The Battle of the Boxes

Image representing Roku as depicted in CrunchBase

Image via CrunchBase

For years we’ve been told that the day was coming when we would be able to get rid of the settop boxes supplied by the cable company and instead use our own smart devices to receive cable TV. A number of years ago the FCC tried to promote this with its cable card order that said that customers must be allowed to bring their own devices and that the cable companies then had to give them a discount for doing so. But cable cards were a massive failure and only a very small percentage of customers went through the hassle of trying to use their own settop boxes.

And then we heard a lot of talk about how TVs were going to get smarter and that we would be able to plug our cable into the back of the TV and eliminate the settop box. And that actually worked for a few years. But then cable companies started converting their systems to all-digital to make more room for faster cable modems, and analog transmissions are quickly becoming a thing of the past.

So we are no closer today to being able to bring our own smart box to the game and almost every home still has a settop box or a DTA (Digital Television Adapter) for which the cable company charges them a fee of around $5 or more per month.

Meanwhile there are a host of new boxes in the world that are designed to help customers bring the Internet and its many programming options to the TV. Among these are Roku, Apple TV and Sony Playstation. There are a number of households that are using these boxes to replace the cable company altogether and are settling for the programming that can be found on the web. These boxes let people subscribe to things like NetFlix, Hulu or Amazon Prime, which are much cheaper than the typical cable subscription.

Time Warner is taking an interesting approach to the battle of the boxes. In March they announced a deal to allow people to use a Roku box in place of a Time Warner settop box. In June they announced a deal that allows customers to use high-end Samsung TVs without a settop box. And it was reported last week that they are making a deal for people to use Apple TV in place of their settop box.

Image representing Netflix as depicted in Crun...

Image via CrunchBase

Time Warner is doing this by developing a specific App that works on each device. A customer can download an app that will let the Roku box mimic the Time Warner settop box and save the monthly fee. It’s reported that the app is not as good as the real thing and the line-up and some reception is not as good as using a TV. But Time Warner sees some advantages to this arrangement. While they lose the typical $5 per month charge for the settop boxes, they also get out of all of the obligations that go with providing settop boxes. No cable provider likes being in the settop box business. They require truck rolls to install and sometimes to retrieve. They break and must be replaced. And a surprising number of people move, pack and take their boxes with them. Cable companies are probably a net winner by getting out of the settop box business.

But I see a few problems with Time Warner’s approach. First, Time Warner is headed down a path that is going to make their software life complicated over time. Soon they will have deals that require them to supply apps for three different boxes. But over time that number is going to mushroom. There will eventually be many generations of Roku and Apple TV and every other current box as they get updated and outdated. And over time there will be dozens, if not hundreds of devices that will be able to get TV signal onto a TV. Looking into the future five or ten years I see Time Warner’s strategy getting very complicated.

But the biggest danger I see is that Time Warner’s strategy is inviting the fox into the henhouse. Do they really want to promote customers to use boxes that bring Netflix and Hulu into the house and make it easier for customers to cancel or downgrade their Time Warner cable TV service? Obvious some people are going to be buying these boxes anyway, but should the cable company be promoting people to buy a box that makes it easier to bypass them? It seems like a risky bet to me.

Even if Time Warner is onto something, this solution is not for everybody. Certainly the handful of other large cable companies could follow suit, but it’s hard to see this working for smaller cable companies. And this solution won’t work at all for companies that deliver IPTV over DSL or fiber like Verizon, AT&T, municipalities and hundreds of independent telephone companies and small CLECs. The IPTV stream requires a proprietary device to descramble the signal (and  scrambling for IPTV is required in the contracts with the content owners), and so these providers cannot move customers to alternate boxes.

Time Warner’s approach is unique and we will have to see if any other cable companies follow them. This is a home run for the box makers, but I’m not so sure that Time Warner wins too.

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