Comcast, Cox Gain iTV Control
Joint venture to compete with DirecTV's interactive launch
By Ken Kerschbaumer -- Broadcasting & Cable, 1/16/2005 7:00:00 PM
When Comcast and Cox purchased the North American assets of Liberate Technologies last week, creators of interactive-TV (iTV) applications finally got an outlet for their work. And by owning the technology outright, the cable giants are relieved of cumbersome third-party software-licensing agreements.
Liberate will be consolidated under Double C Technologies, a joint effort between the two cable operators. Comcast has the controlling interest in Double C. The acquisition's price tag: $82 million.
The deal gives Comcast and Cox an opportunity to develop services based on Liberate's iTV platform and to enhance offerings to their 28 million combined subscribers. Comcast and Cox will roll out new iTV services by the end of the year.
Liberate's platform will reside within the subscribers' digital cable set-top boxes and serve as the operating system for iTV applications. “With digital set-top boxes, DVRs and VOD available, we can bring more features to our customers,” says Steve Silva, Comcast EVP, new business development. Dave Grabert, Cox Communications' rep, says his company is eager to participate in the interactive-TV future.
The deal is timed perfectly for Comcast and Cox. With DirecTV under News Corp.'s control, many of the interactive services used by BSkyB, News Corp.'s UK-based satellite service, are expected to migrate to the U.S. next month. As competitive pressures mount, two-way iTV services are a key differentiator for Comcast and Cox.
The Double C announcement also signals a major change in the cable market. While the focus is readying the iTV platform for Cox and Comcast, Silva has a secondary motive. He wants other cable operators to eventually benefit from the technology. “There should be very few barriers, if any,” says Silva, “to getting these products deployed.”
Driving the deal
Adi Kishore, Yankee Group media and entertainment analyst, cites three key factors that drove the deal: DirecTV's impending iTV services, the need for better navigation for interactive digital cable services and the desire for a standards-based iTV platform.
The lack of a standard, in particular, has hindered iTV development. Companies that develop platforms have traditionally pushed proprietary systems that lock in customers and lock out competition.
“Comcast is increasingly taking a hands-on role in developing interactive technology,” says Kishore, citing its emphasis on guide development, the potential for acquiring VOD content directly through a Sony-MGM deal and the formation of Open Cable Applications (OCAP Development LLC) with Time Warner.
A final factor in cementing the deal for Liberate Technologies was cost. The company's poor financial performance made it ripe for an asset sale. Liberate filed for Chapter 11 bankruptcy protection last April. (The current deal is contingent on dismissal of the bankruptcy appeal that Liberate made last week.) The company also underwent an SEC investigation into restatement of 2002 and first-quarter 2003 financials. Although investigators found no wrongdoing by the company, two former company officers were charged with violations. Revenue announced last week fell to $600,000 for the quarter ended November, and losses hit $8.1 million.
While Liberate will retain its European business, its 130 employees will get offers to join Double C. Liberate's operations are expected to remain in Ontario, Canada.
Liberate, like its iTV-platform competitors Microsoft and OpenTV, has found the U.S. market slow to develop. Comcast has been working with Microsoft TV Group and is currently deploying the Microsoft Foundation platform in Seattle. Silva adds that the Double C deal won't end the relationship between Microsoft and Comcast. (Cox does not have a deal with Microsoft.)
Outlets for iTV platforms
Ed Gracyzk, Microsoft TV Group Director of Marketing, says Microsoft and Liberate can co-exist on the same set-top boxes. Microsoft's interactive programming guide, for example, is a critical operating component. The Double C deal is also a plus for smaller developers.
Many companies have built compelling iTV applications, but, without a multiple-system cable operator (MSO) to deploy them on a large scale, they had no place to reside.
“Now the No. 1 and No. 3 MSOs are aligned on a standard platform. Any company that builds a co-application can deploy it more cost-effectively,” Gracyzk says.
The dual-tuner PVR set-top boxes from Motorola and Scientific-Atlanta will also play an important role in the Double C venture. With plenty of headroom for an iTV platform, real-time two-way interactivity that can't be matched by DBS will become a reality, says Silva.
Adds Gracyzk, “There were digital watches with more memory than previous digital set-top boxes. But the new DVR boxes have much faster processors, more memory and lot more capability.”
What does that mean for consumers? It means virtual channels created by viewers and even advanced cross-platform services like caller ID on their TV set. “We'll be able to do those things more effectively on the advanced set-top box,” Silva says. “And when you combine this with VOD, it's strongly differentiated from DBS.”
The Double C venture will manage the development process, but Cox and Comcast are free to deploy services on their own timetables.
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