Cable Operators

Eureka!

11/07/2011 12:01 AM Eastern

After years of relying on home-grown innovation, cable operators
are hoping to turn more toward Internet startups to help power new services and
products.

As cable operators evolve toward Internet-protocol video and Web technologies,
they’re eager to draw creative energy from the hundreds of thousands of independent
Web and mobile app developers. By contrast, the universe of cable-focused
startups catering to the industry is more like a few dozen.

“Our platform is very flexible — it can absorb a lot of technologies,” Dick Green,
former president and CEO of CableLabs, said. “You don’t care who developed it as
long as you can take advantage of it.”Cover_Story_Image_11/07

The current crop of startups angling for cable’s business encompasses video processing, video-on-demand,
network infrastructure and advanced advertising (see chart). Elemental Technologies, for example, sells videocompression
software that uses off -the-shelf hardware and has customers that include Comcast, ABC News, Avail-TVN, BTN and National Geographic. BelAir Networks sells outdoor Wi-Fi gear used by Comcast, Time Warner
Cable, Cablevision Systems and others, while iControl Networks counts Comcast as both an investor and a customer
for its home management, automation and security system.

Compared with other sectors, though, cable has historically had trouble attracting investments for technology
startups because it is viewed as a relatively small market. And with operator deployment cycles measured in
years — not months — a small vendor can face time frames of five years or more before it starts generating revenue.

Today, most technology startups funnel their intellectual and financial capital into Internet and mobile
applications — over cable or telecom. “There’s a lot of innovation standing on the sidelines,” Society
of Cable & Telecommunications Engineers president and CEO Mark Dzuban said. “There’s a lot
of folks saying, ‘I’m just afraid to jump in [to the cable technology market] because of the poor potential
for profitability.’ ”

And at the moment, it’s particularly tough sledding for pure-play cable-tech startups, according to industry
executives. That’s partly because operators are reducing their overall capital spending, Jeff Binder, partner
with investment firm Genovation Capital, said. The broader economic downturn has also cramped investment.

“Capex is declining in this space generally,” Binder said. “I don’t think there’s a lot of indication that is going
to change, and that makes the [total addressable market] smaller … There are fewer opportunities.”

Binder was the founder of Broadbus Technologies, a video-on-demand startup Motorola acquired for
$181 million in 2006. “In the old days, you could be a silo in the cable infrastructure,” he said. “Today, you
become more critical as you’re deployed, and therefore the risks go up — so your service and support and
your product road map have to scale.”

Jeff Sherwin, CEO of This Technology LLC, can attest to the time-consuming process of proving out an
idea with cable operators and networks. Sherwin and the team at This Technology, founded in 2006, created
software to manage advanced-advertising inventory, including dynamic ads inserted into videoon-
demand. But they had to spend years participating in CableLabs and SCTE technical working groups
and interop events to gain an understanding of cable’s needs — and to gradually build support among
the MSOs.

“Despite not
hav ing ear ly
and continuous
venture financing,
the industry
still fostered
our growth because
we had
the right ideas
and approach,”
Sherwin said.
“Converting our
ideas into deployable
products
requi red
solid work, laser
focus and risktaking,
on both
ours and our
customers’ part.”

For the largest
MSOs, relying on
a small company is often viewed as an unacceptable gamble. As a result, they’ll
wait for a startup with an interesting technology or application
to go through an acquisition.

For instance, BNI Video — a two-year-old startup developing
Web-oriented video-on-demand software — was acquired
last month by Cisco Systems for $99 million.

BNI Video CEO and founder Conrad Clemson said his
72-person company was at a stage where it simply needed
more resources to meet the needs of large operators.
“I went to my board and showed them my top 10 customers
and said, ‘Boy, I need to scale that up or cut it back to
three,’” he said.

BNI Video already had a leg up in that it had received the
backing of Comcast and Time Warner Cable, as well as Cisco.

Having a cable operator as a strategic investor is an important
factor for fledgling startups, SCTE’s Dzuban said.
Previously, he was vice chairman and executive vice president
of strategic accounts for Cedar Point Communications,
an IP telephony vendor acquired earlier this year by
Genband. Cedar Point’s backers included Comcast, Charter
Communications and Liberty Global.

“That’s key to have a big brother — they’ll help you
identify the market and develop what they think
will be a positive contribution,” Dzuban said.

Comcast’s investment philosophy is primarily to “make
sound financial investments in good innovative ideas that
have identified big, meaty markets and are driven by an
energetic team,” Amy Banse, Comcast Ventures managing
director and head of funds, said.

At the same time, Comcast is looking to foster companies
that can help it grow its own businesses. “The more
you support your portfolio companies, the more you will
be partnering with the innovative thinkers who can help
you,” Banse said. “We feel we’re bringing more than just
dollars to the table … Young companies are looking for
more than just dollars.”

INVENTED HERE

Of course, innovation doesn’t come solely from startups.

Cable operators frequently create innovative new
products, services and technologies on their own. A key
example: The industry’s foundational hybrid fiber-coax
network architecture was developed by the engineering
team at American Television & Communications (ATC),
which was later incorporated into Time Warner Cable.

Video-on-demand, too, was invented by cable operators
in the 1990s (though VOD has taken years to refine).
More recently, MSOs have been at the forefront of launching
apps for smartphones and tablets that can control TV
guides, search listings, and stream live and on-demand TV.

Cable also has given itself a unique advantage in the
form of CableLabs, which has been a catalyst for technology
standardization. Its biggest success, bar none, has been
the DOCSIS cable modem specifications, which encouraged
vendors large and small to confidently deliver a range
of broadband devices for the industry. At one point, almost
100 manufacturers were building cable modems.

And to be sure, established cable-tech suppliers have
introduced technology breakthroughs. Often, though,
these are extensions to existing products, offering enhanced
capabilities like higher densities or more processing
power.

Many of the biggest game-changing ideas come from
outside of the industry. TiVo popularized the digital
video recorder. YouTube sparked the online-video revolution,
before being snapped up by Google. The first
cable modem was developed by a startup, LANcity,
marking the beginning of cable’s multibillion-dollar
broadband business.

“It’s important for the industry to continue to do business
with new, innovative companies that are in the business
to make something great with cable,” Sherwin said.

CableLabs, for one, is trying to build a bridge to
Silicon Valley and bring the sector’s track record of
innovation into the cable fold. Earlier this year it established
an office in San Francisco. It’s a startup initiative,
with fewer than a half dozen staffers, but the move
represents a shift in how cable thinks about technology
development.

By harnessing open-platform developers, said Green,
who currently serves on the boards of operators Liberty
Global and Shaw Communications, “cable becomes part
of a community — but one with a superior network.”

September