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Wednesday, March 18, 2015

Set-top boxes a short-term bet

I got my first set-top box (STB) for cable TV in 1985. Gail was pregnant and we anticipated watching more TV in the middle of the night, so we signed up for The Movie Channel. Our monthly rate went from $15 to $20 (imagine that!), and an STB from Scientific Atlanta came with the deal.

Thirty years later, we have two STBs provided by Time Warner Cable, a Samsung and a Cisco who acquired S-A in 2005. One might think that the STB is entrenched, but not so says industry pundit Alan Wolk:

Most [cable companies] want the STB to go away. They are dated, difficult (if not impossible) to update, unreliable, and the primary reason so many people complain about their pay-TV operator. Worse still, [a cable company] spends $200 or more to roll a truck every time the STB goes on the fritz or when a new box needs to be installed. Installers are unreliable, customers get angry, and the [cable company] ends up looking bad –- it’s a no-win proposition for the operator and mess-in-waiting for the subscriber.

Industry pundits must occasionally say something controversial, but his is a remarkable assertion. I could argue that if STBs are unreliable, the root cause is the procurement practices of the cable companies themselves; it's certainly possible to build a reliable STB, but the cable companies don't want to pay extra for reliability. I could argue also that if installers are unreliable, the root cause is the cable companies' outsourcing of their installation workforce to save money. In short, the cable companies made this bed and now they dislike sleeping in it.

But otherwise, Wolk is bang on. I've never wanted a STB; it's just another box that sucks power, requires cumbersome wiring, freezes up occasionally, and takes 5 minutes to reboot. STBs have only two essential functions: to authenticate the programming I've purchased and to select channels in a switched digital environment. What consumers want is this essential functionality inside their TVs, Roku's, Slingbox's, or whatever home entertainment devices they choose. And by accepting that philosophy instead of fighting it, the cable companies could do what Henry did to Becket and rid themselves of a troublesome part of their business.

Poor Cisco, who paid $7 billion for S-A and another half-billion for Linksys, the maker of home routers. Cisco's strategy to enter the home networking market was a flop; the Linksys deal has already been undone. The truth about Cisco is that they have far more cash than good ideas about what to do with it. At least they pay a 3% dividend.