ICTV Catches Digital Wave, Pitches Internet-TV Platform

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Strategically refocusing its business plans, ICTV Inc.
wants to concentrate on the crowded field of providing high-speed Internet access over
digital-cable television.

The Silicon Valley company is staking its future on a new
digital version of its headend-based platform for providing Internet access and other
interactive applications through the current generation of digital-cable set-top boxes.

Working against ICTV are competitors such as WorldGate
Communications Inc. and Source Media Inc.'s Interactive Channel, which are aiming for the
same market, plus cable-industry trends that so far have moved toward putting interactive
functions in advanced set-tops, rather than in the headend.

Robert Clasen, the MSO veteran who became ICTV's chairman
in August, said his company is banking on a possible shift in cable-operator sentiments
about whether to offer interactive services primarily via powerful, but expensive,
advanced digital set-tops such as General Instrument Corp.'s "DCT-5000" and
Scientific-Atlanta Inc.'s upcoming "Explorer 6000."

ICTV's pitch is that its solution does not require embedded
set-top software in the box. This means it can leverage -- at about $100 or less per
customer -- the millions of currently deployed digital set-tops, such as the GI
"DCT-1000" and "DCT-2000," to generate new revenue from interactive
services.

ICTV argued that its platform provides the same or better
functionality and performance for Web browsing or for interactive functions such as gaming
as the advanced digital boxes do, but as a headend-based solution, it would be cheaper to
deploy and easier to manage.

The company also contended that as Moore's Law continues
making greater computing power available ever more cheaply, just as it has for personal
computers, headend-based processors, operating systems and Web browsers will be easier to
upgrade than set-tops will, as customers demand more powerful applications.

So far, the company said, MSOs have been willing to listen.

"They're giving us body language that they realize the
inherent long-term limitations of thick clients," Clasen said at a briefing last week
about ICTV's plans. "We're hearing that consistently from thought leaders at major
MSOs. We're getting second and third meetings. We've been around 10 years, and we've never
gotten those before."

ICTV has shifted its own course away from its analog
platform, offering television access to the Internet and a library of CD-ROM games and
other titles that so far has met with admittedly limited success.

ICTV's system launched this past March with St. Joseph
Cablevision in Missouri, and the company announced a deal later that month with Bresnan
Communications, but it has reported no other big wins.

"We got branded as a games channel," Clasen said.
"We did games because nobody else could." The CD-ROM service will still be
offered, but on an a la carte basis on the digital platform.

The digital platform relies on PC cards installed in ICTV
equipment at the cable headend, with each PC having a dedicated Ethernet connection to the
Internet backbone. ICTV transmits Internet and other data as MPEG-2 video streams,
eliminating the need for new set-top software.

New encoding techniques enable the system to support 40 to
80 simultaneous users on a single 6-megahertz cable channel, versus the three to six
channels operators had to use for the analog product. Proprietary frequency-reuse
technology enables one channel to serve an operator's entire set-top universe, ICTV said.

Data speeds reach up to 100 megabits per second for locally
cached content, compared with 10 mbps for ICTV's analog product.

"This solves what were perceived as shortcomings in
their analog product line -- primarily that it chewed up just way too much channel
capacity," said Michael Harris, president of Phoenix-based Kinetic Strategies Inc.

"The other piece is they've got more density on the
headend and better processing power," Harris added, "but they're swimming
against an industrywide philosophical approach to interactive TV that says the processing
power goes in the set-top box."

That approach so far has been exemplified by operators such
as AT&T Broadband & Internet Services, which has a commitment to deploy 5 million
DCT-5000s carrying software that includes the set-top Internet navigator developed by
Excite@Home Corp.

But Clasen said remarks by some executives at major MSOs
indicated that they might be rethinking how heavily they will rely on "thick"
set-tops such as the DCT-5000, which bear hefty price tags in addition to big processing
power.

"We're finding that there's a large group in AT&T
that doesn't support the DCT-5000 because of its cost," ICTV senior vice president of
marketing Michael Collette said.

A high-level executive at one MSO, who asked not to be
named, said his company was looking at ICTV and several other possible solutions for
low-level interactivity before its planned DCT-5000 launch.

"These solutions could work on a large embedded base
of 1000s and 2000s as we roll out the 5000s," the executive said. "They all have
pluses and minuses."

ICTV is not alone in believing that MSOs will see a
compelling business model in offering more headend-centric solutions. GI has indicated
that it sees a vast mainstream market for such solutions that utilize existing deployments
of its boxes and create potential new demand for older-generation set-tops such as the
DCT-2000.

GI has also introduced a new set-top, the
"SURFview," which has WorldGate's Internet-access software as a native
application. The box carries a $99 price point.

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