September 13, 2007 4:00 AM PDT

Set-top box makers still waiting for customers

Imagine investing in a restaurant and then having to pay for your meal every time you eat there.

Sounds like a raw deal--and it's a situation similar to the one that confronts buyers of set-top boxes that download movies via the Web: You invest a significant amount of money when you buy the box, then whenever you want to watch a movie, you have to pay again. It's one of the reasons that, so far, the few companies to introduce standalone products in this space, such as Akimbo and MovieBeam, have called it quits, or at the very least no longer exist in their original incarnations.

Now the makers of a more evolved version of the Internet-based video download box hope they can change things.

Vudu, which unveiled its offering last week, is the latest comer in this little (some would call it "puzzling" or even "pointless") entertainment niche. The Santa Clara, Calif., start-up has designed a sleek black set-top box with an even sleeker remote in which a database of 5,000 movies can be streamed over a broadband connection directly to a TV, which is essentially equivalent to the contents of two brick-and-mortar video stores, says Vudu. It's $399 to buy the box, $1 to $4 to rent movies and $5 to $20 to own them. So owners still have to "pay for the privilege of paying," as Ross Rubin of the NPD Group put it.

In other words, you're back to the basic problem with this business: the average consumer, as long as he or she doesn't have true control over downloads thanks to technology such as digital rights management, is going to have a hard time justifying an expensive set-top box when it has neither the channel-surfing capabilities of a TiVo digital video recorder nor the low to nonexistent price of a DVR provided by a cable television company.

Vudu gallery

Nonetheless, Vudu executives believe they've solved many of the problems that Akimbo and MovieBeam encountered. To start, they say content owners are far more cooperative than they have been in the past. "I think relationships with the studios (have) completely changed everything," said Patrick Cosson, vice president of sales and marketing for Vudu. The company negotiated deals with every major studio and some independent ones to bulk up its offerings to "two video stores" worth, something Akimbo and Moviebeam struggled to do.

"I think there is a realization in Hollywood that there is a need to figure out this distribution over the Internet," Cosson said. "They're showing a lot of openness and interest and appreciation for the technology."

Second, they believe delivery over broadband is far more acceptable than over-the-air transmissions used by MovieBeam. Broadband adoption will only increase, but still the market for Vudu or any other broadband-delivery box service stands at just 25 percent--that's total broadband adoption in the U.S.--for now.

"When you're on the TV, you need to compete with the cable-on-demand experience, which is essentially instant," said Rubin, director of industry analysis for The NPD Group. "Amazon Unbox has done a good job on progressive downloads, where movies start pretty soon after you order it, but it's still not the same kind of gratification as seeing the studio logo when you hit the play button," as Vudu has promised.

Of course gadget bloggers and early adopters get gaga over devices like these, but will consumers in general react any differently to a box this time around, or ever? Not likely if the pricing model doesn't change, according to Josh Martin, an analyst who monitors the connected home industry for The Yankee Group. Consumers have shown a distinct aversion to buying hardware associated with one service--with the exception of digital audio players, he said.

See more CNET content tagged:
set-top, set-top box, NPD Group Inc., broadband, DVR

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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