SEPTEMBER 8, 2000
SPECIAL REPORT--INTERACTIVE TV
Commentary By Alex Salkever
What ITV Needs to Grow Up: Fewer Standards | The lack of a uniform technology is the biggest obstacle to broad adoption of a Net/broadcast connection
| When Andy Grossberg was a kid growing up in San Diego in the 1970s, Cox Cable put a nifty box in his house that let his family do their banking and grocery shopping from a single store over the cable network. The service didn't last. Thirty years later, cable companies, as well as dozens of interactive-television companies, are struggling to do the same thing -- although with very limited success.
Today, Grossberg is an interactive TV market analyst for Jon Peddie Associates in Mill Valley, Calif. And he's still waiting for his ITV. Why? Simply put, where once there were too few choices for consumers, too many chefs are cooking up technologies for the service. The result: The market is in a stew. Dozens of companies, each pushing their own ITV technology as the best solution, now fight for space in a sector that's barely a blip on the screens of most TV watchers.
For content distributors, that's the equivalent of a flashing caution light. "Sure, [if I were a cable operator] I could pick a technology now and go with it. But what if I'm wrong? I will have spent many millions of dollars upgrading my cable plant only to find out that I can't broadcast anything because the standards I built around have gone away," says Grossberg.
BIG GAMBLE. Indeed, the lack of uniform technological standards could prove the biggest obstacle to any widespread use of ITV anytime soon. Yes, ITV companies already offer a broad range of capabilities. Time Warner is test-marketing video-on-demand in Honolulu that depends on powerful servers to allow customers to select from hundreds of movies. Viewers in the Aloha State can also order pizza or check e-mail on their television sets. Similarly, WebTV offers enhanced features on a handful of television programs that bridge the gap between the Internet and the blue box with interactive quizzes and even a choice of camera-angle selections. And companies such as Liberate package everything from server software and cable-plant upgrades to proprietary set-top- box technologies.
Although industry execs claim interoperability is coming soon, none of these technologies are completely compatible yet. That worries everyone from TV networks to cable companies, so they're moving slowly, fearful they'll make a bad bet on the wrong technology. Content? Forget it. "Imagine if you made Seinfeld, and people could only see it in five cities. Would you spend a ton of money to make that show?" asks Grossberg.
The two Iron Chefs that everyone is watching are America Online and AT&T. Through its pending Time Warner cable acquisitions, AOL will soon be able to deliver ITV to many millions in the U.S. market. And any technology chosen by AT&T, which controls cable systems covering 35% of U.S. customers, will likely have to funnel through Excite@Home cable modems -- AT&T holds 74% voting control of the company.
"STEALTH DEPLOYMENT." But according to Grossberg, AT&T might want a telephone service wrapped into its interactive-television service. And no one offers such a product right now. AT&T had aligned with Microsoft and its set-top-box effort, but Redmond has missed crucial deadlines for AT&T and other cable companies in Europe. Now, AT&T is looking elsewhere for a partner.
Should AOL's ITV product catch on, Liberate would get a huge lift. Analysts estimate that even if AOL can convert 10% of its 26 million subscribers to AOL-TV surfers, it might set the de facto standard. AOL is rock solid in consumer technologies but has often fallen down in making technological changes to its core approach. "From what I have heard, the users have not been particularly impressed," says Gartner Group analyst Sujata Ramnarayan.
Other companies, such as WebTV and Wink, have scraped to come up with numbers even approaching 1 million subscribers. In Europe, OpenTV has a larger stake but hasn't achieved anything close to commercial critical mass. ITV companies say these low numbers might not prove anything. "Right now, we have a stealth deployment going on," says Marlin Davis, president of ITV content provider Screamingly Different Entertainment, which has alliances with Time Warner and the Food Network. "Microsoft and Liberate are playing a high-stakes game for the rights to put their software on all these set-top boxes. Cable-company upgrades are moving through very rapidly." For example, General Instrument set-top boxes now come with a slot for a hard-drive so that the company can roll out TiVo-like digital-recording services without having to buy a whole separate device.
SWEET SPOT? A possible dark horse remains DSL (digital subscriber line) from phone companies. With higher-capacity lines, phone companies can provide interactive functions for a fraction of the cost of other ITV providers -- and often much more quickly than old cable companies struggling to upgrade their plants. But the DSL strategy has one big obstacle to overcome: Consumers have been reluctant to buy television service from their phone companies. Qwest, Ameritech, Verizon, and others have toyed with ITV over DSL, but the real push has yet to come.
All this would seem to leave Microsoft and Liberate, which is backed by Larry Ellison of Oracle, in the sweet spot. These two have more or less cornered the market on the software used to run ITV set-top boxes. But that doesn't mean they'll keep control. As a service model, ITV might be able to sustain multiple software suppliers, as long as they all adhere to standards that create products consumers can navigate easily and interchangeably.
The industry will begin addressing these technological conflicts at the International Broadcasting Convention in Amsterdam later in September. Industry insiders say agreements may emerge from the pow wow that could go a long way toward enhancing technological compatibility. But "in the end, the technology doesn't matter. Five years from now, nobody
is going to care what platform you have. What is going to matter is the content," says Davis.
When the programming and the technology becomes as simple as TV -- you plug in a box and flip to a channel -- then ITV will be ready for prime time. Which technology will be the winner? Better stay tuned for at least three more years.
Salkever covers technology for Business Week Online
Edited by Douglas Harbrecht
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Copyright 2000, Bloomberg L.P.
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