Debunking the set-top box safety net - "Entertainment Bypass" will rule

The set-top box is becoming less important.  That’s right, less important. Wow, how can you say that? Cisco just paid bazillions for Scientific Atlanta. Microsoft is plowing money into its IPTV set-top box-driven initiative. No doubt you are shaking your head at this statement and thinking: You’re NUTS!

Well maybe, but we think that this market is ready to implode and in a big way – here’s why: It’s not about the middleman, it’s about value.  The cableTV and telcoTV industries are middlemen whose value today is founded in their exclusive relationships with the content providers.  These service providers offer entertainment in a nice bundle – in fact, bundled with wireless, local, long distance, and other stuff as well.  But these are closed environments – you watch what they decide you want to watch, and in their interface –  and if the Internet, TiVo, AOL, and other environments have shown you anything, it’s that consumers want to do their own thing. We flock to cable, telcos, and satcos today because there are no obvious choices, but those choices are coming rapidly in all sorts of different flavors.  We’re seeing all the pieces in place now – and the ‘outsiders’ are busy putting the pieces together.

Everyone knows that content is what really drives this market. The content guys aren't really interested in how the content gets to people, as long as it is secured by digital rights management (DRM) and content owners get paid for their content.  Until now, the only trusted players in the market who could deliver DRM were those with closed networks and lots of money.

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The set-top box is becoming less important.  That’s right, less important. Wow, how can you say that? Cisco just paid bazillions for Scientific Atlanta. Microsoft is plowing money into its IPTV set-top box-driven initiative. No doubt you are shaking your head at this statement and thinking: You’re NUTS!

Well maybe, but we think that this market is ready to implode and in a big way – here’s why: It’s not about the middleman, it’s about value.  The cableTV and telcoTV industries are middlemen whose value today is founded in their exclusive relationships with the content providers.  These service providers offer entertainment in a nice bundle – in fact, bundled with wireless, local, long distance, and other stuff as well.  But these are closed environments – you watch what they decide you want to watch, and in their interface –  and if the Internet, TiVo, AOL, and other environments have shown you anything, it’s that consumers want to do their own thing. We flock to cable, telcos, and satcos today because there are no obvious choices, but those choices are coming rapidly in all sorts of different flavors.  We’re seeing all the pieces in place now – and the ‘outsiders’ are busy putting the pieces together.

Everyone knows that content is what really drives this market. The content guys aren't really interested in how the content gets to people, as long as it is secured by digital rights management (DRM) and content owners get paid for their content.  Until now, the only trusted players in the market who could deliver DRM were those with closed networks and lots of money.

Well last week Intel made a big move to change this situation when it announced its media content partners for its new Viiv platform for home media PCs and consumer electronics. Viiv-driven PCs themselves aren’t anything radically new or different – it’s just a nice evolutionary enhancement to what Intel was already providing to PC manufacturers involved in the Media Center PC market. What is interesting with Viiv, however, is the fact that Intel is aiming the Viiv system not just at PCs but also at DVD players, media servers and even TVs – providing a mechanism for those devices to directly (and easily) connect to Internet-based content without a PC as an intermediary device.

The really scary part of the Viiv announcement – from a service provider’s perspective – is that Intel has lined up over 40 content partners for this platform (folks like MovieLink in the U.S. and Sky Broadcasting in the U.K.). As Intel grows this list of content-owner partners, end users will have less and less reason to turn to a traditional service provider for their entertainment needs. They can go directly to the source.

Intel is making this easy by putting it all on a chip – inclusive of the DRM and licensing concerns.  Any device company can be part of the entertainment family – just prove out the DRM and ensure money flows, and you’re all set.

You’ve got a lot of device companies that are trying to offer a more direct route to the consumer.  Apple we think, along with MovieLink, TiVo, and others, have really shown that there are other platforms that are capable of taking part in this trusted relationship. (By the way, rumors of a truly “living room ready” media center version of the Mac Mini are flying around left and right these days, with good reason we think.)