Taking aim on ITV
By the end of this month, cable could count 8.1 million digital cable subscribers, if the top-seven U.S. cable providers continue to attract new customers at the same rate in the fourth quarter as they did in the first half of the year. That's nearly nine percent penetration of about 68 million basic cable subscribers, at an aggregate run rate of about 162,000 new sign-ups each week.
It means that nearly one out of 10 U.S. cable homes will be experiencing the first of cable's digital fruits: More channels, thanks to MPEG-2 compression and quadrature amplitude modulation (QAM), and an electronic program guide.
Next year, an additional 12.7 million new digital cable subscribers could join the U.S. tally, for an ambitious total of 20.8 million—nearly one-third of the U.S. cable base—calculated at unchanged and annualized 2000 installation rates. The aggregate U.S. pace: A dizzying quarter-million new customers, every week. By the end of 2001, assuming digital hookups mirror what happened this year, three out of 10 U.S. cable homes will have chosen to subscribe to digital TV.
At those run rates, it's pretty clear that broadcast of compressed, digital TV channels, with a guide as the primary application resident in the set-top box, is stable.Going beyond more channels and a guide
Now what? At least seven different types of interactive applications, each populated by multiple vendors, want to get into cable's digital boxes:
- Walled garden" services, where a first-screen menu is populated with sponsored, clickable icons for things like
- e-mail, news, weather and sports stats—the stuff offered by Liberate Technologies Inc., Microsoft TV, OpenTV and others.
- Interactive ads and lead-generating services from companies like RespondTV Inc., TVGuide, Wink Communications and others. This is where a remote-control "click" fetches more information about a product or service. Each click is an extremely valuable direct-marketing tool for advertisers, and could land MSOs considerable new revenues.
- Commerce, where customers click-and-buy merchandise related to a TV program. Companies like CommerceTV, RespondTV and Wink, among others, are advancing this application.
- Program-synchronous services, where a clickable item syncs up with the TV show in progress, are in the works from companies like Mixed Signals Technologies, which currently produces daily, play-along versions of "Jeopardy" and "Wheel of fortune", among others, on WebTV. Most applications using the ATVEF (Advanced Television Forum) specification are program-synchronous: A "trigger," usually a URL link, accompanies the program in the vertical blanking interval (VBI) or in/out-of-band signal path.
- TV-based Web access, from companies like WorldGate, Liberate, Microsoft and others.
- Video-on-demand, the couch-based alternative to movie rental stores, from companies including Concurrent Computer Corp., Diva Systems, Intertainer, Seachange International, nCube and others.
Personal video recording services—sort of a VOD for live TV—are also in the strategic mix.
All represent another brand-new thing for cable: Software-centric, client-server architectures.
The answer to the "what's next" question for cable's digital boxes varies, perhaps predictably, from one cable provider to another. On a consensus basis, the clear leader for 2001 will be VOD. Time Warner, Comcast, Cox, AT&T, and Charter all voted for VOD with purchase orders or trials throughout this year.
Thus, VOD will likely become cable's first major push into interactive services delivered with a client-server architecture—where some of the service resides in a file server at the headend, and some sits in the advanced digital set-top.VOD requirements
What does it take to do VOD? First, a storage server, to hold the movies. Second, more QAM modulators in the headend: Roughly one for each bundle of 10 3.8-Mbps streams, assuming MPEG-2 compression and 256 QAM. That syncs with VOD network requirements calculated by vendors and MSOs, which assume 10 percent peak, simultaneous usage of on-demand content.
For example, a 500-home node that is 20 percent penetrated with digital, VOD-capable boxes, yields 100 potential VOD users. Of those 100 homes, a 10 percent peak usage model means the VOD gear has to be ready to handle 10 VOD sessions at the same time. Conveniently, MPEG-2 streams use about 3.8 Mbps each; 10 use 38 Mbps, or the throughput afforded by 256-QAM equipment.
Inside the set-top, there's a VOD "client"—the software that shows subscribers how to pick a movie. The client often needs a hitch to the resident guide, which requires software integration. The client also links to the headend server to facilitate how a movie session is set up and torn down. The server link executes VOD's rewind, fast-forward and pause functions.
All film content needs to be secured at every juncture, to thwart theft and prove to Hollywood studios that the cable digital set-top is secure. This is critical to VOD movie offerings that are frequently refreshed with new films.
(Cable still hasn't convinced the studios to yield a quicker distribution window than it gives other outlets, like rental stores. What's needed, however, is exactly what's happening: More eyeballs, signed up quickly, and using un-hacked boxes.)An MSO-by-MSO look at ITV
Going down the list of major MSOs, it's clear that beyond VOD, cable's ITV priorities are clearly mixed.AT&T Broadband
- Launch stats: 2.5 million digital subs as of Sept. 30, 2000
- Run rate, third quarter: 23,000/week.
At its most ambitious, AT&T's plan was to outfit a Motorola DCT-5000 set-top with Microsoft's WinCE operating system, its Microsoft TV middleware, a Java-based engine from Sun Microsystems, TV Guide's electronic program guide, and a clean-looking "first screen," sometimes called a "portal" or a "walled garden." The first screen was to be populated with clickable applications: community, finance, games, entertainment, shopping, education, weather, e-mail, news.
That's a lot of brand-new, client-server techniques to attempt all at once. Not only did each software piece have to work in isolation; each piece had to sync with the others, too. Complicating matters was the contentious relationship between two important AT&T partners: Microsoft and Sun.
An agonizing summer of "integration issues" (Click here for more information) ensued, with a predictable amount of internal finger-pointing among the five partners. By early fall, AT&T acknowledged the severity of its ITV situation, and proposed a swift, three-point course correction. That correction included: scaling down the number of simultaneous applications at launch; bringing in Liberate to see if its client-server platform worked any better or quicker; and pushing back "showcase system" launches to an unspecified future date.
What AT&T launches, and when, remains to be seen, but will likely be re-thought for technical and operational feasibility. Quality over quantity. Watch for an interactive guide (perhaps with clickable ads), parlor-style games, and, perhaps, sponsored first-menu elements, like weather, pre-selected Internet content, and mail.Time Warner
- Launch stats: 1.3 million digital video subs as of Sept. 30, 2000
- Weekly run rate, third quarter: 31,600
If there's one thing that's crystal-clear about Time Warner's digital TV work, it's the importance it places on methodical, disciplined phasing of new services. Digital TV headends first, followed by digital set-tops, followed by VOD. Everything in order, step by step. It is the reason Time Warner is 100 percent upgraded for digital TV, live in three systems with VOD, and the most aggressive among the MSOs for VOD rollouts next year.
If there's one thing that's profoundly unclear about Time Warner's digital TV work, it's the impact of its proposed merger with America Online on its ITV strategy, beyond VOD.
AOL has its own ideas about interactive TV, evidenced through its "AOLTV" service, co-built with Liberate. DirecTV signed on as a customer this year, as did Qwest/US West, for its few VDSL builds, in the Denver and Phoenix areas.
With DirecTV, AOLTV slips into a box with TiVo's personal video recorder functionality. The project is delayed, AOLTV execs said this summer. They pointed to an '01 launch.
To enter Time Warner's digital systems, AOLTV will almost certainly need to talk to PowerTV, the operating system and middleware arm of Scientific-Atlanta. At its peak, PowerTV shipped upwards of 100,000 copies/week of its operating system this year, garnering a footprint of 4.6 million, PowerTV-enabled, S-A Explorer boxes as of mid-October. PowerTV, a quiet company, spoke loudly with momentum this year, and shows no signs of slowing. And, installed base matters in cable TV.
Perhaps AOLTV's most attractive ITV potential parallels that of its PC-online parent: Instant messaging—the "Did you see that?!" factor. Internally, at least, Time Warner agrees, making IM a potential next ITV service, after VOD.
Time Warner's considerable program network holdings, many of which are already active in program-synchronous ITV, also can't be discounted in the MSO's ITV strategy. HBO, Cinemax, CNN, CNN Headline News, Turner Classic Movies, and many others are all Time Warner's children.Comcast
- Stats: 943,000 digital subs as of June 30, 2000
- Weekly run rate, second quarter: 13,300
Comcast spent this year implementing a plan it created in 1999: To streamline a correctly anticipated surge in subscriber demand for digital TV and cable modem services. Outside of tests with Intertainer, Concurrent and SeaChange for VOD services, the MSO hasn't yet articulated its future ITV plan, but will likely go heavy on VOD in 2001 to get people used to ITV-like services. Comcast will work with Intertainer (which it has a stake in) to roll out VOD in the first half of 2001 onto East Coast markets from central New Jersey to Washington, D.C.
Another huge interactive potential, specific to Comcast, is the simple fact that it owns one of the biggest retailers in the U.S.: QVC.
QVC ships around 77 million packages per year, takes about 4.3 orders each second, and, in peak times, logs as many as 650,000 daily orders. Imagine what could happen with QVC if the TV rather than the telephone was the ordering mechanism—point, click, buy.Cox
- Stats: 560,000 digital subs as of June 30, 2000
- Weekly run rate, second quarter: 8,700
With commercial VOD launched using Concurrent's equipment in its San Diego and, soon, its Phoenix system, Cox is clearly focused on movies-on-demand in 2001.
Cox is also experimenting beyond VOD, starting with a simple package of ITV services from Liberate. The "trial pack" from Liberate sits on top of PowerTV's OS, on S-A's Explorer 2010 digital set-top. A walled garden package, the trial software starts with URL-based links to weather, sports and children-oriented content.Charter
- Stats: 375,000 digital subs as of June 30, 2000
- Weekly run rate, second quarter: 11,500
Charter, among the more aggressive of the MSOs in interactive services, experienced two major technical accomplishments this year: First, it launched Diva's VOD gear on both Motorola and Scientific-Atlanta's headend and set-top equipment.
Second, Charter was among the first, if not the first, to co-locate two interactive applications—WorldGate and Wink—in addition to a guide, within a digital set-top box (Scientific-Atlanta's Explorer line). It wasn't easy, and the fact that it wasn't easy speaks volumes about the task of getting multiple ITV services to work simultaneously on today's base of installed digital boxes.
As a societal accomplishment, Charter offered WorldGate's Internet TV service free to subscribers in tiny LaGrange, Ga., a region with low PC penetration but high Internet interest. The campaign was predictably effective, with a brisk clamor for the service by subscribers.
Charter will likely continue its VOD push next year, and continue to experiment and roll out Internet-over-TV and interactive ad services, like it is doing now with WorldGate and Wink.Adelphia
- Stats: 342,000 digital subs as of June 30, 2000
- Weekly run rate, second quarter: 4,700
Adelphia is the quietest of the MSO pack in discussing future digital TV services. Clearly, however, ITV ranks behind digital video, cable modems and business telephony in the MSO's strategy. This year alone, Adelphia logged more business/residential telephony ports than any of its MSO peers, and speaks candidly to the investment community about the health and future growth of commercial voice and data services.
For its digital TV work, Adelphia uses advanced digital set-tops from both Motorola and Scientific-Atlanta, and appears to be interested in VOD additions, as evidenced by trial work with Diva in Lansdale, Pa.Cablevision Systems
- Stats: Negligible digital subs as of June 30, 2000: Gearing up for Sony launch
- Weekly run rate: Negligible
Cablevision is by far the most intriguing of the MSO pack when it comes to ITV, because of its bold moves to swap out 100 percent of all set-tops with an advanced digital unit made by Sony Corp.
VOD is a clear driver: Rather than trying to attract 10 percent peak buy rates from the fraction of its subscriber base outfitted with boxes, as every other MSO is doing, Cablevision decided to put advanced services in front of all of its customers.
Cablevision just announced it will work with VOD vendor Seachange to launch the service in its core New York City market by the end of this year.
Sony's primary Cablevision boxes contain a 300 MIPS processor, 32 Mbytes of RAM, 16 Mbytes of flash memory, and 8 to 16 Mbytes of video DRAM. Also: A DOCSIS and DAVIC modem, a 3-D graphics card, a conditional access card slot and money card slot. On the back panel are three USB ports (two masters, one slave), two 1394 or I-link ports, digital audio, S-video, NTSC and RF in and out.
That's a lot of box. In software, Cable-vision plans to use a real-time operating system made by Wind River, middleware from Sony, and a TV-based Web-browser made by Spyglass (now a unit of OpenTV).
Cablevision isn't saying yet what services will populate the Sony unit, but VOD will clearly be among the forerunners. Because of the quick processor and copious amounts of memory (particularly relative to today's digital boxes), Cablevision will be able to do a lot with interactivity.What's hot in '01?
The clear interactive driver next year will be video-on-demand. Watch for more trials, more commercial deployments, and escalated discussions between MSOs and studios to get better distribution windows for fresher content.
Interactive TV and its many sub-categories will also gain more attention next year, if for no other reason than the fact that the boxes are capable of doing more than they're doing now. Watch for considerable Liberate activity, for example, and heightened trials across all the major ITV fronts.