Set-Top Makers Focus on Services

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Anaheim, Calif. -- If the moves by the industry's larger
set-top makers are any indication, next year could mark yet another handoff from
technologists to creative-service providers.

In press briefings and floor demonstrations, last week's
Western Show here was alive with the types of advanced services enabled by new and
existing digital set-tops.

General Instrument Corp. and its bitter rival,
Scientific-Atlanta Inc., both detailed the service mixes enabled by their advanced,
two-way set-tops.

Other vendors, like Pioneer New Media Technologies and
Philips Broadband Networks, also showcased services while waiting for word from MediaOne
about who won in the MSO's request for set-top proposals.

At press time, no decisions had been made, but Pioneer and
Philips were considered strong candidates, according to MSO sources.Perhaps the biggest
news coming out of GI's services mix: a straightforward link of its DCT line of digital
set-tops to Diva Systems Corp.'s video-on-demand service. The project -- in the works
since last year's Western Show -- is a sweet one for Diva because GI's DCT-series set-tops
are deployed by MSOs with plant passing 28 million homes.

"I am extremely proud of the work that our respective
teams have done," said Paul Cook, chairman and CEO of Diva, at a press briefing here.

For GI's MSO customers that may be interested in VOD, the
Diva link is a transparent download that only requires one additional piece of $20,000
headend equipment from GI, said David Robinson, general manager of GI's
digital-video-business unit.

Also in force here were ACTV Inc., ICTV Inc., Source Media
Inc.'s Interactive Channel, WorldGate Communications Inc., Wink Communications Inc. and
every other form of TV-based interactivity.

GI also finalized its $187.5 million financial arrangement
with Sony Corp., which started out as a letter of intent 11 months ago.

That arrangement -- now described as a "definitive
agreement" -- means that Sony will purchase 7.5 million new shares of GI's common
stock, representing roughly a 5 percent stake in the set-top manufacturer.

The two companies will also form a "strategic
alliance" to integrate Sony's home-entertainment-network technology with GI's
advanced-digital set-tops.

Specifically, GI agreed to use Sony's "Home Network
Module" middleware and its "Aperios" real-time operating system in its
DCT-5000 set-top line.

Tele-Communications Inc., GI's largest customer, has
already said that it will use Sony's operating system, as well Microsoft Corp.'s Windows
CE and Sun Microsystems Inc.'s Java and PersonalJava middleware.

Gary Myer, co-president of Sony's digital-network-solutions
group, said in a prepared statement that the GI alliance "will enable additional
new-service and revenue opportunities for cable operators, while ensuring consumers a
smooth transition into the era of digital broadcasting."

Not to be outdone, S-A used the show to discuss launches of
its Explorer 2000 set-top and to explain a "letter of intent" with Microsoft to
collaborate on advanced-digital set-tops.

The S-A/Microsoft deal translates into set-tops that will
include the Windows CE operating system and Microsoft unit WebTV Networks' technology,
said Steve Necessary, vice president of marketing for S-A. The delivery time frame: 12 to
15 months from now, he added.

S-A executives characterized the move as one that
complements their plan of supporting multiple operating systems, thus making the boxes
"open" and "flexible."

That was the reaction of PowerTV Inc., as well. PowerTV --
which is currently providing the operating system and middleware software for S-A -- ceded
that S-A's deal with Microsoft "validates the category."

Still, said Bo Rodgers, president of PowerTV: "The
devil's in the details." He added that the TV-centric focus of PowerTV over the past
several years gives it an instant edge over Microsoft, which will have to pare down its
software to be TV-focused.

Alan Yates, Microsoft's director of platform marketing,
said the company is now in negotiations with cable operators to deliver the WebTV service
over broadband networks.

S-A displayed the WebTV service running on its set-tops in
its booth, as did GI.

Necessary also said Marcus Cable's Glendale, Calif., system
and Adelphia Communications Corp.'s Buffalo, N.Y., system will launch Explorer 2000
set-tops.

Jim Rigas, senior vice president of strategic planning and
development for Adelphia, called the Explorer 2000 "a unique platform that will help
us to grow our business."

S-A also detailed plans to work with one of technology
magnate Paul Allen's companies: Avio Digital Inc., which makes home-networking solutions.

Specifically, S-A demonstrated a link from its Explorer
2000 to Avio's "Digital MediaWire" module, so that every video, audio,
computer-data-service, telephony and home control unit in a house can be interconnected.

Allen Ecker, president of S-A's subscriber-network sector,
said in-home networking arrangements reflect the fact that TVs, phones, compact disc
players, microwave ovens, heating systems, digital printers, cameras and other devices
will all be linked to in-home networks.

Don Burtis, acting vice president of technology for Avio,
said set-top boxes equipped with the MediaWire interface "give cable operators the
ability to be right in the center of this network."

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