Liberty's Werner Weighs In On Interactive-TV Maneuvers

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Through a string of recent acquisitions and investments, Liberty Media Corp. has bought itself a more substantial influence in interactive-TV technology — and, ultimately, its future deployments.
Broadband Week senior editor Karen Brown talked recently to Liberty's chief technology officer, Tony Werner, about the technology picture the company is developing for interactive television. An edited transcript follows:

BW: In a little more than a month's time, Liberty Broadband Interactive Television (LBIT) has formed and racked up quite a set of assets: OpenTV Inc., ACTV Inc. and now Wink Communications Inc. What's the new key technology that these acquisitions and/or
ownership stakes have afforded Liberty?

Werner:
Well, I think it you can break it down into almost independent acquisitions, all of which I think have got some merit. And then I think the merit gets quite a bit better when you put the three together.

But if you look at OpenTV, which is where we started it, OpenTV has got a lot things going from them. One is they have a large-scale deployment of middleware — somewhere around 28 million boxes, give or take, out there. They have got a good European presence; they've got a strong satellite presence. They've got a lot of very solid intellectual property for how they do things on it. They've got great ways of getting apps in and out of the box very quickly, which is very important for thin and medium clients. And then they have got a really good integration group that they acquired from Spyglass [Inc.], so we think that's a pretty good asset. It's one that is almost at a cash breakeven-type operation, and it's a pretty solid group.

Wink TV is obviously another good asset, we think. We think both companies have good management. Wink has gotten reasonably good scale, especially in the U.S., with operators.

On the domestic side, they obviously have got a good play with DirecTV [Inc.]. [They have] good cable in there, and they are very good at doing the trigger mechanism for interactive apps, and they've done all of the back-end integration on that, which is a pretty good deal.

So we think that's a good standalone asset, and we think it is somewhat different from OpenTV. And yet both are complimentary — especially if you look at their customer base that is complementary, and their technologies are complementary.

With ACTV, there again you pick up a few assets. We had had a bit of an ownership stake in ACTV, so it helps us round that out. They have got probably some of the better technology in [Internet protocol] around doing the multiple camera angle, and that type of hyperchanneling type of stuff. And they also have a very good integration group in the Intellocity [USA Inc.] side.

So I think between the three of them, we end up with a lot of good technology. We end up with kind of a complimentary management group, and we end up with complimentary management bases. So I think the three of them fit together pretty well and should form, over time, a really solid group as we try and drive more standards and more widespread scale on the interactive TV side.

BW: And presumably, they also brought you some pretty good patents and intellectual property as well?

Werner:
I think all three of them have got good patents. I know that there has been a lot of discussion that this is purely a patent play, but it really is not.

I think it is more about getting a scale solution and getting something that can allow operators to provide cost-effective applications throughout, where you have simplified authoring — where if you author an app to use in one part of the world, you can use that throughout the world, and that is really what we think is probably the more important aspect of it.

BW: Is there any problem with integrating the technologies from these acquisitions into one cohesive product or strategy?

Werner:
The strategy is easy, and the issues of getting into the technology will bare their heads as these companies come together. There are very few things that you look at and say, 'Gosh, Wink and OpenTV do this both equally well, and it's hard to know which to go with.' There are things that clearly Wink does better, there are things that clearly OpenTV does better, and so as you start to take the assets and the pieces, I think it starts to be easier to figure out which pieces you want from which areas.

And a lot of the things — like on the middleware side, that was not Wink's plan, and all of a sudden they started becoming middleware because people needed them in there to do stuff. OpenTV came at this from a presentation and an execution middleware perspective, so allowing Wink to do more of the triggering and other stuff and bringing them together, I think, makes a pretty solid marriage.

BW: What ITV elements is LBIT still wanting for? What technologies are still needed to fill in the gaps?

Werner:
It's hard to know. I don't think there is anything in specific we still want for. There's lots of applications to be developed and there are lots of other pieces. Our belief is that for success in this business, you have to get scale, because it is a business that absolutely requires scale, both for the people that are writing apps and for the people that are buying the apps and the products. So that is what we are really shooting for.

There are probably a lot of little things left to develop — various apps, more elegant apps, apps for PVR and other functionality and that type of stuff that can come. But on the high-level picture, we have got most of the technology that we need, and now it is kind of an execution of this, and moving forward and seeing what we can do with it.

BW: What content or applications exist or can you develop to complement Wink and OpenTV? Gaming? Shopping?

Werner:
I think that there are a ton. And the format here is by getting a widespread platform that is cost-effective — and then by getting lots of developer's kits out there and people doing it — these things start to come up on their own and operators see what is successful.

On the gaming side, we think there is room for certain games. I don't think we think that the fast-twitch and those types of games work here. I think those games are best left to be played on Xboxes and gaming devices, because it is just too hard to keep up with. But there are a ton of games that people show interest in that do make sense in these environments, and some of them get very high market share when they go out there.

As part of OpenTV, we also acquired with that a company called Static, and Static has a number of games that are out there. PlayJam is one, and there are other games out there that are very popular in Europe, but also Cablevision [Systems Corp.] here in the U.S. is putting those games out there.

BW: Can you give us any priorities as to which content you want to get out there first?

Werner:
I don't know. It will be largely be customer-pulled, meaning MSOs and interactive-TV providers and what they want and what they think they can market. It's hard to say for sure, but it is everything from gaming to the right type of shopping and certain information services that either end up providing more value to the MSO or additional revenue streams.

BW: Have you heard any such requests from the cable operators that would get you started?

Werner:
Well, yes. There's a bunch of different pieces obviously that are starting to — and a lot of these we are satisfying already, and some of them we'll move forward. Certain of the various shopping networks are interested in having a certain amount of random-access ordering on the channel. We are doing a lot in Europe with multiple camera angles. We are doing a lot with pulling up sports scores and sports channels and that type of stuff.

So I think we think this isn't one to be super-fast to emerge, but we do think that it is a good time to be placing the bets, and it will emerge over the next three, four, five years as a pretty good business.

BW: Liberty has stakes in quite a few programmers, including Discovery Communications Inc., E! Entertainment Television and Starz Encore Group LLC. How will those content providers benefit from the ITV arm?

Werner:
I'm not positive that there is any immediate or super synergy there. All of them have an interest in some degree in interactivity.

We did one a while back with Discovery; there was an educational piece to that. And while that was intriguing and people liked it, it's not immediately clear what the immediate economic upside is to that. So there will be lots of things that we will do and go through with them, but I don't know if there is any immediate benefit to that.

I guess over time there will be, as we will work with them as kind of a flow-through from Liberty Livewire, where we can actually author the interactive stuff, and then here where we can provide a lot more insight and understanding as to how it plays out.

But I think the early ones of interest will be the news channels, the sports channels and the shopping channels. But there is a place for all of them.

BW: Will there be any kind of coordination then within Liberty to tell the content providers about the applications LBIT offers?

Werner:
There may be some, but right now we are not stressing that as much as we may here in the future.

BW: How will Aerocast Inc. fit into LBIT's technology puzzle, if at all?

Werner:
No idea. There will be news on that, but I'm not positive how it will fit into this.

BW: Why now? Many consider ITV a failure. Business models remain elusive. What do you see that others don't?

Werner:
I think our history is we like to buy companies and buy into areas when people think that they are in a down cycle, and we like to sell them when people think they are super successful. And so, I think we think now is a great opportunity. We think these companies are a good value for the price they are selling for, and we think it is a time when consolidation in this space of some of these assets starts to make just an awful lot of sense.

From a business model, I think everybody thinks that remains elusive, but I think everybody also knows there is something there where the operators can and will make money. It may not be to the same degree that we all thought two years ago, or in the exact same way, or it may not unravel at the same speed. But I do think that it will come.

And one of the keys to that is getting the right economic model, which means that you have to have scale, where you can amortize your costs across a wide number of licenses and you also need scale so that application can start to proliferate. So I think what we are looking for is to see this work into bigger and broader scale, and at the same time, that will start to feed opportunities for revenue to start to emerge and that will start to feed a bit of growth in itself.

We think that the timing is right.

BW: But isn't it a gamble at this point? I mean, there are some that are saying ITV is never going to get off the ground.

Werner:
Any investment you make today is a bet, and I think most operators believe interactive TV will get off the ground.

If you look at BSkyB [British Sky Broadcasting plc] in Europe and some of those, they actually make a pretty attractive interactive-TV offering that's not doing bad. And we are having reasonably good look at Telewest [plc] and some of the others on it, so I think there will be a business there. It's not one that can be done without some intelligence, but I do think there is a pretty good business there.

BW: OK. Finally, is there anything you want to tell people about Liberty's efforts in interactive TV going forward — anything you think people have missed in the story of Liberty?

Werner:
Just that I think we are taking a pretty good collection of assets that are being put together, trying to create a model that makes interactive TV something that can be profitable through a middleware-application company, which is really where we see it going, is heavier on the applications, as well as for the operators. And that is really what we are trying to do here.

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