Magazine article Variety

Why the Cloud Is Key to Charter's Big Buy

Magazine article Variety

Why the Cloud Is Key to Charter's Big Buy

Article excerpt

ANYONE LOOKING to understand the reasons behind the $78.7 billion deal that Charter Communications struck with TW Cable last week need look no further than their own set-top box.

Cable boxes, and more broadly the platforms and apps that TV services are being delivered on, have become a battleground for an industry trying to reinvent itself, with innovation being driven by fast-moving tech companies from Netflix to Apple.

In that context, the Charter deal shows that innovation can come in myriad ways.

For instance, had Comcast been permitted to acquire Time Warner Cable, then the Philadelphia-based company's souped-up, state-of-the art XI box would have become the standard for transitioning TW Cable customers. But if regulators approve Charter's offer, it's doubtful current boxes will get swapped out any time soon - and yet they won't go without upgrades.

Think of the X1 as the Mercedes of cable boxes. It's new, shiny and powerful, and offers access to next-generation services. But like a German auto maker, Comcast is very protective of its XI platform; the company hasn't added any third-party video apps to the XI - no Netflix, no YouTlibe, no Hulu - with Comcast executives reticent about opening up the XI platform to perceived competitors. And just like a new Mercedes, the XI box still carries a mark of exclusivity: It has taken Comcast years to roll out the platform; only 25% of the company's triple-play customers have an XI.

Charter, on the other hand, is using a much more prudent approach to upgrade its aging set-tops - and one that's faster to roll out: Instead of replacing boxes in every single household, the company has built a user interface in the cloud that is being sent to existing boxes in the form of a video stream. A Charter customer can even continue to use his old remote control; his set-top box simply sends each key stroke to servers that take milliseconds to register updates as the customer browses the list of channels, or programs a DVR.

This cloud-based technology has been developed by ActiveVideo, a startup Charter jointly acquired with set-top maker Arris in April. The upside for Charter is that the technology is a lot cheaper than developing new hardware. In fact, cable analyst Craig Moffett believes it was key in making the numbers line up for Charter's acquisition of Time Warner Cable. "This deal may not have been possible, at least at this price, without ActiveVideo's technology," he said.

But Charter's take on the future of the set-top box isn't just about the pocketbook. Shifting development to the cloud also allows the company to iterate more quickly, which mixes well with a willingness to open up the box to third-party services - and may even be the kind of inclusive technology that helps ease regulators' concerns over a combined Charter-TW Cable being predisposed to conform to conditions of net neutrality. …

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