Interactive TV revisited
July 25, 2000
by Howard Wolinsky
The hype for interactive is building up once again as Time Warner (TWX) Cable and AT&T (T) Broadband, the big boys of cable, plan to launch major market rollouts of interactive TV in 2001 and national rollouts in 2002.
Could the computer keyboard at last be finding an honored place alongside the remote control in the family room? Or is this another interactive TV pipe dream?
Pehong Chen -- longtime follower of interactive TV from the days when he developed server technology for it, now chairman of BroadVision (BVSN), the developer of personalized e-business applications -- says of interactive TV this time around, "We're seeing the end of the tunnel."
Sounds like Vietnam rhetoric. But Chen is far from alone in thinking that interactive TV has caught a wave and it may be ready for prime time.
One-time skeptic Leslie Ellis, senior analyst at Paul Kagan Associates in Denver, Colo., says, "A lot of us scoffed in the mid-1990s. But anyone scoffing this time is naïve. The infrastructure is there for digital broadcasting and two-way interactive. The biggest problem now is getting the boxes installed at a rate of 95,000 a week."
What's different this time around?
In the past, cable plants were not up to digital snuff. Interactive TV was left to small trials with proprietary systems. Faced by the challenge of fast-growing, direct-broadcast satellite, the cable industry began to spend mightily to meet the expected digital age and its expected new revenue streams. Spurred by the Telecommunications Act of 1996, which leveled barriers to competition, the industry has spent more than $31 billion on upgrades to provide two-way interactive services and to deliver more channels (à la the promised land of 500-plus channels) as well as digital and high-definition TV programming with improved images. In 1999 alone, nearly $11 billion was spent on upgrades, according to Kagan Associates.
More than 80 percent of homes with cable can be linked to plants with a minimum of 550MHz broadband capability, and 65 percent are passed by systems with 750MHz or more. The cable guys are attempting to answer the satellite guys, who typically deliver more than 100 channels. More than two-thirds of cable homes are passed by activated two-way interactive systems. Telephone service is also being built into these systems.
Moore's Law kicks in Perry Tanner, vice president of marketing for Scientific Atlanta (SFA), the No. 2 settop-box maker, says his company learned a lot from supplying the boxes to Time Warner Cable's Full Service Network trial in Orlando, Fla. The original boxes, in effect, were workstations.
"We learned to build a digital platform. We learned you can't load a $7,000 device and expect for it to go into a consumer's home, expect operators to pay for it and [for it] to be as large as it was," he says.
Mike Luftman, vice president of corporate communications for Time Warner Cable, the No. 1 cable system (at least until AT&T takes over the top spot) says, "Moore's Law did not affect the cost of hardware as quickly as we thought it would."
But the boxes are now down to the $200 to $500 range, which is considered to be the right price for a commercial launch.
Some questions have been raised about whether the next generation of "smart" boxes -- with built-in hard drives to make interactivity happen and high-speed cable modems and ports to connect to printers and other peripherals -- might be too costly. AT&T and Time Warner have orders pending for millions of these devices with Scientific Atlanta and Motorola (MOT).
Denton Kanouff, VP of marketing at Motorola's Digital Network Systems, which has the largest footprint among the settop-box makers, having shipped more than 7 million interactive boxes to over 1,000 cable systems, says the industry is developing tiers for settop boxes.
"Our DCT 2000 in the low $200 range does digital video, Internet access, email, video on demand and other services. Our DCT 5000+ is under $400 and offers built-in DOCSIS (Data Over Cable Systems Interface Specifications, a standard interface for cable modem); 3-D graphics; and full software suites such as Microsoft (MSFT) TV, Liberate (LBRT) and OpenTV (OPTV). We can add a hard disk to this, getting the price in the $500 range, but this is a good value vs. buying a separate cable modem, settop and TiVo (TIVO) unit. By offering tiers of settops, we enable operators to target their settop investment. There is not a need, for example, for a hard disk in every settop in the home."
Cable users don't tend to buy new machines the way many computer users do. The average cable box has been in place for nine years. Though
cable operators tend to ridicule the notion, the push is on, with prodding from the Telecom Act, to make the boxes available for retail. The idea is that boxes will eventually be compatible with all systems, and homeowners can take their settops with them as they move from cable territory to cable territory.
Bruce Leichtman, vice president of media and Internet strategies with The Yankee Group in Boston, says that before going overboard on full interactivity, the cable operators need to focus first on getting the digital box into homes. "Interactivity, VOD and t-commerce are fine, but they need to get the boxes into the homes. Interactivity can come later." He says digital settops with interactive program guides will have to grab the consumer. |
