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Interactive Tv: Not Ready For Prime Time


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INTERACTIVE TV: NOT READY FOR PRIME TIME

April was to have been the month that Orlando hooked up the first of its televisions to the Information Superhighway. The most ambitious test to date of interactive TV, courtesy of Time Warner Cable, promised movies on demand, home shopping, and video games played with the guy down the street.

But the Information Superhighway remains shut down as construction work continues. After weeks of rumors about delays, Time Warner announced on Mar. 1 that it would, in fact, keep Orlando waiting until at least September. The project's underlying technology, it said, is sound but needs refinement. "This is really a sweeping set of technological forces," says James Chiddix, a Time Warner Cable senior vice-president and senior technologist for the Orlando test. "Putting it all together is a mammoth undertaking."

Which is to say, all this stuff is a lot harder to do than people thought. The technologies required to compress data and deliver it whenever TV viewers want to use it certainly exist today. But experts aren't sure if the software and hardware are robust enough to handle requests for movies, games, or shopping from thousands of homes at once--much less keep the accounting straight. There's another question, too: Once the technology works right, can it be put in homes at a price people will pay?

"LITTLE VILLAGE TESTS." The Orlando players remain optimistic--sort of. "We'll be really happy if we can have everything ready by September," says Edward R. McCracken, CEO of Silicon Graphics Inc., which is supplying software and hardware. The truth is, though, no one really knows when interactive TV will happen or how much it will cost. The Orlando pilot and other big interactive-TV trials planned this year by U S West, Bell Atlantic, Viacom, and Pacific Telesis seem destined to suffer a string of delays. And "if they're not going to be able to get these little village tests going this year, that could mean another three- to five-year delay" for the real thing, says John E. Conway, a vice-president at Gemini Consulting.

Certainly, some promising experiments are in the works (table). By early summer, Denver-based U S West Inc. will begin testing interactive-TV technology in 2,500 Omaha homes, a project that could expand to 60,000 homes once the technology is proven. Bell Atlantic Corp.'s expanded trial in Alexandria, Arlington, and Fairfax County, Va., starting this summer, will bring video on demand and some interactive programming to 2,000 homes. Says Gerald D. Held, senior vice-president of interactive multimedia at Oracle Corp., which is supplying the software for the Bell Atlantic project: "Our focus has been on what technology you can deploy in '94 and '95 that is economical and that people can make a profit on."

That practical grounding may have been what Time Warner was lacking in its Orlando "Full Service Network," billed as the "world's first digital, interactive, multimedia communications system." Come the launch, Time Warner says, subscribers will be able to select from hundreds of movies at once. They can stroll an "electronic mall," wander into stores, check out products, and make purchases. One day, they'll be able to use the TV as a picture-telephone or for videoconferencing.

"HALF-BAKED SYSTEMS." To deliver all this, Time Warner is building a high-powered network that includes American Telephone & Telegraph Co.'s switching technology for routing data; Silicon Graphics' complex operating software and video servers, where the compressed data is stored and then served up to homes; and Scientific-Atlanta Inc.'s set-top TV boxes, which will translate that compressed data for TV display.

The problem is, the technology is at least as complex as it sounds. Time Warner's Chiddix says the hardware and software have worked fine in small demonstrations. "But there's a difference when you're firing it up for thousands of customers," he says. The user interface, the on-screen software that guides viewers through options, remains incomplete. As for the set-top boxes, Scientific-Atlanta says prototypes, using a speedy computer-chip technology called RISC (reduced instruction-set computing), are ready. But they, too, must be tested. "We're not sending half-baked systems out into the field," says William G. Luehrs, a Scientific-Atlanta vice-president.

When its partners couldn't deliver their pieces in time to meet the ambitious 10-month time horizon, Time Warner turned up the heat. It began testing the system, for example, using dramatically overpowered $3,000-plus Silicon Graphics workstations in place of the incomplete set-top boxes.

HEDGING BETS. That wasn't the ticket. Insiders say that if the pilot had been launched in April, it would have accommodated just two dozen homes initially and would only have offered movies on demand and limited home shopping. The skimpier offerings discouraged some hoped-for advertisers. Says Larry Dale, marketing specialist at Ford Motor Co., which passed on participating in Orlando's April launch: "We decided we're not going to get enough out of the test at this point."

The big question: Will anyone? The flurry of interactive-TV trials is based on one assumption: There will be a huge appetite for movies on demand, and everything beyond that will be frosting on the bottom line (page 58). But there's precious little proof. A low-tech 1992 trial in Denver by Tele-Communications, AT&T, and US West offered 300 customers video on demand using technicians who fed cassettes into more than 200 VCRs. The research results: Customers ordered, on average, 2.5 movies per month, at 99 cents to $3.99 apiece. US West says it can make money on interactive TV if it can keep capital equipment costs under $1,000 per subscriber.

The key, it seems, is keeping expectations linked to the realities of available technologies and consumer demand. Rivals, for example, are skeptical of British Telecommunications PLC's plans to shoot video on demand through traditional copper wires. But analysts expect positive results from Viacom Inc.'s test, beginning by September in Castro Valley, Calif. It will use set-top boxes that cost no more than $300, insiders say, and initially will supply only video on demand and an on-screen programming guide.

Another crucial strategy: hedging one's bets. As an investment partner in Time Warner, U S West has access to the doings in Orlando. At the same time, it has recruited different technology providers for its Omaha experiment. And in the company's Technologies Lab in Boulder, Colo., engineers are testing still other technologies. The upshot: Nothing is certain--except that there will be plenty more delays and dashed hopes before the Superhighway comes to life.TABLE:

SUPERHIGHWAY WANNABES

Major interactive TV players and their partners

TIME WARNER CABLE Orlando, the most ambitious multimedia test, has been delayed by at least five months. The pilot now will begin in the fourth quarter.

BELL ATLANTIC A trial initiated in Virginia last April is scheduled to expand to 2,000 homes this summer. The technology is advanced, but difficult to use--and expensive.

U S WEST Starting in early summer, U S West will launch a trial in 2,500 Omaha homes. By fall, the company hopes to expand to 60,000 locations.

VIACOM Beginning late in the third quarter, the trial will tap into 1,000 Castro Valley (Calif.) homes. In the following 18 months, it is due to expand to 4,000 sites.

DATA: COMPANY REPORTS, BUSINESS WEEK

Kathy Rebello and Robert D. Hof in San Francisco, with Joseph Weber in Philadelphia and Maria Mallory in Atlanta


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