by Katherine M. (Miller) Kleinman
April 24, 2001
How they work.
Background.
Who is promoting them?
The problems they solve.
Interconnection with other media.
Economic constraints.
Regulatory constraints.
Short-term/Long-term viability.
Applications.
Conclusion.
Bibliography.
Set-top boxes, which sit on top of a television, are basically convergence devices. Depending on the type of box, they can connect to the Internet, record, pause, and rewind broadcasts, or provide multi-channel viewing. "You hook up a set-top box to your television, plug the modem wire into a phone jack, pay a monthly Internet access fee, then sit back with your remote and wireless keyboard and enjoy the mediocrity of both worlds."1 While the service may be mediocre to some, the quality of features provided by the boxes is improving daily.
How they work.
There is currently no standard between set-top boxes, but most operate in a general form. Information is sent to the set-top box, based on the transport mechanism that delivers the data to the box. That information is broken into packetized elementary streams (PES).2 The PES are then sent to a decoder, which breaks up the information to be stored in the proper program map table (PMT). From the decoder the video passes through a graphics controller that is called a multimedia compositor. Here, menus, program guides, and other services are laid over the decoded video.3
Background.
In March of 2001, about 16 percent of all cable homes subscribed to digital packages as well as analog.4 Some set-top boxes are like full-fledged operating systems, such as those created by Microsoft, Sun, and PowerTV, while others such as TiVo rely on software and menus.5 There are other differences between set-top boxes, some act as personal video recorders (PVR). PVR systems record broadcasts to a disc that can then be accessed by the viewer during the live broadcast. Therefore a viewer can pause or rewind and even fast-forward through commercials or other segments. Richard Smith, the Privacy Foundation's technology officer, described the PVR, TiVo, as a, "VCR on steroids."6
Who's promoting set-top boxes?
The makers of set-top boxes and their investors are promoting set-top boxes. They are gambling on the idea that citizens will want them and pay for them. Television manufacturers, consumer electronic manufacturers, cable providers, and global media conglomerates are among the many promoting the boxes. Companies as varied as Microsoft, Sony, RCA, Philips, ON Digital, Zenith, British Sky Broadcasting, and Charter Communications are among the companies with interests in these devices. Charter Communications Worldgate announced plans in March to link cable television and the Internet.7 Zenith will introduce a new interactive television in April 2001. It will have no set-top box, and no cost for Internet access, only a cable input and modem wire would connect into it.8
Two popular PVR systems are UltimateTV (Microsoft/RCA) and DirecTV-TiVo (Philip and Sony). In general the RCA unit relies more on hardware, while the Philips unit relies more on software.9
| UltimateTV (RCA/Microsoft) |
DirecTV-TiVo (Philips/Sony) |
| Good picture quality |
Good picture quality |
| Good recording capacity (lengthwise) |
Good recording capacity (lengthwise) |
| Easy setup |
Lengthy setup |
| Can record 2 channels simultaneously |
Only records whatever channel it is tuned to (A viewer can watch a live show and record another) |
| $400 or $450 with satellite dish, plus $10 a month |
$400 without a satellite dish, plus $10 a month, or $200 lifetime |
| |
Can follow a program to a new time slot |
| |
Automatically records programs based on users favorite channels, and by giving programs a "thumbs up" or "thumbs down" |
| |
Tracks viewing trends and habits10 |
Chart11
One business sector that is not promoting set-top boxes are personal computer (PC) retailers. "With such a cheap, versatile convergence appliance already out there, you might expect PC vendors to be ecstatic. Instead, they've been in a deep funk. Their sales job on a PC in the living room has been pathetic. And that's too bad."12
Problems that set-top boxes are designed to solve.
"An Internet television set-top box could be the most direct way to bring the Internet to the masses."13 Many companies hope that the switch to a digital signal will increase sales of set-top boxes.14 If people decide to buy a digital television, then perhaps they will be more likely to buy a set-top box. Some of the features found in today's set-top boxes are being included in the televisions of tomorrow. Since some set-top boxes connect to the Internet, they have the potential to bring more information to the average citizen. If people can access the Internet from their televisions, a well-penetrated device even in the poorest of neighborhoods, perhaps set-top boxes can help close the digital divide.15
Some other problems that set-top boxes solve make using the Internet and the television easier for the average viewer. A set-top box can transform any television into a web-surfing device. An owner can watch television on half of the screen, while checking e-mail.16 PVRs are, "a perfect response to network executives who make popular programs compete in the same time slot."17
How set-top boxes interconnect with other media.
Set-top boxes are being used to collect information about its viewers for advertisers and ratings data. Nielsen Media Research has a virtual lock on TV ratings data.18 The television industry has been worried about set-top boxes taking over any of the ratings data business. For example, TiVo, which can "identify the personal viewing habits of subscribers at will," has an agreement with Nielsen Media Research. However, the information gathered by TiVo, will not be used for "direct-marketing purposes," and can only be accessed authorized TiVo employees. Therefore TiVo is using its collected information as a "bargaining chip" in its dealings with the television industry.19
Shopping network QVC and one of its owners, Comcast, are also installing a TV audience measurement system, called TargetTV, in Comcast's set-top boxes to challenge the Nielsen system. Although network and media consultants are skeptical of the ability of these new services in their ability to challenge Nielsen, they at very least, competition.20
Economic Restraints.
Some companies are having trouble getting customers to buy and use set-top boxes. The additional cost of a set-top box, cost of installation, the technical setup, and learning to use equipment more complicated than a remote control or a phone, are some of the restraints to users buying set-top boxes. Brendon Weston also states, "My suspicion is that most consumers are not especially thrilled with the idea of two or three corporations delivering TV and Net access, plus owning most of the content." AT&T Corp. have been offering digital phone service to cable TV users in select markets for two years, but so far a mere 3% of its subscribers are using it.21
Not only do set-top box companies have problems getting customers, they have trouble keeping them. Churn is the term used for the number of subscribers that don't renew their contracts.22 Set-top box companies see churn rates of about 5 percent a month.23
Regulatory restraints.
"We would like to have an era in this country where anybody can plug in a set-top box just the way that you can buy a telephone today in a retail store and plug it into a phone jack," then-FCC Chairman William Kennard stated three years ago. But that deadline passed in July of 2000. Cable Television Laboratories, an industry research consortium funded by cable providers, is supposed to create a standard for set top boxes. The project, which is thought to cause further competition, is called OpenCable. Some critics say that CableLabs is "dictating the license Soviet-style." Circuit City lawyer, Robert Schwartz, states, "The consumer electronics manufacturers would like to use the specifications as a cookbook so they can make variations. CableLabs is acting more like the chef. They say, "If you want to make changes, they have to go through us." 24
While there is no standard, duopoly is surprisingly another concern for set-top boxes. "Cable customers are still hostage to their provider's choice of a set-top box, most likely made by either Scientific-Atlanta or Motorola's General Instrument unit." Scientific-Atlanta and Motorola have a virtual lock on the television set-top box market. "So much for free choice," states Dorothy Pomerantz.25
The Motion Picture Association of America, the studios' lobbying group, wants to ensure that all set-top boxes have encryption firewalls. The standard, which is required for each box, for anti-pirating is called the "point-of-deployment module host interface license." The device allows broadcasters to embed a signal in the original broadcast to stop pirating. But some think that the established set-top box providers and cable companies are throwing licensing red tape and rules at competing box-makers to keep thing the way they are. But those same retailers are worried that if competing box-makers start giving away boxes, they won't have anything to sell.26
Short-term and long-term viability.
With projected switchovers from analog to digital occurring across the globe, many companies are expecting increased sales of set-top boxes. It is hoped that the switch will act as a catalyst to subscription. 27 David Mercer, vice-president of Stategy, doubts that there will be a complete switch from analog within the decade. The BBC has suggested that it may give away free set-top boxes, through government support, but the idea seems unrealistic to Mercer. "It is thinking of an imaginary world where a box costs pounds 50… People are also ignoring the installation issues… People will not touch anything technical."28
Applications.
TiVo and UltimateTV are certainly examples of successful applications of set-top boxes. Other successful applications come from cable companies such as AT&T, Charter Communications, Britain Sky Broadcasting, ONDigital, and Bell Canada. These companies and systems range from PVRs to providing the viewer with Internet capabilities. 29
One unsuccessful application is a service called i-Guest, which connects hotel televisions to the Internet. It is supported by i-ChinaNet.com, an Internet service provider and portal company based in Shenzhen, China. i-Guest provided limited access to web sites, low quality television, and not everything in the system worked.30
Conclusion.
Set-top boxes have the ability to combine many forms of media. It has the potential to bring the Internet to homes without computers, closing the digital divide. Industry standards, cost, and ease of use are definitely major problems that the manufacturers of these boxes need to solve. But despite those problems currently, set-top boxes look to be a viable part of the telecommunications future.
| Worldwide digital TV set-top box sales forecast (millions of units) |
| |
2000 |
2001 |
2002 |
2003 |
2004 |
| North America |
15.3 |
18.2 |
22.6 |
26.4 |
29.7 |
| Western Europe |
8.7 |
10.3 |
14.6 |
19.7 |
24.4 |
| Rest of World |
3.5 |
5.6 |
8.9 |
13.3 |
20.4 |
| World Total |
27.5 |
34.1 |
46.1 |
59.4 |
74.2 |
| Growth (%) |
51 |
24 |
35 |
29 |
25 |
Source: Strategy Analytics31
Bibliography
1 "New TV offers free Net access," Chicago Sun-Times, March 6, 2001, pp. 37.
2 Boston, Jim, "Set-top Boxes Uncovered," Broadcast Engineering, March 2001, pp. 7-1994.
3 Boston, Jim, pp. 7-1994.
4 Messina, Ignazio, "Cable's Digital Dogfight," Cablevision, March 12, 2001, pp. 30.
5 Boston, pp. 7-1994.
6 Smith, Jeff, "TiVo Box Tracks Viewing Habits of Owners, Privacy Group Warns," Rocky Mountain News, March 26, 20001, pp. 10B.
7 Shinkle, Peter, "Charter Plans to Offer Interactive Television and Internet Service Via Set-top Box System," St. Louis Post-Dispatch, March 30, 2001, pp. B1.
8 "New TV offers free Net access," pp. 37.
9 Healey, Jon, "E-Review; Personal Video Recorders Get with the Program," Los Angeles Times, March 1, 2001, pp. T1.
10 Smith, Jeff, pp. 10B.
11 Healey, Jon, pp. T1.
12Weston, Brendon, "Thinking Outside the Box," Canadian Business, March 5, 2001, pp. 27.
13 Zajc, Lydia, "Set-top Internet Surfing Still Far From the Crest of Popular Wave," South China Morning Post, April 10, 2001, pp. 6.
14 O'Connor, Ashling, "ON Digital's Give-away Move Suffers Poor Reception." The Financial Times (London), April 14, 2001, pp. 12.
15 Zajc, Lydia, pp. 6.
16 Ibid, pp. 6.
17 Healey, Jon, pp. T1.
18 Neff, Jack and Wayne Friedman, "QVC, Comcast challenge Nielson," Advertising Age, March 12, 2001, pp. 1, 42.
19 Smith, Jeff, pp. 10B.
20 Neff, Jack, pp. 1, 42.
21 Weston, Brendon, pp. 27.
22 O'Connor, Ashling, pp. 12.
23 Messina, Ignazio, 1, pp. 30.
24 Pomerantz, Dorothy, "A Cozy Duopoly," Forbes, March 19, 2001, pp. 78.
25 Pomerantz, Dorothy, pp. 78.
26 Ibid, pp. 78.
27 O'Connor, Ashling, pp. 12.
28 "Digital Slowdown Hits Set-top Boxes," Electronic Times, March 5, 2001, pp. 3.
29 Healey, Jon, pp. T1.
30 Zajc, Lydia, pp. 6.
31 "Digital Slowdown Hits Set-top Boxes," pp. 3.
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