Someone should buy Boxee before they spoil the soup
Boxee and its partner Hauppauge have been making a lot of noise recently about the pending petition before the FCC to allow the encryption of the basic cable tier. They have even succeeded in provoking the NCTA and several cable companies into a debate on their terms. As I monitor all things related to All-Vid and CableCARD, I have been watching the interchange with amusement for the last few weeks. However, I was surprised today to see the trade press covering this shouting match.
The big benefit of basic tier encryption is that it will allow cable companies do electronic disconnections and reconnections instead of the physical disconnections and reconnections that they currently do. It also greatly simplifies the management of data services. In other words, no more waiting for the cable guy – just get your boxes and plug them in. The potential savings for cable companies and time savings for consumers is immense.
The downside is that a set-top box will be required for every TV on a cable network.
A little “back-of-the envelope” analysis will make it very clear that the entire value of Boxee far less than the savings the Comcast alone would realize from this change, much less the US economy as a whole.
- Boxee is a company that has raised $26.5 million in venture capital, meaning that its total valuation can’t realistically be above $250 million and is probably less than half of that.
- Comcast has 22 million subscribers … assuming a low 10% churn rate, that means 2.2 million truck rolls – which cost at least $100 apiece on average. Where basic tier encryption has been implemented (RCN in New York City), roughly 3/4ths of those truck rolls are eliminated – that’s $165 million worth of annual cost savings to Comcast alone. The value of this decision to Comcast is therefore easily above $500 million in net present value terms.
In other words, the part of Boxee’s business model that relies on unencrypted cable simply isn’t worth saving. Instead, its time for some extremely creative destruction. That Boxee could be side-lined by developments in technology is a risk that its venture capital backers were fully aware of when they made their investments.
What’s in it for the “average American”:
- Not waiting for the cable guy – According to a IBOPE Zogby poll, the average American consumer lost $250 worth of work and productivity last year waiting at home for service calls – for a national total of $38 billion
- Instead, self-install will become the norm.
- Lower Prices – While it won’t be immediately obvious, the fact of the matter is that the United States is the most competitive mature pay-TV market in the world. Similarly, cable companies do also face competition for broadband. Some of their savings will therefore be passed on in the form of lower TV, Broadband, and Telephony prices.
- The Other Stuff – The cable companies are also touting “less traffic” and “less greenhouse emissions”, and those are true too, even after taking in to account the small power consumption of added set-top boxes compared to the power consumption of a van engine.
While I am relatively confident that the FCC is aware that this proposal will eliminate a massive amount of waste and cost in cable system maintenance and will therefore side with the cable companies, I simply wanted to point out that the “even-handed” coverage of this issue in the trade press simply doesn’t stand up under even the most cursory analysis.
IMS Research is closely monitoring the progress of cable basic-tier encryption as it will likely have a massive effect on the timing and size of the DTA (Digital Transport Adapter) market.