Cable leaders see future in set-tops

CHICAGO--The future of the cable industry, according to its heaviest hitters, will be directed by the development of digital set-top box technology.

With the future of interactive digital services in mind, many cable operators have moved to make set-top box technology a priority over cable modem services, according to a panel of cable industry executives at the Cable '99, the annual conference of the National Cable Television Association.

"The most significant thing going on in the cable industry right now is the proliferation of the digital set-top box," said Gerald Levin, chief executive of Time Warner.

The new wave of digital set-top devices coupled with upgraded cable network equipment has increased the number of channels operators can offer, and has pushed them one step closer to offering video on demand (VOD). Levin said he expects the cable companies to offer video on demand within the next five years.

Comcast President Brian Roberts said his cable company is deploying between 7,000 and 8,000 digital set-top boxes per week, and expects to have between 350,000 and 400,000 digital cable subscribers by the end of the year.

These numbers far outpace the average of 1,800 cable modems Comcast is issuing in conjunction with its Excite@Home Net access offering.

"At Comcast we picked digital boxes--and I think we made the right choice--as the No. 1 priority for 1999," Roberts said, adding that digital cable creates a platform for other high profit-margin services in the future.

Roberts said the company chose to focus on deploying digital set-top boxes this year in part to be competitive with direct broadcast satellite (DBS) offerings. DBS operators such as DirecTV and EchoStar Communications have taken some market share from cable in recent years.

Many cable operators have quickly moved to digital service to boost channel capacity, particularly in lower-powered cable systems.

Microsoft co-founder Paul Allen, the billionaire owner of cable operator Charter Communications, said digital set-top boxes with increasing power and storage capacity will lead to a host of new applications.

Clearly speaking from his PC industry upbringing, Allen--a cable industry newcomer who appeared uncomfortable at times on stage--spoke of e-commerce and utility applications as the future of set-top box offerings.

"These advanced new set-top boxes are a whole new platform for applications," he said. "We can't predict what all those [applications] will be."

The news bodes well for a bevy of set-top box makers, such as Scientific-Atlanta and General Instrument, and interactive programming, games, and content providers who are displaying their latest technologies here in Chicago this week.

For consumers, the prices of these TV set-top boxes vary widely. They start at around $299 for the most basic model. At the high end, set-top boxes that mimic a PC with a DVD drive and other features sell for about $1,100.

Meanwhile, cable operators would like to avoid shouldering the capital costs of buying thousands of set-tops and leasing them to subscribers. An alternate plan is to instead pass the costs to consumers, who could buy set-top boxes in retail stores, similar to a push for retail cable modems.

But Sumner Redstone, chief executive of cable programmer Viacom, said consumers may tire of having to frequently upgrade to the latest version of the technology, as is common in the PC industry.

The fear of jeopardizing lucrative revenue sharing agreements between movie production studios and movie rental chains such as Blockbuster Video could delay the roll-out of true video-on-demand services, Redstone said.