TCI/GI/SUN MICRO/MICROSOFT/SONY settops, (shhhhew!)...............................
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TCI GOES DIGITAL WITH MICROSOFT
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Electronic Media via Individual Inc. : Digital television is likely to roll out cheaper and
faster, in concert with more major players, and with more mass-appeal features as a
result of TCI's hard- won set-top box alliance with Microsoft Corp.
TCI executives, still weary from marathon negotiations to select a customized version of
Windows CE (Consumer Electronics) as its operating system, now are frantically
scoping out a broad plan to finance $3 billion of the new digital set-top devices.
TCI's initial order for 5 million Windows-equipped digital receivers likely will mushroom
into more than 12 million units to include all of TCI's cable subscribers and those of TCI
affiliates, company executives said. Microsoft also is likely to provide other software
applications a la carte.
TCI has also strategically selected Sun Microsystems' Java as a universal software
language as a counter to Microsoft's Windows-driven operating systems to assure that
neither rival would be dominant in an interactive cable universe. TCI Chairman John
Malone has vowed to create a 'layer cake'' of business deals in which no one vendor
can exercise monopoly over interactive cable.
Banks, investment bankers, individual investors and computer-related players such as
Microsoft and Sun will be part of a massive financing pool for the $300 boxes, probably
through a lease-back arrangement.
TCI President Leo Hindery last week told ELECTRONIC MEDIA that no financing
arrangements have been finalized with Microsoft, Sun Microsystems or others.
However, sources say TCI has discussed with Microsoft fixed per-box financing to
defray costs. Sun, whose PersonalJava is TCI's designated language software, will pay
an undisclosed amount. Sources say an estimated $10 per box would cover the cost of
additional memory required to accommodate Java.
In both cases, Microsoft and Sun are expected to provide financing that exceeds the
undisclosed fees TCI is paying to them as vendors, sources said.
Mr. Malone called the Microsoft arrangement 'an arm's length technology licensing
agreement'' that is not conditioned on financing and preserves the open architecture
mandated by the cable industry. TCI is not seeking and does not need equity
investments, he added.
Other vendor candidates
By the end of the first quarter, TCI says it will have announced all of the primary
vendors and financing details related to the initial rollout of the digital devices
beginning in late 1998.
Microsoft and Sun are vying to provide other components such as graphics and the
microprocessor for the boxes, as well as e-mail, electronic program guides, billing,
interactive advertising and security, for which TCI can charge separately.
Other vendor candidates are IBM, Oracle, Advanced Micro Devices, AT&T and Intel
Corp., which is the leading microprocessor contender.
Leading cable operators such as Time Warner, Comcast Corp. and Cox Communications
will soon sign with many of the same digital vendors.
TCI also is talking to content providers who want a piece of the new digital platform:
from Barry Diller and his Home Shopping Network to national retailers and catalog
houses to advertisers such as Procter & Gamble.
'Everyone will be part of it because consumers want it,'' Mr. Hindery said.
'This is nternet meets television,' so that impulse behavior can be entered into from
the couch instead of the desk,'' Mr. Malone said.
He has said he will charge advertisers and others for access to TCI's digital subscribers,
assuring a potentially lucrative new revenue stream. The same will be true of a
long-distance carrier with which TCI aligns.
TCI next week could announce the selection of AT&T as its telephony partner, as an
outgrowth of the recently announced $11.2 billion sale of Teleport Communications to
the long-distance phone giant.
AT&T is expected to gain at least a 20 percent interest in @Home, the high- speed data
service launched by TCI. As part of the Teleport agreement, TCI, Cox and Comcast will
have a collective 10 percent stake in AT&T.
Impact on broadcasters
Mr. Malone said the digital box agreements could 'be very positive for broadcasters''
as they try to make economic sense of the conversion.
While providing for high-definition TV signals, the new generation digital boxes also
assure the information access and interactivity that will generate the revenues needed
to finance the new technology, he said.
'What this arrangement does is to kick-start the process of getting the mass market
receiver out there, which is the set-top box,'' said Steven Guggenheimer, group
production manager of digital TV for Microsoft.
Microsoft will employ what it calls HD-Zero technology, which could emerge as an
industrywide de facto HDTV standard. Broadcasters, who have yet to settle on an
HDTV standard, have flatly rejected recommendations from PC companies.
The cost of the digital service and set-top rentals to consumers will pale in comparison
to the $5,000 high-definition TV sets unveiled at the recent Consumer Electronics Show,
which offer only clearer high resolution pictures and no data or interactive capabilities.
By year's end, compatible television sets costing only hundreds of dollars will be mass
produced to run in conjunction with the new digital set-top boxes that eventually could
serve two-thirds of U.S. TV households, according to cable officials.
'You can't move toward digital television and change your whole infrastructure without
having some way to pay for it,'' said Mr. Guggenheimer. 'The information access and
interactive components of what we provide do allow for business that will generate
revenues to pay for this.''
Interactive features
At this week's NATPE convention, Microsoft will demonstrate interactive features it is
providing to producers of conventional television shows through either its WebTV or
Windows CE.
Microsoft is also expected to announce alliances with several broadcasters or program
producers, including NBC, which would build on its MSNBC partnership. The
partnership already offers a crossover between TV and Internet sites with information
related to TV programs.
For instance, football games can have numerous digital add-ons that could carry
advertising or extra user fees-from statistical information about players and teams to
alternative camera angles to broadcast booth commentary.
'There is great potential to creatively use advertising in digitally embellished
programming. It is how we will mobilize the industry,'' Mr. Guggenheimer said.
Mr. Hindery said broadcasters calling TCI last week about its digital box plans mostly
wanted to know whether it was HDTV-friendly. 'TCI and the cable industry are anxious
to support HDTV,'' he said.
TCI soon will begin a test with four network-owned TV stations in Chicago of
broadcasting their digital signals over its cable systems there.
WebTV and OpenTV
However, both companies bring their own important interface technology to the mix to
hasten the convergence of the television and personal computer.
Microsoft, through its recent acquisition of WebTV, and Sun, through its 12 percent
stake in OpenTV, will tap their early experiences with interactive services and content
on the TV-PC compatible devices already on the market.
WebTV is one of nearly 40 companies Microsoft has acquired or invested in the past
two years primarily to advance its compact Windows CE into car dashboards,
conventional TV sets and palm-sized PCs.
Mr. Malone said TCI insisted on the integration of WebTV technology because it
requires minimal computer power to perform many of the graphics functions of any
Internet-access device, allowing for cheaper, easier PC and TV interface.
'We think the fact that WebTV has been so successful, offering not just higher quality
video but information access and interactive programming, proves that people are
interested in this. Consumers just want a better television experience,'' Mr.
Guggenheimer said.
'We don't for a second believe everyone will want to watch their TV on their PC or vice
versa. The digital set-top box is the forum for the mass market.''
Control of the process
While TCI has determined what likely will be some of the TV industry's digital
standards, it also has maintained firm control of the conversion process by effectively
constraining high-powered players like Microsoft.
Sources say Microsoft recently was foiled in its attempts to buy controlling interests in
both TCI and NextLevel-soon to go back to the General Instruments name-which will
manufacture 15 million new digital boxes ordered by TCI and 14 other top cable
operators.
Instead, TCI and its cable peers collectively will accumulate a 30 percent interest in
General Instruments in exchange for their box order.
Microsoft, which is wrestling with the Justice Department and other Washington law
enforcers such as Attoney General Janet Reno over its alleged anti- competitive
dealings, had sought dominance of the digital devices as well as an assured portion of
the resulting revenues.
TCI and Microsoft have 60 days to resolve technical, application and other issues to
preserve their nonexclusive agreement.
Microsoft Chairman Bill Gates last week was conciliatory. 'We are working as a partner
with the cable companies to make sure that once those boxes get in place, that all the
capabilities are in place through great software applications. This is a great milestone
for TV, using great software to bring it into new areas,'' Mr. Gates said.
'We're going to up our evangelization, so applications come very quickly.''
<<Electronic Media -- 01-19-98, p. 3>>
[Copyright 1998, Crain Communications] |
