Backchannelmedia

Dealerscope

Both sides are bulking up for the battle to control the home entertainment user experience

Digital Set-Top Boxes (STBs) are expanding in functionality, adding digital video recorders, interactive electronic program guides and CableCARD HDTV tuners in an attempt to stay viable against the rising tide of integrated and Digital Cable Ready digital television sets. Such sets aim to make STBs obsolete.

These developments are boosting the growth of the STB market, says research firm iSuppli Corp, which in turn reports that the transition to HDTV is acting as a catalyst for this brewing market battle.

iSuppli adds that the United States isn't the only market for this "super" class of digital STBs; demand for such boxes in Europe, China and India is expected to accelerate over the coming years as well.

While most early HD-resolution displays were monitors without HDTV tuners, FCC mandates are requiring the integration of ATSC off- air and CableCARD tuners directly into HDTVs. "This is intruding on the historical territory of the STBs, forcing the STB makers to identify additional features to keep their products relevant," notes iSuppli.

iSuppli reports the STB market began to accelerate in the fourth quarter of 2003, as demand for high-end models, from both consumers and service providers, began to intensify.

The organization expects digital STB shipments to have reached 66 million units last year, up 10.7 percent from 59.7 million units in 2003. It forecasts a seven percent increase this year, to 70.7 million, and for the market to hit 90.9 million units in 2009, rising at a compound annual growth rale (CAGR) of 6.6 percent from 2004.

Figure 1 presents iSuppli's forecast of digital STB unit shipments.

Figure 2 shows iSuppli's forecast for PVR-enabled digital STB shipments.

Figure 3 compares the percentage of HD-enabled STBs with overall set-top box shipments.

DVR is a key driver for this growth, as the technology moves from standalone components to digital STBs. Comcast, Echostar, DirecTV, Sky, and Canal + are some of the service providers around the world fueling this growth; iSuppli reports that these organizations like such boxes because they reduce churn, as users simply love the DVR function.

Because Comcast has been unable to satisfy demand for its DVR- enabled STBs, iSuppli reports, more manulacturers beyond the traditional cable STB powers of Motorola and Scientific Atlanta, Pace, Philips and Panasonic are entering the market-namely Samsung, Daewoo, Humax, Toshiba and Nokia.

iSuppli forecasts that during the next tew years, PVR functionality must become essentially free in STBs, with cable operators extracting revenues by leasing them, rather than by selling them.

iSuppli forecasts shipments of DVR-enabled STBs reached 11 million units last year, and will rise 47.8 percent this year to 16.3 million units, and will increase to 45.5 million units by 2009, representing about half of all STBs produced. It predicts CAGR of 32.8 percent for the category from 2004 though 2009.

High-def STBs will likely also include features like DVR, 3D graphics, modem, multiple tuners and basic interactive applications, such as Video on Demand.

However, iSuppli forecasts that over the next live years, low- cost boxes will continue to dominate the market. High-end boxes with HD capability accounted for only two percent of total STB unit shipments in 2004; they are forecast to grow to 14 percent by 2009.

Copyright North American Publishing Company Mar 2005