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RealTime IT News

iTV Ball Rolling Again?

The nascent interactive television (iTV) industry, a space which grew quiet in the past year as slower-than-expected broadband deployment and the bursting of the tech bubble took the wind out of the industry's sails, appears to be buzzing again.

On Wednesday, cable giant AT&T Broadband cemented a partnership with TiVo while Charter Communications cozied up to Microsoft Corp. in a seven-year deal that will give it access to Microsoft's Microsoft TV platform.

The deal between AT&T Broadband and TiVo will allow AT&T to offer its customers a side-car TiVo box with 40 hours of video storage (10 more hours than available in boxes sold on the retail market) for $299 a unit. The Charter/Microsoft deal, on the other hand, allows Charter to integrate Microsoft's middleware TV software with its set-top boxes, giving customers access to features like digital video recording (DVR), video-on-demand (VoD), interactive program guides (IPG), Internet connectivity, and chat.

Yankee Group Analyst Adi Kishore said the fact there was news at all is a welcome development for the industry, which has had little to talk about in past months.

That said, Kishore noted that even with the deals in place, cable providers are going to roll out iTV services slowly and deliberately. He suggested that the deal between Charter and Microsoft is likely to be back-end loaded to near the end of the seven-year deal.

"I don't think you'll see 1 million higher-end Microsoft set-top boxes deployed in the next 18, possibly even 24 months," he said. "A lot of it depends on the economy."

Obstacles
But while the ball seems to be rolling again, albeit slowly, that doesn't mean there aren't still challenges to overcome.

To date, satellite providers have been the quickest to deploy many of these services because the platform is already digital. Cable providers have been slower to deliver services because of the need to upgrade to digital cable, which lays the foundation for iTV. That's one road block that is in the process of being eliminated.

"This year's been phenomenal for digital cable," Kishore told InternetNews.com Thursday, though he noted that digital cable providers have had to deal with a high rate of churn. "In spite of that, growth has been very, very rapid for digital cable."

Uptake among cable providers is essential to the industry, Kishore said, because while 16 percent of American households with television utilize satellite, 70 percent utilize cable.

"Clearly cable is the driver for interactive TV," Kishore said.

But until the deals struck Wednesday, providers of iTV platforms were primarily partnering with set-top box and consumer electronics manufacturers. Last year Microsoft cut deals with companies like Royal Philips Electronics and SCM Microsystems. TiVo and Sony strengthened their partnership last month. Microsoft had partnered with AT&T Broadband for an iTV initiative, but AT&T pared back its plans in June and began making overtures to Liberate Technologies.

AT&T Broadband spokesperson Tracy Baumgartner said Wednesday's deal with TiVo -- which focuses on DVR -- does not take the possibility of future deals with middleware vendors like Liberate and Microsoft off the table.

"AT&T Broadband is certainly interested in pursuing an integrated set-top box," she said. "We're looking at three different advanced video services right now."

Consumer Acceptance?
Another obstacle in the adoption of iTV technologies is the difficulty of marketing those technologies directly to consumers, which is why Kishore said partnerships between technology providers and cable providers are essential to wide-spread acceptance.

"They need to integrate with cable set-top boxes," he said. "It's difficult to explain the value of a digital video recorder to a consumer. DVR manufacturers and DVR vendors are best suited to recognizing the fact that what they're offering is a service or a feature, not a product."

He added, "I think they need to get into consumer houses using some sort of Trojan Horse."

David C. Tice, of research firm Knowledge Networks SRI, agreed. He said his research indicates that many people don't see the need to upgrade to a personal video recorder (PVR -- an alternative term for DVRs) when VCRs already provide many of the functions a PVR offers.

"PVRs are in very, very few homes," he said. "Nobody is buying TiVos or Replays for themselves."

Tice completed a study in late August which also found that nearly 75 percent of consumers need to be convinced that iTV is an important enhancement. The study found interest in DVR, VoD and IPGs, but even respondents with iTV capabilities in their homes had little use for other iTV functions like interactive links in television shows or TV-based Internet and e-mail.

"They're really interested in controlling their TV experience as opposed to interacting with it," Tice said. "They show a great deal of interest in interactive program guides. They're also very interested in the sort of features that are available in PVRs like TiVo. People are not very interested in chatting with other viewers of a program or playing games along with a program."

Content Provider Resistance
While infrastructure deployment and consumer acceptance are significant obstacles, the biggest road block may be resistance by content providers. On Oct. 31, the nation's largest broadcast networks filed a lawsuit against SONICblue , maker of the ReplayTV.

Viacom, Disney and GE (owners of CBS, ABC and NBC, respectively) alleged copyright infringement, unfair business practices and violations of sections of the Federal Communications Act, and requested an injunction against the manufacture of the ReplayTV 4000.

SONICblue markets its latest ReplayTV on the strength of its "commercial skip" feature and the ability to send recorded shows to friends via the Internet.

"With ReplayTV 4000...you can share your recorded shows between different ReplayTVs in your home, send recorded programs to your friends via the Internet, use Commercial Advance to playback your favorite shows without commercials, organize your shows in show folders, and record up to 320 hours of programming!" the product's Web site proclaims. "ReplayTV will change the way you watch television, forever."

For the networks, who use their programming as a means of delivering advertisements for customers, time shift and commercial skip features are likely a nightmare, while cable content providers like HBO, which depend upon subscribers, are likely to fear sharing capabilities that give consumers the ability to share television shows the way Napster gave them the ability to share music.

So how will content producers respond as iTV proliferates?

"They will do exactly what they're doing, which is look for regulatory intervention and legal intervention," Kishore said.

But content producers may have a harder fight in court than the recording industry had against Napster, owing to the precedent set by the suit that arose out of Sony's development of the Betamax VCR, as both Tice and Kishore pointed out.

While the producers may have some success in seeking regulatory intervention, and they may be able to utilize digital rights management services to protect their content, Kishore said they will likely explore other options as well.

"The genie's out of the bottle," he said. "You've got this technology that can time shift, that can skip commercials and share content. You've got to come up with new advertising models and evolve the 30 second spot to the next level -- whatever that might be."

Some of those models may include targeted advertising (building a databank of user viewing preferences and filtering commercials for appropriate audiences), content enhancements (providing interactive content in the video stream itself), and a return to the days of product placement (possibly including virtual product placement).

"There's a number of different ways and I think the advertising industry is going to go through a very rapid revolution in the next few years," Kishore said.