Fulfilling the promise
The cable industry is poised to capitalize on the concept's long-awaited potential
The cable industry is poised to capitalize on the concept's long-awaited potential
Whatever happened to just watching TV? If the interactive service providers and cable MSOs are to be believed, many cable subscribers may be asking themselves that question next year, as video-on-demand and other interactive services make the jump from the trade-show floor to the living room.
"The industry is going to see some real interactive services going to trial with MSOs," says Mitchell Kertzman, president and CEO of Liberate Technologies, a provider of software platforms for set-tops and AOLTV.
The range of services expected to be available with the help of digital set-top boxes in the home and content servers in the headend is extensive. And VOD, e-mail, TV-based commerce (t-commerce), Internet access, PVR functionality, programming-related content, and electronic couponing are just the beginning.
Analysts are predicting big things for interactive television. The Myers Group predicts that interactive television will generate annual revenues of more than $25 billion by 2005.
Some cable operators-Insight Communications, Time Warner, and Charter among them-have already found that VOD and interactive services can drive revenue increases and make customers happy at the same time, something for which the cable industry isn't well-known. And all the top MSOs believe that interactive services hold promise for 2001.
The keys to advanced interactive services are the digital set-top boxes cable operators have been deploying to add new tiers of programming. The latest digital set-tops, which closely resemble mini-PCs, offer enough storage capacity to allow for feature and graphic-rich interactive services.
Despite a promised flood of new suppliers, Motorola Broadband (formerly General Instrument) and Scientific-Atlanta continue to dominate the set-top business. Motorola Broadband has its traditional lion's share of the digital set-top market, shipping 7 million units, and Scientific-Atlanta ranks second, having shipped 1.5 million. But those are mostly relatively low-end boxes. For many operators (and interactive service providers), the promise of interactivity awaits the arrival of high-end boxes like the Motorola DCT-5000.
Once the set-tops are in place the cable operator needs to choose a platform and services. The platform acts as an operating system on the set-top, and current players in that market are Liberate, Microsoft, OpenTV, and PowerTV. The services options include companies like Intertainer, Diva, ICTV, Wink, or RespondTV.
First up: VOD
One of the benefits of digital cable for cable operators has been the ability to offer more pay-per-view channels, and one of the first interactive services, VOD, will extend this ability even further.
"I think you're going to see all of the top eight cable operators deploying or testing VOD by the end of this year," says David F. Zucker, Diva Systems president and chief executive officer. "Just from movies alone, they're looking at $12 to $14 a month on incremental top-line revenue, and that's one of the reasons VOD will be one of the killer apps of digital cable. It's a high-revenue, high-return service."
VOD hardware and service providers see two important keys to VOD's success: It should offer choice. Zucker says that Diva's sales results show that the more movies offered, the greater the number of sales. And it should provide the viewer the means to pause, fast-forward or rewind.
"The thing that qualifies VOD as interactive is that you buy it asynchronously and you get your own personal session, and you have full control of that session, which makes it interactive," explains Steve Nussrallah, Concurrent Computer president and CEO, a VOD server manufacturer.
Concurrent Computer, Diva, and SeaChange are the three principal competitors in VOD market. Nussrallah, says there are six cable systems offering VOD: Cox San Diego; Cox Phoenix; Time Warner Tampa Bay, Fla.; and Time Warner Oceanic Cable, Honolulu are deploying Concurrent VOD systems; Time Warner Austin, Texas, has tapped SeaChange; and Charter has tapped Diva for deployments in Los Angeles and (Charter has also signed on with Diva for an Atlanta deployment).
And making VOD even more attractive is that the cost of video servers, the core of the VOD system, have dropped 90% during the past decade.
But the big reason VOD will be popular with operators is that it easily allows cable to differentiate itself from DBS. "Some of the other interactive ideas seem very interesting and will probably eventually be successful, but they're not a no-brainer," Nussrallah notes. "Movie rental is a no-brainer."
And both Zucker and Nussrallah point out that VOD will mean more than just movies.
"The on-demand platform allows us to do everything: subscription VOD, music videos, a host of services that generate revenue," says Zucker.
One service Concurrent is working on is what Nussrallah calls a personal video channel. The personal video channel, offering functionality similar to a TiVo or Replay PVR, will allow the viewer to access an electronic program guide and watch television programs that already aired. For example, a cable operator offer access to the last 8 hours of programming on 50 channels, stored on a VOD server.
"One of our servers has the capacity for about 400 video streams and 400 hours of storage," he explains. "That 400 hours of storage can be eight hours of storage on 50 channels. You can put 50 encoders in the box and keep the last eight hours of programming on those channels available on the server."
Concurrent is working with a customer to define the user interface for that personal video channel, so that the cable operator can easily allocate storage to the channels, Nussrallah says. He expects to test the system at the end of this year or early next year.
Zucker agrees with Nussrallah that services like the personalized video channel will be an important VOD offering. Diva Systems offered a demonstration of its time-shifting capabilities at the NCTA conference in May. "We're working with two major cable operators, one in the U.S. and one overseas, to roll out a time-shifting service," says Zucker. Diva will be testing the service later this year.
VOD, while promising on the revenue front, barely taps into the true potential of interactive services. Viewers will soon have the means to drill deeper into TV content with for statistics, information on cast members, or even the means to buy products related to the programming. In addition, computer features like e-mail, personal calendars, and chat rooms will also find their way to the TV screen.
"The idea is for viewers to get what they want when they want it," says Richard Baskin, chairman of Intertainer, a provider of interactive television applications. "And within a given program, it isn't simply a lean-back, passive experience." For example, a viewer watching a sporting event could access statistics, box scores and other information.
There are a number of decisions to be made before rolling out interactive services. The first is what services will be offered. Functions like e-mail, personal calendars, and program guides require a different level of set-top power than the ability to surf the Web or engage in t-commerce. The services to be offered will give the operator a better idea of what set-top boxes and operating platforms can be used.
Mitchell Berman, OpenTV senior vice president, worldwide marketing, describes three types of services. The first is an overlay on the broadcast-channel content. "That will be free to customers and will be all about eyeballs. The producers of the programs will use tools like ours to create interactive content that looks like the television content."
The second is a virtual channel, as provided by Intertainer or ICTV. This is where much of the t-commerce activities will take place, along with access to e-mail or other services. Berman describes it as an electronic mall specifically for TV. It could also offer access to something Baskin believes will be a hit: gaming.
"There are subscription models where people are spending $10 a month and spending up to 30 hours a month on these games," he says. "We think it's another way to engage the customer and another revenue stream for the cable operator."
The third type of service will allow the user to access Internet content through TV.
Once a cable operator decides what types of services it wants to offer, it's time to select a platform (such as OpenTV, Liberate, MicrosoftTV or PowerTV, all the equivalent of a computer operating system) to run on the set-top box. The services run on top of that platform.
PowerTV CEO Steve Necessary says the ease with which the system can be integrated needs to be considered. "[An easily integrated system] takes a lot of burden off the cable operator. There are plenty of challenges in marketing VOD, so [cable operators will] want to take those problems off their plate."
New services also should be easy to integrate. Kertzman says it's important that the platform be standards-based, which will increase the level of content available. In addition, the technology must be manageable, scalable and reliable: "You don't want consumers having to reboot their set-top box or television."
The platform decision can be a tricky one. Platforms like MicrosoftTV and Liberate require a large amount of storage capacity, and, as a result, their launch into the market hinges on the introduction of set-top boxes like the DCT-5000. Today's set-tops can offer interactive services but, because of storage limitations, can handle only "thin" applications.
OpenTV, for example, can run on the Motorola DCT-2000. "For more than two years, we've been telling the cable guys in the U.S. that it's not about the DCT-5000 set-top box," Berman says. "We all know that Microsoft and Liberate are waiting for it because their software is so fat that it needs that kind of processing power."
He believes cable operators should offer interactive services today with the DCT-2000 instead of waiting for the DCT-5000. "If you want to run VOD or proxy-based Internet services or overlays on the Tonight Show," he notes, "you can do multiple applications in the DCT-2000 while waiting for the DCT-5000."
Both Liberate and Microsoft, however, contend that using OpenTV will lock a cable operator into proprietary technology. Berman dismisses that idea.
"That claim is just a way of scaring the operator," he bristles. "All our APIs [application programming interfaces] are public and out on the Web. We have more than 300 independent developers from around the world using OpenTV authoring tools to create content on their own, and we have 29 set-top box manufacturers porting our software. So how is that closed? That's just a typical, competitive slowdown method."
And OpenTV has found a U.S. customer. Looking to emulate its success in the UK, where 3.4 million BSkyB subscribers currently receive OpenTV interactive content via satellite, the company has signed an agreement with the DISH Network. Currently, 50,000 out of almost 4 million DISH subscribers receive an interactive program guide and interactive weather service from OpenTV.
"We're growing at about 100,000 subscribers a month," Berman says. "If you bought a DISH network 4900 Series set-top box, it has OpenTV software inside. And the 3 million existing boxes can receive a 15-minute Flash download of our software. We expect to be in 1 million boxes by the end of the year."
The rollout of digital cable set-top boxes will continue to provide increased processing speed and the ability to add computing power to the television. As the capability for more-complex services within the set-top grows, interactive content will likely grow.
"Our main theme is the idea that, if you're watching a program and there are other areas of interest around or behind a subject matter, you should be able to click through the program and go into those other areas," says Intertainer's Baskin. "You can pause the video and access the audio, text or graphics behind the program."
The information and services of which Baskin speaks will be driven from two places-the set-top box and the headend. ICTV CEO and Chairman Robert Clasen says that the approach taken by his company, which caches Internet material on a server at the headend, can offer the viewer a high-quality media environment free of the Internet's speed bumps. "Our real strength is, if an operator cached something like MTV at the Web site, viewers could call up the videos cached in the walled garden, and they'd be broadcast quality."
To Clasen, cached content is the same as VOD, and you charge for the access to the material. In addition, it's refreshed every 30 seconds, which means that the content is current.
Relying on the headend to provide some of the computing power is a good idea, says Kertzman. "With the software in both the headend and set-top, you can deliver higher levels of interactivity, commerce and scale to millions of subscribers with a reliability and quality people expect."
Says Zucker, "One advantage of headend-based storage is, you need only one copy to serve the entire universe. So you eliminate the need for the local hard drive in the home."
One major challenge for the cable community, Clasen points out, will be figuring out the impact that return paths will have on infrastructure. "Interactivity will require the sending of return signals, whether for VOD, cable modems or IP telephony," he explains. "Cable operators will need to know how much capacity to allocate for return path. The cable guys are learning this by trial and error."
The goal is not necessarily to re-create a PC experience on the TV, says Kertzman. "We never felt that what we're doing is trying to replace PCs. We do a good job of enabling Web surfing, but we think that people will still have PCs and use the broadband connection from their cable company, which will be another revenue stream for the cable operator."
Anyone who wants simply to put the PC experience on the TV, he adds, "will ruin the TV experience."
Even so, Baskin predicts, "Five to 10 years out, there won't be a difference between a television and a PC. You'll have intelligence, network and display, and it will be all over your house, and you'll watch some things on the TV, some on the PC."
The relationship between content for the Internet and content for interactive TV will be a work in progress during the early days of interactivity, but there most definitely will be a relationship. The "create once, publish everywhere" philosophy will have companies looking to leverage the same content across multiple platforms. The Internet has proved that it can extend branding and provide new information; bringing that to TV screens will only help extend branding that much further.
"When we looked at creating our new-media strategy," says Time Warner's New Media Executive Vice President Kevin Tsujihara, "we wanted to put the interactive together with what we've been doing on the Internet because there's going to be a convergence. There's also some cross-purpose utilization of some of the output you're creating. We're doing business development in a number of places in the digital arena, but we want to make sure there's one voice."
Like Baskin, Tsujihara believes that the line between what is interactive television and what is the Internet is going to blur. "When you're watching a television show and you have the ability to send e-mail, what are you doing?" he says. "Time Warner made an investment in OpenTV, and we've been working on some applications for delivery through set-top boxes. You're going to see the ability to change camera angles or access stats."
The key to the medium is that a lot of the functionality provided through the computer will be available through the remote control. "That's a lot easier for a number of people because, while we've had incredible penetration of the PC, there's still 30% to 40% of population without a PC," notes Tsujihara. "So if you can unleash some of that power through interactive services or t-commerce through the television, that's important."
Tsujihara, who supervised the redesign of Warner Bros. new Web site and Entertaindom.com, believes that those who create content for the Internet will want to cross-purpose it for interactive television applications. "The convergence is going to happen for a number of people. There are still going to be the people who want to just watch the game, but there will be others who will want to watch the game, chat, do all sorts of things."
It's very likely that the business model for the Internet, broadband distribution and interactive television, he believes, will be a combination of micro-transactions, subscriptions pay-per-play and advertising. "People are paying for some services on the Internet. If there's value to the consumer and there's a utility they need, then there's a model that works."
In the end, Kertzman maintains, it's compelling content that will determine the winner.
"Technology doesn't matter at all," he says. "Consumers care about what experience they get and what programming they get. And delivering a high-level of interactivity is important to make sure MSOs get more revenue-per-subscriber, reduce churn and increase loyalty."
Baskin concurs. "People don't adopt a technology, they adopt media and content. They're going to go where the content is."
AT & T
Basic subscribers: 16,400,000
Digital subscribers: 1,856,000
High-speed Internet subscribers: 420,000
When AT & T starts rolling out its interactive services later this year, there will be one definite star in the show.
"For us, the basic platform starts with the Motorola DCT5000," says Rich Fickle, senior vice president, program director, AT & T Broadband, interactive television. "It has higher-end graphics, more processing and an embedded cable modem."
Fickle says the Microsoft TV platform will be placed in the set-top as the operating system and navigation shell, but it will be highly customized for AT & T. "It'll have our own look and feel and an AT & T-designed user interface."
He also makes it clear that the selection of Microsoft TV doesn't mean it will be the only platform used; Liberate also may find its way into AT & T systems. "Liberate and Microsoft are different. But they're using Internet standard technology, things that are not proprietary or exotic, and that's the good news," he says. "All back-end applications should interface with both."
The key, however, is the DCT5000. "It allows you to have that kind of luxury because it has more horsepower," he says. "You don't have to have the unique software that only fits into very small set-tops. It can accommodate more-standardized technologies, and that's what makes a big difference."
Fickle can't say what specific applications will be running on the platform, but he can say what type of applications. "We'll offer access to educational and lifestyle sites that are interactive," he explains. "We'll use Internet technologies, but they won't look like Web pages because television isn't very good for that."
Beyond Web-type services, AT & T will offer e-mail, personal calendars, and an e-wallet to make transactions easy to complete, Fickle says.
The key to any content is that it be very "open-market." AT & T's plan also calls for @Home to provide the high-speed transport and IP provisioning. "It's all high-speed," Fickle adds. "It's being done with an integrated cable modem. With television, people expect to see things fast, they want to see things move. So high speed is important to us."
Time Warner Cable
Basic subscribers: 12,700,000
Digital subscribers: 613,000
High-speed Internet subscribers: 447,000
Hawaii is known for its beautiful natural beauty and perfect climate. But when your local cable system begins offering delivery from Pizza Hut and karaoke access using the TV, why leave the comfort of your living room?
Since December, more than 5,000 Time Warner Oceanic Cable System subscribers have been testing the interactive waters. And, according to Marketing Director Alan Akamine, the results have been improving each week.
"We're the only cable system to mess around with t-commerce applications, and our VOD is increasing every week. So we're very happy with the numbers," he says. "Regarding Pizza Hut, I can tell you that the average sale on our service is around $24 while a phone order averages around $17."
Akamine says one unforeseen benefit is that Oceanic is partnering with restaurants to expand their business relationships. "Before, we were just a simple cable company. But now, we can be a pipe and conduit to allow them to present their products to customers," he explains. "We're also working with one of the larger banks here in Hawaii to develop a banking application for our customers."
Karaoke, which has been in demonstration trials, will also be officially rolled out within the month. The challenge, Akamine says, was obtaining the rights to the content. But about 100 locally produced songs have been secured.
"We're also working with Power TV. We recently loaded a new version of the operating system, and the e-mail application has to be updated. But we should be offering that in a month as well," he says. "We have about 1,500 keyboards in our warehouse so we're anxious to offer that application."
Basic subscribers: 6,138,000
Digital subscribers: 155,000
High-speed Internet subscribers: 66,000
St. Louis-based Charter Communications is going forward with large-scale VOD deployments in the greater-Atlanta and -Los Angeles areas using DIVA Systems' VOD platform. According to Senior Vice President of Advanced Technology Tom Jokerst, the company will be using a mix of Scientific-Atlanta's Explorer 3000s-which have slightly faster processing speed and memory-and the Explorer 2000s now available to the 120,000 Charter customers in the Los Angeles system. Motorola Broadband Communications Sector DCT2000's are deployed in the Atlanta area, where Charter has an estimated 60,000 customers.
"VOD is a logical evolution of our core products. We believe strongly in it. We are just waiting to see how this model will work. And we are awaiting the final testing of some of the VOD-related back-office systems as well," says Senior Vice President of Corporate Development and Technology Steve Silva.
Beyond movies-on-demand, Silva says, several VOD products might emerge soon, including affordable kids and ethnic programming and corporate-sponsored community-based programming, which might be offered free to customers.
Wink and Worldgate services are already deployed in a number of Charter systems, and Broadband Partners Inc.'s Digeo services will launch in the fall in St. Louis. Broadband Partners is a joint venture of Paul Allen's Vulcan Ventures, Go2Net, Charter and High Speed Access Corp. (HSA).
Jokerst indicates that Digeo is a TV broadband portal, which will let customers tap into e-mail, streaming media, t-commerce and on-demand services, among others, with their TVs hooked up to DTC5000 and soon Explorer 6000 series STBs.
Basic subscribers: 6,100,000
Digital subscribers: 450,000
When it comes to interactive television and Cox Enterprise, it's the San Diego market that is leading edge. Cox is currently testing VOD and Internet-related TV services at employees' homes before offering such services to customers, which it expects to do by the end of the year. The Internet TV services will be ready for deployment in early 2001. Movies on-demand will be offered first to subscribers, followed by on-demand video content and then Internet-style TV services.
"There's real customer demand for these services," says Braxton Jaret, Cox director of product strategy for interactive TV. "And if you look at the page views generated by an EPG and compare that with the page views generated by, for example, Yahoo, you find you could have astonishing levels of ad inventories within the TV interface. And the EPG is just a part of it."
Cox tapped Concurrent Computer Corp.'s MediaHawk VOD hardware and software for its initial deployment of VOD for residential customers in San Diego. The other interactive services will use the Liberate platform.
"Liberate's advantage is it's cross-platform, open-standards based, and has a solution for [General Instrument] and [Scientific Atlanta] set-top boxes," says Jaret. "[The company's] recent acquisition of Source Media also allows us to offer services on low-end set-top boxes like the S.A. Explorer 2000 and Motorola DTC2000."
But Jaret says Cox may have a deal with more than a single vendor for interactive TV software and services. "Those services will include the "walled garden" concept, e-mail, chat services, and enhanced TV capability like responding to commercials and coupons."
Basic subscribers: 5,719,800
Digital subscribers: 515,000
High-speed Internet subscribers: 141,900
Steve Heeb, senior director of new business development at Philadelphia-based Comcast Cable, indicates that a number of distribution and equity-related deals are unfolding which will reshape Comcast's future in terms of interactive services. Comcast has equity stakes in Liberate Technologies, @Home, Intertainer, as well as Replay and TiVo.
"We're very bullish on interactive services," says Heeb. "People should be very willing to pay for VOD services. At the same time we want to explore interactive advertising, and a number of non-subscription services which do not burden the customer."
Besides VOD trial deployments which Heeb would not discuss in detail, Comcast is looking at Internet access over TV. Heeb says that much still needs to be done in terms of the overall presentation of Internet content on the TV.
"Due primarily to design differences, Internet content which looks fantastic on a high-resolution, progressive scan PC screen simply does not look good on the low-resolution, interlaced scan TV screen," he says. "At least not yet."
Heeb says that a huge marketing task lies ahead. "The customer has to be educated, and we have some evangelizing to do," he explains. "With respect to being first to market with interactive services, timing is everything, but at the same point, just doing it first does not mean that it is going to be successful. Among other things, we have to have the ability to make changes to these services on the fly."
Basic subscribers: 4,990,092
Digital subscribers: 233,949
High-speed Internet subscribers: 37,495
According to Tim Rigas, Adelphia executive vice president, chief financial officer, the new wave of customer services starts at the digital set-top box. The company is currently deploying 20,000 digital set-top boxes a month and Rigas says that, by the end of the year, that number will reach 100,000.
"Those set-tops are rolling out from our largest systems out in Los Angeles to some of our smallest in Vermont," he adds. "We'll have a very strong approach throughout the whole country."
The 3 million set-tops to be placed in service will be about a 50/50 mix of Scientific-Atlanta and Motorola boxes. One of the challenges Rigas points out is that pressure from DBS is requiring cable operators to offer digital set-tops and services today. Even if a cable operator wanted to wait for the 5000 set-tops they can't. As a result, the industry will have a large embedded base of 2000-level set-top boxes when the high-end 5000 set-tops enter the market, requiring cable operators to figure out what services will be offered on which box.
One solution is to keep as much of the computing power required to handle these services in the head-end. "There are advantages to having more computing power in the home, but part of the plan is obviously to make it so that you don't have to constantly upgrade what's in the home," he adds.
Adelphia also recently made an investment in ICTV, an interactive services provider. "We have a great deal of confidence in their management and the products they're working on," says Rigas. "The investment is really about us showing our support and saying that it's very important to the cable industry to have those products come along."
Basic subscribers: 3,135,370
Digital subscribers: year-end launch
High-speed Internet subscribers: 52,100
If being different is what will drive success, then Cablevision, which will be using Sony set-top boxes instead of one from a more traditional set-top maker, may be worth a closer look in the digital future.
Cablevision is already testing the set-top boxes but, in the next six months, will begin a more advanced pilot program, rolling out the Sony set-tops and related interactive services in early 2001.
"The basis of that program was to build a very advanced platform or gateway," says Senior Vice President, Engineering and Technology, Wilt Hildenbrand. The set-top is an end to a means, he adds, suggesting that Sony, being a services and consumer electronics company, has a better instinctual understanding of services than traditional set-top makers.
"We're certainly entering a new age in terms of these services, and we wanted to start with a clean sheet of paper," he explains. "Our digital strategy was to build the right kind of platform and network and what we lacked was a digital box that could fulfill that strategy." The Sony box answers that need.
The key to success, Hildenbrand says, is building off the experience customers will have when ordering VOD. "It's fine if you think VOD is about just movies. But think about that interaction. It could be shopping. It's sort of a metaphor for anything you could do. But it certainly isn't Web surfing."
Another important factor is making sure the services developed work around the TV metaphor instead of trying to port over the Internet or PC experience. "At the end of the day," he says, "the TV is a much simpler device."
Basic subscribers: 1,435,000
Digital subscribers: 109,000
High-speed Internet subscribers: 18,000
Looking for a palatable way to raise rates? Michael Willner, Insight Communication president and CEO, believes the easiest way is to raise revenues, not rates. With the help of digital interactive and VOD services Willner says the average bill increase of digital subscribers is $26, and with the subscriber rate approaching 30 percent that works out to a $6.50 rate increase across all customers.
"It lets us leapfrog satellite and makes us a more high-tech solutions, plus I don't have to get complaints from mayors," he adds. Willner says the company is currently offering complete interactive video products to subscribers in Rockford, Ill., Columbus, Ohio, and Evansville, Ind., and is committed to rolling out to virtually all of its subscribers by the end of the year or in early 2001.
Insight customers are offered different tiers of digital services, beginning with a server-based program guide, Diva-based VOD, and an Internet-style information service called Local Source. Local Source is a product of Source Media and offers cinema guides, entertainment information, and both local and national news, as well as other information. It runs on the Liberate platform and on Motorola DCT-2000 set-top boxes.
"Local source isn't PC-centric and it's created for each individual market," adds Willner. "And our VOD system has been running flawlessly."
Willner says Insight will roll out DCT-5000 set-tops, so it's important that the Liberate platform can port to both the 2000 and 5000 set-tops. "We're looking for vertical integration of content so we can develop a higher-end digital product that may provide access to the Internet, and that would be through the 5000 set-top. But we don't want to ignore the millions of homes with 2000 set-tops."