The global market for set-top boxes (STBs) will grow gradually over the next few years, peaking in 2012 at 110 million shipments and declining thereafter, according to a report released today by ABI Research. This applies to all television platforms, including cable, digital terrestrial and satellite, but the decrease might be felt most sharply by IPTV service providers. IP STBs, telcos’ traditional means of bringing content to the home, are being challenged by a number of factors, including embedded alternatives, the digital transition and over-the-top (OTT) video providers.

Sales of basic STBs have already been falling for some time now, according to ABI principal analyst Robert Clark. STB revenues too have declined significantly for all TV platforms between 2007 and 2009, he said, but will recover by 2010 and remain stable until at least 2013. IPTV has been the most affected of all the pay-TV platforms by the current economic dip, which has caused network operators to rethink future investments, especially in differentiation.

By 2012, when the decline is set to begin, the transition to all-digital TV broadcasting will be in full effect. Those consumers switching from analog to digital will have more options than just a new STB – residential gateways, media hubs, gaming devices, OTT video or even a new TV with the service embedded are all posing alternatives.

“Everyone likes the concept of less footprint in the homes,” Clark said. “Whether it’s another replacement STB or enough components being integrated into the TV to displace the need for another set top, it’s not going to be additional hardware – it’s either going to replacement or displacement.”

The market for STBs is affecting all tiers of IPTV providers, too. The tier providers, AT&T and Verizon, are fighting to entice TV subscribers away from their cable competitors, while the tier two independent operators’ progress has been slowed by middleware STB and DRM integration and scaling challenges. They have to upgrade from MPEG-2 to MPEG-4 STBs, in many cases change their middleware out entirely and deal with transcoding issues inherent in the digital transition.

“That impacts the STB and the DRM, especially for integration, and it slows down their buildout,” Clark said. “It is one thing to attribute lesser subscriber numbers due to subscriber demand versus their ability to scale to add subscribers.”