DBS Services Bank on Interactive TV

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Las Vegas -- Direct-broadcast satellite companies DirecTV
Inc. and EchoStar Communications Corp. placed their bets on new interactive-television
services at the recent Consumer Electronics Show here.

The DBS players are counting on new high-tech features --
from Web browsing and e-commerce to the ability to pause live TV -- to attract a broader
consumer market, to keep current subscribers from churning and to bring in additional
revenues.

The market for interactive television is still largely
untested, and that may be one reason for the wide range of options that the companies are
backing.

The DBS players weren't afraid to switch longtime
partners in the quest for an early hold on the interactive market.

Because both DirecTV and Microsoft Corp. purchased equity
stakes in Thomson Consumer Electronics last month, and Microsoft owns WebTV Networks, many
observers expected DirecTV to be the first to introduce a DBS receiver with WebTV
capabilities.

Instead, DirecTV rival EchoStar announced at the CES show
that it will ship a Dish Network receiver with a built-in WebTV browser this spring.

Philips Consumer Electronics -- which still sells Dish
Network receivers to Sears, Roebuck & Co. -- has partnered with DirecTV to integrate
personal-television technology from TiVo Inc. into new DirecTV receivers later this year.

Other pairings announced at the show included DirecTV and
Wink Communications Inc., as well as EchoStar and personal-computer-maker Gateway 2000
Inc. EchoStar also announced that it will add a number of interactive channels later this
year, enabled by a previously announced deal with OpenTV Inc.

EchoStar chairman Charlie Ergen hopes that in its quest to
gain new customers for its Internet-over-television service, WebTV will help to boost Dish
Network's subscriber base, too.

Both WebTV and EchoStar will help to subsidize the cost of
the EchoStar model 7100 integrated receiver -- code-named "WebStar" -- so that
it can hit the retail market at $499. Each company will bill subscribers separately for
its own monthly service, and the two will split interactive-advertising revenues.

This summer, the companies will download software via
satellite that will upgrade the WebStar boxes so that they are capable of six hours of
full-digital-quality video recording. Subscribers will also be able to pause and replay
live feeds, as long as they are delivered via the Dish Network satellite feed, and not
through an off-air antenna or cable television.

Subscribers can watch Dish Network programming and surf the
Web at the same time. The WebStar boxes will need a telephone hookup for the data-return
path and for full Internet access. Although EchoStar will use some of its newly acquired
satellite bandwidth to deliver broadband data, an advanced electronic program guide and
video games, some of WebTV's content will still be transmitted by telephone.

EchoStar plans to cache the more popular Web sites, Ergen
said -- especially the ones that don't need to be accessed in real time.

The first-generation WebStar box includes an 8.6-gigabyte
hard-disk drive. The good news is that future boxes will likely be able to incorporate
much more storage to hold many hours of full-motion video and audio. But that's also
the bad news. Today, the hard disk is not replaceable, and savvy consumers may be wary of
buying a product that could quickly become obsolete.

It's a problem that could plague much of the DBS
industry in the next several years, as DirecTV, EchoStar and their hardware suppliers
continue to add feature upgrades -- such as Dolby Digital audio and high-definition
television -- at a heightened pace. The newer features are most likely to attract early
adopters who are already DBS subscribers. Therefore, there's a chance that the
satellite providers won't draw many incremental subscribers from their new
technologies.

On the other hand, neither company can afford to not forge
ahead with interactive services, lest their loyal customers start to stray. And given the
right killer application, interactive television may draw a mass-market of Americans that
had not considered DBS before.

Ergen believes that WebTV's video e-mail capabilities
could help to place Dish Network in the hands of senior citizens who want to receive
still-video images of their grandchildren on their televisions.

EchoStar will also team up with Gateway 2000 to deliver an
integrated big-screen television and PC called "Destination XTV," which will be
easy to hook up to a Dish Network receiver.

The deals with WebTV and Gateway 2000 should boost
EchoStar's distribution among computer and consumer-electronics retailers, where
DirecTV currently enjoys a significant edge.

DirecTV's strong retail distribution should help to
drive penetration for the new "Personal TV" product from Philips. Like WebStar,
the Philips/DirecTV receiver allows consumers to store, pause and replay live programming.

"It's important that we don't make the
mistake of trying to turn the TV into a PC," said Roel Pieper, executive vice
president of Philips.

Philips has not yet set a price for the new hardware. TiVo
will charge about $10 per month for its service, which will be billed separately from
DirecTV's programming packages.

DirecTV will also introduce a free enhanced-television
service from Wink to new Wink-capable receivers later this year. Applications include
calling up statistics of a favorite quarterback during a football game, or sending away
for additional product information during a commercial.

Wink president and CEO Maggie Wilderotter was quick to say
that Wink is not Internet-over-television.

While DirecTV hasn't detailed plans for full Internet
access yet, it's too early to rule it out of the game.

DirecTV executive vice president Larry Chapman said during
a CES panel that the company might build upon its relationships with regional telephone
companies to bundle an Internet product that takes advantage of the telcos'
digital-subscriber-line technology.

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