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Is the Set-Top Duopoly on Its Deathbed?

Getting out of the set-top box business appears to be the thing to do these days.

Following word that Cisco Systems Inc. (Nasdaq: CSCO) wants to unload its set-top box unit comes a rumor that Google (Nasdaq: GOOG) is eager to sell off Motorola Mobility LLC 's box business even before the deal is consummated. (See Why Cisco Wants Out of Set-Tops (Or Not).)

If both possibilities end up ringing true, then, ding-dong, the duopoly as we know it is dead. But, it's hard to blame them if they do indeed decide to bug out. The set-top box business isn't what it once was as margins drop and the traditional functions of the set-top box, including security, give way to set-top-free IP-connected TVs and tablets and more elegant software-based security systems that loosen their stranglehold on conditional access.

The set-top box is a dying breed, but the business isn't dead yet, nor will it be for many years. So, in the theoretical absence of the duopoly, what's domestic cable to do? Don't fret too much is a good starting point. Panasonic Corp. (NYSE: PC) may have picked the worst time to exit the U.S. set-top box business, but there is no shortage of folks that are hungry to help cable operators bridge the chasm. Here are some of the leading candidates, plus a few dark horses.

Leading candidates...
  • Pace plc
    It's already the world's largest set-top box maker, and it knows its way around the U.S. market. Plus, it has the scars to show for its past efforts to crack the duopoly when it was still iron-clad. It knows how to make CableCARD boxes for QAM video and it's no slouch around IP video, making it a great match for cable's legacy and future. (See Comcast Confirms Xcalibur Partners.)

  • Samsung Corp.
    Samsung's commitment to lowering margins and making the set-top box business painful for all the other players has paid off at Time Warner Cable Inc. (NYSE: TWC), Bright House Networks and Cablevision Systems Corp. (NYSE: CVC), and it wants in badly at Comcast Corp. (Nasdaq: CMCSA, CMCSK). Samsung wants to be a major player here and has the tools to deliver cable's programming over IP to tablets and TVs. Cable likes Samsung because it keeps costs in check and gives them a bridge to the CE world. (See Samsung Boxes Break In at Cablevision .)

  • TiVo Inc. (Nasdaq: TIVO)
    It's been a painful and sometimes downright ugly process, but TiVo's cable strategy is paying dividends as it sees subscribers rise to new levels thanks to MSO partnerships. Cable's starting to take a real shine to TiVo's UI and over-the-top video capabilities. Also, TiVo gives cable a line into the retail market. (See Comcast Trial Fuses TiVo With VoD.)

  • Arris Group Inc. (Nasdaq: ARRS)
    Arris may be in the best position to make a play for Cisco's or Motorola's businesses if it can get one of them for a song. Cable trusts Arris's engineering prowess and, in the case of the Motorola situation, would rather see those set-top box assets in Arris's hands than Google's. If not, Arris is still making some nice hay with its QAM/IP Moxi gateways with Tier 2/3 operators, and that business is only expected to get bigger.

  • Technicolor (Euronext Paris: TCH; NYSE: TCH)
    It's done well as a source of Digital Terminal Adapter (DTA) devices, and there are rumors that it could become a second source for Comcast's next-gen X1 platform. But Technicolor's U.S. box strategy just hasn't set the cable world on fire. It's got the technical chops, but can it thrive in a low-margin world? (See Comcast IDs Cloud TV Product as 'X1' .)

    And now some dark horses…
  • Apple Inc. (Nasdaq: AAPL)
    We'll know more later today if Apple indeed announces new content partners and a revised strategy for the struggling Apple TV platform. But, the question is, can Apple and cable really play nice?

  • EchoStar Corp. LLC (Nasdaq: SATS)
    If it can get over the Charlie Ergen stigma, EchoStar can offer cable quite a bit of value with its all-encompassing Aria platform. Its Sling-loaded boxes and stand-alone Slingboxes and adapters give MSOs a solid TV Everywhere/place-shifting play that includes an all-important linear video component. (See EchoStar's Cable Target: 1 Million Subs .)

  • Huawei Technologies Co. Ltd.
    Please contain your laughter. Huawei's tried its hand at tru2way and was rumored to be interested in buying Motorola a few years ago. As a Chinese vendor, Huawei's stigma in the U.S. makes EchoStar's look trivial, but if cost-cutting continues to be a key differentiator, Huawei and U.S. cable could finally make a lasting connection. (See Huawei DTAs Break In at Suddenlink and US Gets Worried About Huawei .)

  • Advanced Digital Broadcast (ADB)
    For a fleeting moment, ADB seemed poised to make some noise in the U.S. market with tru2way and a new line of "set-back" boxes that are getting some traction in cable's hotel services market, but it's been less-than-committed to the market in recent months. Perhaps an exit by Moto or Cisco could get them to reinvigorate those efforts. (See ADB Makes More US Cable Cuts.)

    So, U.S. cable appears to have options aplenty if the duopoly dissolves. Who else is on your list of potential challengers or game-changers?

    — Jeff Baumgartner, Site Editor, Light Reading Cable



  • pnni-1 12/5/2012 | 5:39:32 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    VZ has a dual CAS setup.  Yeah, you can only use 1 vendor of stb per CAS, but the network can support both CAS systems.

    Jeff Baumgartner 12/5/2012 | 5:39:59 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    Got a reminder that Entone's also got some skin in the game with its development of CableCARD boxes with IP capabilities that can feed in content from sources like VUDU.  I believe they will be going after the tier 2/3 crowd, but we'll have to keep our eyes peeled for any cable deployments. JB

    Jeff Baumgartner 12/5/2012 | 5:40:00 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    I guess it depends on how you define the set-top box, but I kind of lump gateways in there.  I also don't agree with all the talk that the set-top box is dead, regardless of whether the old duopoly will be controlling the market. STBs, gateways included, aren't going away anytime soon, but the reliance on boxes won't nearly be what it has been tablets, IP connected TVs, etc.    So, if the STB isn't dead, you're right, there are lots of folks that can pick up the slack if the Moto/Cisco duopoly truly breaks.  JB

    craigleddy 12/5/2012 | 5:40:10 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    I think the future of the business isn't in "set-top boxes" but hybrid gateways that combine STB and modem functionality into one device. Then you can hang thin clients and broadband-connected retail devices off of them. Plus you can use them for multi-room DVR and provide cloud-based IPGs and interactive apps on TV. There could be "headless" solutions that achieve a similar end without major box investment.


    Many of your candidates are getting into the gateway game, with ARRIS getting a head start. The trick is to get the cost down and show enough of an upside that cable operators will finally get rid of those legacy digital STBs that hang like a noose around the neck of cable innovation.   


     

    Jeff Baumgartner 12/5/2012 | 5:40:13 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    Yeah, i could see why the notion of TiVo wanting to acquire that biz would make you fall over in a fit of laughter and spit up your milk.  But to be clear here, these are companies that are poised to step in and fill the gap with their *existing* STB business if Moto's STB biz ends up going elsewhere... though some of these folks (Arris and Ericsson to name two) might be in line as potential acquirers. TiVo's definitely not on that list. JB

    msilbey 12/5/2012 | 5:40:13 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    Not fair to tease! Hmm, cable's past...


    On a separate note, the idea of TiVo buying Moto's set-top biz makes me want to giggle uncontrollably. After all the years of rumors that the reverse might happen. And no, I don't think TiVo will actually do any acquiring, but the just the fact that the company is in the editorial debate makes me chuckle.

    Jeff Baumgartner 12/5/2012 | 5:40:13 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    And I'd be surprised if interest in Moto would solely be in its STB biz... there's cable access and servers and all the other parts of their cable business. I could see Google wanting to saw that whole piece off , and we might be surprised to hear who might be game for it... somebody from the cable past. Sorry to tease, but more on that soon. JB

    Jeff Baumgartner 12/5/2012 | 5:40:14 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    Leaving Evolution off the list was a clear oversight.  They are making some nice moves among tier 2/3 with DTAs, hybrid boxes and their connection with TiVo.  Plus, they aren't beholden to the Moto or Cisco CA...so long as you're comfortable with Conax as your option. JB

    AESerm 12/5/2012 | 5:40:14 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    So the sale of an asset signals on seller side things like slimmer margins, lower expectations of growth, bad corporate fit; on the buyer side, an opportunity to strip out costs and/or willingness to live with lower margins, different market outlook and a good corporate fit. Particular technologies (DigiCipher, PowerKEY) play into it, if they impact the growth scenarios/outlook.

    egarn 12/5/2012 | 5:40:14 PM
    re: Is the Set-Top Duopoly on Its Deathbed? Great comment, the death of the duopoly means the death of set tops as video delivery devices. If someone buys them for their conditional access monopoly, they will attempt Tp slow the migration to IP to get a return. Evolution Digital has it right. Don't buy them innovate them into irrelevancy
    cudlink 12/5/2012 | 5:40:15 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    You forgot an up and coming dark horse called Humax.  The SeaBiscuit and Secretariat of the STB world. :)

    AESerm 12/5/2012 | 5:40:15 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    It's not really the potential sale of Moto Mobi's set-top business (or Cisco's SA) to anyone on your excellent list that ends the duopoly. The new owner(s) woud then fill those shoes. It's really the shifting technologies -- IP delivery, new CA technologies -- that opens up what was closed. Or am I missing something?

    Jeff Baumgartner 12/5/2012 | 5:40:16 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    "once you made a decision it was a monopoly" --- so true for so long. JB

    egarn 12/5/2012 | 5:40:18 PM
    re: Is the Set-Top Duopoly on Its Deathbed? A public company will have a tough time with declining top line and margin. Fact is the set top with Moto or Cisco conditional access is unnecessary once linear IP is available. There never was a duopoly, once you made a decision it was a monopoly, never again.
    tmastrangelo0 12/5/2012 | 5:40:19 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    I could definitely see ARRIS at the top of that list and also possibly Samsung - but I am not sure that alot of the others could afford it, let alone manage and integrate it.  Another vendor you left off is Humax

    Jeff Baumgartner 12/5/2012 | 5:40:19 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    Right, good point. Some of these folks would have no business trying to acquire, though many  could help fill the gap with their existing STB businesses. But Humax is a great one to add to the list. JB




     
    Jeff Baumgartner 12/5/2012 | 5:40:19 PM
    re: Is the Set-Top Duopoly on Its Deathbed?

    I should also put Ericsson into the discussion, maybe as a dark horse... They don't have a STB business, but I've been told that they are asking cable msos what they can do to get deeper into their business.  One obvoius way would be to buy Moto's STB biz and maybe the other cable pieces too... might fit well with the encoding products they acquired from Tandberg. And at least one high level cable guy thinks  Moto's cable assets could do well in Ericsson's hands. JB




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