Consumers Start to Embrace Web Boxes

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As the cable-television, computer and consumer-electronics
industries continue to debate whether consumers prefer to access the Internet from their
televisions or their personal computers, a year-end sales spurt showed that there is
demand for all sorts of devices that deliver the World Wide Web to the home.

That should come as good news to cable operators and
direct-broadcast satellite companies looking to increase their monthly subscription
revenues by selling full-scale Internet access, best-of-the-Web packages and other
interactive services. And it may help to spur cable operators across the country to deploy
cable modems and digital set-top boxes on a wider basis.

'WebTV sales have been phenomenal,' said Greg
Gudorf, director of digital-media marketing for Sony Electronics Corp., one of three
consumer-electronics companies that manufacture WebTV set-top boxes, which deliver
Internet access, e-mail and other interactive services over the television. 'Things
really heated up when we made a price reduction and Microsoft [Corp.] kicked in with a
$100 rebate.'

During the holidays, basic WebTV models were available for
as little as $99 after rebates, said Gudorf. 'The price is in a gift-giving
range,' he added.

WebTV Networks Inc., a subsidiary of Microsoft, unveiled
its second-generation system, WebTV Plus, in mid-September. The new version offers an
electronic programming guide that allows consumers to scroll through programming options
while watching TV at the same time. It also adds picture-in-picture capabilities to
standard televisions, so that subscribers can view a Web page on one box and a TV show on
the same screen.

Demand for WebTV Plus was strong during the holidays, and
supplies ran short.

Prices have also dropped for more powerful Internet
devices, such as Hughes Network Systems' DirecPC, which delivers high-speed Internet
access via satellite. According to Fritz Stolzenbach, senior marketing specialist for HNS,
prices now start at about $299 for DirecPC, and they can run as high as $699 for DirecDuo,
which combines DirecPC and a Digital Satellite System through a single satellite dish.

'We've been very pleased with DirecPC sales, and
also with sales of our DirecDuo,' Stolzenbach said, 'especially over the
holidays.'

DirecPC attracts people who work out of their home and
so-called power surfers looking for a faster way to access the Internet.

'We're seeing people going into the store who
might be interested in a 56 [kilobit-per-second] modem,' said Stolzenbach, 'and
for just $50 or $100 more, they see that they can get something much, much faster.'

Computer companies NEC and Packard Bell have even begun to
offer DirecPC bundled into the cost of a built-to-order PC. 'We're very happy
with that,' Stolzenbach said.

DirecPC recently introduced Turbo Webcast and Turbo
Newscast push technologies that may help the product to appeal to 'the mass market of
Internet households,' said Andy Wohl, director of business development for HNS.

Through an electronic programming guide, DirecPC
subscribers can choose the push technologies that they want delivered to their PCs, where
they are stored for instant access. Turbo Webcast offers E! Online, ABCNEWS.com, Hollywood
Online and other popular Web sites.

'These new Webcast capabilities are an adjunct to our
core competency at DirecPC, which is extremely fast pull capabilities,' Stolzenbach
said.

Thomson Consumer Electronics Inc. started shipping the
first Network Computer (NC) -- a close competitor to WebTV -- in October.

'We're very happy with the way that it's
been received in the marketplace,' said Ken Greer, marketing manager for multimedia
products and services. The NC product sold out at many retailers over the holidays.

'We didn't expect it to take off so
quickly,' Greer said, adding that the company had expected 1998 to be the first big
year.

Web boxes such as the NC and WebTV 'definitely'
lend themselves to holiday selling, Greer said. Consumers who are already on the Internet
have started buying them for their parents and other family members so that they can
converse by e-mail.

'It was a concern that consumers would not want to do
e-mail from the TV, but research shows that it's a very strong use,' Gudorf
said. 'I don't think that consumers are as hung up on TV vs. PC as the industry
is.'

Some consumers likely chose TV set-top Web boxes because
they're less expensive than a desktop PC. But there are advantages to TV-based Web
boxes besides just price.

'There's a sense of community and family in using
the television,' Gudorf said. 'It's tough to get a couple of children
around a 13-inch PC. It's easy to do in a television environment. You can involve
more people.'

Television devices will never totally replace PC-based
Internet access, Greer said, but there will continue to be new benefits to TV-based
Internet.

Digital set-top boxes like the NC and the newer WebTV
models offer enhanced TV features such as on-screen guides and links from television
programs or commercials to related Web sites.

These are just some of the features that consumers may come
to expect in digital cable boxes of the future.

The cable industry and name-brand consumer-electronics
manufacturers are expected to form more formal ties over the next few years, as cable
modems and digital cable boxes move to the retail channel.

Cable's move to retail is not likely to happen until
the industry adopts standards for the technologies so that retailers and consumers can be
confident that the products will be compatible and operable anywhere in the country.

'That's not going to happen as quickly as cable
wants it to happen,' said Mark Knox, senior manager of marketing for the digital
products group at Samsung Electronics America Inc. 'Cable's lust for retail is
easy to understand. They'd rather not get their money back on the hardware $1.50 per
month in rental fees.'

In addition to digital cable boxes, consumer-electronics
manufacturers may integrate TV Web boxes into other digital products, such as
direct-broadcast satellite systems or high-definition televisions.

'Our goal is to be flexible and to respond to the
market,' Gudorf said. 'It's all bits -- all ones and zeros.'

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