Home Analysis Operators like Comcast are betting on set-top box software to see off...

Operators like Comcast are betting on set-top box software to see off churn

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US cable operator Comcast’s latest home platform X2 gives a glimpse of what the future might hold for premium set top boxes and their role for major service providers. Comcast is the largest US pay TV operator but has been shedding subscribers slowly but steadily for several years now, along with a number of other cable companies both in the US and elsewhere. Comcast’s peak of 25.1 million pay TV subscribers was as long ago as October 2008, and this has declined every single quarter since and now stands at 21.9 million after a further 60,000 net loss during the first quarter of 2013.

The good news is that most of the cord cutting has occurred among lower-end subscribers with the result that as the customer base has shrunk, ARPU (Average Revenue per User) has actually gone up. Revenues in fact rose 3.7% over the quarter, but that is partly as a result of a price rise, while also reflecting the operator’s strategy of shoring up its base through strong promotion of double and triple play bundles and particularly broadband, which reduces churn and holds up revenues. But the operator decided a while ago that this strategy alone was not sustainable against the growing onslaught from OTT providers such as Netflix, which is particularly strong in the US. It had to arrest the cord cutting trend before it started to eat significantly into its base of more profitable customers. This is where its set top box development has come in, firstly with its X1 platform and then the sequel X2 that has just been announced for launch later this year.

X2’s arrival was greeted quite wrongly by some analysts as a step towards the grave for the set top box, coming with a hard drive and handing over DVR storage to the cloud.  But storage is just a commodity that can be conveniently hosted in the cloud when content rights permit. The point about X2 is that it brings a range of new features enabled by software developed by Comcast specifically to tackle cord cutting head on.

The X series was introduced to incorporate the cloud, firstly with X1 by bringing web content. Then X2 introduces a range of new software and the cloud DVR functionality, which immediately means the box can be slimmed down to a third its size and power consumption can be reduced by 50%, both highly attractive improvements to consumers. Most compellingly though, the box is a lot smarter in terms of search and navigation, allowing customers to navigate via voice commands. It includes an updated channel guide with personalized recommendations based on program viewing history and the ability to watch recorded content on multiple devices. Program listings will include content from the popular film review site Rotten Tomatoes, and there is a live feed highlighting TV shows that are currently generating buzz on Twitter, via social-media site Zeebox.

For the viewer the biggest attraction of X2 will probably be its ability to integrate the viewing experience in the home both between the web and broadcast services, and between multiscreen devices. A number of boxes from TiVo and others have accomplished the first of these, but providing a truly unified multiscreen experience has proved elusive. Early assessment of X2 indicated that Comcast has gone a long way to achieving that. If so then the box may just have a chance of contributing to finally ending that nearly five year sequence of subs declines.

But even if it doesn’t X2 brings another important benefit for Comcast, by reducing costs, as a result of eliminating the hard drive and sucking the basic DVR functionality up into the cloud. Hard disks are the most common point of failure on a PVR box. Crucially though Comcast recognizes that going one step further and eliminating the set top altogether is a nonstarter for a cable operator and would then push up support costs dramatically. Having a box in the home enables many problems to be fixed remotely that would otherwise require an onsite visit. A physical device also helps to create simpler boundaries of responsibility so that operators can make clear commitments in terms of support. But all of this functionality, from monitoring to advanced search, relies on development of advanced software. It’s been common knowledge for ages that software is the future of hardware. Comcast’s latest efforts are an impressive example of how operators can ensure the set top retains its place at the heart of the digital home – even if it shrinks in form.

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