Tuning in: View to a kill

PALO ALTO, California--Like many TV network executives, Peg Murphy views the future through the screen of a television set. But a tube that the NBC Interactive executive demonstrated recently in Silicon Valley was far different from those at corporate headquarters in Rockefeller Center: Receiving a digital broadcast, this box showed a live basketball game on an interactive screen that included player stats, ticket prices, and a panoply of other features, all driven by a mouse. And Murphy made her company's place in this digitized world abundantly clear. "We own this screen," she said. That claim is equivalent to a declaration of war at this dawning of the Information Age. For behind this deceptively benign TV monitor, battle plans are being drawn by multinational powerhouses that drive much of the world economies. The outcome of this global contest will be nothing short of a fundamental change in the way people communicate, acquire knowledge, and provide for themselves. Imagine using a single device to listen to phone messages, check email, do a little Web surfing, buy a Mother's Day gift online, and settle in for an interactive version of Frasier--controlling every function with voice commands and never touching the machine. Many believe that much of this future will be determined by whoever controls the first screen that is seen when this uber-device is turned on, whether it is called a home page, portal site, electronic programming CNET Central: Wiring for the home of the future 945 K guide, operating system interface, or "first boot." So fast is this hybrid industry developing that it has been given a label of generic description--"convergence"--that doesn't even reflect any particular technology or market because it is too early to say what those will be. "This is a world where telco, media, software, and hardware manufacturers are all 800-pound gorillas in their own forest, and suddenly they're all thrown together," said Jay Samit, vice president of new media at Universal Studios. "The toughest part about convergence is there's no Jane Goodall to explain who the next 800-pound gorillas will be." That may be, in part, because they've never faced so much competition from so many different jungles. A sampling: From media and entertainment come Disney, Time Warner, and News Corporation. From telecommunications, AT&T, MCI, and the Baby Bells. From cable television, Tele-Communications Incorporated, Comcast, General Instrument, and Scientific-Atlanta. From home electronics, Sony, Sega, Thomson, and Philips. From computing, of course, Microsoft and Intel. Samit, for one, believes that Microsoft has an edge in the fight for the first screen "because they've been thinking about it longer." But because the contest involves such varied players, what eventually appears behind the glass on these next-generation boxes may not be an operating system at all, at least in the traditional sense of Windows-style desktops that dominate personal computer software today. In the consumer electronics The four major points of convergence Personal computers Consumer PCs from Compaq, Hewlett-Packard, and others will continue to metamorphose into hybrid devices containing both traditional PC technology and consumer electronics features: DVD movie playback and TV capability; also connection to digital cameras and camcorders. DTV RCA, Sony, Panasonic, others bringing out pricey high-definition TVs as well as less expensive digital solutions. NBC, other TV networks exploring interactive programming and computer-like interfaces. TV set-top boxes Some advanced digital versions will be like having a (cheap) personal computer hooked up to your TV, enabling an array of interactive features. TV gaming machines may provide these features too. Intelligent devices Advanced handheld phones will take on more advanced computer features such as better email capability, input functions. Handheld computers will become more intelligent. Plus a variety of intriguing convergence gadgets that will invariably hit the market in the coming years. market, for example, most systems are practically invisible, secondary to hardware and applications for such uses as games, email, and programming guides. These include Microware's OS9, Wind River's VxWorks, Thomson's OpenTV, Scientific-Atlanta's PowerTV, and Sony's Aperios. "Microsoft thinks that it's their God-given right to win the operating system on all information appliances--and the computer is just the first domain," said David Atlas, executive vice president of marketing for Alation, a home networking company banking on convergence for its future. "But just because you build a jet aircraft and define yourself as a transportation company doesn't mean you automatically can build automobiles." The computer industry is especially sensitive--if not down-right paranoid--over the constantly changing dynamics of technology, and understandably so. No one wants to be caught off guard the way Microsoft was with the advent of the Internet in the early '90s or IBM was with the personal computing revolution of the '80s. But paranoia is not exclusive to Silicon Valley. Hollywood media and entertainment giants are also fearful of their high-tech adversaries in this arena, as underscored by Disney chairman Michael Eisner, who writes in his new book that Microsoft "may be our most daunting competitor." "Eisner's really got the Gates thing--they definitely get the Internet now," said one Disney source who spoke on the condition of anonymity. "This stuff just scares the living daylights out of them." That wasn't always the case. Only a few years ago, Hollywood veterans say, many studio and network executives couldn't care less about competition from high technology, dismissing computer companies as a bunch of nerds who could never threaten their creative domain. Then Microsoft made a move that set off seismic aftershocks down the California coast and right into the heart of Los Angeles: It bought WebTV. Until that acquisition in the spring of 1997, high-tech companies had made forays into the content business mostly through the Web. But through something like WebTV, entertainment companies saw the potential for Microsoft-controlled content--be it cable shows, Web sites, or digital music--through a subscription service that even carried the Microsoft brand. "This space is not simple," said Steve Guggenheimer, product manager for Microsoft's digital television group. "You should not try to come up with a simple message, because it is a space where people do compete and cooperate." In typical Microsoft fashion, however, he went on to issue a decidedly simple--and sweeping--statement: "There's software involved and services, and most players provide a little bit of each. We provide the software." The television networks are keenly aware of the kind of threat this represents. "We can't allow this to happen is the thinking," NBC's Murphy said, alluding to the scenario of someone else's browser controlling the screen. Without naming names, she said it makes sense for interactive services to come through Internet service providers, not a "proprietary back channel"--such as WebTV. The concern is not lost on those ISPs, either. "Microsoft does not leave a way for you to see something else. I can't change Windows, and neither can Compaq or Dell," one senior telecommunications executive said. "If I choose to watch a Comcast channel, I may choose to get Comcast content. But don't force my TV there when I turn it on." More than a year later, however, WebTV and Microsoft are far from dominating the television set-top box business. In fact, the cable industry seems to be moving more quickly than ever to head off encroachment from interlopers from the high-tech sector or anywhere else. "My sense is that, in the cable universe, they're very wary of Microsoft," said Jonathan Taplin, cochairman of Intertainer, one of the cutting-edge companies developing ways to meld the Internet and television experiences, such as technology that embeds Web links in video. "The reason [TCI chief executive] John Malone has made deals with Sun, Microsoft, Sony, and others that make operating systems is he doesn't want anyone to have the only keys to the men's room." Bringing it home Indeed, many of those charting the emerging battlegrounds believe that the cable companies are in the best position to determine the direction of this new medium, at least in the near term. With more than 65 million cable boxes already installed in the United States and more bandwidth on the way, companies like TCI and Time Warner appear to be in strong positions to leverage their television presence in this era of converged media. The balance of power shifted even more dramatically with this summer's blockbuster news that AT&T planned to acquire TCI for $48 billion, followed by reports of negotiations with Top ten convergence players (unranked, based on analyst interviews) (1) Microsoft (including WebTV) (2) Sony (3) Intel (4) AT&T (including TCI) (5) Time Warner (6) America Online (7) Philips (8) Gateway 2000 (9) Broadcom (10) Sun Microsystems Time Warner as well. AT&T has been cautious in outlining its cable plans, as its TCI merger is still awaiting approval from regulatory agencies. Yet one thing is certain: The long distance telephone giant will raise the stakes of the convergence business still higher by adding the considerable resources needed to upgrade TCI's cable system to deliver all the services of a converged future. And both companies can leverage their customer and subscriber lists to offer the ultimate one-stop shop on one consumer bill, controlling virtually all links between the home and the rest of the world. "We're not ever going to be in the business of creating or facilitating content the way CNN or CNET is," said Ron Brachman, research vice president for AT&T Labs. "But where do we stop? There's no clear answer. No one in this business wants to be relegated just to wholesale pipes." Even without TCI or other cable partners, AT&T had been moving in the direction of a converged world in telephone services through Internet protocol technologies. While much of that initiative is aimed at creating more efficient and less expensive voice services, it could also help speed the development of digital video applications for a device that combines telephony with television and the Internet. "Michael Armstrong coming on board has absolutely changed the way people look at things," another AT&T veteran said of the company's new chief executive, who took the helm this year. "This corporation is 100 percent IP-driven right now. It wasn't that way before." Publicly, Armstrong and TCI executives insist that their merger will not piece together another Ma Bell-type of monopoly that was broken up more than a decade ago, saying that their goal is to improve and simplify the way people communicate. Their definition of communication, however, encompasses technological and media initiatives that look an awful lot like something to come out of the software, studio, or television industries. AT&T, for example, owns a subsidiary called a2b Music, whose primary mission is developing online music technologies. And TCI's programming unit, Liberty Media, recently announced that it is forming a new venture devoted to interactive content development. "Some of the things we're doing are completely applicable to video," said Howie Singer, chief technology officer for a2b Music. Those include technologies affecting issues that are of intense interest to the entertainment industry, such as copyright security and digital compression that allows more audio and potentially video to be sent over limited pipe bandwidth. AT&T, of course, doesn't exactly have the best track record in adapting quickly to industry changes, especially where the Internet is concerned, but its potential seems virtually limitless at this stage of the game. If the telecom behemoth plays its hand right, for example, an AT&T-TCI media and communications conglomerate could dwarf what the Wintel juggernaut is to the computing industry today. "Offering Internet service under the closed cable TV system will, quite literally, change the character of the Internet as an engine of creative technological and marketplace innovation, open entry, economic growth, and free expression," according to a coalition of consumer groups called the Media Access Project. This scenario is precisely what frightens the established players of today's computing and media industries. Case in point: General Instrument, which supplies about two out every three cable boxes shipping today, envisions a future where Microsoft and Windows are among many players. Just last month, GI teamed up with Spyglass in a three-year, $20 million joint venture to develop cable Internet technologies delivered through its boxes. "There are only two companies that have an 'in' with cable: General Instrument and Scientific-Atlanta," Intertainer's Taplin said. "In the near term, they've got an incredible part to play, and my sense is they're playing that part relatively responsibly: writing standards and working with as many companies as possible." Space for more players To that end, Sun Microsystems, Network Computer, and scores of other software companies may find opportunities that were virtually nonexistent in the Microsoft-dominated computing world. Just as Microsoft will face More coverage on CNET Radio increasing challenges, the other half of the Wintel duopoly--Intel--also will encounter new competition. And Steven Milunovich, a vice president in Merrill Lynch's technology research division, believes that many smaller players in the chip business will lead the way into this virgin territory. "Processor rivals now have a chance," he said, citing Advanced Risc Machines, MIPS, and Hitachi as some companies to watch. That, in turn, may open up new opportunities for companies that make the boxes running those processors, many of them consumer electronics firms based in Japan. "GI is leaning toward Sony's Aperios [operating system] since Sony has a 10 percent stake," said analyst Richard Doherty, president of The Envisioneering Group. Sony also makes a box for WebTV. Owning it all For Sony, success in this market would continue a different move toward convergence that began a decade ago with the purchase of CBS Records in 1988 and Columbia and TriStar movie studios the following year. The company's strategy is to own entertainment--from the studio to the box that delivers its shows and music--while linking its PCs, TVs, and other devices to Sony products such as digital cameras and VCRs in a "digital studio." What remains unclear is how much control hardware and pipeline companies plan to exert over the software and content that appear on the screen of these all-in-one boxes. For clues to the strategy on the carrier side, many industry analysts and companies turn to @Home, which is working with local cable systems to provide the elusive "last mile" pipeline connection from the street to the household. While WebTV marked the convergence of television and software from the computing industry's perspective, @Home represents the merging of those businesses from the direction of those companies that own and operate the Convergence up-and-comers (unranked, based on analyst interviews) (1) Intertainer (2) Centropolis Interactive (3) Steeplechase (4) Wink Communications (5) iReady (6) TeleCruz Technology (7) InfoGear Technology pipelines into the household. While the company started off primarily providing high-speed cable pipe to the Internet, it has also focused much attention on the screen as well. "We've advised the cable companies of a 'home screen'--the notion that you want to build your first screen around a programming guide. Television is first and foremost of what these guys have to offer," said analyst David Card of Jupiter Communications. "If you look at TCI or Time Warner cable, they do have an opportunity. Some are sponsors of @Home. It's not really clear who should play what role in terms of delivering the first screen you see in the basic user experience." On the surface, Time Warner appears to be in an ideal position, holding stakes at every link in the chain of convergence: content through publishing and studios; distribution, hardware, and subscription base through its cable system and set-top boxes; and high-speed interactive delivery through its Road Runner cable Internet service, especially given its merger with US West's MediaOne Express and reported negotiations with @Home. Yet Time Warner, like many traditional media conglomerates, may be its own worst enemy in its attitude toward the Internet. With the exception of perhaps Disney, according to many in Hollywood, studio executives simply don't understand how a technology company can control access to content the way Microsoft has leveraged its operating system on the Net. "I feel most comfortable owning...Bugs Bunny, Tom and Jerry, and Gone With the Wind," Time Warner vice chairman Ted Turner said last month at a conference in Manhattan. "There's lots of conduits, lots of ways you can get long distance telephone service, but there's only one Gone With the Wind and Casablanca." Such sentiments toward technology are not unusual in the entertainment industry. "Whenever this kind of question comes up, folks answer in terms of hardware, chips, cables," Nickelodeon vice president David Vogler said. "We're more concerned with cultivating relationships with the audience, having a special bond with kids." It is this kind of perspective, bordering on dismissal, that others see as dangerous. "Some of the big media companies have made some overtures, but they don't have anywhere near the internal technological competence they need," said Art Holland, a former vice president with Disney Online who went on to form a consultancy in Los Angeles called Splarky Communications. Kevin Gasser, senior vice president of Hollywood Records, agrees. "A lot of smaller companies are counting on major companies to be asleep at the wheel," he said. "There's an older generation saying, 'I'm not gong to be around for that.' But we're talking about five years from now." Privately, however, the concern is palpable. This summer, at investment banker Herb Allen's annual Sun Valley retreat for the corporate elite, one entertainment industry source told the Hollywood Reporter: "It was one of the most humbling weekends I've ever had. We all realized that we are just suppliers to the distribution industry...While we still control the creative process, if you don't control the hardware, you in essence work for those that do." Ultimately, the future of this new world order may be determined in no small part by the monumental egos that drive many captains of industry. "These guys are personally very competitive," one veteran Hollywood executive said of studio chiefs. "The thought of Gates usurping someone like Eisner is a real motivator." While such corporate titans fret over their memoirs, the actions of their companies could forever change the role of mass communication in society. And in this era of media backlash, that's sure to give conspiracy theorists plenty to work with. "Media companies can very easily exploit advantages to drive users toward content, and there are people who say, 'I don't want my kid getting tailored information.' But really, that control was always there in television or other media,'" said Ron Rappaport, an industry analyst with Zona Research. "Is this good news or bad news? That's a value call," he added. "When you've got one person controlling everything, you've got standards. Standards are what make the Internet tick." News.com's Stephanie Miles in San Francisco and Sandeep Junnarkar in New York contributed to this report. Go to: They want their DTV

Tuning in: View to a kill

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