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Chill Hits Cable-CE Talks

3/06/2005 7:00 PM Eastern

The seemingly endless talks between the cable industry and consumer-electronics manufacturers have grown colder, an outgrowth of a recent letter in which Microsoft Corp. joined Time Warner Inc. and Comcast Corp. in asking regulators to push back the scheduled July 2006 demise of set-tops “integrated” with conditional-access technology.

The letter to the Federal Communications Commission — signed by Comcast Corp. chairman Brian Roberts, Time Warner Cable chairman Glenn Britt and Microsoft Corp. chief technical officer Craig Mundie — pleaded for time to develop promising new downloadable conditional-access software that could boost the sale of set-top boxes at retail.

TWO-WAY HANGUP

The three executives also promised to jump-start talks to develop separate conditional-access devices that will allow for two-way services, such as video on demand.

But sources said a meeting of participants in the two-way talks held after the letter was filed did not go well, to put it mildly.

Within days, the Consumer Electronics Association had fired off a letter to the commission, saying the FCC should disregard a “Hail Mary” letter from cable and Microsoft for fear of thwarting consumer choice.

“The cable industry should stop playing 'four corners’ with this proceeding and instead apply this same level of creativity to work with the CE industry to develop a two-way agreement and meet their commitments,” CEA president Gary Shapiro said.

The sequence of events comes at a delicate time in the course of the two-way talks. The parties have been engaged in the talks for more than a year, without much apparent progress.

The cable-CE agreement on one-way conditional-access devices — approved by the FCC in late 2003 — has generated more than 27,000 CableCard deployments so far. And some 14 CE companies have had 161 products certified by CableLabs for sale at retail. (Cable believes those numbers show progress, but CE manufacturers criticize the slow pace of deployments.)

The vision 15 months ago was that similar success would result from the two-way talks, seen as the home run that would put set-tops that can handle VOD and advanced services on retail shelves.

But the two-way talks have faced several problems from day one.

More players entered the negotiations, at the FCC’s behest, including satellite-TV providers and content companies, and some meetings have had upwards of 100 participants.

Two-way issues — including those dealing with piracy security and the porting of content between devices — are more complex than those negotiators faced in hammering out the one-way accord.

COMPETING INTERESTS

And the competitive battles among players inside the room — CE maker-versus-CE maker and cable-versus-satellite — add to the complexity.

It’s gotten to the point that over the last several months some players openly discussed a world where cable and CE manufacturers would make unilateral two-way deals, without any overarching agreement.

Samsung Electronics and LG Electronics have already signed two-way licensing deals with Cable Television Laboratories Inc., and Samsung struck an MSO pact with Charter in January.

Some sources believe if cable can sign a few more such deals, the two-way marketplace can develop, even without an inter-industry deal.

Whether that will pass muster at the FCC, which expects an eventual two-way agreement, is unclear.

An added nuance to the Roberts-Britt-Mundie letter was the shared belief “that downloadable, software-based conditional access systems hold great promise to meet the respective needs of cable-system operators, CE manufacturers, IT companies and consumers” is a valid reason for a six- to 18-month delay.

Paul Mitchell, senior director and chief of staff at Microsoft TV, said via e-mail last week that “we are proposing that Microsoft work with Comcast, Time Warner and other industries to develop such a 'soft’ CA system” that would meet the needs of all parties.

“Digital rights management will be incorporated into this scenario,” Mitchell said.

Cable has discussed downloadable conditional-access software for its next generation architecture program, which is in the laps of staff members at CableLabs.

Sources said work on such downloadable software is being addressed both within the general context of the NGNA specifications, and by individual MSOs.

Taking the middle ground of the six- to 18-month delay request — 12 months — would put the implementation of integration at July 2007, about 27 months away. That’s time enough to put such software through lab and field trials.

Roberts and company said they would deliver the a plan to the FCC — including technical specifications and a specific transition schedule — to deploy such a CA system that could be offered by cable, CE or information technology companies.

The letter expressed hopes that such conditional access would allow consumers to migrate content across a variety of devices.

“The companies also expressed an interest in exploring business arrangements and technical support for content provided to consumers through cable that would allow such content to migrate to other devices in the consumer’s environment, including mobile and other devices that are not connected to the cable system directly,” the letter said. “Messrs. Britt and Roberts acknowledged that this may require a different model than that which has historically been associated with traditional cable set-top boxes.”

That model is expected to include greater reliance on set-tops sold at retail.

COMMITTED TO TWO-WAY

The letter also said Britt, Roberts and Mundie were “committed to working together personally to supervise the efforts to reach an agreement amongst cable, CE, IT and other industries to ensure the availability of two-way cable products during calendar 2006.”

Given the CE industry’s 12- to 18-month development pipeline, that would require a two-way deal by third-quarter or early fourth-quarter 2005.

Given CEA’s response last week, such a deadline could be hard to meet.

The “forward momentum” Britt, Roberts and Mundie talked about in the letter seemed to be gone by the next day’s meeting, precipitating Shapiro’s response.

Still, a Comcast spokesman said Roberts intended to follow through on jumpstarting the two-way talks for the benefit of all parties.

 

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