How will AT&T balance slew of interactive TV deals?

The nation's largest cable operator is working with several prominent technology providers to develop interactive TV software applications--but the challenge lies in developing a cohesive strategy.

4 min read
Ma Bell continues to spread the wealth on interactive television.

AT&T, the nation's largest cable operator after a late-1990s shopping spree, is working with several prominent technology providers to develop interactive TV software applications for consumers.

But after a variety of partnerships, including a new pact Monday with interactive TV software maker WorldGate Communications, AT&T's dance card is beginning to fill up. The challenge for AT&T will be to turn its various agreements into a coherent strategy.

"It's a new market and no one knows what it will look like," said Ian Olgeirson, an analyst at Paul Kagan Associates, a cable market research firm. The telecommunications giant is covering its bases in an immature market by cutting deals with multiple interactive TV players.

Following a $5 billion investment by Microsoft in May of last year, AT&T agreed to install the software giant's interactive TV technology on at least 7.5 million advanced digital set-top boxes. In an effort to give Microsoft a competitive nudge, after Microsoft's TV system was delayed, AT&T struck a deal with Liberate Technologies in September.

AT&T also is working with Excite@Home, the high-speed Net access company in which it owns a 25 percent stake, to develop interactive TV content and applications. In addition, Ma Bell is working with others for future video-on-demand services.

AT&T appears willing to work with a variety of technology providers to hone its strategy, perhaps because the market is still in its infancy. But development delays by Microsoft may have played into the company's multiple supplier approach.

"Microsoft was late and (AT&T) has to delay their launch, which was not good for public relations," Olgeirson said. "Putting all your eggs in one basket wasn't very smart."

To be sure, the stakes are high. Analysts predict mass-market consumers will clamor for interactive TV services, which are expected to include features such as high-speed, or "broadband," Internet access, shopping services, and customizable electronic programming guides designed to make finding, watching, and recording programs and movies easier than ever.

Interactive TV services are expected to generate revenues of $48.2 billion by 2005, up from about $848 million this year, according to Forrester Research. Cable TV operators, such as AT&T, Cox Communications and Comcast, are eager to offer interactive television as a means of adding additional revenue and keeping customers from switching to satellite TV systems.

Behind AT&T's cast of technology partners lies the reality that advanced digital set-top boxes are not yet available. Millions of U.S. consumers have digital set-top boxes for cable TV interaction only, but newer systems from Motorola, Philips Electronics, Panasonic and others are on the horizon.

As a result, AT&T's deal with WorldGate allows the carrier to offer some interactive TV services, such as email and shopping, on its current generation of set-top boxes. Of AT&T's 2.5 million digital cable customers, more than 1.5 million set-tops are capable of simple interactive TV offerings today, according to company representatives.

"The WorldGate deal is a way to attack those boxes," Olgeirson said.

As for the Picture imperfectadvanced set-top systems, AT&T plans to begin trials with Liberate by the end of the year, start trials with Microsoft in early 2001, and offer interactive TV services commercially in 2001, an AT&T spokeswoman said. These set-top boxes will be more powerful, allowing for faster Net access and more complex applications.

But analysts say WorldGate is likely to try to make its interactive TV technology work with advanced set-top boxes.

Microsoft executives aren't concerned with Ma Bell's efforts to work with several different companies on interactive television. A contract calling for AT&T to install at least 7.5 million Microsoft-powered set-top boxes, and up to 10 million, is the company's source of confidence.

"Like everyone in this business they're approaching this in a very open way. I think AT&T wants to test interactive TV with many different vendors," said Ed Graczyk, director for the Microsoft TV platform. "This is the first time anyone's done this. They're smartly testing all sorts of different solutions and iterations."

Does a $5 billion investment not buy what it used to?

"The investments aren't tied to a specific product. AT&T's always had a multi-vendor strategy," Graczyk said. "Our focus continues to be delivering the best platform for them. Then the proof will be in the pudding as to which one delivers what they want."

Regardless of the strategies and machinations, analysts expect interactive TV services to be immensely popular with consumers. However, like most technologies, the actual availability may take longer than originally expected.

"Interactive TV will be huge, but it's incredibly complicated and intricate," Kagan's Olgeirson said. "I wouldn't be surprised if we didn't really see full market rollouts until 2002."