Vudu (Finally) Abandons the Set-top Box

It’s been a long time coming, but over-the-top video company Vudu has finally stopped selling its set-top box, according to the NY Times, preferring instead to provide its software and video marketplace to consumer electronics manufacturers.

Founded in 2004, Vudu released its first Internet video set-top box in 2007, which it primarily sold online. But despite gaining distribution through a partnership with Best Buy in 2008, the company failed to gain much traction, due in part to being ahead of the market and also in part to being overpriced. After a couple of rounds of layoffs and several price cuts, Vudu still couldn’t give the devices away.

As a result, Vudu shifted to getting its software and video marketplace embedded on CE devices instead, a strategy that has been pretty successful for the company. It now has agreements in place that would put it on TVs or Blu-ray players from seven of the top nine device manufacturers.

The move comes as some other companies — notably Roku and Boxee — pursue a strategy based on selling hardware devices that can connect Internet video onto TV sets. The Roku Player has been fairly successful so far, selling 500,000 units with the company targeting another 500,000 sold by the end of this year. And the Boxee Box, while it has yet to be released, has gotten a fair amount of buzz since it was first announced.

But even Boxee isn’t pinning all its hopes in making hardware sales. The Boxee Box itself is being manufactured by D-Link and that relationship is mainly a software licensing deal — in other words, Boxee isn’t on the hook for manufacturing and inventory costs if the product doesn’t sell. And it’s pursuing its own strategy of getting its software embedded on third-party CE devices.

While being a software player might be preferable to building and distributing hardware, that segment, too, is heating up. Multiple companies, including TiVo and Rovi, are positioning themselves to provide the software layer that enables multiple Internet video services to be offered on broadband-connected CE devices.

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