Set-Top Boxes

Cable TV set-top boxes are interfaces between televisions, satellite TV and cable TV networks for access to television and other services. At the most basic level, they are tuners. Cable and satellite TV operators remotely administer filters and traps in set-top boxes to allow subscribers access to basic cable TV or premium channels. The set-top box also has a security function. It scrambles and unscrambles TV signals and also has links to billing systems for information on which channels to allow the subscriber to receive. Credit information is also stored in some set-top boxes.

Digital set-top boxes are available to take advantage of the two-way capability of digital cable TV and satellite TV. These capabilities include:

• Advanced digital security so that the security is placed on a card in the set-top box that can be installed separately. If a consumer buys a set-top box from a retailer, the cable TV provider can install the security feature on the card. (Because security is proprietary to each provider, it is not available in retail outlets.)

• Advanced programming with 30 days worth of programming information.

• Embedded modems that will enable televisions to be used as computers for Internet access. For example, someone watching a football game will be able to view statistics from the Internet in a window of the television. The set-top box will also include infrared links to keyboards and computer mice.

• Compression so that 6 to 12 compressed digital TV signals can be carried in the same amount of frequency as one analog TV signal. The set-top box converts digital cable TV or satellite TV into analog signals compatible with analog television. It also can be built directly into digital televisions when the industry agrees on standards compatible with digital cable TV. Some of these extra channels can be used for interactive games for which subscribers will be charged extra on their monthly cable bills.

• Computer operating systems, software and possibly a hard disc for programming guides and potential new services such as picture-in-picture for viewing statistics while watching sports programs.

• An Ethernet plug on the back of the set-top box so that computers or home routers can be connected to the set-top box. A set-top box can be used to send caller ID to the television screen. For this to work, subscribers must get their telephone service from their cable TV provider.

• Video on demand so callers do not have to place a separate telephone call to order a premium movie. The movie can be ordered from the set-top box.

• Open platform standards so consumers can purchase set-top boxes from a variety of retailers and know they will work with all cable systems.

Interoperable Set-Top Boxes

The FCC mandated in July 1998 that cable TV set-top boxes be available for retail sale by July 2000. Cable companies received a waiver on this requirement because open cable standards had not been agreed upon. Cable Television Laboratories, Inc. known as CableLabs, is developing standards for set-top boxes with their OpenCable initiative. Without standards, off-the-shelf gear will not work on all providers' networks. Once standards are agreed upon and equipment is manufactured to the standard, consumers will be able to rent or purchase set-top boxes from retail outlets or cable providers. The FCC has mandated establishment of a standard for security by 2005.

Middleware for Set-Top Boxes

A critical piece of the OpenCable initiative above is the OpenCable Application Platform (OCAP). OCAP will set a standard for middleware. Middleware on set-top boxes enables applications from many different companies to work with set-top box hardware from a variety of manufacturers such as Motorola, Sony, Philips, Nokia and Scientific Atlanta. The middleware translates between the hardware and network protocols and the applications. Applications include electronic commerce, online chatting, digital radio and interactive television program guides. Companies that develop and sell middleware include Canal+, Liberte Technologies, Microsoft, OpenTV and Sun Microsystems.

When the FCC approved the AOL Time Warner merger, they were concerned that AOL would control set-top boxes through its instant messaging product and cable companies owned by Time Warner, the second largest cable company in the United States. Refer to Table 7.3.

Personal Video Recorders (PVRs)

Personal video recorders (also called digital video recorders) are set-top boxes that let people record, store and play back television programs. For the most part, they are sold through retail outlets but some cable and satellite TV providers distribute them. The feature that most users find attractive is the ability to fast forward through commercials. In addition, each night the PVR downloads the next day's television listings. Users can select shows and have them recorded through a remote control device. They can be used with satellite TV, cable TV and over-the-air broadcast television.

When they first appeared in 2000, the two main brands were TiVo and ReplayTV. In September 2000, ReplayTV took its hardware product off the market and now sells a software version for cable operators to integrate into their set-top boxes. Microsoft Corporation began offering a product, Ultimate TV, in 2000. Sales of TiVo have been disappointing. The units sell for about $500 which is high compared to analog VCRs and DVD players. Privacy advocates note that these devices send information on customers' viewing habits to the network provider.

If personal video recorders become popular, they will have far-reaching consequences for how companies advertise as more viewers skip commercials. Advertisers may depend more heavily on “product placement” within programs where their products are displayed prominently. For example, lead characters might be prominently displayed drinking a particular brand of soda.

Interactive Program Guides

Set-top boxes often have program guides embedded in them. Interactive program guides are the first screen that viewers see when they turn on their televisions. They are analogous to Internet portals. The largest supplier of interactive program guides is Gemstar-TV Guide. Gemstar has agreements to supply the guides to direct broadcast satellite operators and cable TV companies, as well as television and VCR manufacturers. The on-screen guides make it easier for users to record programs. The founder of Gemstar, Henry Yuen, invented interactive program guide VCR Plus+ to do this. He also made arrangements with newspapers to print numeric codes associated with each program in their guides. Cable TV and direct broadcast satellite companies that use the on-screen guide pay Gemstar 35¢ per subscriber per month in licensing fees.

Interactive program guides could be used as an interface for two-way access to, for example, the Internet. Some providers already use them to link to content providers with whom they have agreements for restaurant, sports scores, entertainment and movie listings. These services are made possible by upgrades to digital cable.

Interactive program guides are used more extensively than personal video recorders and interactive video. Interactive video includes movies on demand as well as two-way consumer information such as entertainment listings. According to Forrester Research, Inc., as of 2000, there were 33.9 million interactive program guides in use compared to 800,000 personal video recorders and 4.9 million users of interactive video subscribers.

Digital Cable TV

It costs cable operators $900 to $1200 per user, including $150 per set-top box to convert their infrastructure from analog to digital service. However, digital cable TV has the following advantages:

• TV image resolution is improved. There is less interference from noise to create snow and shadows.

• Stereo sound in the form of digital radio can be provided.

• Less bandwidth is used per television station and movie sent to subscribers. Providers can put 10 to 12 channels instead of 1 into each 6 megahertz channel of capacity.

• The extra capacity is a particular benefit for operators that supply Internet access and voice telephony as well as cable TV.

• In the future, digital TV could be used for electronic commerce although to date this has not happened. In Europe, where fewer people than in the United States have computers, expectations for commerce via set-top boxes and digital cable TV have not been met.

• Operators can download very popular movies in advance to all set-top boxes and only play them for eligible subscribers, thus improving infrastructure peak-rate utilization. If there is a cable outage, the movies have already been downloaded and the provider still receives revenue for the movies.

Thirteen percent of subscribers were in digital cable territories by the end of 2000. Signals sent over cable infrastructure are converted to digital at cable providers' headends where analog or digital television signals are received from satellites. Encoders convert the signals to digital to be transmitted to end users. Two-way cable modem service can be provided over analog or digital cable service.

Video on Demand vs. Pay Per View

With pay per–view, viewers are offered the opportunity to view a limited number of “premium” movies each week. Users on two-way cable systems can order particular movies from their set-top box without calling their provider. The movies are offered at set, defined times.

Video on demand lets subscribers order from hundreds of movies. They can select the time that the movie will be played. Video on demand requires digital cable TV because of the capacity required to play so many different movies. Video on demand has not been greatly deployed. The major reason for this is the lack of large numbers of available movies. Movie studios and video rental outlets don't want to undercut retail sales. An additional problem is the lack of available infrastructure to carry video on demand.