Whither the walled garden? Apparently, it's withered away.
Or, at least, the first crop has.
But the garden owner isn't sweating the loss.
Tele-Communications Inc. president and chief operating
officer Leo J. Hindery Jr. disclosed last month that a March agreement among TCI, Intuit
Inc., BankAmerica Corp. and @Home Network to create interactive financial services had
"lapsed," apparently over the summer.
Announced amid a two-day gathering of bankers and Wall
Street analysts, the deal was supposed to create "anchor tenants" for a proposed
suite of interactive-television services. TCI chairman and CEO John Malone also referred
to the concept as creating a "walled garden," in which a variety of preferred
providers of interactive services would dwell.
BankAmerica and Intuit alone were supposed to kick in an
estimated $50 for every General Instrument Corp. DCT-5000 -- the advanced set-top
containing a cable modem -- that TCI activated in customer homes. That would help to make
the $350 boxes more affordable for TCI, which wanted to deploy them
But, as Hindery noted, events intervened. One was
BankAmerica's merger with NationsBank Corp., which closed Sept. 30.
The biggest, though, was TCI's June announcement of plans
to merge into AT&T Corp.
TCI needed cash to afford millions of costly set-top
devices. AT&T can more easily afford them, and it can look for better deals for that
interactive real estate.
Hindery said AT&T chairman and CEO C. Michael Armstrong
agreed that the deal should lapse, adding that talks continue with BankAmerica and at
least one other large financial institution.
The TCI president, who is in line to fill the same role at
AT&T Consumer Services Co., told analysts in a conference call that the per-box
subsidy "is less important to us in the world going forward, and we're more
interested in sharing opportunities. It was a decision that Mike Armstrong made, and that
I certainly concurred with, as did John Malone."
"I would expect that you're going to see a quite
different-looking [interactive TV] screen environment with AT&T Consumer Services than
you would with TCI," Hindery added.
BankAmerica and Intuit released prepared statements
acknowledging the lapse of the deal and reporting that discussions continue with TCI.
"It's true that the original letter of intent has
expired," an Intuit spokeswoman said. "However, we are still in discussion with
them to work something out at a later date."
"BankAmerica is continuing to have active discussions
with TCI regarding providing financial services over interactive television," a
BankAmerica spokesman said. "We are still very interested in interactive television
as an emerging delivery channel for financial products and services."
Wall Street analysts, who gushed over the deal in March,
seemed underwhelmed when it fizzled.
"Without AT&T, it would probably be a
negative," one analyst said. "With AT&T, it's probably a positive."
ING Baring Furman Selz LLC analyst Fred Moran agreed.
"When you have a high-powered partner behind you, like AT&T, you don't have to
look for other partners to offload costs for subsidies of advanced services," he
said. "It's probably more lucrative to do it oneself, as long as you can afford those
The cost of the DCT-5000 -- which is scheduled for fairly
large-scale availability in mid-1999 -- may also be less of a concern than it was in
GI and Scientific-Atlanta Inc. both expect silicon
integration to continue, which should lower per-unit set-top prices. Broadcom Corp. -- the
leading supplier of modulation chips used in cable modems and digital set-tops -- is
already at work on single-chip solutions.
"Our mega-deals [with MSOs] include price reductions
every year," said David Robinson, vice president and general manager of GI's
digital-video division. Robinson added that from the start, the company's DCT-2000 model
carried a $200-range price -- one-half that of the DCT-1000, which was introduced a year
earlier. "The prices go down in lockstep over the years," he added.