The set-top box may find living rooms increasingly crowded with other video-delivery devices, but as next week’s annual industry confab the Cable Show will make clear, it’s not going away anytime soon.
As challengers like Apple TV, Microsoft’s Xbox One and Roku try to use their hardware platforms to capture more video viewing, the industry risks losing ground if pay TV is just another tile in an app store vying for attention.
But far from making the cable box obsolete, the explosion of Internet video sources has made operators’ video hardware in the home more critical than ever to the long-term viability of their TV services. Cable companies are racing to make their set-tops smarter, more personalized and Internet-friendly.
For Cox Communications, the set-top is evolving into a gateway, which acts as a hub to serve TV and other content to multiple devices in the home. That also becomes “a key enabler for bringing in other video sources, which can obviously include Web-delivered content sources,” said Steve Necessary, Cox’s VP of product development and management.
Cox, for example, late last year added individual personalized TV recommendations to its Trio guide and gateway device. Comcast’s Xfinity X1 next-generation service, based on the cable industry’s set-top operating system software, also is stocked with bells and whistles like advanced search, recommendations, and access to apps like Facebook and Pandora — features more easily handled by a powerful piece of hardware in a subscriber’s home.
Last week, Comcast added voice search to its X1 Remote app, to let users speak commands (like, “Show me all action movies on HBO”) and pull up the results on their TV.
Moreover, with expanded features available in newer set-tops and gateways, operators can charge more. Comcast’s monthly lease fee for the X1 multiroom DVR gateway, for example, is $19.95 compared with as little as $2 monthly for a bare-bones digital set-top.
While operators complain about the capital expenditure associated with settops, the physical hardware makes it less convenient for subscribers to churn. Plus, MSOs generate ongoing lease fees from hardware, which drop to the bottom line after the boxes are fully amortized in about three years.
MSOs counter that they’re not in the set-top business to make money. “It’s a little bit naïve to focus only on one aspect without understanding that it fits in the overall context,” Cox’s Necessary said.
Cable can’t shift to adopt the Netflix model of “boxless” distribution, largely because MSOs’ massive video-delivery infrastructure is designed to reach traditional MPEG-decoding devices. But that also gives operators the opportunity to lard their more powerful set-tops with new features, aimed at persuading customers their monthly cable bill is still a good value.
At the same time, cable companies look at the set-top as a necessary evil — one that eats up a lot of capital costs and mandates ongoing investment. “We often have a love-hate relationship with set-tops,” said Necessary. Ultimately, though, “it’s expedient for the industry and consumers to have a set-top box at their disposal.”
Incumbent service providers will need to open up their video services to third-party developers to stay relevant, said Ian Blaine, CEO of thePlatform, the independent Comcast subsidiary that provides online-video publishing tools.
“There’s pressure to innovate because of the innovation happening on other screens,” he said. “The real trick is exposing the consumer to the value of the vast amount of content they are selling.”
Microsoft’s forthcoming Xbox One, for instance, is engineered to deliver the only menu you’ll need — providing the ability to search and watch live TV from set-top boxes, and showing users what TV shows are popular among friends on Xbox. Tellingly, no pay-TV partners lined up to voice their support of this particular Xbox One feature. A rep for Comcast, which has offered video-on-demand access through Xbox 360, noted that Xfinity VOD and DVR content wouldn’t be available through the new Xbox.