Our take...
Cablecard was introduced to break the Motorola and Scientific Atlanta dominance in the cable STB market and create a large retail market for CHDs. Currently there are just over 400,000 Cablecards installed in subscriber-owned CHDs representing 0.3% of the 145 million receivers installed in cable subscriber homes. This ratio has grown by just 0.1% a year since 2005. Cablecard has so far failed to create a large retail market.

One of the primary reasons for this failure is that interactive services are not available to customers accessing content via subscriber-owned CHDs. To enable interactive services CHDs must be designed integrating middleware and a return path allowing communication with the cable networks to make requests such as ordering content on demand. Currently US cable operators use proprietary middleware solutions from companies such as PowerTV (owned by Scientific Atlanta) and TVWorks (formerly known as Liberate and now owned by Comcast and Cox). CHD manufactures require a license to integrate these proprietary standards into their products. These licenses have not been granted to many manufacturers other than Motorola and Scientific Atlanta and consequently subscribers have had to continue to rent STBs to access interactive services. Those viewing via subscriber-owned CHDs have only had access to basic EPGs and few of the other benefits of digital cable. Some Cablecard subscribers are unable to access HD content as cable operators transition to Switched Digital Video (SDV) networks which enable them to save bandwidth by broadcasting HD channels one channel at a time to subscribers. Current subscriber-owned CHDs cannot signal the network to change the SDV channels.

Tru2way is an open standard middleware and doesn't require licensing. Any manufacturer can produce Tru2way CHDs which should be capable of two-way communication with cable networks thus facilitating interactive services. Subscriber-owned CHDs should soon be able to offer VoD, interactive program guides and access SDV channels on Tru2way networks.

While the arrival of Tru2way CHDs will almost certainly reduce the number of cable subscribers renting STBs in favour of iDTVs it is unlikely to have much negative effect on STB manufactures other than Motorola and Scientific Atlanta. In fact the combination of Cablecard and Tru2way will allow most STB manufactures entry into a market previously closed to them. Cable viewers who subscribe to only a basic service will welcome the opportunity to save money by using Cablecard and an iDTV but there will still be a market for STBs offering advanced technologies. Pay TV operators rely on technological innovation to differentiate themselves from their competitors. These technologies have typically been developed by STB and middleware vendors and sold to pay TV operators rather than being developed by them. The TV industry became reliant on STBs when it first began transitioning to digital broadcast in the mid-1990s. STBs were deployed because the installed base of TVs did not have digital tuners. It was a decade before a significant number of CE companies started to integrate digital tuners into TVs and only now are iDTVs beginning to out-sell STBs in some retail markets. PVR STBs were introduced in 2001 but widespread integration of PVRs into TVs is yet to happen. High failure rates compared with non-PVR STBs and rights management issues have made PVR integration impractical. External USB PVR technology will be a more likely candidate, which was first deployed by CanalSat on STBs. Future hardware innovations are more likely to be developed by specialist STB vendors than CE manufacturers. Specialist STB manufactures are prepared to deal in the smaller shipment volumes associated with launching a new technology whereas CE companies depend on economies of scale requiring a critical mass of demand for a product before considering its manufacture.

Widespread semi-global adoption of separable CAS in combination with open middleware standards could be a disaster for specialist STB vendors. Their businesses are built around integrating an operator's choice of tightly licensed CAS and proprietary middleware solutions and chipsets into a STB. Under the above open and separable conditions building an STB would require little more expertise than putting a chipset in a box which could quickly lead to market commoditisation.

South Korea is the only other pay TV market with a similar separable CAS and open middleware combination as the US. Korean cable operators have been using Cablecard since 2004 and some networks have deployed MHP based middleware solutions. In Japan all cable operators use the same JCTEA CAS standard and all satellite DTH operators us the B-CAS CAS standard. Whilst they are not separable solutions manufactures can make a iDTV that will work with all DTH and Cable operators by integrating only 2 conditional access systems. Many cable operators in Germany have expressed an interest in supporting the new CI+ separable conditional access module (CAM) standard. Separable CAS is most commonly deployed on IPTV platforms in the form of Downloadable or DCAS which is downloaded directly onto an STB without the need for a smartcard. The IPTV market relies heavily on proprietary middleware solutions which make unsuitable conditions for a retail market. Open middleware standards such as MHEG and MHP are in common usage in the retail based free to air (FTA) market but have been slow to gain traction in the pay TV market. There are also small open middleware deployments in pay TV in China, Poland, Belgium, Norway and Austria among others.

Of the announced CE companies supporting Tru2way only Samsung have a significant presence in the pay TV STB market. Sony does not currently produce STBs for the pay TV market but does manufacture iDTVs and a range of retail FTA STBs which could be made CableCARD and Tru2way compatible. Another Sony TV product that could exploit this agreement is PlayTV. PlayTV is an external set of dual HD capable DTT tuners that can be plugged into the Playstation 3 console transforming it, via a Sony developed user interface into a FTA DTT PVR STB. PlayTV is expected to launch in Europe, Australia and New Zealand this year but is currently an unattractive proposition in the US because of low DTT penetration and the ATSC broadcasting standard. US digital cable penetration is significantly larger than FTA DTT penetration is in Europe. PlayTV could be adapted for the US market by swapping DTT for cable tuners, making it Cablecard compatible and adapting the middleware to run on top of Tru2way. All of which is technically possible and would give Playstation 3 access to premium pay TV services such as linear HD channels, VoD and PVR as well as being a games console and Blue-Ray player. Playstation 3 has already been deployed as an STB for Korea Telecom's IPTV service without an external adapter.