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Questions Remain for U.S. STB Retail Market

The market for set-top boxes (STB) will grow at a steady pace through the end of the decade before easing slightly, as service upgrades to existing pay-TV customers are completed and the market shifts from new technology growth to growth driven by the addition of new pay-TV subscribers.

According to the latest market study from ABI Research, three main drivers will propel this market in the coming years: advanced features, the new interactivity offered by hybrid STBs, and the possible development of a retail set-top box market.

"There's a war going on in the trenches for TV customers," says vice president and research director Stan Schatt. "In an effort to 'lock-in' customers, cable operators are migrating to newer STBs that offer features such as PVR (personal video recording) and high-definition support. Meanwhile telecom operators are leveraging IPTV technology to support interactive services."

Accelerating sales of high-definition (HD) TV sets and the popularity of PVR functions are combining to spark customer demand for STBs supporting these advanced features. This will create a temporary market for upgraded boxes. Beginning in 2010, however, many existing customers will have completed their upgrades, and demand will begin to decline.

Over the next few years, STBs that can provide content using more than one platform will become increasingly popular and will begin to replace single-platform STBs in many markets.

"In order to really understand this market," notes Schatt, "you have to examine the growth of hybrid STBs that are finding their way into both cable operator and telecom deployments. Their ability to enable new interactive services for cable, terrestrial, and satellite operators will be a powerful engine for this market."

Finally, as of July 1, 2007, as a result of a U.S. Federal Communications Commission mandate, new STBs no longer include embedded security features, but can use CableCard or downloadable security mechanisms instead.

This, together with the desire of cable operators to eliminate the cost of buying and leasing boxes to their customers, theoretically may lead to the development of a retail environment in which STB vendors vie directly for the consumer's dollar.

However, I believe that until we know more about the cost of CableCard rental rates from the dominant cable MSOs, it's premature to assume that the U.S. STB market has become more 'open' for consumers who wish to purchase retail STB devices.

My concern is that the MSOs will find a way to prolong the life of 'closed' platform STBs currently in use, by making the CableCard transition unattractive to consumers. And, it's not clear how the FCC will react to new 'restraint of trade' business practices that attempt to disarm their 'open' STB policy mandate.

Meanwhile, the U.S. telcos are installing thousands of new 'closed' platform IPTV STBs every week. Therefore, consumers are apparently still being held captive -- intentionally locked-in, and without a choice.

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