Pace Enters HD Box Race

Cable World, Feb 24, 2003

Byline: ANTHONY CRUPI

Introducing a new high-end set-top box is similar to rolling out a new model automobile: There may be a lot of oohs and aahs when the manufacturer lifts the curtain on stage at the car show, but until you get to the test-drive stage, everything is mere artifice.

Pace Micro Technology Americas understands this analogy keenly, and as such is itching to take its latest box off the carousel and onto the track. Throughout this week's CableConnects 2003 Regional Broadband Conference & Expo in San Antonio, Pace will demonstrate, for the first time in a public forum, its new high-definition offering, the Pace DC-550 HD.

David Novak, Pace's VP of marketing, says the CableConnects demo will feature live content originating in a head-end in Time Warner's San Antonio system. (Previous outings by the HD box were finessed with canned loops of HD-quality video.) "This is it," Novak says. "The box is making the rounds to different Time Warner systems as we speak, and we hope to have it in trials within the next few weeks."

Those that choose to road test the box will have a lot of industry firsts to fiddle with. Novak says the DC-550 is the first HD box in its class to offer DVI 1.0 with HDCP connectivity. (It should be noted that Scientific-Atlanta's Explorer 4200HD gateway, which began shipping in December 2002, features an optional DVI interface.) Additionally, the Pace box is engineered with an optional IEEE 1394 digital interface that would allow for an interface between an HDTV unit and a peripheral DVR.

Novak notes that the DC-550 is also the first HD box to get the thumbs-up from the EPA by meeting that agency's Energy Star standards for efficiency. Set-tops are notoriously inefficient appliances; many boxes consume almost as much power when turned off as they do when they're in use.

After the Texas show, the trick for Pace will be to entice an MSO into deploying the new box. The majority of its standard-def 510 model can be found in 16 TWC divisions. To Pace's advantage, the demand for HD is growing, albeit slowly. "You'll see HDTV take root on a market-by-market basis," Novak says. "Much of it will be dictated by the available content."

Although the market remains in a slump - for the first time in six years, annual cable set-top box shipments and revenue have decreased - some analysts believe that the backward trend is temporary. According to Kagan World Media estimates, basic digital set-tops should be found in 10.3 million homes by 2006. Beyond those lower-end boxes, more advanced units could account for another 8 million homes in the same time period.

In terms of HD-capable boxes, Kagan indicators suggest that 6.7 million devices may be in use before FCC Chairman Michael Powell's digital deadline rolls around. But that may be a low-ball estimate. If HDTVs become the next "must-have" consumer electronics device, that figure could easily double, Kagan concludes.

While no set-top maker will discuss pricing outside of a consumer electronics context, estimates for the higher-end HD units range from $300 to $500. If you're comparison shopping, the MSRP of S-A's 3100HD box is $499. Pace's MSO partners can expect to pay "sub $300" for the DC-550 HD, Novak says.

So how can Pace offer its high-end product at such a (relatively) low price? "You can look at that two ways," Novak explains. "The retail model will always be far more expensive than the lease model. That's not a secret. On the other hand, maybe we're just better at this than everyone else."

THE NEXT QUESTION:

*Are set-top manufacturers looking too far down the road with regard to the perceived demand for high-end digital boxes?