Set-top sales seen poised for takeoff: but some manufacturers say ABI study is too optimistic - Technology

A boom in the set-top-box market is predicted by a new Allied Business Intelligence study, which forecasts sales of 45 million satellite, cable and terrestrial transmission receivers this year and 88 million by 2007. But set-top-box makers are split on whether those numbers are too optimistic.

One key question is whether the current economic downturn, combined with the Sept. 11 attacks, is a bump in the road or a sign that the market has changed on a long-term basis.

Joshua Wise, senior analyst for ABI and author of the study, which was released last week, says he remains bullish. He points to the push by cable operators to entice subscribers to switch to digital boxes, along with increasing penetration for both satellite and cable in worldwide markets.

But Mark Gurvey, VP-marketing for Pioneer Corp., notes flat results for most cable companies since June of last year and says his company estimates global sales of only 60 to 65 million by 2006 or 2007.

"We saw a somewhat dramatic slowdown starting in June 2001," Gurvey says. "And in that environment it becomes difficult for a consumer to justify the added cost of leasing or purchasing a digital set-top."

The worst is probably behind the industry, he adds, but growth is likely to be slow to moderate over the next year or two.

In contrast, Pace, which has just entered the U.S. market and has set an ambitious goal of seizing a 15% share in the next two years, backs ABI's figures.

"There are a number of variables, but it does fall in line with the numbers we see in the marketplace," says David Novak, Pace's U.S. director of marketing. The 2001 slowdown in box sales was in part due to companies waiting for the AT&T-Comcast deal to shake out, he says, and that is now resolved.

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He points to the way operators, including Pace client AOL Time Warner, are pushing video-on-demand as yet another reason box sales will increase.

Whatever the numbers, the question is which boxes will sell--simple, thin-client Motorola DCT-2000s and their equivalents or more expensive, more powerful, thick-client boxes with built-in personal video recorders, high-speed modems and home-networking capabilities?

For cable operators, in particular, the thick vs. thin issue is ultimately decided by cash flow, says Wise. And that would dictate that thin- to medium-client boxes will dominate for the next few years.

"Cable operators want a little more return on investment before they are ready to begin the next wave of upgrades," Wise says. "And that means for the immediate future, the 2000s--perhaps the new 2500s or 2600s--or even 3000s, but still on the lower end of things."

Scientific-Atlanta believes the move toward higher-end boxes may come sooner rather than later, says spokeswoman Nicole Hockin.

"We absolutely see the set-tops with home networking and home gateways selling," she says. "It's not just a matter of replacing the boxes that are out there."

She points to AOL Time Warner's October 2001 agreement to buy 625,000 S-A boxes, including 100,000 of the company's high-end Explorer 8000 home media servers with personal video-recording capacity and 50,000 of its 3100 box with high-definition TV capability.

But Pioneer's Gurvey agrees with Wise that for most cable operators, high-end boxes will have to wait.

"What we're finding from talking to operators is that the thick-client box is not going to provide the level of growth cable operators require because of changes in the economy," Gurvey says. "Low-cost boxes--the mid- to thin-client box-will suffice for them."

Which companies will get larger shares of set-top sales is still up in the air, Wise says, though he notes that Motorola's market share has declined for the last five quarters, while S-A and Pace continue to push hard. A Motorola spokesperson was not available to comment.

But the ABI analyst and the industry executives interviewed by Cable World expect the breakdown of satellite, cable and terrestrial set-top sales to change.

According to the ABI study, in the current year, satellite sales will account for about 60% of the 45 million box sales; cable will account for approximately 30%; and the remaining 10% will be terrestrial boxes for HDTV broadcasts.

But Wise says that by 2007, he expects cable sales to catch up to satellite at about the 40% level, as companies move to provide VOD and other sticky applications that satellite broadcasters cannot match.

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