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The set-top computer is the future

The term "set-top computer" is only about 48 hours old, but it could come to define a major market segment by the year 2000.

The term "set-top computer" is only about 48 hours old, but it could come to define a major market segment by the year 2000 as it appears that the much heralded convergence between PCs and TVs is finally taking place.

The convergence is being driven by technological change in the TV arena and the need for new markets in the computer world. Digital TV broadcasting will begin next year, a new means of transmission that is incompatible with current TV.

Simply put, users will have to get new set-top boxes or new TVs to watch television in the future.

And rather than let the traditional consumer electronics players dominate this upgrade market, Intel and its partners are stepping forward with the set-top computer, essentially a TV-compatible box that runs on a scaled-down Pentium II.

Further momentum should build next week, as various sources have said Intel will likely unveil alliances with broadcasters and cable companies at the Western Cable Show in Anaheim next week and the Consumer Electronics Show in January. Network Computer Inc. is also expected to announce new software alliances. (Intel is an investor in CNET the Computer Network.).

"You will see Intel canvassing the Western Cable Show to get these cable operators to adopt the set top computer," said Richard Doherty, director of The Envisioneering Group , a marketing research firm based in Seaford, New York. "You've got over 100 million households in the U.S. and two-thirds of them have cable. We could see 50 million by the year 2000.

"We're seeing Compaq and IBM sit in on the working groups," he added, referring to the organizations devoted to hammering out digital TV standards and the possibility that these vendors may market set-top computers.

"It?s very possible that Compaq and Gateway 2000 do this," said Dean McCarron, a principal at Mercury Research, a Scottsdale, Arizona based marketing research firm.

The problem is that it is taking PC manufacturers a long time to face up to market realities. "They understand their existing customers who buy expensive boxes but they?ve misunderstood the new market," he added referring to the unexpected surge in popularity of sub-$1,000 computers, despite the fact that they don't have the bells and whistles of more expensive machines.

McCarron believes that vendors will come around and begin offering set-top computers which are expected to range in price from $300 to $500.

The technological shift within the television and cable industry is perhaps the strongest force pushing convergence. By the fall of next year, the ten largest U.S. viewer markets will be conducting digital TV broadcasting pilots, said Doherty. The 1998 Winter Olympics, in fact, will be used as an experimental platform for high definition broadcasting. More will follow.

Although some analysts have stated that a lack of digital content could slow down the adoption of digital TV, Doherty pointed out that standard film uses a higher resolution than high definition digital TV. Ergo, most TV shows will adapt to the format easily.

"It's inevitable," said Jae Kim, associate analyst at Paul Kagan & Associates of digital TV.

For users to receive digital TV data, however, they will have three choices: put an add-in card in their PC and watch TV through that; buy a new TV; or buy a set top box that is compatible with digital TV. The third alternative seems the most customer friendly, commented Kim.

In set top boxes, Intel and the major computer manufacturers, at least according to Doherty, may hold the upper hand here. Current set top boxes run on outdated technology that was developed ten years ago.

Pentium II technology is far more current, and will allow vendors to incorporate additional functions into the box. While the low-end set-top computer may only slightly expand the capabilities of current set top boxes, vendors can build the devices so that users can surf the web, or even watch films on DVD.

While Intel has said that devices that can receive broadcasts and use the web will cost between $300 and $500, with DVD the price could go up to $700 for the luxury models, said Doherty.