MEMORY LANE: Stuck in the Middle
Commoditization drove a wedge between those early,
heady visions of iTV and the industry reality
In May 1999, the month when the Dow Jones industrial average closed above 11,000 for the first time, the cable network Nickelodeon introduced a new animated television series about a sponge. Of the two events, Nickelodeon’s would prove to be the more enduring. “SpongeBob SquarePants” remains on the air 10 years later, but the Dow has struggled to return to the lofty heights it established before the dot-com swoon, a drawn-out war and a punishing economic recession took the momentum out of what had then seemed to be an impervious bull run. Who would have known that when the Nasdaq reached 5132.52 on March 10, 2000, it would be as good as it gets?
Certainly not a small cadre of companies that had been jockeying for leadership in an emerging technology niche tied to cable’s digital progression. For them, the bull run in technology propelled a faith that riches awaited if they could connect the rising consumer embrace of the Internet with the most prolific media display screen going: the TV set.
By 2000, a handful of contenders were developing software, courting content developers, arranging meetings with cable technology strategists and fashioning fancy trade-show booth displays in a bid to establish a market for something called middleware – a computing instruction set that would allow cable set-top receivers to render new interactive TV services. Among the participants were Microsoft and Scientific Atlanta, plus a number of smaller providers: Canal Plus, Liberate Technologies, OpenTV, Wink Communications and WorldGate Communications.
The idea was to wedge into thin slivers of set-top memory a layer of code that would connect interactive TV applications with underlying operating systems. Middleware was an essential enabler for a vast collection of applications and services companies like Liberate envisioned. The hope was that many of the things people could accomplish over the Internet would translate well to TV sets rigged up to digitally enabled boxes. People could order merchandise, chat with friends, read news clips and look up information with the touch of a few buttons on a remote control.
Looking back at press releases and announcements published by the middleware companies indicates how careful some of the contenders were to couch their development work in a framework of standards and open platforms. Liberate, for example, often included boilerplate language describing itself as the “premier provider of open platforms for delivering enhanced content and services to television viewers.”
But “open,” as it turned out, was different from “interoperable,” which is what many cable companies had realized they needed in order to confidently pursue a large-scale deployment of interactive services. The outlook for the middleware category that had catapulted Liberate and others to prominence began to darken as investors began to realize how difficult it would be to achieve scale within the U.S. cable industry. Despite the promise of interactive television at large, the warring middleware providers were effectively hamstrung by the reticence of cable operators to select a particular proprietary scheme and bet their entire interactive TV strategy on it.
The pressure rose as cable operators, through the industry research and development consortium CableLabs, began work to develop specifications for interoperable digital boxes through the OpenCable project. CableLabs took pains to involve the middleware companies in devising the middleware specification, but the writing was on the interactive TV wall. Cable’s embrace of a common and openly published interoperability specification that included middleware would effectively prevent any single provider from gaining a dominant position.
Momentum lapsed quickly. Liberate, which had raised $550 million through a 1999 public stock offering and related financing, reported just $9 million in revenue and $44 million in expenses in 2004 – when it sought bankruptcy protection from creditors. (It ended up selling most of its assets to Comcast, Cox Communications and SeaChange International). Middleware as an independent business category vanished, as the few providers that remained closed down their development efforts or turned to other categories.
It wasn’t because the idea was faulty. Middleware developers, sensing an opportunity in cable’s digital transformation, plowed the ground early, building a case that interactive TV could work over digital cable networks. But commoditization drove a wedge between those early, heady visions and the industry reality. Nickelodeon’s SpongeBob SquarePants knows the feeling. “Isn’t this great, Squidward?” he said in one memorable line. “It’s just the three of us. You, me and this brick wall you built between us.”