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Cutting the Box Open

1/11/2008 7:00 PM Eastern

Brian Roberts, live and in the spotlight, was performing for a few different audiences in his debut at the International Consumer Electronics Show last week.

Comcast's CEO said 2008 is the year the industry will make the “open” interactive-services technology it has been developing for several years a reality.

“The age of the closed, proprietary cable set-top box is behind us — and the era of an open, two-way cable platform is here,” he proclaimed in the first keynote by a cable company chief at the nation's largest gadget fest.

Never mind that the entire cable industry still relies on those so-called closed boxes. Or that the “open” platform he mentioned is still controlled and licensed by CableLabs, or that Comcast had been shooting to get open two-way boxes into the field last year.

The rhetorical flourish was intended to signal that cable has turned over a new leaf and become open-minded about allowing access to its networks by all producers of video, entertainment and digital devices. Or at least it's trying hard to do so.

It's akin to the opening up of the nation's telephone network, controlled until a quarter-century ago by a single entity, AT&T. Comcast, which took over AT&T's cable systems five years ago, is promising current and prospective subscribers an array of new set-tops, TVs, portable video players and other gadgets — along with more high-definition content to feed them.

But the messages, part of the operator's Comcast 3.0 plan to deliver “personalized, portable and fully interactive” services, were also aimed at consumer-electronics vendors, government policymakers and Wall Street.

Cable's zeal for opening up (albeit on its own terms) comes not a moment too soon. On display elsewhere at CES was ample evidence of an even more open and interactive network technology — the Internet — already delivering video programming to TV sets and potentially undercutting cable's own offerings. Microsoft, Panasonic, TiVo, Sling Media, Digeo, Hewlett-Packard and others were demonstrating such Internet-to-TV features at the show.

Roberts' key message on this was that cable operators are actively working with Panasonic and others to deliver new kinds of standardized products that anyone can buy at a local retailer, then simply plug into their coaxial cable at home to receive programming and other interactive services. With some services, like its Fancast entertainment-search portal, that pledge extends to anyone with an Internet connection.

TRU INTERACTIVITY?

In its push, cable rechristened the CableLabs-developed two-way technology specification with a snappy new name that cost it $300,000 or more to develop: “tru2way.”

The moniker, officially enclosed in pointed brackets, replaced what had been referred to as OpenCable Application Platform, or for those fond of acronyms, OCAP.

“The tru2way platform will turn the 'cable market' into a single market — not just the 100 million homes passed by cable in the U.S., but all around the world,” Roberts said. “Tru2way technology opens cable to innovation by applications developers and consumer-electronics companies. This is a totally different business model.”

Moreover, cable is trying to position tru2way as a fait accompli so that the Federal Communications Commission won't force it to adopt a competing proposal from the Consumer Electronics Association (see page 21).

The specification defines Java-based middleware that allows set-top boxes, TVs or other devices to receive two-way cable services, such as video on demand and interactive advertising. Major cable operators, including Comcast, Time Warner Cable, Cox Communications and Cablevision Systems, have pledged to deploy support for the tru2way platform in service areas covering 91 million U.S. homes in 145 markets by the end of 2008.

Comcast plans to initially roll out tru2way starting this summer in select systems, giving some new subscribers set-top boxes provided by Cisco's Scientific Atlanta unit and Panasonic.

As an example of what is in store with tru2way, last week Comcast and Panasonic debuted a mobile digital video recorder and DVD player.

The base of the AnyPlay Portable DVR functions as a regular standard-definition set-top box when set up in the living room. But the top can be pulled out, carried away and unfolded into a video playback machine with an 8.5-inch liquid-crystal display and stereo speakers.

The P-DVR will be available in early 2009, the companies said. At first, it will be available from Comcast for a monthly lease fee.

Panasonic also said it will ship two tru2way plasma HDTVs, with the set-top software built in, in 2008. The 42- and 50-inch models arrive after two years of development. Pricing was not disclosed.

XBOX FACTOR

Then there is the X factor: How will other players use the Internet to provide competing video services, shipped directly to TV screens?

Two days before Roberts took the CES stage, Microsoft executives were touting that company's Xbox 360 video-game console service as a serious alternative to the cable set-top box for VOD delivery.

As part of founder Bill Gates' final keynote address at CES, the software giant said ABC, Disney Channel and Metro-Goldwyn-Mayer will deliver TV shows and movies to the Xbox 360 console through Microsoft's Xbox Live programming service online.

Robbie Bach, president of Microsoft's Entertainment and Devices Division, said all U.S. Xbox Live members will be able to download TV shows and movies from the ABC Television Network, ABC Family, ABC News, Disney Channel and Toon Disney as part of an agreement with The Walt Disney Co.'s Disney-ABC Television Group.

All told, Bach said that Xbox Live members will be able to access “twice as much on-demand content” as offered by any cable or satellite-TV provider. Microsoft said the latest announcements with ABC, Disney and MGM mean 3,500 hours of TV shows and movies now make the Xbox 360 “a premier platform for on-demand” programs.

But then Comcast had a big on-demand announcement of its own: Project Infinity, its strategy to rapidly build out VOD content, on cable and at Fancast.com, which Comcast officially launched last week.

Comcast set a target of providing more than 1,000 HD “choices,” including linear channels and video-on-demand TV shows and movies, by the end of 2008. And it plans to boost its available on-demand movie titles from 1,300 per month today to more than 6,000 per month in 2009, with more than 3,000 of those available in HD. Roberts also noted that future versions of Microsoft software will allow computers that run its MediaCenter applications to act as tru2way machines and pull in cable content.

With the 1,000-HD target, Comcast aims to counter the HD channel-count one-upmanship of its archrivals, the two major satellite providers. DirecTV has more than 80 HD national networks, with plans to hit 100, and last week Dish Network announced it will have 100 HD networks by the end of this year.

In his address, Roberts said, “What satellite says they'll offer … pales by comparison.”

While cable crosses swords with satellite — and telco — video providers, Internet-delivered services like the Xbox 360's expanded on-demand lineup continue to nibble at the edges. They're not stealing cable-TV customers outright, but they are surely at least stealing viewing time.

Startups in this space trying to stir up CES hype included XStreamHD, which is plotting a service to deliver full HD movies at 1080p over satellite links in the fourth quarter, and Vudu, pitching a similar dedicated Internet-connected box for movies.

There's some well-founded skepticism about the survival prospects for such purpose-built 'Net set-tops. So far, none of them have caught on. Even Apple, producer of the category-establishing iPod music player, has failed to win interest for its Apple TV computer-to-TV content transfer device.

CONTENT, NOT DEVICES

Ultimately, when it comes to consumer electronics, content is the kingmaker, said David Henry, director of consumer product marketing for home-networking vendor Netgear.

“Customers don't buy devices. They buy content,” he said. “I don't want to pay $400 to buy a box to download a movie I can go get just as easily get from Blockbuster.”

Plus, people don't want to keep learning how to use new interfaces or have to check several different to interact with their TV viewing, said Jeff Klugman, senior vice president and general manager of TiVo's service provider and advertising engineering division.

“For the foreseeable future, the vast majority of programming into a consumer's home will come from a video provider,” Klugman said.

Some companies, however, continue to believe they can crack the code on delivering entertainment over broadband to TV sets. Netflix, the DVD-by-mail pioneer, earlier this month said it would team with LG Electronics to embed the ability to download movies and TV shows in a device to debut later this year. HP last week announced a summer ship date for its MediaSmart Receiver, a device with a “piano-black finish” that delivers digital content from multiple PCs around the house to any HDTV set.

Panasonic, cable's key partner for tru2way, is in this game as well. Panasonic president Toshihiro Sakamoto said the company would introduce Internet-connected features to its line of Viera TVs, with “VieraCast” initially providing access to YouTube videos and Google's Picasa photo-sharing Web site.

And TiVo has also been working furiously to deliver as much Internet video to TVs as it can.

Last week at CES, the company showed off a new feature of its DVRs that will let users access thousands of hours of Internet video through its “Season Pass” feature, ranging from evening newscasts to content from cable networks such as Comedy Central and Discovery Channel.

“TiVo is building toward the dream of providing one stop for all content, through one box, integrated into one interface, accessible through one simple remote control,” TiVo CEO Tom Rogers said in announcing the feature.

Startup Veoh Networks is chasing a similar goal. Founded in 2004, Veoh started out as a YouTube-like destination for user-generated content and currently has as many as 100,000 contributors. At the end of 2007, it clocked 21 million unique monthly viewers, who watched 30 million hours of video in November.

Now, through distribution deals like the one it struck last week with Viacom's MTV Networks, Veoh is aiming to be a “hyper-aggregator” of Internet video content through partnerships with media companies.

“Our idea is to be like an Internet MSO [multiple-system operator],” Veoh founder Dmitry Shapiro said. The startup has a distribution deal with CBS, and offers access to content on Hulu, the NBC and Fox online video joint venture, though it has no formal deal with Hulu.

Veoh is talking to set-top box vendors and PC manufacturers about bundling the Veoh TV software, which lets viewers use a remote control to browse Internet video and can record some Web video for later playback.

But Shapiro doesn't see an Internet-delivered service on TV as realistically replacing cable's video service. Not right away, anyway.

“I still pay $150 a month to Time Warner [Cable] because I want that programming,” Shapiro said. “But over time, absolutely, consumers will have more choices, as what's online becomes more and more like what's on TV.”

In fact, Time Warner Inc. is an investor in the privately held company, along with former Viacom executives Tom Freston and Jonathan Dolgen, Michael Eisner's Tornante Company, Goldman Sachs, Shelter Capital Partners and Spark Capital.

Still, for all the hoopla over Internet video's dramatic rise, the average user of YouTube — the mother of all Web video-snacking destinations — still watches under an hour of video a month, said Steve Tranter, vice president of interactive and broadband delivery for NDS Group.

“That's less than one episode of Desperate Housewives,” he said.

CONVERGED URGE

And cable operators aren't sitting on the sidelines watching nascent Internet TV services grow into would-be competitors.

Analysts say Comcast and others may be in the best position to seize the opportunity, when it emerges as a business with real money changing hands, for “broadband TV” content.

First, cable is preparing to offer higher-speed Internet services of up to 100 Megabits per second. Yes, they're just “dumb pipes,” but consumers are willing to pay for that service, while they haven't proven very willing to spend a cent on online content per se, said Charter Communications general manager of high-speed Internet Himesh Bhise.

“The good thing for us is, today, it's very clear what consumers value. You probably pay for your broadband connection … but you probably don't subscribe to an online video service,” Bhise said. “I'm happy to be called 'the pipe,' if that's what customers want.”

Roberts told the packed room during his keynote, as he has announced before, that Comcast will deploy “wideband,” a.k.a. Data Over Cable Service Interface Specification 3.0, later this year. “The great news is that we'll have DOCSIS 3.0 rolled out in front of millions of homes in Comcast service areas by the end of this year,” he said. “This will let us deliver speeds of up to 100 megabits per second over the next two years.”

Sanford Bernstein & Co. analyst Craig Moffett, in a research note, said the wideband rollout plan “is a not-so-subtle reminder that Comcast's broadband distribution plant … is very well-positioned not just to keep pace, but indeed to benefit, from the macro-trends that define this year's CES.”

Note, too, that “Comcast 3.0” is co-opting TiVo to offer a DVR service to customers — to give customers another “choice,” in Comcast's positioning. The cable operator last week began offering TiVo service throughout its New England territory, for an upcharge of $2.95 per month.

Fancast.com, meanwhile, is Comcast's foothold into being its own “Internet MSO.”

The site, which Roberts called a “personal entertainment assistant,” is designed to let users find, manage and watch TV shows and movies, whether they're on broadcast channels, VOD, in movie theaters, available on DVD — or coming in through the Internet. Fancast.com, for example, already allows lovers of Meryl Streep movies to rent or buy 1985's Out of Africa and other titles from Amazon's Unbox downloading service, over the Internet.

“Fancast is not just another entertainment Web site,” he said in his keynote. “It's the launching pad for convergence between the PC and the TV … and the next big step toward a truly personalized entertainment experience.”

The site comprises 11 million pages of information, including details on more than 50,000 TV shows, 80,000 movies and 1.2 million people. Fancast also provides 3,000 hours of long-form video, movie trailers, short videos and other content from CBS, NBC and Fox (via their Hulu joint venture), MTV Networks, BET Networks and others.

Over the course of the year, Comcast is planning to add more content, including professional and peer reviews. “There's a real push to amass as much on-demand content as possible,” Comcast Interactive Media president Amy Banse said.

Also in store for 2008 on Fancast: the ability to set DVR settings from the site, for either Comcast or TiVo recorders. “We realize that's something people really want to be able to do with this,” said Banse.

Fancast users need not be Comcast customers and Banse said the company is in discussions with other cable operators about tailoring the site's features for their subscribers, including providing the ability to manage DVR recordings.

Down the road, Comcast expects to migrate video-navigation features from Fancast to the interactive program guide that runs on its cable set-tops. For example, a “Six Degrees” feature of the Web site, which allows users to visually browse through movies and actors who have connections to each other, is to be included in the next generation of Comcast's on-screen guide, set for deployment in the first quarter of 2009.

OPEN COMPETITORS

And where, in this future of “open” boxes, are cable's traditional set-top suppliers?

They're trying to stay in step with the tru2way timeline: Cisco last week introduced a new line of high-powered set-top boxes, the Cisco-branded 8500HDC series, which runs tru2way applications.

The boxes provide 800 million instructions per second (MIPS) of application processing power, compared with 250 MIPS in the current Scientific Atlanta Explorer 8300 line. “We put a lot of horsepower in these devices, to make sure the runway is there for [tru2way] applications operators will want to run on them in the future,” SA vice president of client architecture Ken Morse said.

But in this open world, Motorola and Cisco themselves will face a whole new set of competitors. They are less likely to find customers locked in to buying their set-top equipment.

The competition includes, believe it or not, Charlie Ergen and his new technology company, EchoStar Holding.

Last week, Ergen said that the company is aggressively planning to sell products — from Sling Media-enabled modems to set-tops — to Dish Network's video rivals, namely cable operators and phone companies.

Ergen and Blake Krikorian, co-founder and chairman of Sling Media, both described the efforts of the spinoff company, EchoStar Holding, to seek buyers for its products beyond the Dish direct-broadcast satellite service.

“As a set-top manufacturer, EchoStar will certainly try to build products and sell them to the cable industry,” Ergen said at a CES press conference.

Earlier in the day, EchoStar Holding unit Sling Media had announced the development and CableLabs certification of the first cable modem to fully integrate the place-shifting capabilities pioneered in the original Slingbox. The SlingModem provides a cable customer with a broadband connection and the place-shifting functionality made famous by the Slingbox.

The introduction of the SlingModem signals Sling Media's strategy of being “operator-agnostic,” according to Krikorian. He said Sling Media is working with U.S. and international cable operators, and will deliver its SlingModem to them in 2008.

Noted EchoStar Holding president Mark Jackson: “I hired a whole new sales team to sell set-top boxes to people like DirecTV [and] Comcast throughout the world.”

Comcast, just maybe, could be open to the idea.

Linda Moss and Tom Steinert-Threlkeld contributed to this report.

 

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