The Great Wait
The cable industry, burned repeatedly in the past for promising what it could not deliver in a timely manner, may be on the verge of ditching a huge albatross. For years, the industry has prophesied the introduction of digital set-tops that would permit consumers to interact with their television sets, buy and sell merchandise, and surf the Internet with ease.
The current generation of set-tops, represented by the Motorola DCT-2000 and the Scientific-Atlanta Explorer 2000 series, has proved capable of handling digital video, an interactive program guide and video-on-demand.
Powerful though they are, these "thin- client" devices are limited by their relatively puny processing capability and on-board memory.
Just around the corner-yes, the industry still employs that hackneyed cliché-awaits the next generation of set-tops.
Termed "thick-client" devices, Scientific-Atlanta's Explorer 6000 and 8000 series, Motorola's DCT-5000 and a new entry from Sony Electronics will herald a new generation of services.
If all goes according to plan, cable subscribers will be able to engage in online gaming, digitally record and time-shift video programming, and set up home networks.
The question remains, when.
"The thick-client versions add more memory and more capacity for middleware solutions to be implemented on them," says Powell Bedgood, vice president of digital services, Charter Communications.
Charter has been one of the more aggressive MSOs to deploy digital services and says that it has 1.2 million digital set-tops in place now. The company is field-testing the DCT-5000 boxes and expects to deploy the next-generation box in the third quarter of this year.
Motorola late last year shipped its 10 millionth digital set-top and has a current order backlog of 2 million. The company has agreements with most major U.S. cable operators.
Scientific-Atlanta, the No. 2 set-top manufacturer, has shipped about 4.5 million digital units and says its orders from cable and satellite operators are running at about 500,000 units per month.
Deployment of advanced set-tops has been plagued by the usual suspects. After spending billions of dollars to upgrade their networks, cable operators are just now ready to offer the two-way broadband capabilities the new boxes require.
The DCT-5000 has been plagued by software difficulties that have slowed its development.
Motorola contends that its engineers have addressed the problems. A parts shortage last year limited production of advanced boxes, although both S-A and Motorola maintain they are getting caught up with demand.
Cablevision Systems, which had planned a major summer deployment of advanced digital set-tops co-developed with Sony, reversed field in mid-February and said it would delay introduction until fall.
Price is an issue as well. The current generation of set-tops costs cable operators on the order of $200 to $400 apiece. Advanced boxes will cost at least 50% more.
Even after the new devices become widely available, the rollout may be lengthy simply because of the sheer logistics of replacing old boxes with new ones.
"It's a terribly long- term process," concedes Ed Graczyk, director of marketing at Microsoft's TV Platform Group, which is looking to place its Microsoft TV operating system into the digital set-top boxes. "Putting a new set-top box in the home requires a truck roll and an engineer to install it. That simply takes time."
So-called advanced set-tops will not likely replace the current versions entirely. MSOs intend initially to place one in each subscribing household and link it to other devices.
"One of the things we're focusing on is using these boxes as part of a home network so that you could hook up your computer and other network appliances using the advanced box as the gateway," says Bill Wall, technical director, subscriber networks, Scientific-Atlanta.
Then there is the lingering question of whether consumers are really ready for all the services these newfangled gizmos can offer. If cable operators misjudge consumer interest, the financial consequences could be enormous.
"It has always been our view that interactive television would only happen through industry push, not consumer pull," says David Mercer, vice president, consumer practice, Strategy Analytics. "It's an education process, but operators must invest in this process in order to reap the long-term benefits of higher revenue."
Mercer cites the European example, wherein millions of homes have interactive-capable set-tops but usage levels generally remain quite low.
Bernadette Vernon, marketing director for Motorola's DigiCable division, agrees that manufacturers and cable operators alike may have to do a lot of evangelizing-a process that is already under way. "Cable operators are getting people used to the behavior of interacting with the set-top through video-on-demand and Internet services.
"And there is a big generation of younger people who have grown up with interactive technology," she continues. "That will help it along."
Provided they are successful in selling consumers on interactive services, MSOs are prepared to reap substantial rewards.
In a February research report, Merrill Lynch analyst Jessica Reif-Cohen projected the return on investment for advanced digital services at better than 70% and suggested that interactive-television services alone could bolster cable operators' cash flow by an average of 26%.
MSOs also see interactive services as a way to attack the high customer turnover that has plagued digital cable.
For example, Cox Communications believes that interactive television will become an integral part of its successful product-bundling strategy.
"We know that customers who take our phone service in addition to digital video churn less frequently," says Lynne Elander, vice president, video product management. "If we can get both digital and that second product into the home, we stand a much better chance of retaining that video customer."
Other studies have shown that interactivity can reduce customer churn.
"We have seen with WebTV that people who participate in interactive programming develop a deeper relationship with that programming," says Graczyk, adding that users of Microsoft's Web TV service increase television viewing by an average of 30 minutes per day.
The success of the new set-tops depends as much on what the boxes can do as on the devices themselves.
CableLabs, the industry's research consortium, recently issued its OpenCable Application Platform for industry comment. OCAP seeks to develop a set of software standards for developers to produce interactive services that could operate over the broadband cable network. Ultimately, CableLabs hopes the standards will lead to retail sales of set-tops directly to consumers.
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