AtHOME LINK TO SET-TOP SAID TO THREATEN SOME MSOs
June 3, 1999
WARREN'S CABLE REGULATION MONITOR -- AtHome Network has served its MSO creators well in developing service to provide high-speed Internet access via PC and cable modem, WorldGate Chmn.-CEO Hal Krisbergh told us, but "now AtHome also wants to be on the TV set [via set-top box without PC], and cable operators are much more reticent." WorldGate provides high- speed Internet access through analog and digital set-tops without PC and faces biggest challenge from Microsoft's Web TV. But WorldGate also wants to be complementary Internet provider on cable systems running AtHome and Road Runner through PCs, and Krisbergh said there's growing opposition in cable industry to thought of those 2 services' dominating both PC and TV connectivity. Some analysts we spoke with felt that fear was well-placed, with AtHome's content possibly threatening cable's core video, and they said shift to TV was "next logical step" for AtHome. But at least one MSO we spoke with that's 50% owned by AtHome owner AT&T is running both AtHome and WorldGate with no plans to expand AtHome's role into set-tops.
"For 2 years we've been shouting 'Internet on TV!'" Krisbergh said, but everyone concentrated on cable modems and PCs. However, he said, in last few months there has been "major shift among the operators" in looking at offering Internet connectivity via set- top. WorldGate has trial and deployment agreements with Charter Communications and Bresnan Communications and last week announced signing of partnerships delivering potential access to 2 million MSO subscribers and 5 million homes passed on 5 continents (see separate note, this issue). Krisbergh said international penetration will continue because "outside the United States, Internet use is being thwarted by the low penetration rates of personal computers" and telephone lines. Domestically, however, partnerships with top MSOs aligned with AtHome and Road Runner have been slow in emerging, although Krisbergh insisted some deals are near closure. He said exclusivity agreements MSOs must sign with AtHome don't pose obstacle to WorldGate as they "were not envisioned to be for set-tops." Agreements generally contain clause exempting services at or below ISDN speed, he said, and some operators are beginning to "throttle back" digital connections to allow other providers to be offered. AtHome didn't return calls for comment.
Bresnan is offering AtHome in its larger markets and proprietary service Bresnan Link in smaller communities and areas where AtHome doesn't reach, spokeswoman said. Company said it will begin offering WorldGate this summer to 100,000 of its 950,000 passed homes. "There's a huge... spectrum out there as we put these products in the marketplace," spokeswoman said, adding that AtHome and WorldGate could appeal to different customers or even could be purchased by same customer who wanted ability to have 2 individuals in home online at same time. Bresnan also plans to offer Internet channel ICTV, she said. Bresnan is 50%- owned by AT&T, controlling partner in AtHome, but spokeswoman said AtHome won't be involved in WorldGate service. Bresnan doesn't need AtHome exclusivity exemption for set-tops, and WorldGate service will reach speeds as fast as 27 Mbps, equal to cable modems. MSO will offer Internet connectivity, rather than AtHome, for its WorldGate users.
One fear of AtHome's having larger presence on TV set is possibility that its aggressive content development eventually could position it as video alternative to MSOs' core video programming. Latest AtHome announcement has company partnering with Macromedia in ad alliance and "joint effort to provide consumers with a personalized and compelling Web entertainment experience." Macromedia's shockwave.com entertainment center will launch this summer, parties said, sharing with AtHome Network original cartoons, comics, music and games, branded material from movies and TV, user-created content. "I can understand why cable operators would be concerned" by AtHome's content, Strategis Group Cable & Satellite Dir. Carol Mann said. "The next logical step for AtHome is to migrate to the TV," which she admitted could threaten traditional video. But another industry observer wondered whether AtHome would work well on TV set. "Each venue [TV and PC] has its strengths," observer said, although with estimates that PC penetration will top out at about 55% "I think at some point AtHome has to look at that venue [TV]." AtHome is completing acquisition of Web portal Excite (see separate note, this issue), and we were told that resulting entity would look at number of methods of expansion, possibly including portal service through TV.
Krisbergh said WorldGate was well-positioned after reaping $120 million in IPO recently that had been expected to bring in $40-$50 million. "We have a war chest now" and market valuation of $800 million, he said, which will help fund company's international expansion. Revenue, he said, should come from: (1) Selling proprietary equipment for headends. With software downloaded from headend, WorldGate can work with most any set-top, and company is partnered with General Instrument (Krisbergh's former employer) and Scientific-Atlanta. (2) Revenue sharing with MSOs from subscribers. (3) Revenue sharing from e-commerce hyperlinking. Company received patent approval for hyperlink technology last week that allows TV viewer to visit Web site related to TV program or ad with single button on remote control supplied by cable operator. Krisbergh said "powerful yet user- friendly technology [will] transform TV viewers from 'lean-back' couch potatoes to fully interactive 'lean-forward' Web surfers." CNN networks, Showtime and Weather Channel are among more than 70 networks using WorldGate's Channel hyperlinking technology. Krisbergh wouldn't predict when WorldGate would be profitable, but Wall St. analysts have suggested 2001.
[Copyright 1999, Warren Publishing]
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