The hottest piece of real estate for tech companies is the space just above your television set – but first, they have to break the lease.
Everyone from Sony to Microsoft to Hewlett-Packard has designs on the set-top box, which descrambles incoming cable television signals.
As the boxes start to include added features, such as digital recording, Internet access and video games, companies see a chance to grab a bigger slice of the home-entertainment market.
Microsoft in particular wants a chance to put its software on the set-top, collecting the same toll that it does on computers.
The problem is that, for now at least, the market is controlled by two companies – Motorola and Scientific Atlanta.
Back when no one cared much about the set-top box, cable systems granted long-term descrambling contracts to those two hardware companies, giving them an effective duopoly. Other manufacturers must either figure out how to break that grip or pay a license fee to Motorola or Scientific Atlanta.
Sony hopes to circumvent the duopoly with a technology called Passage. The system, which has been tested by Comcast, sets up a new encryption stream without forcing cable companies to replace their entire system.
Customers would then be able to buy their own set-top boxes from third-party manufacturers.
To convince cable operators to adopt Passage, Sony has offered to allow other manufacturers to license it royalty-free.
“Yes, lots of other manufacturers will compete with us, but at least we have a market to compete in,” said Gregory Gudorf, senior vice president of the digital-platform division of Sony. “With an open market, you have more innovation.”
Gudorf hopes for a day when more consumers will buy a set-top box in a store and not lease it from a cable company.
Ross Rubin, an analyst with NPD Group, says such a retail model would allow manufacturers to combine DVD players and set-top boxes; similarly, Sony and Microsoft could take their PlayStation and Xbox platforms and add descrambling technology.
“The days of the wood cabinet with six components stacked on top of each other is going away,” Rubin said.
But it’s not going away quickly.
Officials at Comcast and Time Warner said they’re interested in Passage but have signed no agreements to roll it out.