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Cable firms ride PC-TV wave

Once content to wire monopoly markets, the long-staid cable industry finds itself caught up in the ballyhooed convergence.

A small black box continues to redefine the mission of the cable television industry.

Once content to wire monopoly markets, long-staid cable companies find themselves caught up in the ballyhooed PC-TV convergence with the development of next-generation set-top television boxes. That means adding Net distribution and programming to the industry's product roster, as well as telephone service.

Another reminder of this changing landscape occurred today when a unit of Tele-Communications Incorporated bought a stake in TV Guide properties from Rupert Murdoch's News Corporation as part of a $2 billion deal--no pittance indeed. The agreement not only includes TV Guide magazine, but also the TV Guide Entertainment Network (TVGEN) site. Murdoch will take a significant stake in the new owner, a partnership of United Video Satellite and TCI.

"There are good promotional synergies between a large cable operator and a TV guide, as TCI looks to expand its digital channel lineup and, conversely, for bringing TV Guide and content onto the set-top box," said Michael Harris, president of Kinetic Strategies, a consulting firm. He added that TCI and Murdoch had planned a similar venture for a TV directory previously.

A service such as TVGEN, which provides online TV listings as well as entertainment industry news, gossip, and interviews, is a key weapon in the battle to bring the Internet to mainstream consumers through television. One sign of this PC-TV convergence market: The Web site is featured on the front door of Microsoft's WebTV Internet service.

In announcing the WebTV-TVGEN alliance more than a year ago, WebTV chief executive Steve Perlman noted: "TVGEN's interactive content is ideal for viewing on WebTV, and the TV Guide brand has incredible resonance with the television audience."

However bullish Perlman seems, a crucial component of TCI's deal is the promotional power of the print version of TV Guide, one of the most widely read periodicals. In addition, the cable company has WebTV's parent, Microsoft, at arm's length. (See related story)

Although deregulation often is cited for the sweeping changes taking place in the cable TV industry, technology is playing just as big--or an even bigger--role. It all comes down to the small black box, also known as the next-generation set-top box, which is still in the embryonic stages of development.

"The set-top is going to be the network hub of the home," said a spokesman for @Home, which is helping to develop software for the device. "The idea is to make the Internet as ubiquitous in the home as the telephone and TV. To do that, you have to make the technology transparent. That's our goal."

The devices are being designed to offer TV, as well as video on demand, along with email, Internet browsing, and telephone connections. One idea: Plug a headset into the TV for a videoconference call.

But the risks are numerous. Interactive TV has flopped before, and cost remains a barrier to many consumers--not to mention to the developers themselves. Competition is intense, too, not only from cable companies, but from telephone carriers, print and broadcast giants, and Internet companies. They all are striking alliances to get in on the PC-TV act.

Cable TV companies also have to undergo a culture change. Long used to operating like monopolies, they now have to become more entrepreneurial. They also have to reverse a perception of providing indifferent service.

But the cable industry is plodding ahead. One reason: turning one revenue stream--broadcasting--into three with TV, Internet access, and telephony.

That could help jump-start an industry whose finances and stock histories have not performed up to expectations.

Technology executives see the potential. As reported, Microsoft's Bill Gates already has plowed $1 billion into cable TV giant Comcast, and the company has not ruled out any additional cable acquisitions. In another example, Microsoft cofounder Paul Allen bought Marcus Cable for $2.775 billion in April--his largest personal investment to date. At the time, Allen noted that cable companies are "uniquely positioned to deliver the next generation of data services." (Allen is an investor in CNET: The Computer Network.)

To execute the grandiose strategy, companies such as TCI are expanding through deals like the one announced today with News Corporation. They also are investing in high-speed Net access companies--in TCI's case, @Home.

Time Warner, another cable TV giant, is pursuing a similar strategy through its ownership of Road Runner, another Net access provider.

But the telcos don't want to be left out. AT&T, for example, has been on the lookout for a high-speed Net access alliance as well.