On the surface, the agreement between the consumer electronics industry
and cable multiple service operators (MSOs) will have very little impact on
the roll out of digital television (DTV) in the next few months. But, upon
closer examination, the entire business model governing the television and
cable industries will likely be transformed over the next few years by
Thursday’s landmark agreement, analysts and industry officials remarked.
With the help of the Consumer Electronics Association (CEA) and the
National Cable and Telecommunications Association (NCTA), the seven largest
cable MSOs in the U.S. have agreed with 14 of the world’s largest consumer
electronics giants on a national “plug-and-play” standard that would speed
the transition from analog to digital television throughout North America.
The deal, which some observers say was 12 years in the making, comes
after several failed attempts by federal officials to mandate the two sides
(cable and TV makers) get together to come up with a solution on how to
transition from analog to digital TV.
“It’s a reaction to the political environment in which [FCC Chairman
Michael] Powell said: ‘Come to a solution or I’ll come up with one for
you,'” explained Tom Robey, vice president of investor relations at
Scientific-Atlanta, the Lawrenceville, Ga.-based set-top box manufacturer
that dominates the market for cable boxes along with Motorola.
And while the economics remain uncertain about how exactly the deployment
of digital TV will occur, some winners and losers are already emerging.
“The real impetus [of the agreement] is to build TVs that have cable
readiness. This deal isn’t exactly rosy for Scientific-Atlanta and Motorola because it could result in a
reduction in their shipments of set-top units,” said Richard Doherty,
director of research at Envisioneering.
Economics 101 and History 212
To be sure, Robey dispels the notion that the agreement will have an
adverse material impact on Scientific-Atlanta. “Near-term, this announcement
doesn’t have a lot of effect,” he said. And in all fairness, the numbers are
currently in his favor. With roughly 300 million TV sets in use in the U.S.,
consumers replace sets at an approximate rate of 27 million per year. Of
that total, only 2.5 sets will be digital this year and that figure is
estimated to grow to 4 million next year, CEA projected.
But what yesterday’s landmark agreement does is shift those remaining 25
million or so TV sets away from analog to digital compatibility without the
use of a set-top box. How? The FCC has mandated that equipment makers adopt
Point-of-Deployment (POD) technology that calls for a POD cards (or
so-called “Smart” cards) to take on the functionality of the set-top box.
Cable MSOs, too, had to prove that POD cards worked on their systems. Then,
on any compatible TV, for example, a customer can simply provide their
credit card information to the cable MSO and the POD card would descramble the
cable signal.
However, unlike the current scheme, MSOs would no longer be required to
purchase the PODs from Scientific-Atlanta or Motorola. The POD cards could
ideally be purchased at retail outlets rather than lease to the users by the
cable operators.
Robey tells internetnews.com that these POD cards have been
introduced by Scientific-Atlanta for some time now. To date, they have not
sold a single unit.
“We haven’t gotten an order for any. Part of the problem was the
economics here. Consumers weren’t going to go to a Best Buy” when they could
rent the unit for $4-$5 per month, he said.
Envisioneering’s Doherty, however, said Robey’s comments were
short-sighted. “There are no boxes for the PODs to go into,” he decried
during a telephone interview, refuting the notion that the technology lacked
demand.
The Devil is in the …
While the DTV pact is not a ringing endorsement for the set-top industry,
even Doherty concedes that it’s certainly not a nail in the coffin either. In
fact, there’s nothing stopping Scientific-Atlanta and Motorola from making
more money on higher margin POD modules compared to thin-margin set-top
boxes sold only to a limited number of operators. The only thing that is
certain is their set-top box business will change.
“They may make more money on POD modules. But it will certainly change
the mix of set-top boxes that they’ve shipped over the years,” he said.
Robey welcomed the change.
“What this announcement does is potentially open up a new segment of the
market and that’s a market to which we can sell PODs,” the
Scientific-Atlanta official said. “Longer term, it’s positive in that it
will stimulate digital TV.”
In her statement, FCC Commissioner Kathleen Q. Abernathy explained there
are “issues for the FCC to resolve before this agreement can be
implemented.”
Whether consumers win out or lose remains to be seen. Therein lies the
real problem. No one knows if POD technology will be sold at retail,
incorporated into the TV box or absorbed by the cable MSO only to be passed
along to the consumer.
“That has not been determined,” Doherty said. He admits, however, that
for the new technology to take hold, consumers will likely need incentives
much like how the cell phone industry helps customers by subsidizing the
cost of new phones.
For that matter, it’s not even certain that POD technology will be in the
form of a card. The versatility of a plug-and-play technology is that it can
go into a personal/digital video recorder (like TiVo) or even a PC as well
as a TV. That is why companies like ATI Technologies could win big.
While ATI currently makes two-chip solutions for TV manufacturers to incorporate into the set production, the company (well-known for its graphics PC cards) can just
as easily create PC cards that would bridge the cable feed to the TV set, Doherty
explained. And although you won’t likely see such devices at CEA’s annual
Consumer Electronics Show confab next month in Las Vegas, you might down the
road.
“A year from now, PC tuner cards will be part of the mix” along with POD
cards, integrated digital TVs and traditional set-top boxes, he said.
Meanwhile, the biggest winner appears to be the FCC. The entire reason
the FCC wanted the TV industry to shift toward digital signals was to free
up valuable space in the electromagnetic spectrum. Broadcasters have a 2006
deadline for over-the-air television to be broadcast in digital form.
On the surface, the agreement between the consumer electronics industry
and cable multiple service operators (MSOs) will have very little impact on
the roll out of digital television (DTV) in the next few months. But, upon
closer examination, the entire business model governing the television and
cable industries will likely be transformed over the next few years by
Thursday’s landmark agreement, analysts and industry officials remarked.
With the help of the Consumer Electronics Association (CEA) and the
National Cable and Telecommunications Association (NCTA), the seven largest
cable MSOs in the U.S. have agreed with 14 of the world’s largest consumer
electronics giants on a national “plug-and-play” standard that would speed
the transition from analog to digital television throughout North America.
The deal, which some observers say was 12 years in the making, comes
after several failed attempts by federal officials to mandate the two sides
(cable and TV makers) get together to come up with a solution on how to
transition from analog to digital TV.
“It’s a reaction to the political environment in which [FCC Chairman
Michael] Powell said: ‘Come to a solution or I’ll come up with one for
you,'” explained Tom Robey, vice president of investor relations at
Scientific-Atlanta, the Lawrenceville, Ga.-based set-top box manufacturer
that dominates the market for cable boxes along with Motorola.
And while the economics remain uncertain about how exactly the deployment
of digital TV will occur, some winners and losers are already emerging.
“The real impetus [of the agreement] is to build TVs that have cable
readiness. This deal isn’t exactly rosy for Scientific-Atlanta and Motorola because it could result in a
reduction in their shipments of set-top units,” said Richard Doherty,
director of research at Envisioneering.
Economics 101 and History 212
To be sure, Robey dispels the notion that the agreement will have an
adverse material impact on Scientific-Atlanta. “Near-term, this announcement
doesn’t have a lot of effect,” he said. And in all fairness, the numbers are
currently in his favor. With roughly 300 million TV sets in use in the U.S.,
consumers replace sets at an approximate rate of 27 million per year. Of
that total, only 2.5 sets will be digital this year and that figure is
estimated to grow to 4 million next year, CEA projected.
But what yesterday’s landmark agreement does is shift those remaining 25
million or so TV sets away from analog to digital compatibility without the
use of a set-top box. How? The FCC has mandated that equipment makers adopt
Point-of-Deployment (POD) technology that calls for a POD cards (or
so-called “Smart” cards) to take on the functionality of the set-top box.
Cable MSOs, too, had to prove that POD cards worked on their systems. Then,
on any compatible TV, for example, a customer can simply provide their
credit card information to the cable MSO and the POD card would descramble the
cable signal.
However, unlike the current scheme, MSOs would no longer be required to
purchase the PODs from Scientific-Atlanta or Motorola. The POD cards could
ideally be purchased at retail outlets rather than lease to the users by the
cable operators.
Robey tells internetnews.com that these POD cards have been
introduced by Scientific-Atlanta for some time now. To date, they have not
sold a single unit.
“We haven’t gotten an order for any. Part of the problem was the
economics here. Consumers weren’t going to go to a Best Buy” when they could
rent the unit for $4-$5 per month, he said.
Envisioneering’s Doherty, however, said Robey’s comments were
short-sighted. “There are no boxes for the PODs to go into,” he decried
during a telephone interview, refuting the notion that the technology lacked
demand.
The Devil is in the …
While the DTV pact is not a ringing endorsement for the set-top industry,
even Doherty concedes that it’s certainly not a nail in the coffin either. In
fact, there’s nothing stopping Scientific-Atlanta and Motorola from making
more money on higher margin POD modules compared to thin-margin set-top
boxes sold only to a limited number of operators. The only thing that is
certain is their set-top box business will change.
“They may make more money on POD modules. But it will certainly change
the mix of set-top boxes that they’ve shipped over the years,” he said.
Robey welcomed the change.
“What this announcement does is potentially open up a new segment of the
market and that’s a market to which we can sell PODs,” the
Scientific-Atlanta official said. “Longer term, it’s positive in that it
will stimulate digital TV.”
In her statement, FCC Commissioner Kathleen Q. Abernathy explained there
are “issues for the FCC to resolve before this agreement can be
implemented.”
Whether consumers win out or lose remains to be seen. Therein lies the
real problem. No one knows if POD technology will be sold at retail,
incorporated into the TV box or absorbed by the cable MSO only to be passed
along to the consumer.
“That has not been determined,” Doherty said. He admits, however, that
for the new technology to take hold, consumers will likely need incentives
much like how the cell phone industry helps customers by subsidizing the
cost of new phones.
For that matter, it’s not even certain that POD technology will be in the
form of a card. The versatility of a plug-and-play technology is that it can
go into a personal/digital video recorder (like TiVo) or even a PC as well
as a TV. That is why companies like ATI Technologies could win big.
While ATI currently makes two-chip solutions for TV manufacturers to incorporate into the set pr
