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Satellite systems gear up for interactive TV fight

While mega-deals have focused attention on the cable industry's plans for adding some smarts to the television, the satellite industry will beat them to the punch, according to a new report.

The stars appear to be aligning for interactive television delivered through satellite systems.

While mega-deals such as AT&T's acquisition of TCI and, more recently, Motorola's acquisition of cable equipment maker General Instrument have focused attention on the cable industry's plans for adding some smarts to the television, the satellite industry will beat them to the punch, according to a new report from the Carmel Group.

By early next year, all TV set-tops from DirecTV and Echostar will have advanced interactive capabilities, said Sean Badding, analyst with the Carmel Group, a research firm.

Interactive TV via cable will eventually catch up, he said, but in the meanwhile, direct broadcast satellite (DBS) providers will be gaining valuable insight into one key issue: how to make money off these new technologies.

Ultimately, interactive television means broadcasters and advertisers can know more about who is watching (and doing) what, and what they are buying. More-targeted advertising with better response rates has long been a goal in the television industry. But figuring out which technology will fulfill those dreams has been a gamble that few companies have succeeded with, to date.

That could quickly change by next year, however. Satellite providers will have five million subscribers signed on for services ranging from newfangled coupon clipping to Web surfing by the end of 2000, compared to four million for all cable operators combined, according to Carmel Group's forecast. By 2003, DBS operators will offer these services to about 9.3 million subscribers, compared to 7.8 million for cable.

"Satellite communications companies are in a unique position to be at the crossroads of convergence," said DirecTVs president, Eddy Hartenstein, in a speech delivered at Carmel Group's Convergence99 conference.

Hartenstein is betting DirecTV can succeed in promoting interactive TV where many others have failed, because they aren't attempting to re-educate consumers about how to use television. Efforts to offer the Internet on television such as WebTV have met with a modest amount of success, but only after Microsoft invested large sums of money in advertising. WebTV, which has about 800,000 customers, could have about 1.4 million subscribers by year's end, if holiday sales are strong, according to Badding.

The DBS industry has been more open to deploying interactive services, Badding said, in part because the companies started by transmitting information in digital form, unlike cable operators, and dictated from the start the design of the TV set-tops. That makes it easier for DBS providers to include new technologies, compared to cable operators who are facing numerous roadblocks on the path towards interactive success.

Experimenting with interactivity
DirecTV is hedging its bets on interactive TV by offering a variety of different technologies that each offer a different twist on interactive television.

DirecTV, for instance, will eventually embed software from Wink Communications in most of its installed based of TV set-tops and all new entry-level boxes--some of which are being offered for free when a user signs up for a year of service. Wink's software will allow for basic actions such as requesting product information and basic order taking without requiring a dial-up modem to send information back out.

In the first quarter of 2000, DirecTV is also slated to begin offering AOL TV set-tops that, like WebTV, offer access to the Internet and other features such as email through either a DSL or regular dial-up modem connection. Also, the company will offer a set-top with TiVo's digital recording technology and service.

Echostar, meanwhile, will be offering TV set-tops with technology from OpenTV which can be used to offer services such as shopping and banking over the TV set, as well as enhancing programs such as sports events with on-demand statistics. OpenTV's software is already widely deployed in Europe. British Sky Broadcasting has 1.21 million subscribers who are using interactive services built on OpenTV's technology.

The company has also aligned itself with AOL's archrival Microsoft to offer Internet on TV, email, and other services by building in WebTV hardware into the Echostar set-top. These devices are currently available from Echostar.