Invisible Innovation
Cable Goes For More Features and Less Hype
By Mike Farrell -- Multichannel News, 5/20/2007 8:00:00 PM
In December 1994, Time Warner Inc. chairman Gerald Levin sat in a mock living room on a hotel stage in Orlando, Fla., and ushered in what he believed was the future of cable television.
He ceremoniously flipped the switch that activated Time Warner’s Full Service Network, an expensive and expansive set of “interactive” services that was to allow customers to access full video-on-demand and electronic-retailing opportunities — and to order pizza — all from the comfort of their couches. At the time, Levin said FSN was “an irreversible step across the threshold of change,” according to published reports.
At the Western Cable Show in Anaheim, Calif., two years earlier, John Malone, then the Tele-Communications Inc. honcho, promised a future of 500 television channels with programming networks that would address virtually any niche interest a customer could think of.
Now it’s 2007: Malone is on the verge of owning the nation’s largest direct-broadcast satellite operator (DirecTV) and the closest cable ever came to 500 channels is about 275 (including premium multiplexes and digital music channels).
The Full Service Network was never to be. Time Warner shut down the expensive proposition in 1997, and people are still waiting to order a deep-dish pie with all the toppings through their TV sets. Instead — and, in part, because of the technologies developed through FSN — today’s cable customers have fast Internet access at speeds of up to 50 Megabits per second, on-demand TV shows, telephone service on cable and a host of other ancillary services.
So what’s in store on the innovation front for the future? Don’t expect any of the Buck Rogers-type technical announcements of years past, such as another Full Service Network.
Instead, look for enhancements to existing products like phone service and on-demand video, the continued rollout of switched digital video services and advances in wireless communications and the exchange of content between the personal computer and the television set. Touted this month at The Cable Show: Internet access at 150 Mbps. The immediate reality: Maybe a top speed of 50 Mpbs.
LESS HOOPLA
Innovation hasn’t died in the cable industry, it just isn’t hyped as much.
Just in the past four years, cable operators have launched residential voice service (cable is now the fourth-largest local phone carrier in the country by number of subscribers, with 9.5 million as of year-end 2006); boosted high-speed data speeds to an average of 6 Mbps and a high of 50 Mbps; widely launched video on demand; expanded the number of HDTV channels and introduced enhancements to those products, such as Time Warner Cable’s program-replay service, called Start Over, Comcast’s Internet video portal, The Fan, and its online interactive program guide, TV Planner.
Cox Communications senior vice president of strategy and development Dallas Clement remembers the days of about a dozen years ago, when product innovation was essentially a three-step process: “Upgrade your plant from 350 Megahertz to 400 MHz, add some analog channels and do a price increase.”
The game changed dramatically after the launch of digital video, high-speed Internet and voice, which have spawned their own products such as on-demand video, digital video recorders and high-definition television, Clement said.
That innovation will continue, Clement said, but at least for the short term, it will be tied to existing offerings.
“I think the innovation will be new stuff, but it will be the evolution of existing services,” he said. “For us, on the telephone side, we recognize that people expect more than just a phone that dials numbers. Some people want to be able to manage their [voice-over-Internet protocol] offering more proactively.”
For Cox, that means allowing customers to manage their phone accounts and features more easily on the Internet, he said.
At Time Warner Cable, chief technology officer Mike LaJoie said that near-term innovations could be as simple as making on-demand programs load more quickly, shortening the round-trip latency of telephone calls or delivering more TV channels via switched digital video technology.
“There’s a lot of blocking and tackling,” LaJoie said, adding that the best technologies are those whose workings are invisible to the user.
| What To Expect |
|---|
| Innovation in the cable industry is moving away from the hype and hoopla of years past. Here are a few new technologies that are likely to be rolled out in the near future. |
| Source: Multichannel News research |
| Caller ID on the TV: Time Warner Cable was first to roll out this service, essentially a box that appears in the upper left-hand corner of a TV screen informing the viewer who is calling on their cable phone, in Columbia, S.C. It has since rolled out the product in several markets. Hot to follow suit: Cox and Comcast. |
| Less latency, on demand: An innovation that Time Warner Cable technology guru Mike LaJoie has touted, essentially making on-demand movies and programming load faster for subscribers. |
| Internet Video to the TV: Cablevision seems to be the most enthusiastic proponent of this technology, made simpler and more economical through the deployment of switched digital architecture. In this scenario, subscribers would be able to access user-generated video via Internet services like You Tube on their TV screens. No cable operator has committed to a time frame for such a rollout, but many have expressed interest. |
| Managing Calling Features Online: Cablevision already allows its Optimum Voice subscribers to manage their voice accounts and add and subtract features and services online. Comcast also allows some call management online — checking voice mail; forwarding voice mail via e-mail; managing call forwarding, do not disturb and voice-mail playback options; and viewing call details — and other cable operators are expected to follow. |
| Interactive Advertising: Allowing customers to click on a commercial to drive them to a channel with a longer-form version of the spot has been a service most cable operators have talked about for years. But it may be coming closer to reality with Cablevision, Comcast, Time Warner Cable and Charter Communications all expressing plans to make some form of interactive advertising available. |
| Electronic Commerce: Cablevision again appears to be the most optimistic proponent of this technology, setting up a new division — digital marketing and commerce — to investigate opportunities. No rollout date has been set. Most other operators are also interested in e-commerce opportunities, but have made no firm commitments. |
COURTING TROUBLE
Cablevision Systems last year attempted to launch a high-profile innovation — a digital recording service that lies inside the network, rather than in a home set-top box. But the effort was quashed earlier this year by the courts, concerned that a cable operator might violate copyrights by abetting such recording without permission from programmers.
As a result, Cablevision’s next innovations will be more subtle, said senior adviser of engineering and technology Wilt Hildenbrand.
“The triple play is an innovation, even though it’s part of the vernacular today, the fact that you could bundle three products like that,” Hildenbrand said. “I think the dreaded convergence word is one of the things we start to see, and not necessarily in terms of devices.”
Convergence, or the integration of the personal computer and the TV, was probably one of the biggest technology failures of the last decade, culminating in what turned out to be one of the most ill-fated mergers in history — that of America Online and Time Warner.
But Hildenbrand said that future convergence may be made possible by operators’ moves to a switched digital video architecture, which originally was developed to provide more bandwidth for cable systems. “I think we’ve just begun to touch the innovative capabilities of the switched architecture. And I’m not kidding when I say it could be a way of delivering Internet television as well,” Hildenbrand said.
With switching, any particular video or piece of content is put out on the network only when someone requests it. If more viewers join in along the way, they’re hooked into the feed that has already started.
This applies to new forms of content, such as user-generated videos on You Tube. These usually have a big spike in demand that eventually falls to a trickle in a matter of days, he said.
“Metaphorically, at least, that’s the perfect-type thing for switched video,” Hildenbrand said.
Mobility is another area that excites Hildenbrand. Cablevision is working on several offerings along those lines, he said.
“I think the ability for people to take content with them — admittedly, there are a lot of copyright and security things that have to be solved, but I think we already are building and have built and have to convince people that we have a trusted domain within the house,” Hildenbrand said.
“We’re in a wonderfully unique position of we have a lot of product, we have a lot of programs, we deliver those programs, we deliver high-speed data and voice. We should look at converging those and making those services fit the way people want to use them, as opposed to making people fit the way we deliver them.
“All of this history to this point has shown we do that quite well,” Hildenbrand added.
INTENSE RESEARCH
At Comcast, the focus for the past few years has been rolling out digital voice and enhancing its high-speed data service by adding features and functionality to its Comcast.net portal.
At The Cable Show, Comcast chairman and CEO Brian Roberts demonstrated high-speed Internet service at 150 Mbps, made possible through channel bonding, or combining four channels on a cable system’s network.
But high-speed data service at 150 Mbps may be a long way off. No one has figured out pricing, and the consumer demand for such high bandwidth is not known.
In the meantime, Comcast has dedicated most of its innovation efforts around video — through video on demand and HDTV — and high-speed data. Earlier this year, Comcast introduced Power Boost, an enhancement to its high-speed Internet service that offers consumers a boost of speed — up to 16 Mbps — for short periods when higher speeds are needed to download large files.
Power Boost came as a result of listening to customers, the vast majority of whom make their broadband purchase decisions not on price, but on speed, Comcast senior vice president of product development Greg Butz said. That focus on customer demand is the linchpin for Comcast’s innovation strategy.
“I think we spend, and I believe my peers and counterparts do the same, a lot more time trying to understand what is important to customers,” Butz said. “So you focus on really going out and innovating around something like Power Boost, developing a unique, patented application, because 80% of your customers are telling you that speed is important. You have some extra bandwidth, you take advantage of it.
“When you look at the shift toward high-definition, then you tailor and focus your product development around building not just high-definition, but playing off that trend of letting them watch it when they want, how you integrate it easily and intuitively into the on-demand platform as well,” Butz added. “All of it is fundamentally grounded in intense consumer research. And I think as an industry we’re becoming much more capable at the platform level to be able to do this kind of innovation.”
At the heart of the recent spate of new product innovations is what LaJoie called the first major innovation in the industry — the hybrid fiber coax network architecture developed by Time Warner Cable. The cable industry has collectively spent 10 years and $60 billion to build out HFC, which has enabled the efficient rollout of VOD, high-speed Internet and voice services.
But the cost of building the network wasn’t an immediate hit with some top cable management. Perhaps because they were burned by technology promises of the past, some operators wanted to make certain that there was a viable revenue stream tied to that investment.
“The absolute true story was when we made the pitch to rebuild this network, a fairly senior executive here said, 'Fine, but it better be able to do telephony,’ ” Hildenbrand said. “That was the Holy Grail for cable, telephone.”
“Data wasn’t something that everybody understood yet then,” Hildenbrand added. “If you remember, the original LanCity cable modems were $15,000 a throw — not exactly a residential device. Telephone, people understand.”
LaJoie added that building and rolling out products that people understand, that are a natural progression of the products they are already familiar with, is what is driving innovation today.
“Start Over is a good case study” for that concept, LaJoie said. “We had already put DVRs out there; the question was, how could we make the product better, how could we make it so people don’t have to think about it?”
THE LURE OF SIMPLICITY
Simplicity will be key in new cable innovations, Wachovia Securities cable analyst Jeff Wlodarczak said.
“[EchoStar Communications chairman] Charlie Ergen said what people really want in the end is a channel-up, channel-down button and a volume-up, volume-down button,” Wlod arczak said. “When you get too complicated, it’s over most people’s heads.”
Wlodarczak pointed to one of the newer innovations in television of the past few years, the digital video recorder.
“Why wouldn’t everybody have a DVR?” Wlodarczak asked. “DVRs are obvious — you can skip commercials. And yet DVR penetration is about 14% or 15%. Everything needs to be simple.”
In keeping with that simplicity mantra, the next logical step from the existing voice product is in the wireless realm, where several cable operators are testing a variety of offerings.
Time Warner recently announced Wi-Fi hot spots in its territory, something that Cox also is considering, Clement said. Pivot, the wireless joint venture announced last year between Sprint Nextel, Cox, Time Warner Cable, Comcast and Advance/Newhouse Communications, is beginning to roll out its wireless product in several markets. And the federal Advanced Wireless Spectrum auctions, where the four cable companies and Sprint won spectrum in several large markets, could also play a role for future wireless products.
But there are still a few holdouts in the wireless arena — most notably Cablevision.
“There is clearly a cellular business, just like there was clearly a phone business,” Hildenbrand said. “It’s not clear that the existing cellular business is the business we want to be in, or if, like we did with modems, is the thing we want to be focused on the ubiquitous data delivery platform — be that wired or wireless — and see what products you can deliver over it.”
BLAST FROM PAST
While wireless is making some headway, another blast from the past — interactive television — could be making a comeback, albeit in a different form.
Interactive television on cable was first unveiled in Time Warner’s Qube experiment in Columbus, Ohio, in the 1970s, saw a resurgence in the 1990s and basically was abandoned as other services took priority.
Instead of having subscribers actively engage with their TVs, interactive applications in the near term will most likely focus around interactive advertising — allowing customers to click on their remote for long-form advertising programs — and some electronic commerce.
Clement said that while interactive advertising and even e-commerce is nothing new, the difference is that actual business models for interactive advertising and e-commerce are emerging.
“We’ve all gotten a little smarter on advertising and looked at the various ways advertising has been monetized on the Web,” Clement said.
With other interactive applications, the industry isn’t so much shooting for a wow factor, he said, as it is developing applications that have a proven customer demand and benefit.
“We’re doing an e-mail viewer right now, and we’ve set it up so that you can view your Cox.net e-mails and you can delete them, but you can’t create an e-mail,” Clement said. “Right now the customer doesn’t really want a keyboard; they want to be able to do all of this with the same remote control.”
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