Interactive TV Inches Toward Mainstream

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November 30, 2000 (5:06 AM EST)

By Mark Hachman,

LOS ANGELES--Is the promise of interactive TV ready to bear fruit?

After spending years sowing the seeds of digital cable systems, cable executives on Wednesday at The Western Cable Show in Los Angeles claimed harvest time is indeed near. And if you don't have it yet, well, just wait.

While the Western Show was founded by cable system providers, in the past years the forum has attracted content creators, such as ESPN and the Discovery Channel.

Their ultimate goal, of course, is money. But to attract more money, cable systems need to add more content. And even with hundreds of possible channels, so-called passive TV content has only so much to offer.

More to the point, digital satellite services can offer the same content, which cuts into cable revenues and reduces the industry's market share. But increasing a household's average monthly cable bill from $40 to $70 means billions in total industry revenue.

"It's not an accident that we're selling at the same price; we're selling the same stuff," said Jim MacDonald, chairman, president and CEO of Scientific-Atlanta Inc., Lawrenceville, Ga. "The next logical step... is to make this on demand."

But while PC makers have found Internet access to be a key selling point, cable operators can depend on no single magic formula, industry executives said. "There will be no killer app," said Barry Diller, chairman and chief executive of USA Networks Inc. "Those are outdated words from a bygone era. There will be a multiplicity of services."

Diller said there will be a habit change, as users move from purchasing items on the "cold screen" of a PC to the "warmer screen" of a TV.

While the inactivity on interactive TV has proven frustrating to some, so has digital television, which now expects to sell 25 million sets during 2000, pointed out John Malone, chairman of Liberty Media, in a panel discussion that opened the show.

"The same thing will happen with interactivity," he said. "The market gets all overheated, then when it doesn't happen right away everybody gets discouraged. It's like going uphill on cross-country skis. You don't think you're up that high, then you look back and say whoa, look how far I've come."

MacDonald's S-A estimates 11 interactive applications are deployed across 39 S-A-enabled cable systems, representing 1.5 million set-tops capable of interactive services. Of those, 600,000 subscribers are actually using those services, MacDonald said.

For his part, Dan Somers, president and chief executive of AT&T Broadband, said 95 percent of his firm's customers would have interactive services by the end of the year.

Interactive services, such as on-demand viewing of movies and television shows, personal video recorder capabilities to "pause" live TV, and e-commerce applications, don't depend on the hardware.

Like other providers, Scientific-Atlanta's older Explorer set-top boxes can run interactive services, even though early models used 20-MIPS microprocessors, said Kenneth Klaer, vice-president and general manager for marketing and business development of subscriber networks for S-A.

"Application providers will write for the lowest common denominator," he said. S-A has a CreativEdge program in place to help foster interactive application development; the company announced that game designer ZAQ Inc. would join the program; and the cable firm announced new partnerships with WebTV Networks to provide Internet access as well as Kodak's Picture Channel, which will allow users to upload digital pictures to a dedicated website through S-A's set-top boxes.

S-A used the show to launch the Explorer 8000 set-top, which features two tuners and an integrated 40-Gbyte hard drive for PVR functions.

Pace Micro Technology, a U.K. set-top provider which has deployed over 1 million interactive-capable set-top boxes to date, went a step further. Pace's view, like others in the industry, is that the set-top is also a "home gateway" for all broadband content -- voice, video, and data -- coming into the home.

"We all know that digital has a plethora of additional revenue streams but the contention for the digital TV screen is just too much," said Neil Gaydon, president of Pace Americas, in Orlando, Fla. "Imagine if one person is looking at a live sports game and another wants to check his bank statement... Obviously, this is a problem."

Pace partnered with Philips Electronics to announce a "gateway expander," a module to wirelessly pass the incoming video or data stream to other devices in the house, including PCs. Scientific-Atlanta also partnered with Intel Corp. to connect its AnyPoint wireless home network to the Explorer set-top boxes.

Because Pace's set-tops are purchased by service providers who then deploy them, Pace and other set-top providers are spurred to add the potential for as many different forms of revenue as possible. "At the end of the day, we get more bits through the client and give more value to those bits," said Chris Boyce, Pace's head of strategic business development.

But as Diller pointed out, the first step towards interactive TV was the humble remote control. Features such as onscreen program guides could give way to icons which tell viewers when a movie was made, and then to similar icons that allow viewers to purchase related items.

"Once you function interactively you're never going to turn away from this," Diller said. "It's going to happen. It takes time."