Is the set top box on its way out? Cable executives sound off


DirecTV set top boxThe set-top box, that annoying piece of hardware that's been collecting dust lodged between your incoming cable and your television set since TV ballooned beyond 12 channels, isn't going away anytime soon. And it doesn't matter if you try to cut the cord with Apple TV, Google TV, Roku, Netflix or any of those other iterations of Internet-savvy TV or wander off to a telco or satellite provider.

The box is like a two-ton rock: It ain't moving.

"They're not something we necessarily started out wanting to have, which I think is somewhat of a misconception sometimes. The simple reason that we have set-tops is that the consumer electronics devices in general are not capable of displaying all of our services without a set-top," said Glenn Britt, CEO of Time Warner Cable addressing the issue during a third quarter earnings call.

It would be convenient--but unfair--to pin the whole set-top problem on a stubborn consumer electronics industry. The set-top came about, primarily, not just as a channel changer--which some in cable might like to believe--but as a security measure to protect cable's property when CE manufacturers started offering television sets that gave viewers free pay channels. Thus began an in-box security play that's still in place today--much to the chagrin of just about everybody, including the cable industry which has seen the security issue devolve into a duopoly of Cisco Systems and Motorola that has the industry under almost-unceasing scrutiny from regulators like the FCC and, even worse, Congress.

Still, even with the Internet and even with modern TVs that can tap the Internet, set-tops survive and actually thrive.

"By and large the consumer electronics devices are not two-way capable; they can't do VoD, hard-drive DVRs, program guides; they can't un-encrypt encrypted services so there's a piracy issue, although some of the FCC rules and CableCARD have attempted to deal with the encryption problem. We would be delighted to not have set-top boxes," Britt said.

That's disingenuous. While set-tops are a hassle and an obstruction, they're also a moneymaker for cable operators who recoup costs by leasing boxes long after they've been paid for--a practice that cable operators disavow with little credibility. Set-tops are also an assurance that a cable operator--or telco, or satellite provider--can differentiate and protect its lineup of services.

"The most exciting products we're working on that allow you to have tremendous functionality right on the TV do have set-top boxes involved with them," said Brian Roberts, chairman-CEO of Comcast. "Some customers will not want that and will want a different model so we're working all across that landscape."

To be fair, set-tops make older TVs work with newer over-the-air digital signals. Comcast alone, Roberts estimated, has analog-to-digital adapters sitting on about 15 million subscriber TVs.

Still, the set-top's reason to exist is to control the services that flow from the cable pipe to the television set. Not that that's necessarily a bad thing. As all those existing analog TVs show, consumer electronics are not evergreen. Once you buy a TV you're stuck with that TV. John Morrow, CiscoIt works fine and the world moves on without it; what was hot and nice when the set was purchased is out-of-date within a year or two.

Television makers have recognized this for years but have still insisted on differentiating their products with features such as dual-tuner picture-in-picture capability that was immediately incompatible with a set-top-based cable play.

"Everybody wants to be at the center of the universe," explained John Morrow, chief of staff of Cisco's service provider video technology group.

Because new TVs are built to take greater advantage of the Internet pipe--and this is reminiscent in more than a few ways with cable-ready TVs--the set-top will have to evolve, Morrow said.

"Instead of being a special purpose device that receives cable programming or satellite programming on one side and then delivering it to a specific television on the other side ... the set-top box will be more of a server in a client-server kind of architecture where you'll have whole-home DVR services, media sharing capabilities, a platform for application development. All of those are very legitimate and likely roles that the set-top box will play," he said.

At the same time, Cisco and its counterparts at Motorola and Pace Americas will need to be careful not to cross the line into the consumer electronics space. The set-top might adopt the aesthetics of a home entertainment device but in the end it is the property of the service provider and a utilitarian piece of hardware designed to accomplish the operator's bidding.

"It's not clear that consumers want to buy set-top boxes," said David Grubb, CTO of the Motorola Home business unit. "There are a lot of advantages to getting the set-top box from whoever your service provider is."

Among those advantages is the so-called evergreen effect. When things change, cable is supposed to be there with new equipment to meet the change and move subscribers to the next level. If that means replacing in-home equipment, purportedly that's what the cable operator does-whether or not that equipment has outlived its natural life.

"The focus in the near term for us and the cable industry is looking at a set-top device that improves the user interface (and) that allows the significant amount of opportunity we have today," said Mike Lovett, president-CEO of Charter Communications.

It's a commitment that some cable operators are loath to make. Tom Rutledge on Web DVRCablevision Systems, in particular, is pushing away from in-home equipment--or at least expensive in-home equipment--as hard as it can without alienating subscribers. Foremost in its push is a move toward a cloud-based network DVR.

"Two hundred thousand customers are using our Web DVR service and 60,000 have downloaded Apple and Android apps in the last several months to do the same thing," Cablevision COO Tom Rutledge said. "All of these applications are improved by our strategy to move the intelligence away from the set-top and onto the network."

That's the thin client versus thick client argument that has revolved around set-tops almost as long as they've had more intelligence than just the ability to change channels. It's an argument that has yet to be resolved.

"It's not an either/or answer. A lot of times it depends on what the operator wants to do; depends on what the operator's legacy network includes and their economic profile for transitioning from a second wave world to a third wave world," said Cisco's Morrow.

In Comcast's case, at least listening to Roberts, it appears that the thick client is winning-for now-because, as he admitted, "as more (network activity) moves into the cloud and different architectures, we have to handle that as well."

It is, concluded Mike Pulli, president of Pace Americas, an ongoing sticky wicket.

"A lot of people talk about the TVs; they talk about over-the-top services; they talk about the Internet. You could take every one of those and dissect it but I don't think TVs can keep up with the way technology moves. The set-top box is around for a long time because it more or less is a utility," he said.

Continue to Part 2 >>