Monday, September 26, 2011

Poof! Your set-top box has turned into a brick

Yesterday, Sezmi, a Silicon Valley-based video service provider, announced that it is discontinuing its services in the U.S. in order to focus on selling its platform to international service providers. Sezmi used a combination of an Internet connection and digital broadcast signals to provide a subscription package of broadcast, cable and Internet-only channels. While the service was eventually offered in 36 U.S. markets, the cable channels were never made available outside Los Angeles (even though customers in other markets were told they would get them), and the cable channels in Los Angeles were discontinued last December. Subscribers purchased a $150 package including a set-top box with a 1TB hard drive, and a digital antenna for picking up over-the-air broadcasts; the monthly price was $5 for basic service, and another $20 for the cable channels.

Sezmi's unique selling proposition was that it was a low-cost replacement for cable service, but once the cable channels went away, Sezmi lost its primary selling point. In addition, if subscribers lived too far away from local television transmitters to get a good digital picture, they couldn't use Sezmi, either. Sophisticated industry observers could see that Sezmi was doomed, but consumers didn't necessarily have that insight.

Consumers who bought into Sezmi are stuck with bricks that will be useless for anything except watching YouTube by November 1st. Sezmi isn't offering any refunds for hardware, no matter when it was purchased. Subscription video services fail all the time--for example, Cablevision's VOOM was the first HD satellite TV service, and lasted for approximately two years. The VOOM set-top boxes could also be used as ATSC digital receivers, so a few of them are probably still in use, but most of them ended up in the scrap pile.

The lesson is that consumers should beware when being asked to purchase a set-top box, especially an expensive one. If the company offering the service goes out of business, changes strategic direction or is acquired, its set-top box is likely to become a paperweight. Apple and Roku have the right idea--none of their set-top boxes are priced over $100. It's clear that no one feels any particular responsibility to their customers if they discontinue their services, so caveat emptor.
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