Analysis: Whither The Set-Top Box?

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Michael Arden, principal analyst of residential entertainment technologies at ABI Research, says there are three possible futures for the set-top box.

One vision is that as manufacturers add more and more features to the boxes, they will eventually become the primary gateway for the home and will be both the main receiver of Internet, phone and cable services for the home and the key point of distribution of content throughout the home. Another vision is that as telcos and cable companies increasingly target the home market, they will install independent broadband gateways to be the main point of entry in each home. As the gateways become more advanced they may also become the home's main server and stream content to other connected devices. In this scenario, the set-top box will become less intelligent, eventually becoming a simple tool that just receives content from the main gateway.

The third possibility is that manufacturers will include set-top box capabilities directly in TVs and media-focused computers. If the TV can receive and decode the content directly, it means one less device is needed for the home.

Arden expects any of these scenarios to take five to ten years to fully come to fruition in the U.S., but some vendors are hoping to speed things along. Later this quarter, LG Electronics expects to start shipping plasma HDTV displays that include built-in DVRs and the ability to receive and decode digital cable signals without an external set-top box.

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In addition, Microsoft's recent announcement that Media Center PCs will soon support CableCards from the industry consortium Cable Television Laboratories will allow the PCs to receive and decode content directly without a set-top box.

In the opposite direction, other players are predicting increasingly important roles for set-top boxes. As the telcos and cable companies step up their focus on the connected home and IPTV markets, set-top boxes play vital roles in their plans.

Verizon Communications is testing a fiber-to-the-premises network in parts of Texas, Virginia and Florida in which it is using Motorola's QIP line of set-top boxes in homes. AT&T also recently began offering IPTV service in a controlled launch in several hundred homes near its San Antonio, Texas headquarters. It is planning a wider rollout in several cities later this year, in which content will come to the home via next-generation DSL lines. In the homes, the content will be received by residential gateways from 2Wire and streamed via MoCA or HPNA technology to set-top boxes from both Motorola and Scientific-Atlanta, says Jeff Weber, AT&T's vice president of product and strategy.

Weber says AT&T sees a world in which set-top boxes remain separate from displays, and broadband gateways and set-top boxes play complementary roles. He notes that DVRs and set-top boxes usually have much shorter lifespans than televisions, and including them inside the television would require consumers to replace their expensive displays every few years when the box and/or DVR becomes outdated or breaks.

Also, Weber says since set-top boxes are customized for a particular cable provider, consumers would either have to be locked into the provider for the life of the TV, or manufacturers would have to install a variety of different boxes as standard features in their displays, which would significantly inflate the price.

Not surprisingly, Weber's thoughts are supported by the top two providers of set-top boxes, Motorola and Cisco Systems' Scientific-Atlanta group.

"The reason set top [boxes] evolved in the first place is to allow the operator to make technology improvements in the network and not require consumers to throw away the TV every time. By putting it back into the TV, you don't have a modular way to upgrade your infrastructure, so I think a separate set top will be necessity for some time to come," says Nick Chakalos, senior director of product management in Schaumburg, Ill.-based Motorola's Connected Home Solutions division. "A TV with a built-in decode capability will suit some part of population. But a separate set-top box gives you higher capability for applications and services and higher revenue potential."

It's the last angle which has the most importance for integrators. Installing separate set-top boxes throughout a home allows integrators to offer a variety of revenue-rich add-on services. For example, this week saw the official rollout of the MovieBeam video-on-demand service. Backed by Walt Disney, Intel, Cisco and others, the service allows consumers to download standard or HD videos from the Internet, which are then stored on a custom set-top box from Cisco.

With video on demand in high demand, integrators can step into the market and get a piece of the action by being the ones installing and setting up the boxes and service. Such services could help the set-top box continue to reign supreme.