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Set-top box heats up with Moto, Sony bids
Margaret Quan and Junko Yoshida
NEW YORK - The set-top box looks to be a hot commodity again, with two deals announced last week bringing two industry giants into the business. Motorola Inc. made a hefty bid to purchase General Instrument Corp. in an $11 billion stock transaction. And Sony Corp. of America made its debut in the digital set-top market by landing a deal with Cablevision Systems Corp., which will spend $1 billion to buy 3 million Sony set-tops for deployment in the New York area starting next year.
Separately, Motorola announced last week that it will collaborate with Sarnoff Corp. and DirecTV to deliver set-tops that will receive DirecTV's satellite TV service as well as analog and digital terrestrial TV broadcasts. The trio expects to deliver set-tops to the market next year at a price of $500 or less.
The deal with GI positions Motorola, a onetime maker of TV sets, as a re-emergent consumer-electronics force. But it's unclear whether the company can parlay the acquisition into sales of its silicon into GI sockets.
Both companies are clearly betting the long-anticipated rise of voice, video and Internet data networks over cable lines is at hand. But Sony customer Cablevision, a growing entertainment conglomerate, is seen in the cable industry less as a bellwether than as a free thinker that goes its own way.
Motorola chairman and chief executive Christopher B. Galvin said the partnership with GI will enable Motorola to expand its current portfolio of network access systems from cellular phones and cable modems to "home hubs" that will handle high-speed Internet access, video entertainment and carrier-quality voice services.
"Motorola is setting itself up as a key component and equipment supplier for the home gateway," said Gerry Kaufhold, principal analyst at In-Stat. To achieve that, "Motorola has to become a consumer-electronics company."
Before the GI deal, Motorola had been scouting consumer OEMs to champion its Streamaster architecture, which it positions as a platform for a home media router, network computer or digital entertainment set-top. Ray Burgess, general manager of the imaging and entertainment group at Motorola's chip division, sketched out one high-end incarnation of Streamaster that would include Motorola's Qorus MPEG-4 video codec, an audio DSP, the company's ImageMOS CMOS sensor and an Mcore processor with a built-in 8-Mbit/second, 5.35-GHz wireless LAN capability and Java support.
Will Strauss, principal analyst with Forward Concepts Inc. (Scottsdale, Ariz.) said he believes the GI acquisition will "buy Motorola instant sockets for its Streamaster chips." Although Motorola's own cable-modem business is more successful than GI's, Strauss said that Motorola gains in that area as well, since its overall channels and breadth of product line will increase if GI is acquired.
Galvin said GI will continue its current course of product development after the merger, although it will gain access to Motorola R&D labs. Going forward, Galvin said he foresees new engineering opportunities and building of common products by Motorola and GI.
In the set-top arena, Motorola's PowerPC architecture has been under serious attack by the MIPS camp, said Kaufhold. As a result, despite its long-standing relationship with GI, Motorola has been locked out of a potentially huge deal for advanced digital cable set-tops.
Motorola's arch-competitor in set-top silicon has been Broadcom Corp. (Irvine, Calif.), which two years ago beat out Motorola to secure a development, supply and license agreement with GI. Broadcom issued and sold 1.5 million shares to GI for $22.7 million in September 1997. Under the agreement, GI granted Broadcom a royalty-bearing, nonexclusive, worldwide license to use its MPEG and related technology, while Broadcom agreed to develop ICs for GI's digital cable set-top boxes and supply such ICs to GI for four years.
According to the SEC filing on the deal, GI agreed to purchase from Broadcom all the requisite chips-except the CPU and memory-for the set-tops that GI would ship in 1998. The percentage of the product requirements that GI must purchase from Broadcom, however, declines each year over the term of the agreement, to 45 percent of total requirements in 2001.
Henry Nicholas, president and chief executive officer of Broadcom, said GI's deal with Motorola would actually be a positive one for his burgeoning company because Broadcom has design deals with both firms.
"What we have been developing in confidence with Motorola's cable modem division can now be combined with things we've been separately working with GI for their set-tops," he said. "For us, things couldn't be better than this."
Nicholas added that the chip development and supply arrangements made between Broadcom and GI two years ago will remain valid after Motorola acquires GI. Even without such arrangements, however, "you can't shove chips down customers' throats if they don't like them," he said. Last quarter alone, 27 percent of Broadcom's revenue came from GI.
GI may have more than Moto to gain from the partnership-namely, a recognized brand. By order of the Federal Communications Commission, cable set-tops-GI's main product line-are destined to go retail starting July 1. With that, GI will no longer share a virtual duopoly, with Scientific-Atlanta, in set-top sales to U.S. cable operators.
Over the past year, GI had held merger discussions with several other telecommunications companies as well as Asian consumer electronics concerns, only to be turned down.
"To many CE vendors, GI is essentially a hardware manufacturer without a brand name," one source explained.
The deal may equal more than the sum of its parts. Leo Hindery, president and chief executive officer, AT&T Broadband & Internet Services, was reportedly one of the executives who advised the two companies on the merger. Hindery said he provided insight into the industry's direction in convergence and suggested that a combined company might be more powerful. He described as "exciting" the combination of GI's cable-business connections and Motorola's potential to bring wireless access into the hybrid fiber-coax cable architecture.
Meshing with GI
As part of the deal, Edward D. Breen, chairman and chief executive officer of General Instrument, will lead a new Motorola business unit focused on integrated and interactive broadband access solutions. The group will mesh the staff, assets and operations of GI with Motorola's Internet and Networking Group.
Meanwhile, Motorola's set-top deal with Sarnoff and DirecTV will yield a box that will be able to decode all of the ATSC formats, said James Carnes, president and chief executive officer of Sarnoff.
Moto's Burgess said he believes service providers will roll out converged voice and video networks in which Motorola's various set-top gambits will find a role. "We don't want to play just one card; we want to work with all the network operators," he said.
Cable operators vary widely in the kinds of infrastructures they must support and the speed with which they plan to roll out digital set-tops, said Kaufhold. Companies such as AT&T, Comcast and Cox are taking a conventional route to incremental new revenue by offering local telephone services along with Internet access, the analyst said, whereas Cablevision and Charters are among those with edgier plans for new interactive TV services.
Cablevision, in particular, is no ordinary cable operator. It owns businesses as diverse as American Movie Classics, Bravo, Madison Square Garden and The Wiz consumer electronics stores. The company sports 3.4 million cable subscribers.
Cablevision is purchasing two different versions of a digital box provided by Sony, one with the Sony Aperios operating system and the other with a smaller, lightweight real-time operating system. Sony will provide system design and software integration, including the head-end equipment and OpenCable digital set-top box components. Sony and Cablevision will collaborate on developing the digital entertainment services, such as interactive program guides, video-on-demand, Web-enhanced TV, e-mail and interactive games.
Sony is expected to leverage the deal to advance its own technology agenda, including its operating system, called Aperios, and the proliferation of IEEE 1394 and the 5C Digital Transmission Content Protection Method for cable boxes.
Howard Stringer, chairman and chief executive officer of Sony Corp. of America, said the deal will allow Sony "to make good on a lot of promises-a lot of them made by me"-for digital interactive services
If Sony adds some software maybe they can use Playstation II in NY?
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Sony equips game platform with DVD, broadband link -- Playstation 2 plugs into cable
Yoshiko Hara
TOKYO - Sony Computer Entertainment Inc. fired a fastball into the home-entertainment market last week with the launch here of its Playstation 2, positioning the console as both a game machine and a home platform for future digital content. Sony said the system, which is powered by a CPU that outperforms those used in most PCs, will offer DVD-video playback and, by 2001, will sport an Ethernet interface via a Type III PC Card adapter that will let the console plug into cable modems.
Speaking at the Tokyo Game Show last week, Ken Kutaragi, president and chief executive officer of Sony Computer Entertainment, said the DVD-equipped console combines the functions of a music, movie and game machine, and is ready for emerging broadband networks. "The cable-TV network is the most practical network at present that can support broadband communications. There is no other network that allows large-volume data transmission," said Kutaragi.
Data content coming
Sony plans to launch its own data-distribution business using the consoles as home terminals. Initially, Sony will distribute Playstation software over the cable networks and ultimately hopes to deliver movies as well.
The Playstation2 will hit the Japanese market March 4, with introductions to the North American and European markets to follow by about a half year. The unit's suggested retail price for the Japanese market will be $362, the same as the first-generation Playstation when it was introduced in Japan in December 1994.
Analysts have been wondering if the large central and graphics processors in the system, each of which exceeds 10 million transistors, would force a higher price in the system or delay its launch, something Kutaragi denied.
The Playstation announcement came just four days after the introduction of Sega's Dreamcast console in the United States. Sega will ship a 56-kbit/second modem with Dreamcast to enable Internet access. Similarly, Sony's other archrival, Nintendo, plans to add a modem to its portable GameBoy player for Web access. Sony has no plans to offer a modem with the Playstation 2, leaving it without Net access until the Ethernet card/cable modem link ships in 2001.
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