Bill is going to help us along and they are meeting today to discuss how. See the following Business Week article.
Maybe we'll see Bill and Larry duke it out and then we'll really see some life come into the HFC stocks.
Mark
BILL GATES, THE CABLE GUY
Will his technology for digital TV become the standard?
When Microsoft Corp. invested $1 billion in Comcast Corp. last month, it looked like the best thing to happen to the cable industry in years. For its cash, Microsoft got an agreement for up to 11.5% of Comcast, the fourth-largest cable company. But the vote of confidence from the mighty William H. Gates III immediately drove up the value of cable stocks by several billion dollars.
Cable executives--and not just Comcast President Brian L. Roberts--seemed almost awestruck by Gates. And why not? With a few comments to the media, the software billionaire quickly turned the idea of upgrading cable systems into the ''broadband'' pathway for high-speed data to the home from a distant dream into a bona fide high-tech vision.
But Gates wasn't simply out to make some new friends among America's cable moguls. Having established a measure of goodwill with his $1 billion, Gates is asking the cable industry for a little favor in return. He'd like cable companies to let him design a new generation of set-top boxes for digital TV. His design includes a cable modem for high-speed data communications, enabling consumers to cruise the World Wide Web on the TV. Gates' come-on: His design would cost about half what technology now hitting the market costs, thus making it a far easier sell.
NEW PLATFORM. If the cable moguls bite, Gates could be adding a new domain to the Microsoft empire. The boxes would use Microsoft software, including the Windows CE operating system, and that would establish Microsoft technology as the standard for all sorts of consumer programming and services to be delivered over digital TV and the Internet. This would represent an all-new technology ''platform''--like the PC itself. Microsoft ''is putting itself in position, right in the middle, writing the software that controls all that,'' says an executive familiar with Microsoft's proposal. Gates wants ''to make sure the cable guys do not develop an independent base without him to do this.''
Gates is moving swiftly to seal a deal. He has been meeting every few weeks with the top executives of the big companies that control Cable Labs, the cable-TV industry's research and development consortium. The next meeting, on July 7 in New York, will likely include Gates, Tele-Communications Inc.'s John Malone, Comcast's Roberts, Cox Communications' James Robbins, and Rogers Communications' Edward Rogers--all key participants at earlier meetings.
Gates's offer may be too enticing for the cable companies to pass up. On their own, the financially strapped companies have been unable to bring forth the gizmos needed to make Internet TV a reality. Indeed, they have not even been able to settle on their own industrywide standard. ''Bill Gates has a tremendously innovative mind, and his concept has tremendous value. He would be [cable's] R&D arm,'' says Rogers, whose cable system is Canada's largest. ''There's a 50/50 chance we'll be able to come together on an economic model.'' By late September, he reckons, the deal should be done or abandoned.
The possible hurdles include tough negotiations on financial terms--such as how much of a royalty Microsoft would collect on each box. Also, as enticing as Gates' product may be, it's not the only design out there. Navio, formerly a unit of Netscape Communications Corp. and now owned by Microsoft rival Oracle Corp., is working on similar technology. Its software for set-top boxes is being evaluated by Cable Labs.
There's another factor. While cable executives are intrigued by the idea of a tidy ending to their technology quest, some are fearful of handing Gates a standard that will let him exert the same degree of control over their fates that he has over PC makers. ''Everyone is a little wary, knowing how powerful Microsoft is,'' says one cable executive. ''This is all about control of the TV set, just the way Gates has control [of the PC]. But if Gates can come up with a less-expensive converter box for the digital world, I'd be crazy not to look at it.''
The box Gates is hoping to devise is far different from the limited-capability digital set-top boxes and cable modems that cable companies have started to offer--usually in limited test markets. Combined, the cable modem and set-top box setups now available cost around $700. Gates' box would cost only $300. Powered by Windows CE, a Microsoft operating system designed for consumer devices, it will be more like a PC. Microsoft will also offer Windows NT for running the ''headend'' systems at the cable companies.
If Microsoft makes nothing on the boxes themselves, it could still come out ahead. By pumping out millions of set-top boxes with Windows CE, the cable companies will make that software the standard programming interface across digital-TV land. Content developers from game designers to home-shopping companies would then write programs for the new platform. And Microsoft would be in there, too, adding applications programs and content of its own--to sell to tens of millions of consumers.
TAKEOVER TALK. Indeed, the current negotiations with the cable guys is part of Microsoft's broader push into media and content. ''Microsoft has invested in cable programming through NBC, cable operators through Comcast, and a device to bring the Internet and cable together through WebTV,'' says NBC Cable President Tom Rogers. Microsoft's ''next natural step is to devise the guts of the digital set-top box.''
Gates' ambitions in media might, in fact, complicate his cable dealings. The software mogul's forays are already producing fear and loathing--and wild rumors. On July 1, the New York Post had Gates mulling an acquisition of CBS. Shares of CBS's parent, Westinghouse Electric Corp., jumped--despite denials by Microsoft and CBS that a deal was under way.
Rival software billionaire Lawrence J. Ellison, chairman of Oracle, predicts that Gates' push into content will make Microsoft a less desirable technology partner for cable companies than Navio. ''We're not going to go into the content business, competing with ABC,'' says Ellison. Gates, he says, ''wants to be Barry Diller; he wants it all.''
But fear of Gates isn't likely to scuttle Microsoft's cable campaign. Cable companies have struggled for years to expand their reach beyond ordinary TV programming. They made deals with telephone companies, invested in all sorts of interactive-TV ventures--and lost hundreds of millions of dollars and vast amounts of credibility. Today, big projects like Time Warner's Full Service Network are shuttered. Cable companies are quietly launching cable-modem services, like Time Warner's RoadRunner, U S West's Media One Express, and @Home. But there is no nationwide system, no standard that will inspire new programming and attract a mass market. Microsoft is offering not only a simple technology fix, but the proven ability to create a standard and get the market to follow it.
Given that, many cable executives may feel it would be foolish not to follow Gates. ''We're dealing with the smartest man in America,'' says Rogers, the Canadian cable executive. When Gates puts on his show for the cable guys, he adds, ''we all look at each other, wondering if we're missing something.'' As they choose their path to the digital future, cable executives would do well to keep that question in mind.
By Elizabeth Lesly and Amy Cortese in New York, with Ron Grover in Los Angeles |
