Cover Story: Set-Tops Break Free4/26/2009 2:00 AM Eastern
The cable set-top box is finally breaking free.
Most U.S. cable systems have been locked into using set-tops and headend equipment from what is inevitably referred to as “The Duopoly”: Motorola and Scientific Atlanta (now part of Cisco Systems).
Today, cable’s technology-equipment duopoly is getting a run for its money — in large part, because of government regulations the industry has resisted for years.
Those two dominant suppliers used their proprietary security and video-delivery technologies to maintain their market positions. The vendor-specific nature of digital cable systems continues today, and it’s expensive for alternate suppliers to develop and maintain products that interoperate with Cisco and Motorola gear.
But the key to the box’s freedom was the new Tru2way standard for interactive-TV services released by CableLabs, which is like an operating system that can run on any modern set-top hardware. And its origins can be traced to the Telecommunications Act of 1996, which included a fiat requiring cable to make services accessible to retail consumer-electronics devices.
In theory, any set-top box that conforms to Tru2way should be able to run program guides and related applications also written to the spec. Tru2way “certainly has the potential to break the duopoly,” said Mike Paxton, a principal analyst with In-Stat, a technology research firm (which, like Multichannel News, is owned by Reed Business Information). Both Cisco and Motorola are valuable, even indispensable, partners to the operators. But MSOs have been eager to diversify their equipment providers to spur more competition and lower costs.
Analysts predict that increasingly more of cable operators’ budgets for set-tops and DVRs — typically the biggest chunk of their regular capital spending — will be spread across multiple bidders. And a Who’s Who of new entrants, including Thomson, Pace, Samsung Electronics, Panasonic, Advanced Digital Broadcast and EchoStar Technologies, is hoping to grab a piece of the action.
“There is a greater set of potential competitors out there and that encourages competition, bluntly, on the pricing,” said Cox Communications vice president of video product development and support Steve Necessary. “We used to be able to pick from a choice of one, in a given system. Now there’s a choice three, four or five.”
Cox is gearing up to launch a Tru2way-based interactive program guide and other applications later this summer. The operator has not yet purchased boxes from alternate set-top providers, but the MSO is considering it, Necessary said.
“Clearly, we’ve never liked the fact that the platforms have been proprietary,” he said.
Cisco and Motorola can tune out the chatter from small competitors for the moment. Even once-competing set-top manufacturers get in the door, the headends that are based on Cisco and Motorola platforms won’t be dislodged anytime soon.
“The security issue is still a stronghold for the duopoly,” said Jesper Knutsson, vice president and general manager of sales for NDS Americas, which sells an array of software to pay TV operators. Tru2way “doesn’t solve the fundamental issue of CA [conditional access] and headend infrastructure.”
Moving to a new security infrastructure is potentially cost-prohibitive, as that would involve basically swapping out every set-top box in the field.
“It’s a very complex thing to contemplate for an operator,” Knutsson said.
In-Stat’s Paxton added that while Tru2Way “has caught the imagination of a lot of other set-top manufacturers and device makers, in terms of raw unit shipments, it hasn’t made too big of a dent … It’s still overwhelmingly Cisco and Moto.”
Tru2way is the consumer brand name of the OpenCable Application Platform, or OCAP, which has existed in one form or another since at least 1997. (CableLabs announced the snappier moniker in January 2008.) Primarily, the industry heretofore has used Tru2way as a peace offering to consumer-electronics manufacturers, which had been pushing the Federal Communications Commission to force cable to adopt its own specifications for accessing interactive services. Under federal law, MSOs must make their programming available to CE devices sold at retail.
For years, major consumer-electronics manufacturers — including Sony, Panasonic and Samsung — have envisioned tapping a rich market for selling cable-enabled TVs, DVRs and other devices. They had U.S. policymakers on their side, persuaded by the idea that cable customers shouldn’t be forced to lease a set-top from their local operator to receive TV programming. So far, however, consumers haven’t shown tremendous demand for these TVs at retail.
The first incarnation of a resolution was CableCard, a device that handles the security functions of authenticating cable customers and descrambling cable TV content. The FCC as of July 1, 2007, has required most operators to use CableCards in their own leased set-tops — a rule the cable industry fought as a needless waste of money. The cable industry has pointed out that it already supported third-party CableCard devices; for example, consumers have been able to buy TiVo DVRs and plug in cable company-supplied CableCards to get their standard cable lineup. But to date, CableCard-based retail devices have proven to be very unpopular in the market.
In any case, the mandate that MSOs use CableCards in their own set-tops was sort of a blessing in disguise, according to Cox’s Necessary: “Although [the CableCard mandate] clearly has cost the industry money and there are aspects of it we don’t like about it … it did in fact enable alternative devices to gain access to the conditional access of Cisco and Motorola.”
But CE makers wanted their TVs and DVRs to be able to access VOD, switched video channels and other two-way cable services, which CableCard alone did not enable. So, the six biggest MSOs agreed to support Tru2way across all their systems by July 2009. (Charter Communications is allowed to have until mid-2010.)
Today, with CableCards widely deployed and Tru2way on its way to ubiquity, major operators including Comcast and Time Warner Cable are already using equipment from vendors other than Cisco and Motorola.
For example, Time Warner Cable, which buys about 2 million set-tops each year, deployed 300,000 Samsung Tru2way-based boxes through the end of 2008, according to executive vice president of technology policy and product management Kevin Leddy. The operator has ported its Mystro Digital Navigator guide to Tru2way, a version it calls OCAP Digital Navigator (ODN).
“We’re able to bring Samsung set-tops into our mix a lot more easily with Tru2way,” said Leddy, speaking on a panel discussion at January’s Consumer Electronics Show.
Other MSOs are also actively looking at sourcing set-tops from multiple vendors. For Suddenlink Communications vice president of advanced technology Gregg Grigaitis, it’s a question of when, not if. “It’s absolutely the case that Tru2way provides an opportunity for other set-top box vendors to get into the mix,” he said. “We’re generally ambivalent about who supplies the box.”
But Tru2way isn’t standardized to the point at which a cable operator could take a box off the shelf without any reconfiguration, Grigaitis added. “You still have to do that testing and integration with OCAP. It’s still a lot easier to throw an SA [Scientific Atlanta] box in an SA environment, and a Mot [Motorola] box in a Mot environment.”
Cisco and Motorola are treating it as an opportunity to take share from each other. “Net-net we see Tru2way as more friend than foe,” said John Morrow, vice president of strategy and business development for Cisco’s Service Provider Video Technology Group. “We see an opportunity to address markets that have heretofore been unavailable to us” — meaning Motorola systems.
Tru2way has also given Cisco the opportunity to work more closely with cable customers to work through the kinks with the technology, he added.
Motorola vice president of product management for digital video set-tops Larry Robinson believes Tru2way provides a more standardized platform to rapidly deploy advanced applications and services, like multiroom DVR and blending Internet content on the TV.
“Certainly, the market landscape will change because of Tru2way,” Robinson said. “But there’s an overall benefit because this enables new innovation, which is a net benefit for whole market growth, and it does open up new opportunities for us.”
Panasonic, which is supplying Tru2way-based set-top boxes to Comcast, sees the technology accelerating the pace of innovation in the cable industry. “The one thing we believe the MSOs can take advantage of is that what the CE industry makes for retail shelves changes every year,” said Panasonic vice president of strategic alliances Jeffrey Cove. “And we can’t compete unless it’s something new and fresh. The speed of innovation within the cable companies has not been like this.”
Four years ago, Switzerland-based Advanced Digital Broadcast saw an “inflection point” with CableCard and OCAP that provided an opening to enter the North American market, said Tim Schermerhorn, senior vice president and general manager of ADB’s cable business unit in the U.S.
“We’re not beholden to a legacy installed base,” he said. “We come at it from the perspective, 'What can we do that’s new?’ … I think it will make the duopoly sharpen their game.”
SNL Kagan analyst Ian Olgeirson said that before the advent of Tru2way, not many vendors found it an enticing proposition to develop set-top products compatible with the systems from the duopoly. “There just aren’t that many companies out there wiling to spend a couple of years to develop a device specifically for the cable industry,” he said.
Pace was one of the few that did. The United Kingdom-based company spent several years and millions of dollars creating Motorola- and Cisco-compatible set-tops.
Now, because it has sunk that investment in developing “native” boxes, Pace doesn’t see Tru2way as much of a business driver.
“From our perspective, no matter how the industry goes, we’re indifferent to it,” said Mike Pulli, president of Pace America, whose customers include Comcast, Mediacom Communications and Suddenlink.
For newer entrants, though, Tru2way should cut down on the time and money necessary to deliver a cable-ready product.
Comcast, for example, has spent at least $39.3 million to bring the TiVo application to Motorola and Cisco boxes. From January 2006 through October 2008, TiVo recognized that amount in technology revenues from Comcast associated with the project, according to the DVR company’s regulatory filings.
TiVo now has a base of middleware that has been developed for multiple hardware platforms to ensure the “environment is robust,” said Jeff Klugman, senior vice president and general manager of TiVo’s service provider and advertising engineering division.
Once Tru2way becomes standardized to the point where apps written to the specification truly will be portable — to run on, say, Panasonic’s Tru2way TVs as well as Motorola or ADB boxes without any changes — then MSOs will see the benefit of being able to rapidly introduce new features, said Cox’s Necessary. This compares to the duopoly’s Balkanized platforms, which require operators to at least duplicate efforts — or perform even more work to bring applications to older set-tops with limited capability.
Tru2way doesn’t remove all the hurdles to developing an application and deploying it across the entire footprint. “But boy, compared with the legacy environments,” Necessary said, “it gets us there a whole lot faster.”
By the Numbers
A statistical snapshot of the set-top industry:
|SOURCES: SNL Kagan, NCTA, InStat|
|$2.8 billion spent on cable set-tops in the U.S. in 2008.|
|69 million leased set-tops deployed in U.S. at end of 2008.|
|40.4 million digital cable households in U.S. at end of 2008.|
|420,000 CableCards for retail devices deployed by 10 largest MSOs as of March 2009.|
|12.4 million CableCards in operator-supplied boxes deployed as of March 2009.|