Concerns Linger Over Return On Broadband Investment

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New York -- Nearly one-third of North American households
are now broadband-ready, but the question of what will drive returns on cable's
investment in that broadband capability remains as unresolved as ever.

A forum devoted to the topic last week produced a
day's worth of commentary from industry executives that sounded remarkably like the
analysis that has been flowing from such conclaves since convergence was all the rage in
the early part of the decade.

The big difference is that there was no broadband plant
back then, whereas now, billions of dollars have been spent on upgrading cable facilities
to deliver whatever the killer apps turn out to be.

"Content development for broadband has been
disappointing," said Mark Mooradian, director of consumer-content strategies at
Jupiter Communications, sponsor of the Consumer Online Forum here.

In fact, consumer responses to Jupiter's latest survey
on what people want from online services indicated that entertainment content ranks far
behind other things in importance -- such as speed of connection, price and ease of
navigation.

Moreover, consumer dissatisfaction with service centers not
on how poorly current online services deliver entertainment, but on how far short such
services are in the other areas of importance.

While 80 percent of respondents ranked speed of connection
as important, only 36 percent voiced satisfaction with the current state of affairs, only
34 percent viewed entertainment as important and 49 percent said they were satisfied with
what they are getting.

But higher speed is not what broadband is all about, said
Tom Jermoluk, CEO of At Home Corp. It's about "fundamental changes" to
everything associated with the online experience, he added.

Jermoluk showed a video clip of the new @Home Network
service to the TV set, being developed in cooperation with sister company
Tele-Communications Inc., in outlining his company's ambitious strategy.

At Home wants to tie multiple devices together through a
single set of user interfaces in order to allow delivery of content and applications to
suit people's needs and tastes wherever they are, without requiring them to use
different types of commands and access codes.

The motto, he said, is "all band, all device, all the
time."

Besides a high-speed-data service offering enhanced video
and multimedia content to the personal computer, hyperlinking of ads and TV programming
and delivery of specially tailored Web content for TV viewing, Jermoluk outlined
applications that would make broadband services compelling to customers:

• E-mail delivery to any device;

• An electronic routing map on the wall of the garage;

• A detergent-monitoring and ordering connection in
the laundry room;

• A voice-activated automated coffee-making capability
in the kitchen.

Undergirding much of @Home's expectations for success
is anticipation that "advertising is going to win big-time," Jermoluk said.

This is because the broadband platform will allow @Home to
"target advertising down to the end-user," based on the user's buying and
viewing preferences, whether the ad is inserted in a Web file or within a TV-programming
segment, he added.

Advertisers will be able to measure user responses and the
effectiveness of specific ads using detailed information supplied by the network,
garnering information such as "what channel that TV set was tuned to, did the ad come
down, did they look at more, did they buy merchandise," Jermoluk said.

Personalized advertising -- together with personalized
packaging of information services and the power of easy access to e-commerce -- represents
the key to payback for the infrastructure costs, allowing the actual access fee to fall
over time, "trending toward zero," Jermoluk said.

"We'll have a $20 [per-month] version of the
service and a free version with 100 percent integration into the TV," he noted.

The extent to which the broadband-services community is
depending on TV-enhanced capabilities to drive mass-market acceptance, versus merely
adding to the functionality and speed of services delivered to the PC, was widely evident
at the conference.

For example, Dave Robinson, senior vice president for
digital-network systems at General Instrument Corp., predicted that GI would sell more
cable modems as embedded components of the company's next generation DCT-5000
set-tops than what all other vendors will sell in standard modems combined.

"This will be an entertainment-driven technology to
the mass market," Robinson said.

Noting that GI has already shipped more than 3 million
first-generation digital set-tops, and that it will ship another 3 million in 1999,
Robinson added, "These are big numbers."

But even content suppliers that are enthusiastic backers of
broadband have their concerns.

The justification for investing in the type of content that
will exploit the capabilities of a DCT- 5000 or a cable-modem-equipped PC remains
uncertain, said Jeremy Verba, president of E! Online, a unit of E! Entertainment
Television.

"The challenge of broadband is that there's no
clear return on investment," Verba said. "When we create content, we think about
the broadband world, but it can't be our sole focus."

Similar questions apply to the return on investment for
developing media-rich advertising for broadband-data access. An audience member noted that
development costs for such advertising are four times as great as those for the standard
types of ads that are now seen on the Internet.

In response, Suzanne Brisendine, director of
interactive-marketing programs for Intel Corp., suggested that the
"click-through" rate on broadband ads averages twice that of standard Internet
ads, and it can be four or 10 times as high, based on tests undertaken with @Home.

But the average click-through rate today is under 0.5
percent of people who see the ads, according to industry figures.

If broadband produces twice that rate on average, the
question remains: Can it produce the return on the advertising-content development that
agencies need, let alone the return on investment on infrastructure that will allow @Home
to drive access fees to the vanishing point?

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