The IP set-top box market was once considered a sector where start-up vendors could make a mark, but the ability of the market to support a multitude of vendors is coming under increased scrutiny as two traditional cable suppliers have stepped in and analysts re-think the impact of direct-to-consumer efforts.

Motorola's acquisition of Sweden's Kreatel last month essentially was the second shoe to drop in the IP set-top market after last year's purchase of Scientific-Atlanta by Cisco Systems. Prior to the Kreatel deal, Motorola had a nascent IP set-top box effort that grew out of its former Next Level Communications group. However, Kreatel gives the company a product line that has significantly more field experience behind it, particularly in Europe.

The acquisitions signal that “the 500-pound gorillas” have arrived and will push out smaller players, said Colin Dixon, senior analyst and director of The Diffusion Group's IPTV practice.

Motorola and SA dominate the traditional cable set-top box market and will do the same in the IP environment, Dixon said. TDG estimates that the market share of vendors such as Amino, Entone, i3, Humax and Thomson will shrink from 90% last year to 10% in 2010 (see figure).

At the same time, questions are arising over whether there will even be a significant IP set-top market to dominate given the numerous configurations of IP and video that are developing. Alcatel, the primary supplier to AT&T's Project Lightspeed, is planning for a future in which set-top boxes give way to systems-on-a-chip embedded in consumer electronics, said Derek Kuhn, director of marketing and business development for Alcatel's information, communication and entertainment group. In that scenario, IP video from the service provider would enter the home and either be directed through a residential gateway or DSL router and then directly to a TV, which would have a “set-top” embedded into it. The same architecture could be used by consumers receiving video from non-traditional providers such as Google, Yahoo or Apple.

“It is easy to take that system-on-a-chip and just stick it into a piece of consumer electronics,” he said. “The only way it reaches an economic point, though, is with volume.”

Indeed, with multiple deployment scenarios, it may be difficult for anyone in particular to take hold in the long run. In the near term, though, there seems to be agreement that IP set-tops will be required.

Steve McKay, CEO of Entone, which is planning to expand its line of Hydra residential gateways this year, said the requirement that telcos come to market with something more than just traditional cable offerings will necessitate IP set-tops.

“I don't see a way to do MPEG delivery that doesn't involved set-tops,” he said.

The company is exploring developing an inexpensive hybrid box that passes through off-air, high-definition signals while using the set-top only for video-on-demand offerings.

“Some of the telephone carriers are saying [off-air HD] could be a real savior,” McKay said.