In Tech, Thin Is In

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Chicago— Operators at last week's National Show seemed to be trolling the exhibit floor in search of technology that's real and ready for deployment today.

"We've moved from a phase of interesting future technology to those that operators are interested in deploying now to drive revenue," said Kinetic Strategies president Michael Harris.

It appeared that cable-equipment manufacturers announced fewer new products and more enhancements to existing lines than in years past. And news that involved interactive television, digital set-tops and digital video recording capabilities — preferably without requiring expensive, advanced boxes — was the hot topic of discussion.

There weren't any significant technology deals announced at the show, so AT&T Broadband's decision to drop its plans to deploy interactive-TV services through advanced set-tops — reported by Multichannel News
on June 8 — reverberated on the show floor and throughout the panel sessions.

While AT&T and Microsoft Corp. executives insisted that the companies haven't scrapped a deal to deploy Microsoft's TV platform on the MSO's digital set-tops, some executives suggested there could be a reworking of AT&T's agreement to deploy at least 7.5 million copies of Microsoft's middleware solution.

"If it takes changes in our agreement, definitely we'll do changes in our agreement. If it takes different software, [we'll] do different software," Alan Yates, vice president of sales and marketing for Microsoft TV Group, said in an interview at the company's booth. "I think the bottom line is that we're being supportive of each other as strategic partners to respond to their business requirements."

AT&T Corp. chairman Michael Armstrong told reporters after Monday's general session that he could not specifically address whether his cable unit would follow through on its agreement to deploy at least 7.5 million set-tops that run Microsoft software.

"They [Microsoft] have had some hits on schedule, and we've had some re-examination of consumer interests, and have mutually concluded — not alone — that we can take the DCT-2000 platform. And we're working with Microsoft to bring them to that platform in that relationship as we redefine the future together," Armstrong said.

Time Warner Cable is also sticking with the set-tops it has in the field. Asked if the MSO would order advanced digital set-tops, Time Warner Cable president Joe Collins said, "No, we're doing digital."

Time Warner has primarily deployed Scientific-Atlanta Inc. Explorer 2000 set-tops and Pioneer New Media Voyager 1000 boxes to digital-cable subscribers. The MSO also has put in an order for about 100,000 high-end Explorer 8000 boxes, which feature on-board hard drives for personal video recording.

BEST TO RUN THIN

AT&T Broadband's decision to scale back some of its ITV plans with a mid-range box has once again raised debate involving the capabilities, or "thickness," of next-generation digital set-tops.

With many MSOs tightening their belts, several attendees said it's difficult for companies pitching products that can't run on already deployed digital boxes like the DCT-2000 or Explorer 2000 to get much traction with operators. Executives at companies focused on developing products for the advanced digital set-tops said they're shifting gears to create solutions for lower-end boxes.

"I'm on a runway in an airplane, and rather than the airplane taking off, there are people adding to the front of the runway," said RespondTV Inc. president Richard Fisher in describing AT&T and other operators focused on a thinner platform. One such product RespondTV has for the DCT-2000 platform: a virtual House of Blues interactive music channel that runs on Liberate Technologies Inc. middleware.

NOT DEAD YET

While Charter Communications Inc. is the only MSO that has announced plans to deploy the DCT-5000 this year, TechTV director of strategic development John Gilles said he knew of one other U.S. MSO that would roll out the advanced box in 2001.

"Despite AT&T's news, the thick client is not dead by any means," Gilles said. "We will develop for either thin-client or thick-client, depending on the operator's needs."

Liberate chief strategy officer David Limp said the MSOs he met with at the show expressed interest in rolling out both high-end and low-end boxes, depending on the market. While many MSOs have focused on the DCT-2000, some operators said they might deploy advanced set-tops in more affluent areas, he explained.

Liberate sales staffers were pitching the company's middleware platform to MSOs who have deployed DCT-2000s. The company charges operators in the "low teens to mid 20s" per subscriber for advanced digital set-top middleware, but charges 75 percent of that levy to operators that want to download the software to thin-client set-tops, Limp said.

"The small amount you're going to pay for the middleware in a broadcast solution is minimal compared to the capital costs you've already put in place and the incremental churn reduction you'll get," Limp said.

MICROSOFT PLUGS MODEMS

Microsoft's Yates insisted that in the long run, MSOs would be better off using cable modems embedded in advanced digital set-tops to offer advanced ITV services.

"It may take a while, but the cable industry has to rely on that [modem] in the long term to be their competitive advantage," Yates said. "Whether or not it's the first thing they do makes no difference."

But former Prime Cable president William Glasgow acknowledged it's difficult to get operators to spend money on services that require big capital outlays.

"The question is, 'How many things can they operationally analyze and introduce in an economical way over the next 24 months?' " asked Glasgow, now CEO of cable home-security provider @Security Broadband Corp. "At the end of the day, with money scarce, and their plate already full, it's very hard to do."

Meanwhile, box vendors said they figure cable's universe will be populated with a wide variety of thick and thin boxes. The real trick is to hit a technological sweet spot that will appeal to the largest number of MSOs.

For makers of those boxes, finding that sweet spot is like hitting a moving target that changes from customer to customer.

Motorola Broadband Communications Sector president David Robinson noted during a show panel that his company's thin-client DCT-2000 line continues to be popular in North America, but its thicker 4000- and 5000-class boxes have gained some ground in Europe, with MSOs such as United Pan-Europe Communications N.V. The company has also confirmed work on a line of midlevel boxes, including a model called the DCT-2500.

COMCAST UPDATE

At the show, Motorola Broadband also formally announced a roadmap for a new line of DCT-5000s, including two with PVR capabilities.

Comcast vice president of digital television Mark Hess, who was briefed on Motorola's new boxes, said "we haven't gotten anywhere definitive on what we actually think the next box should be." He said OpenCable compliance and standardized software would play a part in that decision.

Comcast has also talked to Motorola Broadband about an "interim, beefed-up" DCT-2000-class box, Hess said. "We think it's important to have a DOCSIS [Data Over Cable Service Interface Specification] modem [in the box]. It's just a better pipe, upstream and down."

In the meantime, Hess said there's still more that can be squeezed out of legacy DCT-2000s with respect to some limited ITV applications. But a next-generation box — and the more robust upstream path that comes with it — will be required for more advanced items such as interactive gaming.

S-A chairman James McDonald downplayed the importance of the set-top, instead extolling the virtues of a network that ties it all together through a combination of server-based, resident and downloadable applications. S-A is pitching an application service provider approach, in which a cable operator would tap into a series of servers based in Atlanta to deliver electronic-mail, interactive games, Web browsing and other applications to set-tops in consumer homes.

ON CONTENT FRONT

A handful of deals emerged on the broadband content front. ESPN debuted ESPN Broadband, a high-speed Internet access product comprised of sports news and video highlights that will be available to cable operators later this year.

ESPN plans to download text and video clips to cable operators' headend servers. The programmer said ESPN Broadband will carry more video than currently available on ESPN.com.

Revenue models have not been worked out with operators, but subscription fees are possible. ESPN and local MSOs will be able to sell banner and rich-media advertising within the service.

Universal Music Group announced a deal to sell its broadband "TV Lounge" music-video service to VOD provider Diva Systems Corp. Sister company Canal Plus U.S. Technologies is also developing an interactive application to sell Starz Encore Group LLC subscriptions in an ITV environment.

Games may be the No. 1 application for ITV, said Insight Communications Co. CEO Michael Willner, hinting that MSOs could develop additional revenue streams from gaming applications.

Matt Stump contributed to this report.

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