In a move that could figure heavily into AT&T Broadband's initial interactive-television deployment strategy, Liberate Technology last Wednesday became the first middleware provider to ink a deal with AT&T's Headend In The Sky.
Under terms of the multiyear deal, HITS — which delivers digital programming to about 140 cable systems and about 6 million digital boxes — will gain the ability to distribute Liberate's TV Platform Compact to widely deployed Motorola Broadband Communications Sector DCT-2000 digital set-tops.
That arrangement could quickly evolve into a larger relationship with AT&T Broadband, according to sources familiar with the situation. HITS is a wholly owned subsidiary of the MSO.
HITS and Liberate expect to start offering a suite of ITV applications to HITS affiliates in the fourth quarter of this year. Using a satellite-based broadcast model, HITS will beam news, enhanced TV and games to cable headends.
The companies are completing technical integration at the HITS satellite-broadcast center in Littleton, Colo.
As part of its ongoing ITV strategy, AT&T Broadband is exploring how to leverage HITS to deliver interactive applications to the roughly 3 million DCT-2000s it had already deployed to consumer homes. AT&T Broadband recently completed a technical trial with Liberate in Cheyenne, Wyo.
HITS2Home and HITS Quick Take — two digital platforms designed for smaller MSOs — will not have access to the initial Liberate offering.
"We wanted to make this as simple and low-cost and low-barrier as we could," said HITS senior vice president Rich Fickle, who added that the platform will market a package that consists of Liberate middleware technology integrated into the DCT-2000 and the TV Guide Interactive interactive program guide.
HITS will also team up with content partners for a "starter set" of applications that operators can download via satellite and distribute to consumer set-tops.
Fickle wouldn't say which applications will be offered via HITS, though a portion of them may come via cable networks that participate in Liberate's PopTV program. Programmers who currently participating in that initiative include Bloomberg Television, E! Entertainment Television, Fox News Channel, Fox Sports Net, Lifetime, Oxygen and The Weather Channel.
Though programmers have been concerned about porting ITV content to a variety of platforms, Fickle said he hoped an open middleware approach would enable programmers to put more effort into ITV and create more content.
HITS and Liberate were quiet about financial terms of the deal. Transport fees will not factor into the initial Liberate suite.
"That may evolve later on as we add more content," Fickle said. "There are some costs we have to recover, but I wouldn't say that we've come out of the gate with a transport-fee model on this yet."
Liberate CEO Mitchell Kertzman said that so far, his company has not been required to pay integration fees to Gemstar-TV Guide International Inc.
"We don't have a direct agreement with TV Guide, so it's a different animal," Kertzman said.
Fickle would not venture to say how much a Liberate option would cost consumers. "We're working hard to keep the cost structure very, very low," he said.
ONE-WAY IS OK
The first HITS-Liberate offering will not require two-way cable plant or additional billing-system integration, although future upgrades will leverage interactive cable plant to deliver more advanced applications such as video-on-demand, interactive advertising and electronic commerce.
The initial HITS ITV package will absorb about 5 megabits of bandwidth, or about one-fifth of a 6-megahertz channel, Fickel said.
HITS will also carousel the content packages in a scheme that closely mirrors how the company leverages TV Guide Interactive today.
"As we move into interactive advertising, [television commerce] or polling surveys and personalized data for stocks, those things will require back-channel access," Fickle said.
A move to a richer, true two-way ITV service would require an operator to install some Liberate servers in the headend, Kertzman said.
Industry sources have said that the TV Guide IPG has proved to be an integration barrier. Its application soaks up almost all of the memory on DCT-2000s, the sources said, leaving little room for anything else.
The basic memory footprint and specification for Liberate's Compact platform is roughly 1.5 megabytes of RAM, 1 MB flash memory and a 20 MIPS (millions of instructions per second) central-processing unit.
Fickle said Gemstar-TV Guide has cooperated in changing some of the dynamics of the application to make room for additional middleware.
"They are allowing part of their guide to be rewritten in this middleware language, so it works very efficiently," Fickle said. "I think that's a major step forward."
NO DEAL GUARANTEES
Fickle said HITS has yet to ink any deals to deploy Liberate to operators, but added that three MSOs "have given us positive response, and we should see some evidence of that soon."
AT&T Broadband is the biggest HITS affiliate. Other top MSOs on that list include Adelphia Communications Corp., Charter Communications Inc., Comcast Corp., Cox Communications Inc., Insight Communications Co. and Mediacom Communications Corp.
Fickle noted that HITS generates "well over half" of its revenue from MSOs other than AT&T Broadband.
Though a deal with AT&T Broadband represents the next logical step, Liberate CEO Mitchell Kertzman would not go that far.
"If there's one thing we've learned from our years working with the cable industry, it's never to predict," he said.
Time Warner Cable is also a HITS affiliate, though most of its digital properties are tied to its Pegasus platform and boxes made by Scientific-Atlanta Inc.
Through previous system swaps trades, DCT-2000s represent a percentage of Time Warner Cable's base of 2.5 million digital customers in the "high single digits," said MSO spokesman Mike Luftman.
Though no conversations with Liberate and HITS are underway regarding the ITV broadcast model, Time Warner Cable, as a HITS affiliate, is "interested in the development in this type of technology by Liberate," Luftman said.
EFFECT ON MICROSOFT
While Liberate has a definite jump on its competitors, Fickle reiterated that the HITS relationship with Liberate is not exclusive, thus leaving a door open to other middleware vendors.
Microsoft Corp., which has yet to deploy its fat-client Microsoft TV Platform software on AT&T Broadband systems, has two ITV platforms for the DCT-2000: Microsoft TV Basic Digital, a host-based middleware, and the Microsoft TV Access Channel Server, a headend-based approach that's result of the software giant's acquisition of Peach Networks Inc.
Fickle said there are possibilities to move Microsoft's DCT-2000 middleware to the HITS platform, "but there are no plans today that we can announce."
Microsoft TV marketing director Ed Graczyk downplayed the significance of the HITS-Liberate deal, and said that HITS didn't announce any agreements with cable affiliates to deploy Liberate-powered ITV services.
"I think they [HITS] went out of their way to make it clear that this is a non-exclusive agreement," Graczyk added, though he declined to comment on whether Microsoft is working on cutting a similar deal for a spot on the satellite platform.
Graczyk also emphasized that the ITV business is still at a very early stage, and that it's too soon to determine who the winners are.
Media coverage that painted the HITS-Liberate deal as a blow to Microsoft prompted AT&T Broadband to clarify its position in a press release issued Thursday.
The MSO reiterated that the deal is not exclusive and has "no impact" on prior plans to deploy ITV with Microsoft.
"We have a strong relationship with Microsoft, and we continue to work with them to develop compelling interactive features to offer our cable customers around the nation," AT&T Broadband executive vice president of broadband services and chief technology officer Greg Braden said in a statement.
WorldGate — which has preached the thin-client approach for years — has also pieced together a similar system to serve operators that choose to use a satellite network delivery method, such as HITS, to deliver ITV applications to legacy DCT-2000s.
"We're compatible with this type of delivery system," said WorldGate spokeswoman Donielle McGrail, noting that the company's ITV lineup will approaches for both broadcast and two-way interactivity.
McGrail wouldn't say whether WorldGate is presently in discussion with HITS, but said the nonexclusive nature of Liberate's agreement with the AT&T subsidiary could open the door for the company to pursue such a deal.
HITS's second ITV software source could be OpenTV Corp. In late July, OpenTV chief operating officer Jim Ackerman said his company was in discussions with HITS about deploying games, information-on-demand and commerce services to low-end digital boxes. So far, a final agreement between OpenTV and HITS has yet to materialize.
Fickle acknowledged that HITS was in talks with OpenTV as well as other middleware suppliers, but Liberate remains the only vendor officially on board.
PRIMING ITV PUMP
Industry observers said using HITS as the core for an initial form of ITV that could find its way onto some AT&T Broadband systems provides a stop-gap solution for straightening out the MSO's original ITV plans, formed under the old Tele-Communications Inc. regime, for the more-advanced DCT-5000.
"That original plan fell apart," Carmel Group vice president of business development Sean Badding said. A HITS-Liberate combination "is an interim solution to at least get out there with interactive TV and build new services and attract new customers and provide consumers with some sort of advanced services to compete with the satellite players," he said.
At the same time, a stripped-down offering would prepare those customers with the ITV training wheels they initially need. It would whet their appetites for the full-blown interactive services that will emerge as AT&T Broadband toys with a more capable mid-range box, Badding said.
"They have to make sure that there's some sort of demand for these boxes when they are deployed," he said.
Steve Donohue contributed to this story.