High Def, Low Drama - Multichannel

High Def, Low Drama

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The reappearance of Microsoft Corp. chairman and chief software architect Bill Gates at last week's National Show added a welcome dose of drama to an otherwise calm convention.

He helped draw crowds to the opening general session, joining Comcast Corp. CEO Brian Roberts and other cable luminaries on stage to get out the news that Comcast had agreed to deploy Microsoft TV Foundation Edition — Gates's latest attempt to get his software into digital set-tops.

On the panel — responding to a question from Roberts — he opined on the importance and potential of cable's Internet-protocol capable network. He enthused over cable's near-term and long-term potential, which of course pleased Roberts.

"Cable has interactivity that DBS doesn't have, and there are ways of exploiting that," the Microsoft chief software architect declared. "The opportunity with video to promote things in a better way is pretty exciting."

As Cable Television Laboratories Inc., the industry's research arm, recently promised to consider adding Microsoft's .NET software to OpenCable specifications, Gates resurrected a fun cable guessing game that had taken a few years off: What's he really up to?

Gates is clearly trying to position Microsoft TV Foundation Edition as more than an interactive guide. The software giant believes its product presents numerous opportunities to upsell consumers on new digital services, including video-on-demand, subscription VOD and eventually HDTV, employing splashy graphics and plenty of full-color pictures.

Comcast agreed to deploy Microsoft TV in an unspecified number of markets by year-end. The operator wouldn't specify where it would first deploy Foundation Edition, but industry executives last week said Comcast had settled on Detroit, where the MSO has deployed both circuit-switched and IP-based phone services.

Roberts's query

Roberts retold a story of meeting with Gates at the Consumer Electronics Show in January. At CES, Gates talked up the huge potential of cable's broadband pipe as an IP-transport network.

Roberts said he went back to his engineers to try to find out what Gates meant.

Then, on stage, Roberts asked Gates to explain in a public forum what he was talking about.

Gates answered by saying cable has the ability to convert all transmissions — video, voice and data — to IP, allowing them to supply individual video streams to each home and to conserve bandwidth for such enhancements as HDTV.

At present, Gates said, HDTV and VOD must be rationed out. "Routers and fiber optics continue to improve rapidly," he said. "With a video stream direct to the consumer, the constraints on HD could be removed."

(Sources said Microsoft is working on successor technologies to today's Moving Picture Experts Group specification that could deliver video using IP.)

Gates talked of a two- to four-year time frame for an IP conversion. "There would be no limits on the platform," he said.

Roberts — whose company soared in the stock market after Gates and Microsoft invested $1 billion back in 1997 — said Gates's enthusiasm was exciting. "To hear the cable network is well positioned to do IP transport has the same profound implications as the introduction of cable modems in 1997," Roberts said.

Data benefits

Gates's vision of IP transport, to a degree, dovetails with Comcast's vision of converting to an all-digital network. Such a network opens up bandwidth for VOD, HDTV and data applications.

Roberts, echoing an address he gave to a gathering of cable engineers in May, cited potential enhancements to cable's current profit pump — high-speed-data service.

"Let's look at the speed of data," Roberts said. "A hundred Megabits could be a viable product in the future."

Cable's data services, of course, already use IP transport, and so would IP telephony — a service that AOL Time Warner Inc. chairman and CEO Richard Parsons, also on that panel, said could become a huge money maker. Time Warner Cable recently introduced IP-based phone service in Portland, Maine.

Some VOD video signals are already being shipped between servers via IP transport. And cable engineers last week noted that video compressed using the MPEG-2 and successor MPEG-4 schemes also could be wrapped within such a network.

Instead of broadcasting 100 channels from a headend, cable operators might broadcast only the most popular networks all the way to the home.

Niche-network video feeds would be sent through the plant only from the headend to the home, when a subscriber selected to that channel.

Thus, Gates's one-stream-to-one-home vision isn't all that dissimilar from various cable engineering scenarios.

While on tour with a group of cable chief technical officers on the show floor, Comcast chief technology officer David Fellows put a different spin on the all-IP issue.

"I need all of my stuff to be IP," said Fellows as he viewed the exhibit of Vonage Holdings Corp., the voice-over-Internet protocol provider. "I don't know if it is the same kind of IP Bill Gates is talking about. But I need all my voice, video and data on one platform."

Days before the show, Microsoft joined the OpenCable software project at Cable Television Laboratories Inc., which has released versions 1.0 and 2.0 of middleware specifications for advanced set-tops.

CableLabs said it will look into adding Microsoft's .NET applications to the specifications. That would be an important step forward for Microsoft — and, for some in cable, it symbolizes the camel's nose poking into the tent.

"Expanding the capabilities of OCAP with new technologies while maintaining backward compatibility is critical to the success of digital cable overall," CableLabs president and CEO Richard Green said in a statement. "We look forward to determining how expanding the options available to OCAP developers to include .NET in addition to Java and HTML [HyperText Markup Language] can help to ensure a thriving market for new digital-cable applications."

The last time Microsoft made such a top-down pitch to cable was six years ago, when Gates made the original $1 billion investment in Comcast. He later agreed to convert his $5 billion 1999 investment in AT&T Broadband into Comcast stock, helping Roberts complete a merger with AT&T Corp.'s former cable unit.

Many operators were concerned at the time that Microsoft would move to embed software to the point where it would control the industry.

But early iterations of its set-top middleware went nowhere, partly because operators, including Tele-Communications Inc. (which later sold out to AT&T Corp., which later sold out its cable systems to Comcast), didn't deploy mass quantities of the cable-modem-packing DCT-5000 set-tops required by the product.

The combination of Microsoft TV Foundation, Microsoft's OCAP activity and its desire to put the .NET initiative alongside Java and HTML left some cable observers wondering whether Microsoft saw a new pathway to set-top ubiquity, at the expense of various rivals.

Hence the drama.

From the start of Microsoft's involvement with cable — the Comcast investment, which followed a Silicon Valley meeting with MSO executives aligned with CableLabs — operators have been careful to keep their commitments to deploy Microsoft software to a minimum.

On last Monday's panel, Roberts issued more words of caution.

Discussing Foundation Edition at one point, Roberts said it was "important to have Microsoft have a deployable product," a reference to Microsoft's previous middleware solutions that were too far ahead of the market and offered at contract terms cable operators found unacceptable.

At another point, Roberts said Gates's emphasis on cable's IP platform — compared to those of direct-broadcast satellite or the phone companies — came "with no strings attached."

At another point, he said, "We've got to understand better .NET" and what it means to cable.

Middleware rise?

At a minimum, what this means is that the elephants are dancing again.

If Rupert Murdoch launches interactive services on DirecTV Inc. using John Malone's middleware from OpenTV (assuming Murdoch's News Corp. completes its acquisition of the direct broadcast satellite provider) — and if DirecTV is successful in stealing more cable subscribers — Roberts could counter with Microsoft's software. Or at least that might be Gates's hope.

Comcast's contractual commitment to Microsoft TV Foundation appears to top out at 25% of net new digital subscribers.

According to an agreement struck by the companies in May 2002: "If the trial results meet agreed technical standards, the platform meets defined competitive requirements and a launch would meet Comcast Cable's reasonable business objectives, Comcast Cable has agreed that it will commercially launch the Microsoft platform to at least 25% of its newly installed middleware customer base."

Although that language indicates Comcast would provision 25% of new digital subscribers with Foundation Edition, the more likely scenario would see the MSO picking several markets, and rolling the software out across that entire footprint.

Comcast estimates it will add between 950,000 and 1 million digital subscribers this year to its base of 6.7 million.

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