Cable Ops Face Fork in ITV Road

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Two purveyors of interactive television services gained
market traction last week in deals that point up the fork in the road cable operators have
reached in the infant medium.

Their dilemma: They need to cope with an increasingly
Internet-centric ITV equation.

Down one path lies the market vision promoted by
Intertainer Inc., which picked up investment and content backing from NBC last week as
part of a strategy to offer on-demand services to cable and telco customers via PCs and
advanced set-top terminals.

Moving in the other direction is ICTV Inc., which made
headway with the signing of St. Joseph (Mo.) Cablevision as its first affiliate for
commercial rollout of its service. Here, locating the processing power at the headend cuts
end-user costs and ensures greater operator control over the services.

Both Intertainer and ICTV, along with a growing list of
other entities, are tapping the vast reservoir of IP (Internet protocol) packet technology
to deliver a broad slate of interactive video and multimedia services.

Where cable is concerned, both companies require operators
to set aside a dedicated 6-megahertz channel to deliver the services, but with entirely
different results with respect to the long-term business implications.

Intertainer, which is undergoing market tests with Comcast
Cable Communications starting next week in Willow Grove, Pa., and with U S West starting
in the fourth quarter in Denver, has secured programming support from all the major
studios except Paramount Pictures.

That's all part of its strategy to make its services
widely available over cable and telco links, said Jonathan Taplin, co-chairman and
co-founder of the Santa Monica, Calif.-based venture.

"Our notion is to build a presence in the top 60
markets in this country, delivering not only entertainment on demand but providing a
video-enhanced platform for e-commerce and advertising," Taplin said.

The service can operate over any IP network, connecting
with any clients that are equipped with software interfaces that communicate in the Java
programming language, Taplin said.

The service also has investment backing from Comcast, U S
West Inc., Intel Corp. and Sony Corp.

While many entities are pursuing similar strategies, NBC
regards Intertainer as "the lead horse to ride," said Tom Rogers, president of
NBC Cable and Business Development. But, he stressed, at this early stage of ITV
development, NBC's focus is not so much on providing access to its content as it is
on learning more about the market as it refines its long-range strategies.

"This gives us a seat at the table to see how this
type of service relates to the traditional broadcast and cable service environments,"
Rogers said. "We want to know more about viewer habits, the impact on advertising and
e-commerce, the importance of personalized media and many other factors that will drive
our decision-making in this area."

NBC has not decided what content it will supply for
Intertainer's on-demand offerings other than to determine it will stick to content it
fully owns, Rogers said.

Taplin suggested NBC's contribution is likely to
include recently aired news and other programming as well as older fare, though the
network is sensitive to concerns of affiliate stations with regard to any cannibalization
of viewing that might result from offering time-shifted programming, such as Your Choice
TV contemplated.

Where cable is concerned, Intertainer is seeking deals
where operators would dedicate a 6-MHz channel to the service, allowing customers with PCs
or, eventually, intelligent, modem-equipped set-top boxes to access local servers
containing movies, TV shows and other material, much of it with links to Internet sites.

At the same time, the company is offering access to its
servers via telco lines equipped with xDSL (digital subscriber line) modems.

These are nonexclusive arrangements, Taplin said, noting
that in Denver, Tele-Communications Inc. could offer the service in competition with U S
West.

Intertainer's business model calls for offering access
as a free component of the user's basic service, charging only for actual services
ordered and delivering ads to users who surf through the various options that are part of
the free gateway.

A key element of the business model is the intelligent
agent Intertainer uses, both to help customers find services of interest to them and to
target advertising to them based on demographic profiles and personal preferences, Taplin
said.

Rogers noted that the personalization aspects of the
Intertainer service are central to NBC's interest, saying that will "make or
break the business."

ICTV's model, by contrast, delivers games and other
CD-ROM material directly to TV sets through addressable analog set-tops. Kevin Dekker,
general manager of St. Joseph Cablevision, a unit of St. Joseph-based News-Press &
Gazette Inc., said ICTV has a lower entry cost for users.

News-Press serves about 100,000 customers over cable
systems there and in Arizona.

After following ICTV's progress in a Cox
Communications Inc. trial in Santa Barbara, Calif., Dekker said he felt ICTV would do well
in St. Joseph, where PC penetration is relatively low.

ICTV was set to announce today that it has added 16 new
CD-ROM titles to the library of more than 200 titles it has already licensed.

"I'm very impressed with their lineup of game
titles," Dekker said.

The system allows players to compete against each other
online or individually, with the same level of interactivity and functionality users would
have using CD-ROMs in a PC.

St. Joseph will charge $9.99 per month for the ICTV
service, which includes access to the Internet and e-mail as well as locally stored CD-ROM
material. The rate covers five hours of usage per month, with additional usage priced at
$1.99 per hour in peak hours, 99 cents per hour at other times and $2.99 per hour for
multiplayer game action.

The company is preparing to introduce a digital version of
the service in the first quarter of next year, said Wes Hoffman, president of ICTV.

"We'll use the same backend and will offer a
hybrid model that allows operators to offer the service in digital and analog modes,"
Hoffman noted, adding that the new version will be demonstrated at this year's
Western Show in December.

Based on tested usage patterns, ICTV calculates that a
single channel can support a customer base of about 25 within a serving area of 850 to
1,000 homes, with minimal instances of simultaneous contention for access time, Hoffman
said.

St. Joseph is dedicating three channels to the service,
which should support a penetration rate of 10 to 15 percent over its 800-home service
nodes, he added.

As operators look at the evolving ITV scenario, they can
expect to see more entities offering variations on both the ICTV and Intertainer models.

A key question they face in sorting through these options
is whether companies operating outside the direct control of the cable headend could
emerge as competitors, rather than partners in content delivery, as cable customers gain
access to data via high-speed cable modems.

Taplin acknowledged that Intertainer expects to have
competition from entities such as America Online and Broadcast.com and that ultimately,
ITV providers could offer services directly to end users with high-speed data pipes
without having to strike separate deals with cable operators.

"Our goal is to be access neutral," Taplin said,
adding that ICTV would become a "central store" for e-commerce and content.

While the new IP-based data model may take much of the
control over interactive programming away from operators, cable will still have a vital
role and an advantage against its competitors through its ability to market, localize and
personalize services, Rogers said.

"You have to have the ability to personalize
choice," Rogers said. "My own view is that cable has a huge head start."

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