There is much talk these days of ‘The Cloud’ and its connection to consumer devices, specifically Connected TVs. The case against STBs is pretty straightforward; if you can have effective content management (and storage) in the cloud, if consumer devices can be connected to commoditized high speed broadband, and if content providers (or dedicated third parties) will supply efficient browser based UIs and transaction systems also via the cloud, why do you need Set Top Boxes?
A simple defence might be ‘well, that’s a lot of ifs.’ True. But all of the above is doable now and is bound to become easier, isn’t it? Yes, but not so fast. On a technical level the very ubiquity of IP means a lot of ways of doing things have sprung up simultaneously and the lack of standards plays into the STBs hands – something in the home has to have the tuners and the processing power to resolve the myriad format issues in transmission, CA, DRM etc, particularly in the era of the home gateway managing a home network. The argument goes that this facility is unlikely to reside in the TV where the competitive retail environment means margins are thin and replacement cycles are too long to accommodate necessary upgrades.
This certainly provides a breathing space for the current incarnation of the STB. But, ultimately, like most things, ‘it’s the economics, stupid.’ The vast majority of STBs are put in the home by a managed service provider whose economic engine is the retail margin on the entertainment content supplied to him wholesale by the content producer. Owning that margin is all the incentive the content owner needs to cut out the managed service and go direct to the consumer. But they will only do this when they’re convinced the direct route won’t lead to a fall in volume that will under compensate for the increase in margin. The content providers are, of course, eager to experiment; online TV services abound and Hulu’s introduction of subscriptions is the next logical step.
Managed service providers only hope is to make the environment inside the service so good that subscribers never want to leave and, therefore, remain a willing captive audience that the premium content owners can never afford to turn their back on. The problem is the service providers profits are bound to suffer as they are compelled to come up with more and better services while rights holders demand an ever higher share of the revenue in order to prevent them going direct.