What You Need to Know About CableCARDs

This wafer-thin card will pave the way for cable consumers to leave set-top boxes behindif they want to. Here's how it works

Something big is happening in the entertainment business—and no, it's not the introduction of Apple's (AAPL) much-hyped iPhone. This one affects the cable industry, and it could mean an array of new choices for millions of subscribers across the country.

As of July 1, cable providers are required to offer new digital subscribers equipment that works with what's known as a CableCARD, a wafer-thin card that tells your TV what programming you have purchased. It's revolutionary because it can be used with a variety of devices, not just the set-top boxes traditionally leased by cable operators such as Comcast (CMCSA) and Time Warner (TWX).

The idea is that competition will lead to innovative applications on your home entertainment equipment. The government also aims to create an open platform so that the user can take a cable-ready device purchase to another provider when he or she moves. Here are some key things you need to know about this change:

How do CableCARDs work?

CableCARD is a device the size of a credit card that slips into the slot on the back of a cable box you lease from your local provider. Some makers of digital video recorders also plan to sell CableCARD-compatible boxes.

With a CableCARD-ready recorder by TiVo (TIVO), for instance, you can simply call the cable company and ask for an access card to get programming, and you'll no longer be dependent on the box provided by the cable operator. In the case of cable providers, if you lease a box, the CableCARD will be included in the setup.

Do I need to call to get a replacement for my current cable box?

No. Only new customers, those switching to digital services, or anyone buying a cable-ready device at retail will need a CableCARD. Cable companies don't expect there will be mass call for them since many consumers are happy with leasing their current boxes for a few dollars a month. Most cable companies insist on a technician's visit to install the card, so even if you buy a box at retail, you still need to contact your cable provider.

What CableCARD-ready devices are available now?

Some older flat-panel HDTVs include CableCARD slots, as does TiVo's Series3 digital media recorder. You'll pay a premium for these CableCARD-ready devices since building in that feature typically costs $100. Expect to see other CableCARD-ready digital video recorders at retail by the end of the year. Meanwhile, PC makers also are beginning to roll out CableCARD-ready media centers. Sony's (SNE) Vaio XL3 Digital Living System, which also includes a Blu-ray player, is CableCARD-compatible. It will set you back $3,300.

How does CableCARD affect programming? Will I get the same channels using the new card as I did with the old set-top box?

That depends on which equipment you're using. If you get a CableCARD box directly from the cable provider, you will have the same experience as users of older boxes. But if you buy a CableCARD-ready device at retail, you typically lose the ability to call up increasingly popular on-demand programming. That's because cable operators insist consumer-electronics makers sign an agreement that gives cable companies final say over what you see on the home screen. Few makers have agreed.

Why the demands by cable companies?

Cable operators spend hundreds of millions of dollars annually on equipment and generally don't turn much of a profit from leased boxes. Maintaining control over the equipment is important to them, however, because it determines what you see and don't see on your TV. Some retail DVRs, for instance, let you skip through commercials. Advertisers are a major revenue source for cable operators.

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