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EchoStar-DirecTV Merger Might Trim Set-Top Box Choice

* Some say the companies would be tempted to combine their two technologies, reducing competition and innovation among devices that are expected to play a critical role in the home.


EchoStar Communications Corp., the country's No. 2 satellite TV company, touts its proposed buyout of market-leading DirecTV as a vital shot in the arm for competition with the Big Bad Cable Companies.

Consumers certainly would welcome a competitor serious enough to stop the cable guys from raising their rates, which they do as regularly as the Dodgers miss the playoffs. But shrinking the satellite TV field from two companies to one could mean less choice and innovation in a critical piece of living-room gear: the set-top box.

Hughes' DirecTV and EchoStar's Dish Network have incompatible signals, largely because they rely on different scrambling technologies to ward off pirates. Though their satellite dishes are pretty much interchangeable, their set-top receivers are not.

Beyond that, the two companies have taken very different approaches to making and selling equipment. The former invited manufacturers to compete on features and prices, while the latter kept tight control over its set-top boxes.

So, though at least five manufacturers offer DirecTV gear, only EchoStar and JVC sell Dish Network receivers while at least five manufacturers offer DirecTV gear, only EchoStar and JVC sell DishNetwork receivers. And the only difference between the EchoStar and JVC products is the brand name.

Competition in set-top boxes is important because of the expanding role those devices are expected to play in the home.

Today, a satellite or cable converter box mainly acts as a video descrambler. As the cable and satellite operators fill their digital pipelines with services beyond pay TV, however, their boxes will connect devices around the home with all sorts of information and entertainment.

"The set-top box is likely to become a home gateway ... a different proposition altogether," Philips spokesman Simon Poulter said.

Granted, the cable and satellite operators have been slow to expand their services beyond conventional TV programming. In most communities, digital cable is the same as regular cable, only with more channels. And digital satellite typically means more channels than digital cable.

But there are scattered signs of innovation, particularly in the areas of digital recording and e-commerce. And the area where consumers have the most choice of features and prices is in satellite TV--the only segment where consumers across the country have a choice of provider.

Several satellite receiver manufacturers and retailers say they're not worried about the competitive landscape. For example, David H. Arland, a spokesman for RCA's parent company, says the satellite industry will need continued innovation in products and services to keep up with the upgrading cable operators.

"It isn't as though competition goes away," Arland said. "I think it's going to grow more intense."

Some analysts, on the other hand, say it would make little sense for the merged company to maintain two separate technology families. A more likely approach, they say, is for the new EchoStar to pick one type of signal, one type of encryption and one line of receivers.

The best illustration of the effect of competition may be in personal video recorders, or PVRs, which store TV programs on a hard drive instead of tape.

As cable operators started experimenting with services that enabled consumers to watch movies on demand, satellite operators turned to PVR technology as a substitute. CThe competition between the two companies has led to three forms of PVR, while also nudging the cable operators to move faster on video-on--demand services and their own PVR offerings.

DirecTV offers two types of PVR, one based on software from TiVo Inc., the other on UltimateTV software from Microsoft Corp. Sony and Philips both make TiVo boxes, andwhile Sony and RCA make UltimateTV units.

TiVo and UltimateTV are similar in concept but not in execution--TiVo offers an extensive programming service that tries to divine the user's tastes and automatically records shows that match, whereas UltimateTV offers Internet-based interactivity. And though both carry a $10-a-month service charge, TiVo offers buyers the option of prepaying those charges with a one-time fee of $249.

EchoStar actually got into the PVR market first, teaming with Microsoft on the original DishPlayer. It has since dumped Microsoft and Internet-based interactivity in favor of a no--monthly--fee approach powered by software from OpenTV.

"We plan to be the first one to reach a million PVRs," said EchoStar spokesman Marc Lumpkin said. With hard drive prices falling, Lumpkin said, "all of our boxes will eventually have PVRs in them."

Good news for consumers, perhaps, but not necessarily for those who like UltimateTV or who bought TiVo's lifetime service.

Prospects for UltimateTV with the merged company appear especially bleak. Not only did EchoStar have an unhappy experience with Microsoft on the initial DishPlayer, but Microsoft threw its financial support behind News Corp. in its bid against EchoStar for DirecTV.

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