The set-top box is becoming less important. That\u2019s 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\u2019re NUTS!The set-top box is becoming less important.\u00a0 That\u2019s 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\u2019re NUTS!Well maybe, but we think that this market is ready to implode and in a big way \u2013 here\u2019s why: It\u2019s not about the middleman, it\u2019s about value.\u00a0 The cableTV and telcoTV industries are middlemen whose value today is founded in their exclusive relationships with the content providers.\u00a0 These service providers offer entertainment in a nice bundle \u2013 in fact, bundled with wireless, local, long distance, and other stuff as well.\u00a0 But these are closed environments \u2013 you watch what they decide you want to watch, and in their interface \u2013\u00a0 and if the Internet, TiVo, AOL, and other environments have shown you anything, it\u2019s 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.\u00a0 We\u2019re seeing all the pieces in place now \u2013 and the \u2018outsiders\u2019 are busy putting the pieces together.Everyone knows that content is what really drives this market.\u00a0The 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.\u00a0\u00a0Until 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\u2019t anything radically new or different \u2013 it\u2019s 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 \u2013 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 \u2013 from a service provider\u2019s perspective \u2013 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 \u2013 inclusive of the DRM and licensing concerns.\u00a0 Any device company can be part of the entertainment family \u2013 just prove out the DRM and ensure money flows, and you\u2019re all set.You\u2019ve got a lot of device companies that are trying to offer a more direct route to the consumer.\u00a0 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 \u201cliving room ready\u201d media center version of the Mac Mini are flying around left and right these days, with good reason we think.)So why do you need the middlemen to serve up entertainment over a closed proprietary network?\u00a0 You don\u2019t really, you just need reliable transport \u2013 transport that can be complemented with in-device buffering and hard drive capacity to smooth over any long haul transmission issues.\u00a0 The set-top box is just software \u2013 and there are several leading edge alternatives for TV middleware on the market that are much better than anything Microsoft or the cablecos are offering.\u00a0 They just need the licensing deals with the content players.So we think someone like Intel (and its Viiv partners) or Apple with a Mac Mini set-top box will be the next real full-scale competitor to these closed environments, and their successful platform is going to have these characteristics:1. Big honking hard drive for storing not just recorded TV but the most commonly viewed content (predictively downloaded for you) to allow for fabulous performance.2. Open fields not closed garden.\u00a0 Browsing, random access interfaces, and mouse-driven motifs for users to be able to do what they want, and what they are used to.\u00a0 I\u2019m tired of TV people telling me they know best \u2013 they came up with a 180+ button remote control for gosh sakes.\u00a0 The market will trend towards portals for doing common tasks, just like we use Google and Yahoo! for the PC.\u00a0 The market will determine many of these next gen interfaces, not the providers (learn from the AOL example where open and inclusive competitors took away much of the legacy provider\u2019s advantages, and did it more cheaply too).3. New interfaces that are distinctive.\u00a0 Telcos, cablecos, and satcos move TOOOOOOO slowly when it comes to re-inventing the users\u2019 relationships to the TV set.\u00a0 They deserve to get their butts kicked here.\u00a0 The consumer electronics folks know how to get distinctive products to market much faster than the service provider middlemen. Hillcrest Labs has its new freespace navigation engine \u2013 light-years better than Nintendo\u2019s first gen approach. AgileTV offers the ability to talk to the TV set and get it to do the user\u2019s bidding \u2013 this will be great for specific applications too. Next gen set-tops won\u2019t be limited by one interface but will sport new ways of getting to content.\u00a0 We\u2019re waiting on the first Amazon.com appliance to hit the streets so we can shop on our TV set.4. New ways of getting content to the market.\u00a0 Products like EAT.TV\u2019s ImageGuide \u2013 which provides customized interfaces and content presentation over any transport system, including the Internet (along with advertising delivery mechanisms that customers may actually WANT to watch) \u2013 help give content owners the ability to create their own direct channels to customers.\u00a0 They don\u2019t need to negotiate for scarce TV channels on a closed interface.5. Bundles of similar competitor services.\u00a0 Slap Vonage together with resold Sprint wireless and movies on demand and you\u2019re close to a Verizon bundle. Throw in a Sling Media and gaming console manufacturer and it could get fun. It\u2019s not hard to bring competitors together when they have the same enemies.We would not be surprised to see a bidding war break out for content, just like we have in sports, where telcos, cablecos, and others will start bidding for the exclusive rights for shows.\u00a0 Despite that, the sheer amount of content out there, and the realization by consumers that if you don\u2019t see it now, you can see it later just as well, will limit this as an effective strategy and it will be a short-lived experiment.So we\u2019re going to be entering a new era of choice for users and service providers. Up to now, users have had a Hobson\u2019s Choice \u2013 you can watch whatever you want, as long as we, the service provider, provide it to you.\u00a0 Now users are heading into an era where they\u2019ll finally see true choice in getting content to their living rooms.And herein lies the Sophie\u2019s Choice for service providers: Start charging by the drink for Internet access to stop the competitive alternatives to the billions you\u2019ve invested in your closed TV platforms \u2013 and risk losing customers to unlimited Internet plans \u2013 or allow \u201cEntertainment Bypass\u201d and lose customers to interfaces and platforms that can innovate faster than you can.\u00a0 What\u2019s left will be a hugely price competitive arena.We urge our service provider clients that they need to embrace platforms that can embrace the innovation, not clam it up.\u00a0 If you think you\u2019ve already got that, think again after CES 2006, where a lot of this neat new stuff is going to start coming out.