And God was happy for the people. Because finally, the
people could choose. And the people were happy. And God said, "It is good."

Jimmy Schaeffler is chairman and CEO of The Carmel Group, a
direct-broadcast satellite consultancy.