A repost of --The Superiority of ACTV's Interactive TV Platform - Written 3/18/00:
By Eric Jhonsa
In spite of all that's happened in relation to the data communications revolution known as the internet, and in spite of all the hype surrounding the the interactive services the "convergence" of PCs and TVs will allow, for most of us, our experience with that creativity-destroying device which the average American spends seven hours/day using is much like it was ten years ago; and for the majority of those that currently have access to such interactive services, the grainy text, choppy graphics, and limited content they bring up (i.e. a few stats related to a football game, low-resolution images that can be called up alongside a news program) are a far cry from the multimedia capabilities provided to us via our PCs. One common assumption regarding why this is so is that the technology just isn't here yet. Another is that it is here, but that, like Time Warner's tragic interactive TV trials in Orlando, the costs related to implementing it create a price tag on it so high that only a few people not living in Silicon Valley, and not named Bill Gates can afford it. Fortunately (or unfortunately, depending on how you look at it), for a large percentage of the world's TV-viewing population, these assumptions are far off the mark.
The primary purveyors of the interactive services which offer "grainy text, choppy graphics, and limited content," each with their own approach to this market, are Wink (NASDAQ: WINK) and Microsoft (NASDAQ:MSFT), the latter doing so via its WebTV Interactive Plus service. Wink's platform, expected to be available to over 2 million TV viewers by the end of the year, has limited hardware requirements, as all you need to use it, provided that a given cable company offers the service, is a cheap, analog set-top box with Wink's software installed. No modem's required, as the data needed for the interactive content is sent via a portion of the analog cable TV spectrum known as the vertical blanking interval (VBI). Wink merely licenses the use of a cable company's VBI spectrum, and gets the cable company to give its subscribers cheap set-top boxes that have its software installed, thus paving the way for inexpensive interactive TV content related to programs and advertisements that happen to have produced such content and e-commerce promotions for Wink's service. However, to say the least, VBI, primarily used in most TV sets to provide closed captioning for shows, is limited in its bandwidth capabilities. Furthermore, since Wink's service is designed to work even via analog set-top boxes that have very little processing power, the quality of the content produced usually resembles something your IBM 286 might've put out over a decade ago.
Meanwhile, WebTV uses a far different yet equally insufficient approach. Given that all of its interactive TV users are also subscribers to its TV-based dial-up internet service, which requires a specialized set-top box produced by the company equipped with a 56K modem, the company's opted to bypass the cable companies entirely and transmit all necessary data via a phone line. This is definitely an innovative idea, but has the following drawbacks:
1. The service is a "closed system," in that if you don't want internet access over your TV, or opt to receive it via another "TV ISP" such as Worldgate, or via AOL and @Home, both of which will soon be providing TV-based net access, you don't have access to WebTV's content.
2. Provided that your not subscribing to an ISP, you can often receive interactive TV services, such as Wink's, for free, with the service provider making money through deals with the cable company, the manufacturer of your set-top box (the set-top box is often paid for by the cable company), and/or the advertisers and TV stations that produce content for it. The interactive version of WebTV, on the other hand, being integrated with an ISP service, requires a $25 monthly fee, and also creates the need for a seperate phone line to be set up, costing another $10-$20/month.
3. A 56K modem isn't much better in terms of bandwidth when compared to VBI, especially considering that unlike PC users, people usually demand the "instant uploading" of any content requested via a TV set. Thus the content that is brought up in a timely matter isn't much to look at.
Now that I've gone over the shortcomings of the interactive TV offerings that are currently the most well-known in the US market, I'll focus on Open TV (NASDAQ: OPTV) and ACTV, the two companies that have had the foresight to gear their entire product/service lines for use with TV sets that have set-top boxes handling high-bandwidth digital TV streams, and thus have the best potential to dominate this market over the long run. In order to cut a number of you off from thinking what I know you're probably thinking, when I use the term "digital TV," I'm not talking about HDTV, which provides those high-quality broadcasts currently limited to three hours of programming a week, and only made possible via huge, $4,000 TV sets. Rather, I'm talking about any cable or satellite network where all content sent over the network, TV broadcasts or otherwise, is encoded in digital form (for TV broadcasts, this is usually done via MPEG-2 encoders and multiplexers from companies such as Scientific Atlanta and Harmonic's soon to be acquired DiviCom division), and decoded for the end user's TV set usually by an advanced yet inexpensive digital set-top box using graphics chips from companies such as Broadcom (the undisputed leader in this market) and C-Cube. Such networks don't necessarily result in high-quality broadcasts, although this is also a possibility, but always result in much higher channel capacity both for TV programming and for data traffic than currently available through analog networks. For example, Time Warner's digital TV rollout in New York currently allows for over 200 TV channels to be provided to subscribers, as well as dozens of other channels allocated for music delivery and cable internet access. Furthermore, as technological advances allow for higher frequency rates to be used over cable and satellite networks, total capacity will continue to rise.
Combining all of this results in cable systems that have level of bandwidth high enough to interlace vast amounts of data alongside a given digital TV stream, and set-top boxes powerful enough to process this data nearly instantaneously. Such systems, of course, are perfect for providing first-rate interactive TV services to its users via software from Open TV and ACTV. Great, you might say, but how many years is it going to be before digital cable comes to my TV set? For millions of cable subscribers across the world (and a good number of those reading this write-up), it's already there, and given the rate at which cable companies are upgrading their networks, and the fact that digital set-top boxes will begin to be sold in retail outlets in 2001, within a few years, the majority of the world's cable subscribers will probably be using a digital service rather than an analog one. Meanwhile, all major satellite TV networks already encode their broadcasts in digital format. All of this combined, of course, will easily provide the "critical mass" needed to convince TV networks to start producing interactive content for these two systems. In fact, in Europe, critical mass has already been reached, as numerous European TV stations create interactive content for their programs using Open TV's software, and a large number of European cable operators have signed deals with the company allowing their subscribers to access it.
Now comes the all-important issue of which company, Open TV or ACTV, has a superior interactive TV platform, and thus makes a better long-term investment. When it comes to providing standard interactive content, such as statistics for a football game or additional information and pictures related to a car being advertised, Open TV and ACTV match up fairly evenly, with both giving programmers a good deal of creative freedom in regards to the manner in which such "static" content is displayed on a TV screen. However's ACTV's platform, known as "Individualized Television," is much more adept at manipulating the video streams themselves. For example, while both services allow its users to choose between multiple camera angles and announcers during a sports broadcast that utilizes their software, among other things, only ACTV's software provides access to instant replays on demand, and allows its users to choose between viewing different ads. Perhaps more importantly, Open TV's software creates a "closed system," one that has no relationship with the internet. This doesn't bode well for the company given that, courtesy of Broadcom, nearly all digital set-top boxes made come equipped with cable modems, and will soon also have home phoneline networking chips installed, the latter of which allow a given set-top box to access the internet via a modem on a PC hooked up to the same phone line. While I still think that digital TV streams are the best means by which to send interactive content directly related to a given TV program itself, providing internet support/integration for an interactive TV platform does provide two huge benefits, which are as follows:
1. It allows a TV network to provide its viewers with access to the potentially huge amounts of information, multimedia content, and e-commerce promotions found on its site(s), increasing the value of both its TV programming and its web presence in the process. To see how this would work, consider the case of ESPN. No matter how hard it might try, and no matter how much digital TV bandwidth it might have at its disposal, there's no way that ESPN could provide even 1/10 as much content related to a given piece of prgramming as there might be found on its site, where information on nearly every sport known to man has been steadily mounting for over five years. Sure, it would be much easier to access the information were it to be directly embedded into the TV stream (and thus the whole point of providing data within an interactive TV service), but given the ability of the internet to act as a data source that provides a far larger amount of content, providing access to it has its benefits; and of course, it wouldn't hurt the site's advertising and e-commerce revenue streams either.
2. It provides the convenience of allowing a user to watch TV and access the internet on the same screen at the same time, whether or not the content on the two mediums is related. Studies show that well over half of all internet users (including a large percentage of those reading this) use the internet and watch TV simultaneously. As cable companies face increased competition from satellite providers, and vice verca, they'll find that providing an interactive TV platform that also allows for a subscriber to surf the net is in their best interest.
Now comes the follow-up line to the last sentence, as predictable as a divorce is to a high-profile Hollywood marriage: unlike Open TV's offering, ACTV's software allows its users to access the internet and watch TV all at once. Well, I hate being predicatable, so I'll throw in a couple of twists that may comes as surprises for those that aren't familiar with the company. First, ACTV's also developed software known as "Hyper TV" that allows TV networks to deliver synchronized interactive content while using the internet as a distribution medium. To be honest, for many of the same reasons that I don't like Web TV's approach to interactive TV, I'm not a huge fan of this. However, in contrast with Web TV, Hyper TV's primarily a patch solution that exists to allow interactive services to be delivered to homes, whether through a PC or a set-top box, where Individualized Television is an unknown concept; and since the software can be downloaded for free, it's fairly effective in doing this. The second "twist," definitely the more important one, is that not only does ACTV's ability to provide internet access directly alongside a TV broadcast provide it with a huge competitive advantage against Open TV, for the next decade or so, it'll act as a huge competitive advantage against any other would-be competitor, as the company has a patent on the process that allows them to do so. Combine this patent with Individualized Television's superior video-manipulation capabilities, and it's easy to see that ACTV's interactive TV platform is in a league of its own, and thus has an excellent chance of allowing the company that created it to become the dominant player in the soon-to-explode industry that it's targeting; and given the company's current market cap, its stock, unlike those of many other promising, high-growth companies, still has the potential to produce the kinds of returns that have made the tech sector both legendary and denounced.
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