Thinking Inside the Box
The cable industry has never been known for courting consumers with innovative set-top boxes and other TV gear. In an effort to control costs, cable operators have traditionally stripped down their set-tops to the bare minimum of processing power and functionality. Subscribers sometimes complained, but to limited effect.
Then came the rise of streaming video.
As new over-the-top (OTT) video services have emerged and flourished, companies such as Roku Inc. and Apple Inc. (Nasdaq: AAPL) have started to make set-tops look sexy. The road that TiVo Inc. (Nasdaq: TIVO) painfully paved in the TV retail market is now a wide highway full of streaming devices that get reviewed on gadget blogs, tested by early adopters, and -- in the case of Google (Nasdaq: GOOG)'s Chromecast -- even swept up by the masses eager for a new TV toy. (See Chromecast & the Battle for the Living Room.)
Cable companies have taken note, and now operators are actively exploring ways to partner with big consumer electronics makers and other retail hardware manufacturers to keep video customers from fleeing to new service alternatives. The initial approach has been a cautious one, but the rate of experimentation is accelerating.
In conversations with several hardware companies, Light Reading Cable has learned that retail box makers expect new deals with operators to go public in the very near future. Some partnership announcements are on the schedule for this year. Others are planned for 2014.
Cable operators know there's a TV set-top revolution in the works, and they don't want to be left behind. It's time to form new alliances.
Convergence leads to collaboration
The success of the iPad kicked off cable's love affair with second-screen devices, but it also opened the door to new innovation around the first screen. After Comcast Corp. (Nasdaq: CMCSA, CMCSK) launched its iPad app to much fanfare in 2010, it wasn't long before both Comcast and Verizon Communications Inc. (NYSE: VZ) began collaborating with complink 3426|Microsoft Corp.} to bring cable services to TVs via the Xbox. Then came cable deals with smart-TV manufacturers, and even a Time Warner Cable Inc. (NYSE: TWC) app for the Roku Inc. media streaming box.
Gilles BianRosa, CEO of Fanhattan, a company which launched its own streaming hardware in May, and briefly ran a small service pilot with Cox Communications Inc. , thinks we're at an inflection point. "If you look at… cable video subscribers… there's a trend in that those numbers of subscribers have been going down over the last six to seven years," he says. "[And] even two years ago, you started to see pay-TV operators, MSOs... exploring the idea of delivering their services on other people's devices."
Connect those two trends, says BianRosa, and you've hit the right time in history for retail hardware companies to make an impact on the pay-TV market.
Only two retail set-top brands have truly broken through with mainstream consumers so far. According to Parks Associates , Roku is tops in consumer usage, with 37 percent of surveyed households saying the Roku box is their primary media streamer. The Apple TV box came in second in the Parks survey with a positive response rate of 24 percent. No other brand registered anywhere close. (See Roku Tops Apple TV.)
Apple has been notoriously secretive about its plans for pairing the small Apple TV set-top with a subscription video service. However, there are reports that the company is in talks to bring Time Warner Cable's app to its retail box. Separately, Apple is also said to be discussing a possible new premium service that would allow consumers to skip commercials automatically while compensating content owners for the lost advertising revenue. (See Is Apple TV the New Cable Channel? and Google, Apple Pitch Pay-TV Services.)
There is no official word on either reported Apple strategy. Nor are there any details on timing or pricing.
Roku, meanwhile, has taken a different approach with its TV ambitions. After years of building up a consumer base, Roku has become valuable enough as a platform to attract the attentions of multiple content and service providers eager to have their video distributed as widely as possible. In addition to services from such major OTT players as Netflix Inc. (Nasdaq: NFLX), Amazon.com Inc. (Nasdaq: AMZN), Hulu LLC , and VUDU Inc. that have made a living on the Web for years, the Roku box is now home to apps from Home Box Office Inc. (HBO) , Verizon, Fox Broadcasting Co. , and Time Warner Cable, among many others.
Despite recent progress, however, many service providers are still trying to figure out what to make of Roku. Some, particularly on the telecom side, have used the product to push their broadband services. Others, like Time Warner Cable, are looking at using the box specifically as a video distribution endpoint.
Roku Senior Vice President Jim Funk says part of the problem is that MSOs struggle with how to categorize the device. "There's still a question about, is the Roku box a box provided by a cable company, or is it a consumer product that you purchase?" he says. "And this is where cable companies struggle a little bit. They're so used to having control of the experience, owning both ends of it, that they're okay with putting their experience… on a phone or a tablet, but as soon as something gets connected to a TV, I think they're just trying to get their arms around it."
However, Funk also believes that consumers will see more live and on-demand TV available on the Roku box in the near future. "We'll see some trials and more tests coming up later this year and then I think you'll see it really start to be a regular pattern of companies rolling things out next year," he says. "We've been doing a lot of seminars and a lot of pilots and things like that… You'll see some from us this year, but I think next year, given what I know is in the pipeline, you'll start to feel like that's starting to happen."
And then there's Fanhattan. The company surprised nearly everyone when it launched its set-top earlier this year, and then announced a deal with Cox to combine the Fan TV hardware with a broadband-only TV service. (See Cox Flirts With Fanhattan.)
BianRosa says that Fanhattan is not trying to compete with operators or with existing set-top vendors. Instead, he says, it wants to offer a new experience that brings more value to the TV service cable companies already sell. "We're not part of the ecosystem of the pay-TV industry," he notes. "We come from outside it."
Fanhattan's trial with Cox ended shortly after it began. But the company noted that even that brief test was still valuable, saying that it "collected excellent customer feedback and usage data to inform our broader deployment of Fan TV." (See Cox's IPTV Trial Flames Out.)
And Fanhattan is working on broader deployment. When asked if there would be more partnership announcements with pay-TV providers this year, BianRosa responds: "That's the plan."
Next page: Software doesn't solve everything