On Wednesday's earnings call, CEO John Chambers positioned Videoscape -- a budding architecture that would blend service providers' regular video with Web-sourced video, apps and content -- as the path to help turn that business around. In classic Cisco parlance, he said the company wants to catch the market transition to a network and cloud approach as opposed to "client-centric architectures." (See CES: Cisco Unveils Master Plan for Video.)
But that doesn't mean Cisco thinks Videoscape will make up for these recent shortfalls, even though set-tops and multimedia gateways fit into the architecture. Instead, it thinks it can make up those dollars as service providers get their networks prepped for Videoscape.
"Selling more set-tops may happen, but it isn't in itself the core objective [of Videoscape]," Enrique Rodriguez, senior VP of Cisco's Service Provider Technology Group, tells Light Reading Cable. "Every time a service provider can spend another dollar in the network instead of spending it on home equipment, they know they'll get much better utilization of that dollar."
Placing more emphasis on the network than on the home may turn out to be smart for Cisco, too, based on the trends hammering its cable box business. In addition to facing more competition than it ever has -- Samsung Electronics Co. Ltd. (Korea: SEC), for example, is cutting into Cisco's set-top business with Cablevision Systems Corp. (NYSE: CVC) and Time Warner Cable Inc. (NYSE: TWC) -- Cisco's also faced with a U.S. digital cable video market that's reaching saturation. The pie is shrinking. (See Samsung Boxes Break In at Cablevision .)
Here's a snapshot of what's going on with three top MSOs that buy boxes from Cisco:
Table 1: Digital Video Subscriber Additions/Reductions
|MSO||Q1 2010||Q2 2010||Q3 2010||Q4 2010|
|Time Warner Cable||+102,000||+50,000||-46,000||+6,000|
|Source: The companies.|
*Comcast and Cablevision reports fourth quarter results on Feb. 16, 2011.
On top of that, in a TV Everywhere world, MSOs will become much less dependent on set-tops and more focused on content distribution networks (CDNs). Services will be piped to tablets, smartphones and connected TVs that rely on client applications, digital rights management and adaptive bit rate streaming -- and don't need set-tops.
But, don't kid yourself. Boxes will still play an important role.
"The gateway becomes a very, very critical aspect of just about every [Videoscape] deployment," Rodriguez says, noting that a lot of video consumption will remain in the home. In those scenarios, the gateway will take the incoming video on a traditional QAM channel and convert it into unicast traffic that can be delivered over the home network. To an iPad, for example, it looks like an HTTP stream but doesn't require the cable operator to deliver an additional unicast stream.
Set-tops aren't going away completely, either. They'll still be needed for TVs and other devices that can't support MSO video services by simply embedding the Videoscape client and feeding it through an IP connection. "A set-top box ends up being a way to make a dumb screen slightly smarter so that it can connect to the network," Rodriguez says.
Videoscape's 'sweet spot'
Even if Videoscape does end up boosting Cisco's cable video business, it won't happen overnight, since the company doesn't expect U.S. trials to begin until early next year. The "sweet spot" for deployments should come in 2013, Rodriguez says. (See Cisco: We've Got AllVid AllCovered.)
Still, the transition will begin before 2013. Cisco already has two pieces of Videoscape ready to go -- MediaSuite (the management component) and the soft clients.
Operators are just starting to deploy or at least evaluate the CDN piece, and Cisco is still working on Conductor, the command-and-control element that handles things like device management, service entitlement and other functions that fit into the service provider's billing infrastructure.
More Videoscape components will be announced in 2012, Rodriguez says.
For now, some analysts don't necessarily view Cisco's flagging cable box business as a canary in the coal mine, so the company may get the time it needs for Videoscape to take hold and become a material contributor.
"It [cable set-tops] is a small part of their overall business," Avian Securities LLC analyst Catharine Trebnick says. "They have bigger issues." (See Consumers Clobber Cisco and Cisco Offers Softer Switch, Router Sales.)
— Jeff Baumgartner, Site Editor, Light Reading Cable