Malone's boxes..............................................
mediacentral.com
MERRY XMAS, WALL STREET
For whom does the set-top order toll?
TCI chairman John Malone topped his Western Show performance of two weeks ago by dropping a second bombshell last week: He placed a multibillion-dollar advanced digital set-top order with General Instrument.
As he foreshadowed in Anaheim, Malone agreed to buy 6.5 million to 11.9 million OpenCable set-tops from GI for his MSO's "friends and family" at an expected price of $300 per unit.
In a matter of weeks, OpenCable has gone from being on the fast track to accelerating at warp speed. Why the rush?
There's no doubt that the cable industry is captivated by the thought of a device that would house a digital set-top box, an MCNS-compliant modem and the hardware to eventually handle Internet telephony. Even more appealing, vendors have promised that such a box could be built for $300.
Cable operators are already ahead of any competitor in delivering high-speed Internet access through cable modems, and 1998 will be the year MSOs begin to catch up to DBS in the digital set-top-box rollout race. The new $300 combo box that will be available in retail outlets will solidify cable's market position and could very well continue to boost stock prices well into the next century. Indeed, Silicon Valley has chosen cable as an investment vehicle, which has left cable players giddy with excitement.
Flexible design
In his box-order sales pitch, Malone said each MSO would have the flexibility to determine how the OpenCable boxes' hardware will be set up. In a tip of the hat to Time Warner Inc., he also explained that the initial 10-million-device order could include boxes that house a DVD player or Sony PlayStation.
Malone's 5 million cable boxes match the number of current multipay homes with addressable boxes in TCI systems, plus those of its closest owned companies. The larger 11.9 million figure roughly equals the number of addressable homes in TCI's "friends and family" group. Serving 40 million subscribers, it includes all the MSOs that have forged joint-venture partnerships with TCI.
Underwriting
If Malone can persuade advertisers, marketers, banks and even Microsoft to underwrite the cost of the boxes, it would give TCI more money to invest in upgrading its systems. Still, the GI-TCI deal raises a host of questions. Why is this deal different from the original GI-TCI digital set-top order of five years ago? The delivery timetable for those boxes never matched the agreement's initial expectations.
Why commit to upwards of 10 million boxes when two years from now, MSOs want to sell these boxes at retail? Where's the consumer electronics retailer angle in all of this?
Will Malone's deal influence the OpenCable standards process to the point that whatever TCI and GI decide will become the cable industry's de facto standard? Last week's announcement shed little light on who would provide software applications for the TCI-GI box's innards.
How can anyone know today whether so many complex elements can be jammed into a DCT-1200 or DCT-5000 and work within 18 months? Digital boxes, arguably much simpler in design that OpenCable boxes, took a long time to produce.
Last, but not least, the cable industry has only patchy evidence that lots and lots of consumers are willing to spend $300 for a device that will give them hundreds of TV channels, high-speed Internet access and Internet telephony.
An order of 25 million boxes would cover one in three U.S. cable homes, or the entire addressable analog universe that took 20 years to build.
All in all, it makes for a very tall mountain for TCI and GI to climb in so short a time.
(December 22, 1997) |
