Wednesday, June 18, 2008

Cable Plan Faces Bumpy Road

Cable-television operators, who have long sought a way to do away with the set-top box, say they have found a way to make that dream a reality.

Even so, a number of hurdles still have yet to be worked out.

In May, Sony Corp. and six of the biggest U.S. cable operators agreed to use Cable Television Laboratories Inc.'s technology standard, dubbed tru2way, saying the innovation would enable a new generation of TV sets to include video on demand, digital video recording, interactive-programming guides and other services -- all without the use of the ubiquitous cable box.

Sony signed the agreement with Comcast Corp., Time Warner Cable Inc., Cox Communications Inc., Charter Communications Inc., Cablevision Systems Corp. and Bright House Networks.

Because of technical limitations, satellite providers are unable to provide two-way interactive services such as video on demand.

The cable operators, with the exception of Charter Communications, have pledged to adopt tru2way by midsummer 2009.

Several observers say various factors stand in the way, including getting cooperation from electronics retailers and coming up with a business model to make the idea take hold.

About three years ago, cable operators had something called the CableCard, a plug-in about the size of a credit card that would have allowed consumers to plug their cable lines into their TV sets without the use of a set-top box.

But CableCard never really got off the ground because retailers and manufacturers couldn't agree on what the two-way standard would be. Some TV sets were compatible with the card, and some weren't.

"The CableCard was really chaotic, especially at retail," said Tuna Amobi, entertainment analyst at Standard & Poor's. "Retailers found that it really created a lot of confusion in the minds of the consumers."

Other analysts point to difficulty in getting broad market support. Says James McQuivey of Forrester Research: "Even if the new Sony [TV] becomes available -- and that could be years from now -- and you take that device home, will it only work with that one cable system? Or if you were to switch to some competitive provider, would it still work?"

The Consumer Electronics Association, the industry's trade group in the U.S., says it is pleased with the landmark agreement on tru2way. But it also signaled that having Sony, Matsushita Electric Industrial Co.'s Panasonic brand and several cable operators on board with tru2way is only one step on a long road that could get bumpy.

"It is difficult to say...whether alternative technical proposals for cable-equipment compatibility will be chosen by some cable operators or equipment manufacturers in the future," the CEA said.

To be universally adopted, the standard needs approval from the Federal Communications Commission.

Another hurdle, Mr. McQuivey says, is that "nobody has discussed what the business model for this is going to be."

Ostensibly, the things possible without the set-top should be the same as options available with the box. The most prominent of those is probably video on demand. Video on demand allows viewers to watch shows stored on central servers that are streamed to users who make on-screen requests to see specific programs. Typically, as with a digital video recorder, on-demand video allows consumers to pause, rewind and fast-forward a program as it is played back.

Despite great promise, the offering has yet to become a significant revenue generator for cable operators.

Networks and studios offer various ad-supported television shows on-demand for free, hoping to galvanize loyal viewers and pick up new ones by encouraging sampling. Its true value is hard to quantify, however, especially when fast-forwarding of ads is allowed.

Addressable advertising is another possibility tru2way holds for cable operators. Such ads would target specific consumers based on what they watch, and gather demographic information. Ideally, viewers could opt out of seeing certain kinds of ads. Major cable operators, in an initiative known as Canoe Ventures, are working on the specifics.

Whatever cable operators and TV manufacturers decide, they had better be quick about it, says Robert Rosenberg, president of Insight Research.

"There has to be a simple way to download video straight from the Internet to the TV, the device has to be very simple and affordable, it's got to have strong search capabilities, and it's got to be rolled out aggressively," Mr. Rosenberg said.

As online video becomes increasingly part of the daily lifestyle, consumers are going to expect to be able to download high-definition video straight from the Web to their TV sets. Once a great deal of content is available this way, viewers need an easy way to sort through it all, using their remote control to navigate an on-screen guide.

For cable operators, the risk is that this process could leave them out of the equation altogether.

"Cable doesn't have a huge amount of time to establish dominance in this area," Mr. Rosenberg said. A personal-computer maker, another electronics manufacturer or a phone company "could end up bringing something like this to market faster," he said.

And cable companies are sometimes regarded as slow to adapt. "They say, 'We'll do this, we'll do that,' and it ends up taking five years, and it's not what everyone expected it to be," Forrester Research's Mr. McQuivey said. "So here's where I stand on tru2way: I'll believe it when I see it."

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