Plugging some unintended consequences

After some foot-dragging, the Federal Communications Commission gave its blessing to an amended version of the 'Plug-and-Play' agreement for set-top-free digital TVs first proposed last year by influential cable and consumer electronics constituents.

Now comes the hard part. TV manufacturers need to make the complying equipment and pray that there's a market for it, while cable operators need to figure out what it will mean to them, how to prepare for it, and hope that doing so won't cost too much.

More pressing, though, are some of the unintended consequences the agreement brought against other cable interests, namely the industry's two primary set-top vendors: Motorola Broadband and Scientific-Atlanta.

Some analysts who apparently didn't have all their facts straight or didn't fully understand what they were talking about declared that P&P would end the 'set-top duopoly' and put a serious dent in Motorola and Scientific-Atlanta set-top revenues.

Those opinions, while not necessarily true, were destructive, nonetheless, causing some investors to hit the panic button, sell their shares, and ding the stocks, S-A's in particular.

Jeff Baumgartner
“Confusion on the [plug-and-play] subject among some analysts runs deep”
Confusion on the subject among some analysts runs deep. For starters, the so-called 'set-top duopoly' has much less to do with set-tops than it has to do with the conditional access (CA) systems that control them. That's where the crown jewels really are.

The way the P&P agreement (like OpenCable) is structured, the CA duopoly will endure, because the CableCARD, the device that will give consumers access to the cable services they pay for, will very likely come from Motorola or S-A, depending on the cable system in question.

Guess who will receive the revenues for those cards? Even if S-A and Motorola end up selling fewer set-tops as a result of P&P, as some analysts claim, they can still maintain that business by moving set-top margins into the CableCARD.

But what may actually end up being good for S-A and Motorola initially may not be so good for competing CA system vendors, because they won't benefit much from P&P right off the bat. However, what it will do, I suspect, is provide even more support for Sony Passage, which, at last look, counts four CA vendors (Irdeto Access, Nagravision, NDS and Widevine) as licensees.

Some analysts are also not giving much consideration to the fact that the first agreement is for one-way services (a two-way version is in the works). If customers want video-on-demand right now, they'll need an interactive set-top–which defeats the idea of having a set-top-free TV.

And P&P might end up having little to no impact on the CA duopoly, anyway. Cable's eventual migration to an all-digital environment probably stands a better chance to end Motorola's and S-A's grip on the CA. But that's a blip on the horizon, and won't knock the wheels off the traditional model anytime soon.