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Breaking free of cable's stranglehold

Equipment makers at CES are seeking to bypass the cable industry's bottleneck control over the way most Americans watch TV.

LAS VEGAS--Cable television companies are not among the exhibitors at the Consumer Electronics Show here. But their influence is everywhere, as equipment makers seek to work with--or bypass--the cable industry's bottleneck control over the way most Americans watch TV.

All the approaches address the central fact that consumers of most current versions of digital cable service--the kind with the most channels and advanced features--must now use a set-top box provided by the cable system, usually for a monthly rental fee.

Those cable company boxes make it hard for most of the devices that are on center stage here, like flashy flat-screen televisions or advanced video recorders, to truly control the signals they are receiving. Moreover, the cable companies are increasingly muscling in on the electronics makers' business by enhancing their set-top boxes with digital video recording abilities and other new features.

That cable trend has been a particular threat to TiVo, which virtually invented the digital video recorder business in the late 1990s, but has struggled lately--in large part because it is difficult for TiVo's machines to change channels on a digital cable system.

TiVo is using this week's show to announce several moves to bypass cable systems, by using the Internet and personal computers as media for television delivery and viewing.

"Offering service through one of the primary cable platforms is not the best way to grow our business at this time because the economics are not very attractive," said Michael Ramsey, TiVo's chief executive. Instead, "we have decided to embrace the PC as our friend."

As the various other consumer electronics companies here weigh whether to work with or end-run the cable systems, none of their options are entirely satisfactory.

Some, like Panasonic and Hewlett-Packard, have embraced the uncomfortable industry compromise that was brokered by the Federal Communications Commission. The FCC, seeking to curtail cable's hegemony, has required cable companies to give subscribers the option of forgoing a cable set-top box by renting a device the size of a credit card that can be inserted into a television or video recorder and allowing it to tune into the cable system's digital channels.

But this system, called CableCard, does not yet allow people to tap into the most advanced services, like video-on-demand programming, that are among the main selling points of digital cable.

Friend and foe
The new media hub that Hewlett-Packard is showing here is a computer using the Linux operating system, a machine that includes a video recorder and two high-definition television tuners. It has a CableCard slot.

Panasonic makes televisions that accept CableCards, but its slow-selling DVD-based video recorders do not. "The cable companies are heavily promoting their video recorders," said Yoshi Yamada, the chief executive of Panasonic's North American operations. "There is no question that is affecting our DVD recorder business."

A few manufacturers, though, have found ways to work more closely with the cable industry. Samsung, for example, is announcing deals this week that will allow it to build televisions that can use advanced services from the Time Warner and Charter Communications cable systems without need of separate set-top boxes. But for now, those Samsung sets will not work with other cable systems, such as those of the biggest cable company, Comcast.

Digeo, an electronics company controlled by the billionaire Paul Allen, is offering a fancy set-top box with a video recorder and other features that it would distribute through the cable system operators. It has a few tests going, including with Charter, which is also controlled by Allen.

Others are trying to find ways to bypass the cable companies entirely. The biggest proponents of this approach are the big telephone companies, like SBC Communications, which are using their high-speed DSL lines to offer video services, using hardware from companies like 2Wire, which like SBC is an exhibitor here.


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Meanwhile, Microsoft, which has been trying to muscle into the consumer electronics business, is playing all sides. It has software that is being used in cable boxes now under test by Comcast. It is supporting Internet television offerings by SBC and BellSouth. And it announced here on Wednesday a deal to make music videos from MTV available to users of its Windows Media Center PC's.

"There will be a very healthy dynamic of competition between the cable companies offering data, voice and video, and the phone companies offering data, voice and video," Bill Gates, Microsoft's chairman, said in an interview Tuesday. "We're making all our best work available to all these people."

Answer is Microsoft
Microsoft figures prominently in TiVo's cable bypass strategy. TiVo has announced a pact here with Microsoft that lets programs recorded on the TiVo be watched on a computer screen and on a Portable Media Center, a class of handheld video devices designed by Microsoft and made by several manufacturers including Samsung.

TiVo is also introducing technology meant to let people download video programs from the Internet and watch them on their televisions with the use of their TiVo recorder.

In addition, TiVo says it plans to introduce a new line of recorders that will accept CableCards. The company has declined to say when new machines will be introduced or how much they will cost. And the company is sharply critical of what it calls the cable industry's half-hearted support of CableCard.

The cable industry, for its part, bristles at the accusations of the electronics makers. It is fighting to have one part of the current FCC rules on CableCard relaxed: the requirement that, starting in mid-2006, set-top boxes provided by the cable operators must eventually use CableCards. The cable companies say that rule adds an unnecessary expense to the boxes, but the electronics makers say it is the only way to force the cable companies to properly support CableCard technology.

Moreover, the cable companies say they will support technology that would make it possible to use advanced services like video-on-demand with CableCards. But negotiations to establish technical standards have been going slowly, prompting the cable industry's critics to accuse it of deliberate delays.

Cable executives deny the charge. "The cable industry is not holding up an agreement on two-way cable cards in order to have a hold on the retail set-top box market," said Brian Dietz, a spokesman for the National Cable and Telecommunications Association. He said the complexity of the technical issues made a quick resolution difficult.

This delay, whatever its justification, may be life-threatening for TiVo. TiVo chief Ramsey says the new initiatives announced here will allow the company to differentiate its offerings from those of the cable operators as well as from the features of other video recorders.

"This will allow us to position the company as a premium supplier of home entertainment and separate ourselves from generic base-level" video recorders, Ramsey said.

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