September 13, 2007 4:00 AM PDT

Set-top box makers still waiting for customers

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"The biggest strategic misstep by all of these companies is their inability to lease the box and charge for content, or give the box away for free and charge more for content," he said.

Set-top box ownership hovers under 30 percent in the U.S., and the breakdown of numbers tells the story about consumer preferences: cable and satellite service providers are dominating the set-top industry. According to The Yankee Group's Penetration and Usage Survey, 20.6 percent of U.S. respondents own a set-top box from a service provider, like a cable company, while 7 percent own a standalone box. The rest did not own one.

"We're dominated by service providers that subsidize equipment," Martin said. "Users get used to that."

TiVo, which basically owns the 7 percent of standalone box users, and other set-tops linked to a single source of content like Apple TV, are neat, whiz-bang technologies, but there doesn't seem to be a strong demand for them. Cable providers also do something that seems to be more appealing to a wider array of customers: all services are included on one bill and there's only one box. While TiVo's much-lauded user interface and Apple TV's distinct "Apple-ness" are attractive, cable boxes' generally acceptable quality, instant content and convenience have so far won more users.

Whatever happened to MovieBeam and Akimbo?
MovieBeam was unveiled by Walt Disney in 2003 as a VOD service using a technology called datacasting, which took advantage of unused portions of the broadcast spectrum. The box cost $199 and movies could then be rented for $3.99 a piece. But the nature of the broadcasting technology made it difficult to roll out on a nationwide basis. And by 2005 Disney spun it off into a separate company, in which Intel and Cisco Systems poured $50 million of capital. A relaunch was attempted before the company was bought in March by video rental chain Movie Gallery for just $10 million.

Akimbo hasn't fared much better. It arrived on the scene in 2004, offering video-on-demand via a $230 set-top box and a $10 per month subscription fee. Programs and movies were downloaded from the Web, but each box could store only 500 at a time. Two years later, it announced investments from AT&T and Cisco. It's now a vehicle for, ironically, a cable company, used to distribute AT&T's Homezone U-Verse VOD service.

"Clearly, it's a challenging market for companies to break into and find success with it," The Yankee Group's Martin said. For example, "TiVo has had tremendous difficulty maintaining relevance in the market even though they basically invented the DVR market."

Amazon Unbox on TiVo isn't the only competition that VOD boxes have. There's popular DVD mail-delivery services from Netflix and Blockbuster, as well as downloads from Microsoft's Xbox Live service, which is available to any Xbox console owner.

Granted, success in this industry doesn't have to be defined as 50 million boxes sold. Selling 10 million, or at least covering costs, would be an improvement over Vudu's predecessors.

Said Martin, "I think expectations should be realistic until they prove they can buck the trend."

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20 comments

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Habits Need to Change First
Many companies seem to be forgetting that adopting and using new set-top boxes requires customers having to change their viewing and leisure habits. Cable and satellite companies have had more success because their customers already have or will be getting converter boxes. Purchasing and operating a new set-top box in order to try something new, is too big a leap for most customers. With such a large hurdle to overcome, alternative set-top box makers should realistically expect to remain serving just a small niche market and wait several years to catch on with the masses, if ever. Investing massive amounts of money up front and expecting quick returns in 1-3 years is just not realistic.
Posted by annanemas (79 comments )
Reply Link Flag
Need a YouTube box
with true HD quality. AppleTV is a prototype of this. You might be
able to bake in the ads (beforehand) or with a ticker (yuck!). Those
who don't want ads can pay extra it's their choice.
Posted by rcardona2k (318 comments )
Reply Link Flag
VOD is a feature, not a product...
...much the same as timeshifting.
That's why TiVo, for all its high media profile, barely clings to a 7% market share.
Consumers will not "pay twice" for their content, as they perceive it. First, when they buy the STB hardware and second when they get the content. (TiVo is worse, you pay a third time, as you watch, because the they sell ads you're expected to sit through.)

The business model needs to change.
Either they lease the boxes or subsidize the sale (like Microsoft's WbTV/MSNTV does) and make up the revenue elsewhere, or they meed to wrap the feature in a standalone product. Notice how everybody sees the Video Marketplace on XBOX as a *bonus* feature? Because nobody buys the XBOX just for VOD; they buy it to play games. VOD is a pleasant addition to the core product. Now, over time, as MS cost-reduces the XBOX and the service grows, you might see some folks buying the XBOX, say when it drops under $199, for VOD first and gaming second, but even those folks are likely to be a minority.
Realistically, VOD is going to remain where it is today: in the same set-top boxes (whether from a CableCo, TelCo, or SatCo) that brings in broadcast programming. The market is theirs to lose cause so far nobody is offering a better deal.
Posted by -fjtorres- (226 comments )
Reply Link Flag
HBO, Starz
are enough for me.
Posted by paulsecic (298 comments )
Link Flag
I would also buy an AppleTV built into a touch screen, dumbed-down iMac
that's a pretty good offering.

as for the other options, I really think that if the experience on the PS3 ( lacks DVR or cable card) or XBOX 360 (lacks integrated HD-DVD, cable card, and DVR) were a little better I would prefer them over the boxes of today. I hate the VOD offerings my Comcast service offers. Plus, I would rather be able to switch from VOD, to cable TV, to my music, my pics, my movies ( purchased and home movies), and games all from one interface.
Posted by jamie.p.walsh (288 comments )
Reply Link Flag
MCPC
I don't have one but I think you just described a Media Center PC. When I can finally replace (not integrate)my Directv set top box with a wmcpc with full HD support, I'll do it. I have been waiting a long time for this.
Posted by tgrenier (256 comments )
Link Flag
Almost Obsolete
These set-top boxes are a waste of money. Remember Divx from Circuit City. These players were more expensive than DVD players, the discs had to be paid for and then every time you watched the disc you had to pay again. People do not want to pay for a box repeatedly. Anyway I can already get thousands of movies from my cable on-demand service and most of these are free. The big deal about these boxes are that the movies are available the same day that the video stores get them but cable is beginning to do that too.
These boxes will be obsolete before most people even know about them.
Posted by MacGyver95 (1 comment )
Reply Link Flag
Yes, cable has some movies same day as DVD, but the titles suck
I remember what a debacle Divx was.
Posted by jamie.p.walsh (288 comments )
Link Flag
VOD
Or I can pay $59 for a cheap DVD player and get the DVD from Netflix. I can wait a day or two to get a new release and not have to pay for each movie I see. My NetFlix runs me about $1 -$1.50 for each movie I watch.
Posted by ifiredmyboss.com (51 comments )
Reply Link Flag
TiVo already has this...
..via Amazon unbox. In fact I just ordered the new series premiering on NBC this fall and they were free! Movie rentals range from .99 to 4.99 and with a broadband connection you can start watching fairly soon. And the quality on my 42" HD Monitor is at least DVD worthy. So I order the movie and start cooking dinner. By the time dinner is ready I can start watching the movie.
Posted by Stormspace (1028 comments )
Reply Link Flag
$4.99 to RENT a movie?
That is outrageous.

Netflix has a good service that is PC only for now. Use windoze to
watch an hour for each dollar a month you pay in netflix deliveries.
Not bad. They say a Mac verison is coming soon.

TiVO and Apple TV together would be hard to beat. If they could
toss in Netflix, it would be a coutch potatoes' dream.
Posted by macbrewer--2008 (410 comments )
Link Flag
how to fix this
1.make it more than a video hard drive
ad WiFi make it a house video server
Ad Tv guide services HD Radio
Ad DVR services even at Vontage like services into the box the Box must be multi Functional
Even a Web TV box Add video inputs RCA USB for MP3
maybe even a open source Game system but make more than a Video Hard drive
Posted by cohaver (189 comments )
Reply Link Flag
Meh
I'm eager for a set top box that plays what I want the way I want it. Apple TV is close but too proprietary. XBox 360s features are similarly a step n the right direction, but not close enough for me to reach for my wallet.
Maybe the pieces of the puzzle aren't in place yet. Copious broadband + ubiquitous file format support might make some future STB the must-have device for open & licensed content.
Just not yet.
Posted by punterjoe (163 comments )
Reply Link Flag
I'm scared of IPTV, here's why
I can see where IPTV will be very similar to web based video, where ads will be placed along side the video. In fact if video is formatted in standard 4x3 aspect, IPTV devices could use the sidebars on HD sets as ad space, specifically tower ads that animate. Imagine trying to watch your favorite show with animated tower ads. It's bad enough that cable stations already are using up more and more time with animated ads.
Posted by bobby_brady (765 comments )
Reply Link Flag
Distribution of media
Distribution of media should be democratized for the people to have the ability to distribute media legally.

Give money straight to the artists, producers, directors, actors, and some money to the distributors. It shouldn't be how it is today. Today we are giving too much money to a small oligarchy of media distributors (media conglomerates, movie studios, etc.), and barely anything to the actual entertainers.
Posted by Millerboy (104 comments )
Link Flag
VUDU - it's definitely worth the price
I was a beta tester for VUDU and agree with most of the reviews where people have actually used the service. They (NYTimes, Wall Street Journal, etc.), and I, thought the user interface was great, the remote with scroll wheel easier and better than any on the market, the remote is RF so you don't have to point it at anything and the box can be in a drawer or closet and doens't have to be on a stack of other boxes. And it is lightning fast - you click on the title and the show starts in a fraction of a second. You don't have to go to your computer and then to the TV, you don't have to wait for a download of 30-45 minutes and then play it later that day or the next day, and the quality is excellent. Its also in high def and they are not making you come back and pay megabucks two yrs later for it as TIVO did.
A Popular Science article online today shows how much more content they have than anyone else. VUDU apparently were able to sign up all six of the major studies; Apple has movies from only 2 of the six. They also signed up 20 independent movie studios. Songs and old TV shows can be had for a pittance, but movies are not cheap to obtain because the content is in the hands of a very few big companies who know exactly how valuable their property is. The movie studios make most of the money - not VUDU or Apple. That is why it costs more. Apple may or may not be cheaper, but they only give you movies from two studios (who may be cheaper, or not.) VUDU charges $400 for the box (think $100 a year for 4 years with high def) as well as the movie charge. You don't have to pay a yearly fee and you only pay for what you rent or buy. Apple has been promising rentals for 2 years and hasn't delivered. You have to buy a movie from iTunes, and who wants to buy their movies? This is the technology that Apple should have delivered. I rooted for little Netflix when they were young and provided a lot new for the marketplace, and I will root for VUDU now. They have a hands-down better product than anyone else, in my opinion. I think those who criticize about the price must use the product in order to see that you pay more for when you are given much more. Read David Pogue in the NYT and run his online video, or today's Popular Science article online. They know more than I do, but I agree with them. These people may charge more, but they have provided much more than anybody else. Good luck to them.

Ken
Posted by kenfox1 (1 comment )
Reply Link Flag
I have a bad time with this...
Pay for the box just so you can pay more when you want a movie.

I'm sorry, if I want this I can just get it from cable and pay nothing up front with whatever they charge per month for the unit - which is not even close to $399. Good luck on this one....

Charles R. Whealton
Charles Whealton @ pleasedontspam.com
Posted by chuck_whealton (521 comments )
Reply Link Flag
VUDU is Pointless & Disappointing
"It's the rental delay that's killing me. The movies I want to see
are available now on DVD ("La Vie En Rose" and "The Namesake")
and won't be rentable on Vudu until the end of December ... I'm
not willing to wait that long to see something on Vudu
(particularly with no subtitles) ...

I figure at least HD will be good since I won't be buying an HD-
DVD or Blu-ray player because I don't buy DVDs and they're not
rentable at BB ...

Right now, Vudu is not a good fit for me and I should have
waited to buy because for me -- the box is nothing more than a
well-engineered, high-priced doorstop ... frustrating ... " -
VUDU Forum Senior Member, December 2, 2007
Posted by cjohn17 (268 comments )
Reply Link Flag
 

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