The Changing Set-Top Box Business

Box Makers Consolidate as the Cloud Hovers

Cisco_STB_lTraditional set-top boxes don’t have the same mass appeal as smartphones despite the fact they’re among the most-used consumer electronics products in many Western households. Flagship models are introduced without much fanfare, and even technology-savvy consumers would have difficulty naming the operating system embedded in their household set-top boxes. The devices are considered background equipment that’s owned and maintained by service providers. Now cloud-based services and low-cost streaming sticks are getting all the attention.

This week, Cisco — one of the world’s leading suppliers of set-top boxes — said it plans to sell its set-top box unit to France’s Technicolor for $600 million. The announcement received limited attention. Cisco entered the set-top box business via its purchase of Scientific Atlanta in 2005 for $6.9 billion, and completion of the latest acquisition will make Technicolor (formerly Thomson) the second-leading supplier of the hardware. Technicolor estimates the deal would give it 15 percent of the global market, shipping about 60 million devices per year.

In April 2015, the ARRIS Group purchased Pace — Europe’s largest maker of set-top boxes — for about $2.2 billion. The deal made ARRIS the world’s largest supplier of set-top boxes. In 2013, ARRIS acquired Motorola Mobility’s Home unit for $2.35 billion.

The operator set-top box industry has essentially restructured itself in the past few years, with significant consolidation among the top brands. Five main players are suddenly in the process of becoming two.

CCS Insight believes this consolidation has been accelerated by the changing nature of the market. Set-top boxes have long played a central role in living rooms, and were a key candidate to become a gateway to smart homes. But this potential has been diluted by a growing number of smart home devices and low-cost streaming solutions like Amazon’s Fire TV portfolio or Google’s Chromecast (see Daily Insight: Seven-Pound Scissors).

It’s no coincidence that changes in the operator set-top box market are occurring parallel to the effects of cord cutting. As CCS Insight predicted, traditional set-top-boxes are on their way to becoming virtual (see CCS Insight Predictions for 2015 and Beyond). Broadcasters are realigning their services to reflect the demands of a new generation, and this often means no box at all. Cable operator Comcast, for example, recently introduced Stream, an Internet-only, $15-per-month service that provides access to much of the most-demanded video content without the need for any additional equipment. This growing disruption explains the discounted acquisition price.

The notion that video subscription services are skipping the traditional set-top box and jumping directly into the cloud means further changes lie ahead for the business. Cloud-based streaming and storage will continue to have damaging effects on the position previously enjoyed by set-top box makers.

Current market consolidation reflects the changing demand for cable, satellite and terrestrial boxes. The industry has gone through shifts from analogue to digital, and will now move to new forms and prices. Changes are happening at a hectic pace.

If you’d like to receive free Daily Insight
e-mails every day, click here to sign up