Over the next several months, at least six cable operators in the U.S. and one in the U.K. will launch interactive services by installing neither cable modems nor digital terminals in their customers' homes. They'll do it with plain old analog televisions, analog cable TV transmissions and some computer hardware and software up their headend office sleeves.

Adelphia Communications Corp., Cablevision Systems Corp., Century Cable, Charter Communications Inc., Comcast Corp. and Cox Communications Inc. in the U.S. and Tele-West Ltd. in the U.K. have begun, or soon will begin, to deliver interactive games, CD-ROM multimedia, World Wide Web pages and locally developed interactive community content to nondigital, non-PC homes.

"It's Internet TV over cable," says Hal Krisbergh, chairman and chief executive officer of WorldGate Communications Inc., one of three purveyors of systems getting a chance with cable operators this spring.

"Just as America Online [Inc.] and Prodigy [Inc.] figured out that the Internet, not the proprietary online model, was the way to make the market happen," Krisbergh says, "now you bring that standard HTML [HyperText Markup Language] infrastructure and marry it to interactive TV and cable programming."

What For Whom?

All but buried by the great interactive TV, or ITV, disappointment of the early 1990s, ACTV Inc., ICTV Inc., IT Networks Inc., WebTV Networks Inc., Wink Communications Inc. and WorldGate continue to bet on the ubiquitous boob tube as the way into interactivity for many Americans. Now they're taking advantage of the standardized Internet networks, abundant World Wide Web content and what each believes is a refined business case.

ICTV, IT Networks and WorldGate have sold a handful of cable operators on their models.

You don't watch HBO on your PC, and you don't telecommute on your TV," says Krisbergh. "Anyone who thinks these are mutually exclusive, directly competitive propositions hasn't really looked at the market.

"This gives people who don't have a PC very inexpensive access to the Internet," he says. "But we believe the heavy PC user will be among our most active subscribers, finishing up work on the Web through his PC in the den, grabbing a beer, and sitting down at his TV and hyperlinking from a CNN [Cable News Network] news story to deeper information from the Web, all on his TV. We think he'd rather do that than write down a URL and run back to the study."

Adelphia, Cablevision Systems, Charter, Comcast and Tele-West have agreed to test the theory this year.

Also gunning for a TV-PC marriage, Bob Goldberg, vice president of marketing at ICTV, says, "People are looking for something between the primarily passive experience represented by video-on-demand and the intensely active experience of desktop Web cruising."

Preferring to call its service a "virtual PC experience," ICTV Online has begun several months of market testing with Cox in Santa Barbara, Calif.

Use What's There

WorldGate and ICTV in particular emphasize that their Internet-over-cable-TV platforms minimize costs by centralizing equipment at the cable headend and adding minimal gear to customer premises.

WorldGate's TV Online, or TVOL, uses the vertical blanking interval, or VBI, in analog video broadcasts to carry data at up to 100 kilobits per second, just short of 128-Kbps Integrated Services Digital Network, or ISDN.

WorldGate delivered its $30,000 to $40,000 headend system to its first beta site March 5. Krisbergh says technical tests have all but proved the nearly off- the-shelf package of equipment, and that "cookie-cutter" deployments will begin in the second quarter.

ICTV uses a more complex $70,000 to $80,000 central system to put the personal computer at the cable headend, where it converts digital video game, PC program, Web or other content to analog video and turns a cable channel into an Ethernet- like shared circuit for session-based interactivity.

Pentium PCs at the cable headend serve as clients shared by customers. Each PC serves an interactive session for as long as the session lasts, and ICTV's ISX switch manages shared transmissions across the channel.

In the cable home, ICTV and Interactive Channel run into a notorious interactive TV snag -- requiring a dedicated set-top terminal. However, both have begun to remedy that drawback. Like WorldGate, ICTV has now ported its software to a new generation of analog cable terminals, a generation that incorporates an onboard central processor, graphics processors and applications memory.

In particular, WorldGate runs on the two dominant advanced analog terminals now claiming several million deployments: General Instrument Corp.'s CFT-2200 and Scientific-Atlanta Inc.'s 8600-X. For the past 18 months, operators have been replacing old boxes with these "smart" ones to handle expanded analog channel lineups, graphical program guides and videotext- like VBI services.

ICTV also has ported its service to GI's terminal and is pursuing similar agreements with S-A and other companies. Interactive Channel is in discussions to do the same. All these players also are working with GI, S-A and others on emerging digital set-top interoperability.

Although subscribers can navigate HTML TV services with cursor directors on a standard TV remote control, TVOL and ICTV Online offer wireless keyboards, and "testing shows that people actually like the keyboard because it gives them a sense of power," says Goldberg.

And as for that awful analog TV display? "There are compromises that have to be made," he says. "There are ways to improve 80 percent to 90 percent of the content out there for TV display, and it looks great for games. The critics are absolutely right that it's not a high-resolution display, but it's also not $2,000."

Renting A Virtual PC

ICTV's approach actually delivers applications at 10-megabit-per-second cable modem-like speeds, although in analog form from headend to home. However, for homes without their own desktops, ICTV moves the PC back to the cable headend -- essentially renting it out for as long as each customer's online session lasts.

According to Goldberg, ICTV proved out its headend-centric platform in technical tests with Tele-Communications Inc. in Los Gatos, Calif., last year. Indeed, Cox had proved the primary advantage of ICTV's strategy in an Omaha ITV of Nebraska trial two years ago. By putting most costs at the headend, they can be shared across the system, rather than shouldered too much by the subscriber.

Bringing that architecture now to Cox's Santa Barbara system, ICTV has essentially changed one element technologically. It has replaced video-on-demand line cards with Pentium PCs in its switching system. It also has changed its content storage from terabyte-size video servers to gigabyte-size Unix media servers, CD-ROMs, video games and the Web.

The Business Case

On the investment side of the ledger, the using-what's-there approach minimizes up-front capital from both consumer and cable operator. The cable plant and the set-top box already are amortized by other cable TV services, including interactive guides.

On the revenue side, ICTV proposes that service start at $6.95 per month for five hours, plus $1 to $2 per hour thereafter -- enough to cover the overall system costs of about $250 per subscriber in a few years, Goldberg says.

According to ICTV calculations, a large market operator with a network divided into individually served fiber nodes of 500 homes can dedicate four or five channels to ICTV systemwide, assuming 15 percent penetration of the service. While national online services dedicate one modem to every 40 users, ICTV's architecture recommends one available "virtual channel" for every 10 users.

For WorldGate, the vertical blanking interval is always available to every subscriber on every channel. TVOL is priced from $4.95 to $11.95 plus usage charges per month for Internet access, e-mail, local content and a new genre of programming that hyperlinks viewers and surfers across the canyon between TV and the Web.

However, Krisbergh is pitching advertising as the real payoff.

"From 10,000 feet, we look like WebTV with Internet access and e-mail," he says. "But the other half of the story is our operator customers can leverage the seven hours per day his customer is already spending watching his cable programming."

WorldGate is in discussions with "all the major programmers" and advertisers, says Krisbergh, about developing hyperlinking content to tie together their TV programming and ads to their Web content.

"A Cadillac dealership might pay 15 cents for each click-through from [its] TV ad to [its] Web page," Krisbergh suggests. "If a subscriber provides even two click-throughs a day, that's about $10 a month, and since you already can amortize the set-top at $3 per month [based on subscription TV and guides], the $10 is pure incremental revenue on top -- and that's without a premium subscription."

ICTV and the Interactive Channel have agreed to port WorldGate to their platforms, thereby enabling operators to offer a range of full-channel, 10-Mbps services and lower-speed VBI services across their customer bases.

"WorldGate is a very cost-effective approach to lower-tier, low-bandwidth applications, but it's not particularly good for high-bandwidth applications like CD-ROMs, which we're delivering now in Santa Barbara," says Goldberg. "We think we can offer multiple tiers of service and appeal to a broader base."

Source: Inter@ctive Week