A growing band of innovators in multimedia entertainment is driving changes in the Internet environment that represent major new challenges to strategists in the high-speed data services arena.

Where on-line content to date has been largely defined by the bandwidth limitations and latency factors of Web links, providers of on-line multiplayer games and other content tied to community interaction are using new means, including optical storage, high-speed servers and fiber backbones and advanced software tools, to transform the narrowband Web environment into a 3-D graphics arena supporting endless varieties of socially engaging and commercially viable interactions.

The possibilities have taken the electronics entertainment industry by storm in recent months, forcing many of the leading players to reorient themselves at warp speed. "We thought we were on the ragged edge of `too early' when we got started, and then, bang, everybody was there," says Richard Garriot, senior vice president and director of development for Origin Systems Inc., which is soon to launch an on-line multiplayer version of its popular Ultima CD game.

With some 10 million people jumping in to surf the Internet in the U.S. while the video game industry was waiting for interactive TV to take off, the on-line phenomenon has proven that what wins in the marketplace is what appeals to people's social instincts, even if "it's an incredibly crude technology," says Trip Hawkins, chairman and CEO of The 3DO Co. "We have to sit up and take notice and realize if we start to make things that work in that environment and that tap into this interest in socializing, this fundamental interest in the emotional connection of community participation, there's never going to be anything like it that we've seen before."

Hawkins gets no argument from Tom Kalinske, president and CEO of Sega Corp. "I think (the Internet) is the biggest factor impacting our business," he says. "The benefit of on-line, Internet play is that you're now engaged in social play, not just playing against the computer or a piece of software."

"I think the new platform of next year isn't about Sony and Nintendo; it's about being on-line," adds Gilman Louie, chairman of software supplier Spectrum Holobyte/MicroProse. "On-line (game) services are really going to begin to explode over the next 24 months."

While no one is happy with the level of bandwidth now available for Internet access, the breakthrough this year is that a growing number of players have found ways to reduce latency to the point that fast-action game playing is now possible through the Web, much as it has been through proprietary local area network extensions that have been the primary proving grounds for multiplayer games over the past two years. Moreover, with support from CD, and soon, DVD (digital video disk) storage, extremely complex, three- dimensional virtual reality environments are becoming part of the Web community environment, complete with voice communications.

"High-speed access would be great for us, but we can't afford to wait for that to happen," says Dean DeBiase, president and CEO of The ImagiNation Network Inc., the soon-to-be spun off on-line subsidiary of AT&T. "We're creating a platform for community game playing over the Internet today that offers many of the advantages people talk about when they discuss broadband access."

INN, with plans to launch its CyberPark Internet service this summer, has created a three-dimensional virtual community environment that marries on-line feedback with CD-stored images and audio to provide users click-on access to multiplayer games, local chat and information sites and other products built around shared interactive experiences. The on-screen environment, populated with avatars reflecting individual user selections of body types, gender and clothing, allows people to spontaneously set up gameplaying situations with each other, or choose other options on a pay-per-use basis.

While INN does not support fast-action games at this point, it does support a wide range of commercial options for content providers and advertisers who choose to offer products over its platform. For example, the system can keep track of individuals' "comings and goings" in the CyberPark environment to the point that an advertiser will know exactly how many people have entered a space where the firm's wares are promoted, or a game producer will know how long a particular player has played.

Many of the new Web-based content providers are focusing on games, as opposed to INN's focus on a multi-use environment, with some achieving action speeds that support the types of games now played on single-player or two-player consoles or CD-ROM systems. But even these providers are looking beyond the simple game paradigm to a multitude of applications that will exploit the community implications of virtual reality environments on-line.

"The technology we're creating to support interactive games over the Internet will drive tremendous changes in our social fabric that will rival changes that occurred with the telephone and air travel," says Kristin Asleson, vice president of marketing for MPath Interactive, a Cupertino, Calif.-based startup which last month became the first provider to offer fast-action, multiplayer games over the Internet.

MPath's capabilities spell changes in the narrowband Web environment that, like INN's and others' CD-supported graphics-rich support systems, raise the bar on what consumers might expect from someone charging $40 a month for broadband access. MPath is combining proprietary software with network support from PSINet to establish low-latency connections for fast-action community games such as Command & Conquer, a search-and-destroy game that has sold some 800,000 units in CD format worldwide. Players in the on-line version will be able to communicate with each other by voice as well as text, if they have a SoundBlaster card and a microphone, Asleson says.

"It's a very rich featured environment in which you want people to be able to communicate with each other as much as possible," Asleson explains, noting the company's latency of 150 milliseconds between a player's action and the appearance onscreen of another player's reaction is the lowest in the business so far. "We have servers all across the country so that we can scale up very easily, as well as offer people a great gameplaying experience no matter where they are."

"Low latency is there," Louie says, noting that with response times of between 150 and 350 milliseconds, emerging multiplayer game services over the Internet "do really great simulation games and can do all the strategy games."

Developers welcome the advent of the cable modem, but they're skeptical of how big a role it can play over the next two years as the on-line multiplayer game business takes off. "Realistically, (cable modems) are about three years off before people can get really excited about them," Louie says, in reference to the time it might take to build a mass market for high-speed data. "Cable companies need to be able to solve the problem of how to get one region to be able to talk to another regional provider. Until they're able to do that, it's just going to be a mess."

This inter-regional connectivity requires the uniformity of technical approaches to high-speed data that is the goal of Multimedia Cable Network System (MCNS), the venture founded by Tele-Communications Inc., Time Warner Cable, Cox Communications Inc. and Comcast Corp., with new support from additional MSOs. While MCNS hopes to complete a first suite of protocols by early fall, there are signs that the fast-paced events surrounding Web use are making it hard for the venture to define a first-generation system.

"We're hearing a lot of talk about video streaming as opposed to bursty data communications," says one senior manufacturing executive. "People are going to have to make up their minds and stick to a gameplan, or they'll never get services off the ground."

Video streaming, possibly with use of asynchronous transfer mode running over the MPEG-2 transport layer, would be one way to accommodate a much richer environment and faster game playing than anything that even MPath can come up with. But it would still require cable industry support for legacy systems, especially since those systems have DVD to look forward to as a video-enhancing technology for on-line game playing that promises to jerk the narrowband Web environment to still higher levels of functionality.

"We're very, very excited from both the hardware and software sides of the opportunity and plan to play a big role in DVD," says Emiel Petrone, senior vice president of Philips Media, which is also rolling out set-top players by year's end, with DVD-ROM to follow in the second quarter of '97. "There's no question but that we see a convergence between the TV and the PC, and we see DVD as a fundamental feature of this new environment."

Quality benchmark goes up

DVD, with 4.7 gigabytes of storage capacity in first-generation systems, and going to over 8 GB within two years, represents a new benchmark in digital programming, says Richard Prodan, senior vice president and CTO at Cable Television Laboratories. "DVD offers very high quality, full resolution pictures and is going to be the leading MPEG storage technology," he says.

As a result, Prodan cautions against settling for any digital system in cable that doesn't measure up to what consumers are likely to expect once they become accustomed to using DVD. "You have to be careful in looking at low-bit rate compression, because the benchmark for acceptable quality is going up," he notes.

DVD also brings a double-sided access capability that supports implementation of interactive adjuncts to stored movies and other content, notes Craig Eggers, director of marketing for Toshiba America Consumer Products, which plans to have DVD set-tops on sale by October, with DVD-ROM hitting the stores a month or two later. "With the double-sided format, you can put Batman Forever on one side, and on the other side, an imbedded navigation system that supports Web browsing through the TV set or the playing of on-line games with other people," he says.

With many game developers already using CD-ROM technology to combine high-level multimedia graphics with on-line interactivity, the electronic entertainment industry views DVD as the means to break through to much richer, video-enhanced 3-D environments in the on-line game environment, which, in turn, could help expand the consumer market for high-speed data services over broadband networks, if the high-speed data protocols are in synch across a large market base. Combined with the movie playback features, these capabilities offer the electronic entertainment industry the breakthrough to mass market penetration it has been looking for, says Hawkins.

"When you look at the consumer market, you have to realize that, worldwide, there are about 350 million color television households, and of that number, maybe 250 million have VCRs," Hawkins notes. "But in the history of computers and video games, no more than 50 million of those homes have ever had either a computer or video game at one time, which means we've never gotten to mass penetration levels."

That will change with the introduction of low-cost means to access the Internet and proliferation of DVD at ever lower prices, Hawkins says, noting that two-thirds of the people who say they're interested in purchasing low-cost Internet boxes come from the 58 million households who say they have no interest in buying PCs. "The same thing applies to DVD players," he adds, citing research by Alexander & Associates and others.

DVD, like game consoles, qualifies as a "premium toy" across this demographic, but with the advantage of broader appeal, Hawkins says. "This industry will... become a major force in the consumer electronics market when you can combine all three of those sources of demand in the same kinds of products in the home," he says, in reference to DVD, the Internet and games.

The backward compatibility of DVD with CD means a bridge will develop that adds consumer benefits in the game category for DVD even before many games that are designed specifically for DVD are on the market, notes Brad Crystal, director of on-line sales for game developer Activision Inc. "DVD-ROM delivers on the unfulfilled promise of CD-ROM," he says. "Games and other software titles can be much more rich from a software standpoint. Multiple CD-ROM titles can be consolidated in DVD-ROM, with no transition from one game to the next."

Crystal adds: "DVD-ROM supports eight times faster access speeds than CD-ROM, making it much more arcade like, which is what we're striving for. It allows (developers) to retain their investment in past formats."

CD storage, tied to on-line access, already in use in the CD-ROM environment for PC display, is moving to the TV display platform ahead of DVD, potentially broadening the interactive multimedia appeal to people who don't own PCs. Unlike activities tied to low-graphics quality Web browsing through the TV set-top, such as those supported by the new company WorldGate Inc. and by Zenith Electronics, these alternative approaches bring CD-stored graphics into play to create a rich, 3-D graphics environment for on-line game playing over the TV set.

A case in point is the set-top CD-online service developed by Philips Electronics, which allows Web service developers to link their programs to media played on TV sets from the firm's CD-i platform. Now offered in the U.K. and the Netherlands, the service will soon be in beta testing in the U.S., with rollouts slated for this summer, says John Gray, president of Philips Media Systems. "Our target is to offer the entire Internet browser package, including the CD-i player, for under $700," Gray says, adding that existing CD-i machines equipped with digital video cartridges will be upgradable to Web access capability "for under $200."

With software built into the platform that translates Web graphics into NTSC-compatible display format, Philips is betting that the marriage of access to the Internet and the availability of a local video storage medium will set off a chain reaction, starting with the added appeal of Web browsing capabilities over the TV and leading to development of interactive content that uses the CD to enhance graphic and audio richness.

Philips will provide automatic dial-up connectivity, click-on browsing commands for accessing popular Web sites and other ease-of-use features for customers, who will pay as little as $10 per month for the service. Gray says the company is close to a deal with either a large telecom firm or a smaller Internet networking company to establish local points of presence nationwide.

Lowering the cost of entry

Sega of America, with plans for Sega Saturn Netlink, is another entrant looking to combine gameplaying with Web browsing via the TV, in effect moving ahead of the network computer initiatives of Oracle Corp. and others to lower the cost of entry for consumers seeking Web access. The firm's new modem and game console package, priced at under $540, will access the Web through network facilities supplied by Concentric Network Corp., which will charge users $19.95 for unlimited access.

Concentric, which is also supplying low-latency connectivity for multiplayer game operations of Total Entertainment Network, Interactive Creations Inc., Engage Games Online, OnLive! and others, represents another facet of developments that are raising the performance standards in the narrowband Web environment. High-speed backbone bypasses of long distance links to Internet national access points are benefitting the low-speed local access environment just as much as they are providing support for local broadband distribution.

As long as high-speed access providers can ensure the global social connectivity is maintained in this fast-moving environment, they'll be in a position to provide whatever types of services content providers dream up. But that means maintaining compatibility with the ever-more powerful narrowband environment and its evolving optical platform support systems, both through the PC and the TV. It's a lot to keep track of.