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WorldGate, ICTV, Others See ITV Momentum

12/12/1999 7:00 PM Eastern

It's been slow going for purveyors of headend-based systems
supporting Web access via the set-top. But a breakout may be at hand as MSOs step up
efforts to exploit the interactive-TV potential of Internet-protocol technology.

This week, leading vendors in this arena -- including
WorldGate Communications Inc., ICTV Inc., MoreCom Inc. and Peach Networks Ltd. -- will
introduce versions of their systems that represent a much broader range of options for
"Web-top" applications than operators have seen before.

These include the ability to deliver e-mail, instant
messaging, high-speed Internet access, CD-ROM-type interactive services, multiplayer games
and virtually any type of "walled-garden" interactive service to the television
via set-tops that cost as little as $99, with no other end-user devices required for
two-way systems.

"Based on what we're hearing in our discussions with
operators, the industry is ready for this technology," ICTV senior vice president of
marketing Michael Collette said. "It's really going to open up next year."

So far, only a handful of MSOs here and abroad have
announced trials of Web-top systems, and fewer still have actually launched commercial
services. As for the new digital systems, Bresnan Communications and Comcast Corp. are
testing WorldGate's, and Bresnan plans to test ICTV's, as well, following an analog ICTV
trial.

Outside the United States, a handful of trials are slated.
BetaResearch, a unit of German company The Kirch Group, has entered into a strategic
partnership with MoreCom to bring Internet broadband content to the 1.5 million or so
digital-TV customers in Germany and neighboring countries who are using the BetaResearch
"d-box."

"There are three manufacturers supporting this
set-top, so this is a major deal for our company in terms of the scale of the potential
audience," MoreCom CEO Ami Miron said

U.S. operators are looking at these suppliers' systems with
the realization that "it may not be the wisest thing to wait for the OpenCable class
of set-top boxes before launching interactive services like ours," MoreCom director
of marketing Terri Swartz said.

MoreCom's two-way system, like those of its competitors,
relies on two-way modems built into digital set-tops like Scientific-Atlanta Inc.'s
"Explorer 2000" for the return channels, rather than depending on DOCSIS (Data
Over Cable Service Interface Specification) modems to be included in OpenCable boxes.

Maybe the biggest factor in the shift toward wider use of
the Web-top model is WorldGate's renewed emphasis on the use of analog boxes in
conjunction with General Instrument Corp.'s preparations to introduce its low-cost
"SURFview" box next quarter.

"Our thinking is that, yes, the digital set-top market
represents a nice business opportunity, and one we want to fully take advantage of. But
there's a really explosive opportunity for the use of low-cost analog set-tops for
Internet access," WorldGate CEO Hal Krisbergh said.

"At $99, SURFview is a low-end box that operators can
use to drive penetration, both to people who don't subscribe now and for second and third
sets in households that are using digital set-tops," he added. "Everybody
thought analog was dead, but that's not true when you consider that 70 percent of all
households with set-tops take more than one set-top box, and that there's a huge household
base out there that doesn't have any set-tops at all."

Krisbergh stressed that the low cost of the terminal
reflects the same cost decline in computing power that is affecting digital boxes.

With a RISC (reduced-instruction-set computing)
microprocessor built in, along with a 100-kilobit-per-second return modem, the set-top can
receive the Internet feed via the vertical-blanking interval in the traditional 128-kbps
WorldGate mode or, using a full 6-megahertz channel, at 3 megabits per second, Krisbergh
said.

WorldGate's pitch to operators is that the box and
WorldGate headend-system costs are low enough to deliver a 35 percent to 40 percent return
to operators on a service that's priced at only $4.95 per month. "GI's marketing
effort where analog is concerned is now focused on this box, and it's 100 percent driven
by the fact that it's an Internet box," Krisbergh said.

WorldGate is using viewer data gathered by Nielsen Media
Research from customers of Massillon Cable TV in Ohio to help drive home its message that
advertising revenues associated with hyperlinking of TV content to advertisers' Web sites
represent another significant piece of the revenue opportunity associated with Web-top
services.

Recently released initial data from the project, which was
launched in September, indicated that viewers with access to WorldGate are using the
service one hour per day on average. A total of 79 percent of the customers use
hyperlinking while they are watching programs at least once a month, even though only 2.4
percent of the ads aired during the study are interactive, Krisbergh noted.

"The Nielsen data show that we're getting
click-through rates [to Web-based advertising] as high as 5 percent, depending on the
advertiser," Krisbergh said. "With Web banner ads, 0.5 percent is considered
doing really well."

Nielsen director of technology and business strategy Jerome
Samson confirmed the strong showing. "Results from a few early interactive-TV ad
campaigns run on the WorldGate system indicate click-through rates well in excess of
typical Internet ad-banner campaigns," Samson said.

WorldGate last month opened its National Channel
HyperLinking Operation Center in Trevose, Pa., to handle the data-management tasks
necessary for bridging the connections between programmers, advertisers and cable
operators.

The $5 million facility -- using satellite and T-1
terrestrial feeds to affiliates -- allows operators to locally cache Web-based ads by
time-zone and by channel in order to streamline user access. It also serves as the
collection point for all usage data, assuring that each player gets the right share of the
advertising-revenue stream.

While WorldGate has analog-based surfing to itself in the
cable domain, competition is intense among the providers of Web-top services on the
digital front. All are offering their platforms not merely as Web-access systems, but as
core points for coordinating distribution of virtually any type of content that uses IP
technology.

"We've shifted our focus in recognition of industry
trends, where there's a lot of interest now in taking advantage of Internet technology to
deliver broadband content, whether it's Web content or content supplied by the
operator," Collette said. "We think of ourselves now as a broadband
infrastructure company that can support whatever interactive-content strategy an operator
wants to pursue."

ICTV is working with S-A to run on Explorer 2000 set-tops,
eliminating a separate return modem in households where those boxes are deployed.
"We're also working with other set-top manufacturers with different time
frames," Collette said.

ICTV is putting Pentium II PC cards into the headend -- and
it will use Pentium IIIs next year -- to deliver data over a 6-MHz cable channel in MPEG-2
format, eliminating the browser, transcoder and other power-consuming computer functions
at the set-top.

"Very conservatively, we're saying you can support 40
simultaneous users over one channel, which means you have enough capacity to serve an
entire [fiber node] service area from a single port," Collette said.

Different vendors apply different parameters for
calculating simultaneous user numbers. But it's clear that with the new PC cards now being
deployed in their systems, capacity is not likely to be an issue.

ICTV's support for 40 simultaneous users, for example,
assumes that 30 percent of the users will be operating e-mail at any given moment,
consuming about 200 kbps each, while another 60 percent will be surfing the Web at high
speeds, consuming 300 kbps to 500 kbps. Another 10 percent will be playing fast-action
games at 3 mbps to 4 mbps.

Peach, using just 200 kbps per user, said it supports up to
200 simultaneous users per channel. "No matter how you calculate the individual data
rates, there's obviously enough capacity to handle a very high level of service
penetration," said David Brown, vice president of business development and general
manager for Peach's U.S. operations.

Peach, like ICTV, avoids central-processing-unit power in
the set-top for transcoding and browsing, preferring to reformat all IP data into MPEG-2
at the headend, Brown noted. The company is taking its software innovations one step
further, planning to introduce a picture-in-picture capability created at the headend
without requiring set-top computing power, he added.

"Doing picture-in-picture at the headend eliminates
concerns over locating the browser in the set-top, which not only uses computer power, but
makes it difficult to upgrade to new browser technology," Brown said.

The split screen -- which will be on display at the Western
Show -- allocates one-quarter of the space to the running TV program and three-quarters to
the Web page.

Peach is delivering its system to operator Menta in Spain
for a trial, and it expects to announce a trial deal with an undisclosed Canadian MSO.

Like other Web-top providers, the company sees cable's
interest in developing local content as a major selling point.

"We run on [Microsoft Corp.'s] Windows NT, which makes
it very easy to develop content for our platform," Brown noted. "You can have an
administrative assistant who's used to using PowerPoint prepare an entire local
information channel with a level of graphics and interactivity that it once took a whole
team of Web-spinners to create."

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