Cablevision's Set-Top Setup (1 Viewer)

cablewithaview

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Apr 18, 2005
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First came the big, flat dazzling TVs. Next up for the avid viewing consumer: More control of brilliant new video features.

A new generation of TV set-top boxes from Motorola (MOT:NYSE - commentary - research - Cramer's Take) and Scientific-Atlanta, now part of Cisco (CSCO:Nasdaq - commentary - research - Cramer's Take), promises to deliver a range of tricks like live-action pause, high-definition video and hours of easy-to-program recording.

And while these hardware suppliers seem poised for years of potentially huge sales growth as users opt for upgrades, not every cable company is willingly conceding to the set-top box duopoly.

Cablevision (CVC:NYSE - commentary - research - Cramer's Take) is testing a system that records customers' video selections and stores them on its own network instead of on the hard drive of the user's set-top box. If successful, the network-storage approach would give subscribers all the features of a digital video recorder (DVR) and allow Cablevision to save the $400 cost per box and the labor expense of each installation.

"If it works, yes, it will be huge," says one analyst who rates Cisco neutral and Motorola a buy. And unlike the hard-drive limits of the DVR, which become more problematic with HDTV, the "network-based system can offer essentially unlimited storage," the analyst says.

Cable companies are on the defensive, having seen their video franchises come under attack from several directions.

The threat of the Internet -- along with the success of satellite broadcasters DirecTV (DTV:NYSE - commentary - research - Cramer's Take) and Echostar (DISH:Nasdaq - commentary - research - Cramer's Take), and the fiber-optic expansion plans of Verizon (VZ:NYSE - commentary - research - Cramer's Take) and AT&T (T:NYSE - commentary - research - Cramer's Take) -- has helped nudge the cable giants out of their conventional programming-package and pay-per-view model.

Big cable is now embracing the video-on-demand business, and some of the time- and place-shifting technology that gives viewers much more say over what and when they watch.

Having commenced with a massive shift from analog to digital set-top boxes in the past few years, cable companies are now expected to fork over millions of dollars more for DVR boxes, and then another chunk of cash for HD DVR devices when that technology arrives.

Cablevision, for example, has converted 70% of its users to digital boxes, says UBS analyst Aryeh Bourkoff. What the company would like to do, instead of another round of box upgrades, is tweak the existing boxes to handle networked DVR, say analysts.

"I think this is the beginning stage of the debate," says Bourkoff, referring to the expense of DVRs vs. the cheaper route of network storage.

Storing it in the network is "appealing to cable operators because it allows them to be more efficient with capital spending," says Bourkoff.

Cablevision will be the first to roll it out and also the first to test the legality of network recording. "There will be copyright issues that have to be resolved," says Bourkoff.

The so-called Betamax ruling allows the recording of copyrighted material for personal use. Cablevision will have to prove that storing videos for customers is the same as if the users were recording the programs on their own box, say analysts.

If network storage takes off, it will cut into the growth of set-top DVRs, but industry observers don't expect to see any major changes to the two-player TV box market domination.

Advances in digital boxes will continue and Motorola and Cisco are "the proven suppliers," says Yankee Group analyst Adi Kishore.

"The overall dynamic may stay the same," largely because Cisco and Motorola will have to adapt to keep customers happy, says Kishore.

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