Compaq planning PC-TV convergence box

A computer with TV tuner circuitry running Microsoft's Windows 98 is expected to hit the market this summer, sources said. It will serve as Compaq's interim set-top product until digital TV broadcasting reaches more than 50 percent of the country.

The second product, which could hit the stores around the time when digital TV broadcasts get underway in November, is a Windows CE-based digital TV device, one source said.

A Compaq spokesman refused to confirm specific product plans. He did say the company is looking at new PC-TV convergence products, however.

Set-top boxes can be simple devices that serve as cable converters, or more sophisticated, PC-TV-like systems with the ability to access email and the Web or transact e-commerce. Compaq's set-top models would probably be more like the latter.

The news follows a joint Compaq-Microsoft announcement yesterday which affirmed the two companies' support for the "progressive" digital television format. This format is currently used in the PC industry but not by broadcasters.

Speaking about the market generically, a Compaq spokesman said that PCs incorporating Digital TV features or "Smart TVs" with computer-like characteristics may be the kinds of products that find their way to market in the future.

Steve Goldberg, director of technology and corporate development for Compaq, however, did not confirm specific products.

Most major PC vendors are developing set-top computers, said Richard Doherty, an analyst with The Envisioneering Group, but if Compaq releases its device on the early side of the June-September time frame, it may be able to establish early market dominance.

"Every PC maker in the top ten has one or more teams working on set-top computers, but if Compaq is able to come out on the earlier side of summer, they'll be able to define the architecture of set-top computing," Doherty said. "While WebTV offers some computer-like features, the Compaq direction appears to be a much more PC-like experience."

Compaq has made two forays into the world of PC-TV "convergence" before, and has twice retreated. The company once offered TV tuner cards as an optional upgrade in its systems, but discontinued the program after lackluster response.

Last spring, Compaq offered the PC Theatre, a $5,000 product with a DVD-ROM drive, wireless keyboard and mouse, and a 3.8GB hard drive. The system was phased out this January. The pricey device could not find an audience as sales of sub-$300 Internet devices like WebTV began to take off.

"No one's been successful with a $5,000 solution," noted International Data Corporation analyst Sean Kaldor. "Compaq or anyone couldn't make that work, but the set-top space is growing and Compaq has a good brand name to leverage into that space."

But Compaq's success in the lower end of the PC market doesn't necessarily mean that it will automatically dominate the new convergence device market, Kaldor noted. "This business model is totally unknown to them. They'll get it into the channel, but they're not used to selling $200 products profitably.

"But for them to learn to do it right might be worth the time and effort."